South Korea: Defending and Expanding Market Share

Maintaining U.S. dairy market access gained through KORUS is critical to U.S. competitiveness.

South Korea, already a major U.S. cheese market, holds tremendous potential for future growth. But in an increasingly competitive global marketplace, U.S. suppliers will need to take steps to secure a larger share of rising demand. And the United States itself must maintain competitive market access terms secured through the U.S.-South Korea Free Trade Agreement (KORUS).

Sometimes pointing out the obvious is necessary given the stakes involved.

KORUS, implemented in 2012, has been critical to U.S. growth in the Korean cheese market. But South Korea is one of 13 nations singled out by the Trump administration as running a significant trade surplus with the United States. 

In July, the U.S. Trade Representative’s office requested a special session of the KORUS joint committee to review the deal, including “possible amendments and modifications.” That session took place yesterday, and the USTR's office said discussions would continue over the coming weeks. 

USDEC has been aggressively defending KORUS’s importance in various submissions to the U.S. government over the last few months. As noted in comments submitted regarding the U.S. trade deficit, “Without KORUS, U.S. cheese exports to Korea would be subject to the pre-FTA tariff of 36 percent, while all of our key competitors could keep shipping millions of pounds of cheese duty-free.”

The world’s other three major cheese suppliers—Australia, the European Union (EU) and New Zealand—have their own respective trade agreements with South Korea.

“All three of our competitors’ FTAs ultimately fully eliminate cheese tariffs, in addition to providing ample access for a wide range of other dairy products,” the comments stated.

Major U.S. cheese customer

KORUS is critical to U.S. export competitiveness in South Korea, and South Korea is a key market for U.S. dairy export growth, particularly in the cheese sector.

Here's are the cheese facts:

• South Korea is the No. 2 U.S. cheese export market after Mexico.
• U.S. cheese shipments to South Korea totaled nearly 94 million lbs. in 2016, about 15 percent of total U.S. cheese exports.
• U.S. cheese shipments to South Korea are on the rise in 2017, up 48 percent over the first half of 2017, compared to January-June 2016.
• USDEC estimates total South Korean cheese trade will rise by 27 percent from 2015-2021, with the strongest growth projected for cheddar for processing and natural cheese for foodservice and retail (+34 percent each).

The demand numbers are strong, but so is the competition. In 2015 and 2016, U.S. suppliers lost share to our competitors, in part due to an unfavorable differential between U.S. and international prices.

Some market factors do support U.S. business. New Zealand, for example, has limited cheese production capacity and a stronger focus on milk powder and China. Also, Korean demand is heavily tilted toward pizza cheese, cream cheese and cheddar for processing—major strengths of the U.S. industry.

But even with those plusses and even with KORUS in place, U.S. suppliers will need to up their game to defend and grow market share in South Korea’s cheese import market.

Upping the U.S. game

Efforts targeted at enhancing the U.S. position as a preferred supply partner would go a long way toward helping U.S. suppliers ride out periods of unfavorable pricing and lift U.S. competitiveness. Not by coincidence, such efforts are part of USDEC’s recently announced strategy to lift total U.S. dairy exports from the equivalent of about 15 percent of the annual U.S. milk supply to 20 percent—or, as we are calling it, The Next 5%.

The Next 5% strategy supports tactics aimed at helping U.S. dairy suppliers become more localized, customer centric and demand driven rather than supply driven. In cheese for South Korea, that includes:

• Improving the U.S. in-market presence through more frequent visits to South Korea for face-to-face meetings or, preferably, investing in in-country personnel.
• Improving customer service, such as providing technical support or supply chain solutions. One U.S. competitor not only staffed a sales office in Korea, but recently began stocking product in-country to facilitate turnaround times.
• Fostering innovation, with emphasis on products made specifically for the market. Another U.S. competitor worked with Lotteria (South Korea’s largest burger franchise) to develop an extra stretchy mozzarella patty that is breaded, deep fried and eaten as an additional layer in a hamburger. Marketing for the sandwich, called “Mozzarella in the Burger,” emphasized the stretchiness of the cheese and made quite a consumer splash when it debuted earlier this year.
• Stressing the U.S.-Korea partnership. As U.S. suppliers did in Mexico when questions about the future of the North American Free Trade Agreement first began to swirl, the U.S. dairy industry must emphasize that it appreciates the strong trade ties with South Korea, respects the nation’s dairy needs and existing relationships built over years, supports KORUS and doesn’t take for granted our partnership.

Rising EU and Oceania cheese prices in recent months have bolstered U.S. competitiveness this year. Maintaining KORUS market access while improving the U.S. image as a supplier with a diverse portfolio of value-added products who is excited to engage in global dairy trade and partner with overseas buyers for mutual growth will help for the long term.

A version of this column previously ran in Cheese Market News.

Ross Christieson is senior vice president, market research and analysis, and Shawna Morris, is vice president, trade policy, at the U.S. Dairy Export Council.

Learn more:

• 3 Ways U.S.-Korea Trade Agreement has Helped U.S. Dairy
• How Free-Trade Agreements Ignited U.S. Dairy Exports to 6 Countries
• Dairy Export Opportunities Series: South Korea
• Cheese a "Hot" Cooking Ingredient in South Korea

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The U.S. Dairy Export Council fosters collaborative industry partnerships with processors, trading companies and others to enhance global demand for U.S. dairy products and ingredients. USDEC is primarily supported by Dairy Management Inc. through the dairy farmer checkoff. How to republish this post.