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South Korea: Defending and expanding market share

Ross Christieson

Ross Christieson is senior vice president, market research and analysis, for the U.S. Dairy Export Council. He contributes this column exclusively for Cheese Market News®.

When President Trump meets next week with South Korean President Moon Jae-in, bilateral trade is sure to be a topic of conversation. While it is unlikely they will be talking dairy, U.S. cheesemakers would be well-advised to pay attention.

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 demand growth. 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. Those nations are part of a trade deficit analysis currently underway by the U.S. Trade Representative’s office and Department of Commerce. The outcome of the analysis and how the administration plans to engage with Korea on trade issues is not yet known.

As USDEC noted in comments submitted in reference to the study, “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 noted.

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 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 pounds 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 37 percent over the first four months compared to January-April 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.

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 over the past six 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 that is excited to engage in global dairy trade and partner with overseas buyers for mutual growth will help for the long term.

CMN

Note: The U.S. Dairy Export Council is primarily supported by Dairy Management Inc. through the producer checkoff that builds on collaborative industry partnerships with processors, trading companies and others to build global demand for U.S. dairy products.

The views expressed by CMN’s guest columnists are their own opinions and do not necessarily reflect those of Cheese Market News®.

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