South Korean Market Conditions Challenge Efforts to Regain Beef Market Share for US ProductMon, 13 Oct 2008 4:24:55 CDT
This special report from meetings going on in South Korea is a part of our Cattle Industry insights- brought to you in part by Hudson Livestock Supplements
A USMEF senior leadership team led by Phil Seng, president and CEO, is in the midst of a weeklong series of meetings with key South Korean distributors, wholesalers, retailers and industry consultants to assess current market conditions and fine-tune the organization’s approach for U.S. beef and pork in this key export market.
Accompanied by Joel Haggard, senior vice president Asia-Pacific, and Jihae Yang, director for South Korea, Seng is meeting with key opinion and commercial leaders across the industry as USMEF-Korea continues to develop promotional partnerships to accelerate the reintroduction of U.S. beef in the country and solidify gains by U.S. pork in the market.
The USMEF team also is working to assess the impact of several key developments outside the U.S. meat industry that are posing significant challenges for U.S. exporters:
A series of continuing food safety-related issues – ranging from melamine in Chinese dairy products to dioxin in Chilean pork – that collectively are diminishing South Korea’s confidence in imported foods, and
A dramatic decline in the value of the South Korean currency, the won, which is causing a sharp drop in the international purchasing power of South Koreans.
The current marketing environment for U.S. beef continues to be a challenging one. Although consumer anxiety over U.S. beef has noticeably abated, the market remains extremely apprehensive. By far the biggest evidence of continued market reticence is the absence of U.S. beef from the shelves of large discount retail chains. Despite the availability from importers and distributors of a range of both chilled and frozen U.S. beef cuts, key large discounters have not yet announced plans to restart U.S. beef sales. Traders regard such an announcement as a watershed for jump-starting sales among not only other retail stores, but also large hotels and foodservice chains, both Western and Korean. Market watchers still expect an imminent announcement, although some traders believe that the recent crisis over the contamination of a wide range of Chinese origin dairy products and dairy-based ingredients from China may delay a decision due to heightened sensitivity about imported foodstuffs.
To be sure, the distribution of U.S. beef in the Korean marketplace continues to expand. USMEF believes that several thousand traditional Korean butcher shops that specialize in imported meats now stock some U.S. beef. As of Friday, USMEF was nearing the conclusion of its second round of U.S. beef featuring at a number of prominent butcher shops. Sales at these shops have been encouraging. In addition, the number of Korean short rib or “kalbi” houses that sell U.S. beef is increasing, despite new rules requiring outlets to indicate the country of origin of the beef products served.
However, traders note that to date the velocity of import arrivals is far exceeding sales into the market, leading to a growing stockpile of U.S. beef. According to USDA statistics, through the first week of October, U.S. beef outstanding sales plus accumulated exports exceeded 55,000 metric tons (121.2 million pounds). Although no firm numbers exist, USMEF estimates that the current pace of product arrivals and port clearance may be exceeding the sales velocity by a factor of three or more. And while sales are growing, the addition of new eligible U.S. export plants at the end of last week could further increase supplies.
Dramatic drop in the value of the won
Supply and demand conditions are being further buffeted by the U.S. financial contagion. Of particular concern has been the precipitous drop of the Korean won since the beginning of the year, a trend which accelerated this week. The Korean won has been one of the worst-performing Asian currencies against the dollar all year. On Oct. 10, the won closed at roughly the 1,300 mark (i.e., $1 = 1,300 won), down roughly a third from its level in late August when the first U.S. beef shipments began to arrive in Korea, and some meat importers fear that it could sink to the 1,600 mark. Restaurant operators told USMEF in recent days that customer traffic has slowed as much as 20 percent as consumers suddenly tightened their spending amid growing economic uncertainty. Although the sharp drop in the currency – especially over the last two weeks – has yet to affect most wholesale pricing of U.S. beef already in the market, sustained weakness of the currency at current levels could seriously compromise U.S. beef competitiveness.
Further clouding the picture is the fact that the Australian dollar has dropped 30 percent against the U.S. dollar since July 1. Currently, U.S. beef short ribs, the leading U.S. beef item in the Korean market, are similar in price to its chief competitor product, 120-day Australian grain-fed short ribs.
KOMIA chairman cites concerns
Meeting with the USMEF team Friday morning, Tae-Yeol Kim, chairman of the Korea Meat Import Association (KOMIA), noted that both U.S. beef and pork face challenges from the devaluation of the won. He indicated that many importers have signed contracts for U.S. products at an exchange rate of 1,050 or 1,100 won to $1, but with the exchange rate now in excess of 1,300 won per $1, the importers have seen margins evaporate. There are reports of importers who are cash pinched due to low sales and mounting inventories.
Kim also stated that an estimated 20 percent drop in traffic to Korean restaurants due to the currency crunch could lead to a number of restaurants going out of business.
While these external conditions pose hopefully temporary challenges in this key market, USMEF continues to make strides to achieve broad-based visibility for U.S. beef while pursuing its export strategy to solidify the sharp export gains it has realized for U.S. pork:
A 47 percent increase in the volume of pork and pork variety meat sales to South Korea in the first eight months of 2008 over 2007 to reach 92,636 metric tons (more than 204 million pounds)
A 28 percent rise in the value of pork exports, equaling $194 million in the first eight months of 2008
A 355 percent jump in volume of U.S. pork exports to Korea since 2003
“We expect that U.S. pork exports to South Korea will continue to meet or exceed forecasts for 2008 and South Korea’s position as an anchor market for U.S. pork will remain solid,” said Seng, who noted that USMEF has both a consumer promotion and a sales competition for pork scheduled in the country this fall.
“The challenges ahead for the U.S. beef and pork industries here are not small ones,” said Seng. “The recent series of food safety issues involving foreign food imports has compounded fears in South Korea that were raised during this summer’s public protests against U.S. beef. And the global economic turmoil has dramatically reduced the value of both the won and the Australian dollar, crimping U.S. competitiveness. We will be addressing these and other issues with our members at the USMEF board meeting in November.
“We remain focused on building demand in South Korea for U.S. red meat, and are confident in our ability to compete based on the quality attributes of our products,” said Seng. “However, careful observation of shifting market conditions is a must in terms of formulating marketing strategy moving forward. The stakes are high.”
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