Government Cuts Subsidies on Rice and Barley

The government began restructuring its main agricultural policies concerning the staples rice and barley yesterday. The government purchase price of barley will hit a record low compared to the price of last year.

According to the Ministry of Agriculture and Forestry, the government made a preliminary decision to lower the government purchase price of barley this year on May 17. Relevant ministries, including the Ministry of Agriculture and Forestry, Ministry of Finance and Economy and Ministry of Planning and Budget, reportedly have given the green light to the decision after consultations.

A government official said, “In a bid to resolve the problem of redundant production of barley exceeding the lackluster demand, we decided to lower the government purchase price by 2-4% compared to last year. The final price will be decided at a cabinet meeting.”

Along with the cut in purchase price, the government plans to reduce its purchase amount by 5 to 10% on a yearly basis.

The government, which started to purchase barley after Korea gained independence in 1948, has never cut down its purchase price before. Previous attempts to cut down the price foundered in the face of opposition from political figures from agricultural districts and farmers’ groups.

However, as decisions on the governmental grain purchase will no longer need to get approval from the National Assembly as of 2005, this year’s purchase price will be decided after the cabinet meeting next week.

Unless an unexpected change happens at the council meeting, the plan to cut down the purchase price is guaranteed as three relevant ministries, including the Ministry of Agriculture and Forestry, Ministry of Finance and Economy, and Ministry of Planning and Budget have already accepted the proposal to cut the purchase price.

On top of this, the government is pushing ahead with its plan to lower the target price of rice from 170,000 won (per 80kg) to 161,000 won until next year. The target price of rice works as a standard for estimating subsidy levels under the direct payment for compensating rice income losses system.

Launched in 2005 following the government’s purchase of autumn harvest grains system, the direct payment system for compensating rice income losses is a system in which the government compensates 85% of the income losses of farmers if the actual rice producing price is lower than the government set price. Thus, the lower the target price, the less compensation farmers will get.

The government’s decision to restructure the grain industry came after a study showed that the eating habits of Koreans has undergone a change by showing a decline in rice and barley demands, while at the same tome, reforms of Korean agriculture policy could no longer be prolonged due to the market opening after the free trade agreement between the Korea and U.S. was concluded.

In the meanwhile, Korea’s crop industry has been criticized for losing its international competitiveness due to the overprotection of the Korean government that some say is obsessed with ‘food security.’

jarrett@donga.com