Market Information
Asia Pacific

1. Natural Honey

HS 0409 Natural Honey

1. Opportunities: Strengths and Attractions of the Korean Market

1.1. A Very Limited Market

Under the present tariff and trade conditions, South Korea is not a particularly attractive market for natural honey, except for the small quantities purchased under the Minimum Market Access quota and tariff level of 20%. As is explained in section 2.1, the open market tariff in 1999 was 300%, falling to 254% in 2000. Opportunities exist to compete for about 345 tons at 20% if the right relations are built with one of six importers.

The estimated market size for natural honey is shown in table 1.

Imported natural honey products are normally not found in the consumer market. Imported natural honey from Canada for the consumer can not be sold at a competitive price in Korea due to the high tariff rates.

The import duty on natural honey is 253.8% or 1,947 won/kg. For product sold under the conditions described in Section 2.2 the import duty is 20%. The very high tariff is to protect inefficient local producers.

Natural honey products are usually sold as gifts in the Chusok Season (harvest festival), New Year and Chinese New Year, holiday seasons, or as gifts from holiday areas such as Cheju-do.

A typical domestic consumer price would be:

• 3 kg: 41,500won
• 1.2 kg: 17,000won
• 600g: 9,500won

It should be noted that the production of honey in Korea is falling. This is understood to be the result of a declining interest among peasant farmers in producing commercial quantities of the product rather than a decline in demand. Imports have been reasonably constant at about 5%, or between 300 and 500 M/T annually because of the tariff constraints.

The quota of honey which can be imported at a 20% tariff is increasing year by year by 18 tons. At the same time, the open tariff rate will fall from 254% in 2000 to 243% in 2004 under the current limited market opening measures (Minimum Market Access, or MMA).

Source: Korea Food Year Book

Canadian honey exporters should consider continuing to monitor the market periodically for changes and seek to achieve imports at the special tariff rate to build the image of Canadian honey.

In consumer focus groups, Korean consumers associate honey use principally with the elderly and secondly, with health and long life. A principal use is to sweeten ginseng products, use of which is associated with the elderly. Since ginseng itself is associated with longevity, honey takes on the qualities of health and long life. Honey gift sets are therefore appropriate gifts for the elderly and those in poor health.

Consumers generally consider honey as "too sweet" for modern Korean tastes, and therefore its consumption is limited by taste as well as availability and price.

1.2. Think Outside the Box

Although the market may appear to be discouraging for an exporter, there could be room for entrepreneurial action and there are two further entrepreneurial opportunities for a foreign honey producer in conjunction with a venture capitalist, or a Korean company.

1) Sale of Canadian natural honey products to homebound Korean tourists from Canada

This is relatively easy to organize. The sale either at Canadian airports or on aircraft bound for Korea would be duty free. It would provide revenue and help establish a long term quality image for Canadian honey.

Korean Air, Asiana, Cathay Pacific, Singapore Airlines and Canadian Airlines fly from Canada to Seoul and could be approached to determine if a supply arrangement is possible.

2) A joint venture in South Korea to produce natural honey on a commercial basis

Natural honey is produced by apiculturists, and their production is protected by high tariffs. There could be potential to create a joint venture in S. Korea to improve the quality of honey and how it is marketed. Given the very high domestic prices, this could be attractive to a venture capital partner or to a Canadian producer.

Negotiating foreign investment in agriculture, especially where the production base is sensitive to foreign competition will require an association with a skilled Korean negotiator who is familiar with the situation and the difficulties involved with introduction of foreign investment into this highly protected sector, but under Korea=s new and favourable approach to DFI, it is likely to receive approval.

1.3. New Distribution Opportunities

Although food distribution channels have been changing rapidly in Korea, without a change in tariff rates, it is difficult for a Canadian company trying to export natural honey to take advantage of these increased efficiencies and new, more aggressive and competitive players.

If access to the market is achieved, distributing to about 30-40% of the total market could become possible as hypermarkets and convenience stores expand their influence.

2. Weakness and Discouragements

2.1. Pay 250% tariffs, are bid on quotas

Natural honey may either be imported under a quota system administered by the National Agricultural Cooperative Federation (NACF) with a 20% tariff, or as a freely imported product with a 254% tariff.

There are no foreign governments currently in the process of challenging Korea=s high tariff and quota system under the WTO, so it is unlikely that the general situation will change, except as agreed to under the WTO round of negotiations in 1995. Prior to 1995, honey imports were not allowed outside of the difficult quota system. Under the WTO the following schedule was agreed.

* MMA: Current Market Access
* The conventional tariff of MMA volume is 20%

The quota is divided into parts as explained in section 2.2

2.2. Quota bids for 20% tariff

There are three streams in importation of natural honey under the annual MMA quota category at the 20% tariff level. Natural honey can be freely imported outside the quota system at a tariff of 254%.

1. Honey quota allocation to the Korea Tourist Hotel Supply Centre (KTHSC) for Aforeign exchange earnings@ from the tourism sector:

Until 1995, KTHSC was able to import natural honey for hotel and up-scale restaurant use at 20% tariff with a recommendation from the Ministry of Culture & Information. Currently, the Ministry of Agriculture (MAF) allocates import quota (40 M/T for year 2000, but amounts vary annually, depending on the volumes requested) for KTHSC every year out of the total MMA annual quota (345 M/T in 2000). As such, KTHSC is able to directly import natural honey for its consumer pack market at 20% tariff under this allocated quota quantity without the need to become involved in the NACF bidding process (see below).

2. International bidding:

The bidding process is administered by Livestock Cooperative Trading and Marketing (LCTM), which is a subsidiary of the National Agricultural Cooperatives Federation (NACF). The past few years, the bidding was managed by the National Livestock Cooperative Federation (NLCF) which disappeared when it was amalgamated with the NACF in June, 2000.

The auction and bidding process is used, ostensibly, to balance honey demand & supply in Korea. LCTM under the jurisdiction of NACF (Livestock Sector) manages the import of honey in bulk form for members of the Korea Bee-Keepers Association through its international bidding process. The applied tariff for honey under this category is 20%. LCTM has decided to import 59 tonnes of honey though a tender bidding process this year (the bidding was done on August 29, 2000). The final purchasing decision has not been made yet but it is expected to be made soon.

The evaluation of the bids is done by a 5 person committee composed of officials who work either for the NACF or Ministry of Agriculture, and have had experience in bee-farming. The committee awards the contract to the winning bidder based on an assessment of the following criteria:

1) Color 2)Taste 3)Flavor 4) Odor 5)Crystallization 6) Price

If pre-qualified on the first five factors, price appears to be the most important factor to decide the import company, but this is not always the case. Last year, a bid by a Canadian exporter (through his Korean agent) was the lowest price, but the panel judged the Canadian product to be less acceptable than American product, and awarded the contract to the American exporter=s agent, which happened to be LCTM. Canadian product was deemed to be a suitable product the year previous, making it difficult to conclude that the awarding of contracts is done solely on price and quality considerations. Nevertheless, the decision of the committee is final, making it important to have a capable and experienced Korean agent involved in handling the bidding process.

3. Import Right Sales:

NACF has authority to sell their Import Right to companies who wish to import natural honey for the companies own use and marketing purpose. For end users such as confectionary manufacturing companies and beverage companies, MAF delegated its authority to sell the import right to the NACF in 1997. NACF sells the import rights for honey (240 M/T) to companies which offered the highest amount of bee-farming development funds per kg this year. The announcement for Import Rights for 2000 will be made through Korean newspapers soon. The qualified companies must be registered with AFTAK as an official trading company in Korea.

2.3. Only 6 customers

In 1999, only 6 companies imported honey. These are listed in the appendix.

2.4. Canadians Have Been Unable to Hold on to the Market.

In 1999, honey was mainly imported from the USA. A Canadian company won the contract in 1997 and a smaller share in 1998 based on price. The US won on the basis of a quality judgment to regain the entire contract in 1999 (even though the Canadian price bid was lower than the Us price). Diagram 2-3 shows how in 1997 with the right conditions, Canada was able to secure 78% of the market, or 551 tons. The following year, the US came back with better terms, and recaptured the lion's share.

Winning the tender depends on the importer. The actual bidding is done by a Korean company, which must promise donations to support Korean agriculture and the apiary industry of Korea or meet the non transparent conditions set by the NACF and its committee. The Korean company's pricing will depend on its confidence of selling the quota received and its potential profit. If the Canadian price is too high, then the company cannot offer the right level of support to Korean agriculture to win the bid.

The lesson of this experience is that a market cannot be taken for granted, and Koreans are extremely relationship and price conscious.

2.5. Must Be Container Load

The minimum unit of sale into Korea is the container load. The Canadian exporter must find a Korean partner willing and able to distribute a container sized consignment or work with a Canadian consolidator who can arrange part loads. Given the quota system this should not be a problem.

3. Strengths

3.1. Price

What Korean importers state is that sourcing from China or Hungary yields a product where the quality is not consistent, making it difficult to sell, and giving Canada and US suppliers an advantage in quality.

Unlike consumers, Korean companies are extremely sensitive to the price and as a rule of thumb will not pay more than 10% for a premium product.

It appears that a small amount of honey is imported at the full tariff rate, and that in this case, the cheapest product available is sought from China.

Table 4 shows the structure of the Korean retail price and an estimate of the Korean industry price.

Note: Price sold to department stores

3.2. Potential to Create a Canadian Image

The creation of a Canadian image for honey not only helps prepare for the long term liberalization of the market but also supports the case for ordering Canadian honey through the quota system, where quality is a major factor.

4. Threats

4.1. Imports dominated by US

In 1998 and 1999 the US reasserted its relationships with the (then) National Livestock Cooperative Federation. A single supplier supplied all the product. The nature of Korean buyers is such that if a business relationship is well established, it will be maintained and will make competition difficult. It can be seen from the import data in Appendix 2 that about 25% of imports are not tied to relationships, but are based on the lowest import price from whatever source is available.

5. Market Strategies

5.1. Limited Choice

In the case of honey, excluding the out of the box opportunities suggested in section 1.1, a Canadian company needs to develop a relationship with a Korean company willing to bid in the auction. The Korean company must have the necessary relationships to sell the honey.

A Canadian company could also try to build up a relationship with KTHSC, the organization supplying hotels, or with hotels which might push KTHSC to import Canadian product. However the volume of KTHSC's business is only two 20 foot container loads or 30 tons, and this would only support limited marketing activities.

5.2. Alternative Approaches

Excluding the alternatives in section 1.2, there are almost no marketing alternatives at the present time. There could be a possibility of using e-commerce to attract customers for a high priced item, if merely to create the demand for the duty free item at Vancouver airport.

6. Do you measure up to the Korean market?

This section allows you to measure your ability against the Korean market without further investment.

6.1. Product Pricing and Quality

Do you have a product which fits the Korean market in terms of taste?

Apart from small portion packs for the tourist trade, price and quality are the most important criteria.

The important issue is one of taste, which must match Korean taste. This can partly be established by asking NACF for information on its testing procedures used in the bid award process.

6.2. Partner

Canadian suppliers need a reliable agent/partner in Korea for honey. In dealing with a small to medium sized company, a credit or reputation check is advisable. With large companies there is less cause for concern.

More than for most other products, the agent should have good relations and contacts within the agricultural sector.

The obvious candidate would be an ex-employee of the NACF who has had experience with honey imports and a relationship with the importers.

Korean marketing channels have improved a great deal the past few years, but it is still important that the partner have the experience and capacity to handle the import process, and build the relations you will need to manage within the complicated Korean system. Older Koreans often approach problems in a very old fashioned way that adds cost and inefficiency to the process. In general, entertainment (often after-hours meals that extend into late evening affairs, where alcohol use is prevalent and often excessive) is a normal part of establishing a personal relationship. The Confucian nature of Korean society means that a business relationship with a small company is also a personal relationship, and even with bigger companies, the relationship would also be expected to transcend a simple profit and loss relationship. A good agent can usually offer sound advice on what constitutes normal and what amounts to excessive entertainment costs (exporters should also rely on their own judgement and level of comfort).

The partner must also recognize the long term commitment that is needed and must have contacts in the food business with effective connections in the distribution service.

6.3. Willingness to Modify the Product

Succeeding in the Korean natural honey market(or selling to Korean tourists) will mean more than producing good quality honey at a reasonable price. Koreans have very particular tastes and require that their honey taste the way they like it.

Taste tests will be required to convince both consumer and potential importers of Canada=s quality advantage.

For sale to Korean tourists, distinctive and high quality packaging will be required, remembering that this is likely to be a gift. We would suggest sampling in the duty free area of Vancouver airport.

7. How Do I Start?

7.1. Start as Simply as Possible

Our recommendation is to start in as simple and easy a way as possible. This requires a fax contact with selected importers to see whether they have an interest in importing natural honey from Canada. The list of importers is appended to this section and the importers are graded according to information currently available.

It is possible that even after a visit, there will be minimal response, and that one of two decisions must be made, to proceed with marketing and look for a suitable agent, or to do more research by attending a trade show or making an independent assessment.

1) Agents may be found either by a professional consulting company, from a list from the Canadian Embassy or a trade organization such as AFTAK.

2) It is more likely to meet agents during a trade visit. The Canadian Embassy reports that the recent food trade fair attracted about 450 Korean trade visitors. The next Canadian food trade fair will be held in Seoul March 20-21, 2001. For more information consult http://ats-sea.agr.ca/info/asia/e2682.htm

3) The final way is to make a special visit. This would normally follow on one of the other routes in any case. The aim of a visit should be to research the market for natural honey and meet with potential partners and distributors.

The best prospects for immediate business in natural honey are the hotel delicatessens and other high class restaurants served by the Korea Tourist Hotel Supply Center. The KTHSC complain that the buyers in the hotels are conservative, and that therefore direct contact with the hotels as well as the KTHSC is essential.

7.2. Getting a Container Load Together

The alternative to a container load is to share a container with an existing shipper in a consolidation move. Freight forwarders in Canada will be able to identify consolidation opportunities.

7.3. What to Watch Out For

Physically Getting the Product Cleared

Complaints about customs procedures on clearance for food products continue. Both Amcham in its annual report on business conditions in Korea and the Investment Ombudsman which handles business complaints find that arbitrary action by quarantine and customs individual officers fill up their case books.

The first time is likely to be the worst and the following are the most common causes of delay:

1) Paperwork not in order. The necessary documentation on contents are inadequate

2) Korean labels proposed for the product are too small or do not conform to specification.

3) Products tested reveal minimal trace elements of proscribed products.

The second and subsequent shipments should go through much more easily unless there is a:

• Change in local officials
• Change in local regulations

2000 has been slightly more difficult than 1998-1999 because the rise in imports has encouraged nationalistic officials to look for exceptions, meaning that due diligence will be even more important, to avoid problems.

7.4. Regulatory Check Up Issues

Trade Regulations

Korean regulations are notorious for their complexity and for changing frequently. Every attempt has been made to alert the Canadian exporter on possible problem areas, but inquiry should be made to the Embassy or to existing importers on whether there have been any relevant changes.

The importation of natural honey is governed by the WTO, MMA principle.

Tariff Rates

The tariff for natural honey is 253.8%(or 1,947won/kg) in 2000.

The tariff for natural honey HS0409 is 20%, in case where it is imported under the MMA quota of the National Agricultural Cooperatives Federation in Korea. This is available for processing use, or tourist hotels.

Inspection of Goods

Inspection of goods or their labels / packaging necessary to determine:

The value of the goods for customs purposes and their dutiable status;

• Whether the goods must be marked with the country of their origin or are in need of special making or labeling. If so, whether they are marked in the manner as prescribed;
• Whether the shipment contains prohibited articles;
• Whether the goods are correctly invoiced;
• Whether or not the goods are in excess of the invoiced quantities.

To be specific, customs officers will ascertain the quantity of goods imported, making allowance for shortages under specified conditions and assessing duty on any excess.

The showing of the contents of each package on the invoice; the orderly package of the good; the proper marking and numbering of the packages; the placing of the corresponding marks and numbers on the invoice facilitate proper duty adjustment according to actual volume of goods brought in and the ascertainment of whether any excess goods are contained in the shipment. If any package which has been designated for inspection is found by the customs official to contain any article not specified in the invoice with fraudulent intent on the part of the seller, shipper, owner, or agent, the contents of the entire package in which the excess goods are found are subject to investigation for possible violation.

Inspection of Foods

The test items for the laboratory inspections and the random sampling inspections for the imported foods, equipment and containers/packages are referred to in Appendix 4 Primary Laboratory Analysis List for imported foods etc.

Appendix 1. General Details on Import Procedure

Inspection and Clearance Procedures for Foods

The following are the general procedures for food products. Honey imported in bulk by Korean companies are not subject to most of these procedures.

1) Application for food safety inspectionSince the imported foods and domestic foods are regulated by the Food Sanitation Act identically, the importer would normally must make an application for a safety inspection to one of the six Regional KFDAs which are substructures of the Korean Food and Drug Administration(KFDA). As the pre-arrival application system was introduced in August 1995, an arrival application can now be conducted for five days before the arrival of the shipment.

2) The criteria and the types of inspection

i. Confirmation of safety

• Residual test for pesticides, antibiotics, heavy metals etc.
• Confirmation of micro-organisms
• Test of toxicological substances such as aflatoxin
• Perishability test

ii. Confirmation of standards and specification

• Confirmation of meeting the standards provided by the Food Code
• Confirmation of additives in compliance with provisions of the Food Additives Code

iii. Provision of consumer information

• Examination of labelling in Korean (nine items including main ingredient, etc.) to confirm the suitability of information for consumers

iv. Ensuring the soundness of food

• Protection of sound dietary habits through the elimination of unsuitable foods

3) Procedures after rejection of food

i. Food that has not passed the KFDA inspection is destroyed except in the following cases:

• The food rejected is to be returned to the exporting country or converted for other use as non-edible products.
• When the sanitation hazard sanitation can be eliminated by processing, heating or selection after customs clearance

ii. Inspection Procedure of Imported Food

Imported food import ® Declaration ® Food & Drug Administration ® Regional Food & Drug Administration ® Health and Environment Research(as needed) ® Institute at City and Province ® Document Test ® Organoleptic Test ® Laboratory Test ® Random Sampling Test ® Customs Office(Pass) ® Customs ® Clearance(In case of rejection: return to the origin or diversion to other use ® destruction)

4) Improvement of the imported food product inspection system

i. Compliance Sampling Group(subject to mandatory laboratory testing):

• New-to-market products
• Products with a record of violation
• Products with prior information of sanitary risk
• Products falling under the health supplementary products of the ginseng products category, for which laboratory testing is compulsory.

ii. Surveillance sample groups (Products random sampling for laboratory testing)

• Same products from same producer which passed the laboratory testing.
• Raw materials which a manufacturer imports to make his own products.

Appendix 2. Import History and Data

Korea has undergone dramatic changes during the last two years due to the economic crisis, so that in general the imports of 1998 and 1999 broke the trend with the past, however imports of natural honey continued to grow from 1996 to 1998 despite the lower value of the won against the dollar.

Canada was first ranking in 1997, it was US$98 thousand, however this dramatically dropped to US$89 thousand in 1999. The imports from USA was US$782 thousand in 1999. Canadian therefore failed to exploit their advantage in the market.

Diagram 2-2. Natural Honey (0409) Imports by Country 1996-1999

Diagram 2-3. Natural Honey (0409) Imports by Country 1996-1999

Diagram 2-3. Natural Honey (0409) Imports by Country 1996-1999

2.5. Importers of Natural Honey Code: (HS) 0409

M = Mass Market
HRI = HRI
No comment means small company only suitable for niche.