20 Trillion Won Agriculture Compensation Deal for Korea-U.S. FTA

The South Korean government has decided to spend 20.4 trillion won over the next decade starting in 2008 to compensate for losses in agriculture due to Korea-U.S. Free Trade Agreement (FTA) and to strengthen agricultural competitiveness.

Under the mid-and-long term investment plan, 12.1 trillion won will be raised and an additional 8.3 trillion won will be collected from 2014 to 2017.

The Ministry of Agriculture and Forestry confirmed the plan to make up for potential losses in the agricultural sector from the FTA at a cabinet meeting on November 6.

The financial support of 20.4 trillion won will be used to strengthen agricultural fundamentals (12.2 trillion won), the competitiveness of agricultural products (7 trillion won), and to compensate for immediate losses due to U.S. imports (1.2 trillion won).

Fundamental improvement support will be divided into customized agricultural businesses (stabilizing incomes for farming households and expanding farming) and new growth engines (developing the food industry).

For customized farming, the government will categorize farming households into three categories (full time, old-aged, and those who are farming as a hobby), and focus its support on full-time farm households.

When full-time farmer incomes fall below a certain level, 80 percent of the difference will be compensated by government support. This ‘income-stabilizing plan’ will be adopted starting 2012.

To spur full-time farmers to expand their farming operations, transfer income taxes on non-farming land will cut substantially to facilitate land leasing.

To encourage the elderly to retire from cultivation, 3 million won per hectare will be provided for farmers aged between 65 and 70 for up to 10 years after they sell or lease their land.

Moreover, 4.7 trillion won will be used to support the livestock sector (modernizing ranches), and 2.3 trillion won will be used to support the horticulture sector (developing quality vegetables and fruits).

As compensation for immediate losses, 85 percent of income losses will be provided in cash. Farmers who want to get out of the business will get money the equivalent to 3 years of net income losses.

Farmers and ranchers have resisted the plan because of less-than-expected compensation, however.

On the other hand, some have raised concerns over moral hazards as the support is mostly expected to come in cash.

imsoo@donga.com