Market Information
Asia Pacific

2. Cheese Including Pizza Cheese Products

HS0406 Cheese and curd
HS0406-20 Grated or powdered cheese, of all kinds
HS0406-30 Processed cheeses

1. Opportunities: Strengths and Attractions of the Korean Market

1.1. It's a Big Market

The Korean Cheese Market in Brief

The term s of reference called for the identification of other product areas than in the basic proposal. Cheese was included only as an ingredient for frozen pizzas. However the frozen pizza (for home consumption) market is only 1% of the size of the cheese market which is growing at 30 - 50% per annum. This segment concentrates on all cheeses, rather than pizza cheese.

Cheese sales are influenced by a number of social & economic situations:

• The cheese market has been growing rapidly due to the westernization of eating habits.
• The market is expected to grow more than 10-15% in 2000.
• Pizza cheese sales increased rapidly according to high activity in the restaurant business following the economic recovery.
• Consumption increase of slice type processed cheese was fueled partly by a demand increase in the hamburger market.
• Cream cheese for home users and natural cheese sales increased also, however Korean consumer seem to prefer slice type processed cheeses over natural cheeses.
• There is a need to differentiate marketing techniques in order to better suit Korean consumers' various tastes.
• The total market size is estimated at 220-230 billion won in the year 2000.
• Imports are about 33% of total consumption.

1.2. It's Recovering Fast

The Korean economy grew 10.7% in 1999 after a contraction of 5.8% in 1998. By December 1999 retail and wholesale sales were 10% above the December 1997 (the onset of crisis) figures. First indications for 2000 are of a 12% growth rate in the first quarter and 7-8% for the whole year. Retail and wholesale sales are likely to be up 10-15% for 2000. Imported products are still going to be more expensive in won terms with the US$ at 1050 - 1150 compared with 840 in 1997 and 800 in 1996.

During the crisis small companies had difficulty in getting finance and in particular access to foreign currency. As the won rose from 840 won at the beginning of 1997 to 1900 at the end of 1997, the attractiveness of imports fell away rapidly.

The behavior of processed cheeses imports did not fit fairly to a direct relationship with the value of the won to US dollar. Cheese imports in 1999 exceeded that of 1996, and almost matched the peak of 1997. In 2000 imports will go well past the peak of 1997. It should be noted that industry forecasts expect the cheese market to grow more than 10% in 2000.

It can be seen the Canadian cheese (HS 0406) had 8% market share of imports in 1999 with US$4.45 million. Australia (US$26.3million), New Zealand (US$13.6 million) and USA (US$8 million) in the lead.

1.3. There is a Premium Sector

Within the Korean cheese market, there are four real categories at the present time:

• Processed sliced cheese made by local dairy companies
• Pizza cheese (mozzarella)
• Cream cheeses
• Hard cheeses and soft cheeses

The non premium market is made up of sliced processed cheese, and the premium market is made up of all the other kinds of cheese which are regarded by the consumer as new and of superior quality.

The evidence of the Korean market is that consumers are looking for quality and do not distinguish between Korean made and foreign made as far as cheese is concerned.

Focus groups confirmed the preference of Korean women for better quality and different products and tastes, although they confess ignorance about many varieties which are western household words such as Brie or Cheddar. Women and commercial organizations are the majority purchasers of cheese. Almost half the members of groups had had no experience of buying cheese, with women aged 30-40 years being the most frequent users.

The consumers said that they were primarily looking for higher quality sliced cheese and soft cream cheese, picking out Kraft products by name, rather than natural cheese.

Consumers were particularly attracted to enhanced processed cheese containing DHA which was conceived as creating more nutritional value.

Three focus groups were conducted especially for this study of young women, women in their early thirties and those in their forties. The income range was moderate to well to do. As food is almost exclusively purchased by women in Korea this was felt to give an indicative response to the issues arising from the products in question. The subjects discussed by the groups were food purchasing habits, attitudes to Canadian food and reaction to a small sample of products supplied by exhibitors to the Canadian Food Fair of March 2000. Further details are available from eabckr@kornet21.net

1.4. There is a Delicatessen Sector

The delicatessen sector exists in major department stores and hotels, select high class bakeries and a few select delicatessen stores. These sell a wide range of cheeses and serve to introduce new varieties to consumers.

It should be noted that very few shops in Korea (perhaps less than 50) are currently equipped to handle the sale of cheese which requires cutting to the customer order.

For cheese the possible co-promotion with wine shops could be attractive. All major department stores have wine departments and a company called Kaja has a chain of wine stores.

1.5. Cheese and Pizzas are New to Korean Taste

Traditionally Koreans reacted negatively to the taste and smell of cheese. It has largely been the pizza industry which has made cheese popular. As one Korean consumer said "the first time I ate cheese (on a pizza) I wanted to be sick, now I really enjoy pizza."

Pizza now probably exceeds hamburgers and other western fast food in sales, and is available in home delivery form anywhere in urban Korea. One reason consumers give for liking cream cheese and processed slice cheese is its "non salty taste."

1.6. Importers and Customers Looking for Something New

Importers are looking for new ideas and new products. They are reflecting the fact that the Korean housewife is always looking for new and quality products. There are sharp difference between young Koreans and older Koreans. Heavy users are likely to be in their 30's years old.

Cheese is beginning to be used in cooking in both restaurants and in the home, particularly with the rise of gratin dishes.

1.7. The Distribution System is Changing

The retail structure of Korea is changing. The major feature is the rapid growth of hypermarkets, several of which are foreign owned and might be more willing to take or showcase foreign products.

The only hypermarket actively soliciting foreign business at the present time is Costco, which has only three outlets. Only container loads will be accepted.

For Canadian cheese producers to exploit this opportunity they must make contact with the purchasing departments of the chains. However if the brand or product does not yet sell in Korea, there will be a demand for heavy advertising support. There will also be placement fees.

It has been estimated that the percentage of Fast Moving Consumer Goods(FMCG) passing through the hypermarkets will reach 40% within 3-4 years. The main impact will be on large supermarkets and some small supermarkets. However Korea is a high-density country and consumers prefer to shop at the supermarket within their apartment complex or near their home rather than travel for 40 minutes to an hour each way to a hypermarket.

Table 3. Market Size of Hypermarkets

In provincial areas and cities the share of hypermarkets appears to be significantly higher than their share in Seoul. This is the conclusion from Taylor Nelson Sofres consumer panel purchase data which samples good households every month.

CVS sales are much more concentrated on convenience foods than hypermarkets which sell more household products. For food products, CVS probably sell the equivalent of 22% of the value sold by hypermarkets.

Hypermarkets biggest threat is e-commerce working through the convenience stores. This is a model of e-commerce developed in Taiwan and Japan and about to be applied in Korea, where the consumer pays and receives their order at the local convenience store. Lotte aims to be the leader in this having bought 7-11, Lawson and Best Store.

Source: Food Distribution Year Book ((1) Excluding e-commerce effect)
* Voluntary chain convenience stores do not belong to the major chains and do not have central distribution

Some authorities believe that in Korea this model will overtake the hypermarket model, which means that the amount passing through the hypermarkets will not reach 40%. For cheese, the opportunities to exploit this new form of retailing depends on relations with the retail chains, since they will practice central distribution.

Creating business opportunities out of these changes will not be easy in the cheese sector without close relations with the hypermarket and e-market chains. This cannot be done at a distance or by fax or e-mail alone, though an attractive website will help.

If access to the hypermarket or e-market system is achieved then sales should grow rapidly. This will require considerable work to build relations and incentives with the buying chains.

The growth of the hypermarkets, convenience stores and e-commerce clearly offers a future opportunity for Canadian exporters. Accessing hypermarkets at the present time for cheese will be less difficult than for most imported processed food products, because of the size of imports of cheese relative to domestic production at 33% and lack of discrimination against imported cheese.

Hypermarkets will be looking for the best price rather than the best quality. Convenience chains will be more discriminating.

Hypermarket

Opportunities

• Hugely simplified sales channel
• Access to very large market share
• Problems
• Chains are exclusive about products
• Demand high discounts
• Demand advertising and promotion support

Accessing CVS stores is much simpler as CVS are always willing to churn product to put something new on the shelf alongside the best sellers. This gives a narrow window of opportunity to prove that the product will be a best seller.

CVS

Opportunities

• Simplified sales channel
• Access to a sizeable market share
• No resistance to new products

Problems

• If product does not sell well, then will be replaced.
• Supplier will probably be asked to take back unsold product.
• Advertising campaign to back up window of opportunity required.

2. Weaknesses and Discouragements

2.1. Tariffs in 2000 will be 37.6%

The tariff for cheese (HS0406-10, 20, 30, 40 & 90) are 37.6% in 2000.

In order to protect the dairy industry, the general tariff on cheese is 37.6% in 2000. Given that the dairy industry does not make very much cheese, this protection seems unnecessary, and with appropriate lobbying partly from the Korean dairy companies themselves which are emerging as importers, the tariff could be reduced.

Korea has a general commitment under WTO to reduce tariffs to international levels. It has been relatively slow to reduce tariffs for major food products which are produc-ed in Korea.

2.2. Inspection Services May Have Some Problems

The import of cheese is specifically limited by the sampling(up to 8%), testing and quarantine requirements especially for short shelf-life cheeses - increasing the cost and delay. It appears that Canadian companies can not supply all of the market if they do not have a good relationship with the Korea Tourist Supply Center which would appear to be able to import cheeses without the same conditions or time-delays. The procedures are considered to be a non-tariff trade barrier - considerably limiting for Canadian exporters the number of varieties(especially with the exclusion of the coliform bacteria group) and supply of cheeses - also limiting the consumers choice.

For the import of cheeses, the following have been proposed by AmCham and the European Camber in Korea:

• Reduction of any retention and testing time to ensure 3 to 4 weeks shelf-life in the shops
• Korea adopt similar international regulation for the import of cheese including
• Codex Alimentarius standards relevant to cheese
• Special clearance arrangements for importers who have a "track-record", having previously imported the same varieties from the same suppliers, demonstrated they have the correct handling and storage procedures
• Acceptance of the natural bacteria contained in cheeses
• Same conditions of import to apply as would appear to apply for KTSC
• Simplify paperwork and import procedures to limit the cost of import

All foreign food importers indicate that unpredictable delays in food imports also occur from time to time, and this is largely the product of individual officials, rather than government policy. Success in a market may however lead to official complaints to the authorities by competitors, the most famous in this category being the reclassification of Kraft's sausage shelf life in 1996. (The changes in regulations on shelf life would make a repetition of the Kraft case difficult in the future).

In the case of Kraft the lobbying of the competitors persuaded the Ministry of Health and Welfare to change the conditions of distribution and shelf life. Subsequent to this self specification has become the practice.

In mid-1999 cheese was transferred from the KFDA to the National Veterinary Research and Quarantine Service(NVRQS), and the rules for importing and inspection were rewritten bringing the import of cheese to a halt during this process. Further changes negative regulatory changes are unlikely to occur.

The Korean customs and quarantine system works on a "reliability" basis. A new importer, a new exporter or a new product will normally attract a full inspection, which should take a maximum of 18 days including any relevant testing. Once the bone fides of the importer, exporter and product are established, documentary inspection should be sufficient and the product should clear within 5 days.

Importers of all food products report occasional disruptions due to new procedures, new officials or complaints from competitors.

2.3. No Korean "Canadian Image"

The Korean consumer does not have a strong image of Canadian product as opposed to US, European or Australian product. Focus group work showed that Korean housewives and young people generally had a good expectation of Canadian food products. They were generally disappointed in the product itself and particularly the packaging which was found to be not attractive nor to Korean taste.

Foreign made cheese itself has no negative connotations.

2.4. Must Be Container Load

The minimum unit of sales 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 port loads.

2.5. Taste may need adjustment

Korean dairy companies believe that the taste of cheese can be made more attractive to Korean consumers. Namyang Dairy, Korea's richest dairy company, is making mozzarella cheese in Australia for its new pizza chain and flew Korean taste panels to Australia to get the taste right.

Consumers put great emphasis on taste in the focus groups, disliking the "cheesy" taste, which they described as "salty" and seeking the blandness of processed cheese, mozzarella and cream cheese.

3. Strengths

3.1. Price

The Canadian product has an advantage of price of raw materials compared with the Korean manufacturer. The price per kg in Table 5 will give an indication of how expensive the Korean product is. A rough check on the landed Korean retail price for a Canadian cheese product is that it will be 2.5 times higher than the Canadian FOB price, but Korean products are selling at a dumping price from time to time, particularly during sales promotion period. Korean consumers will not be deterred from paying a premium and will expect premium to be reflected in the price.

Table 5. Price per Kg of Typical Korean Products

This pricing shows that the Korean consumer will pay almost 100% more for premium cheese products. For example, Haitai's High Calcium Cheese, a sliced processed cheese sells at almost twice the price of its basic sliced cheese.

The HRI market is much more price sensitive than consumer markets. Korean bakers and restaurants will pay less for quality than Korean consumers, and will rarely be willing to pay more than 10-20% above a Korean competing product.

3.2. Quality

Local cheese products are seen as likely to have low quality ingredients. Imported products can be projected as higher quality, and therefore more suited to the premium quality and pricing.

Customers stress quality, trust and freedom from preservatives and additatives as the key issues in choosing a product. However in cheese they welcomed such ingredients as DHA, Calcium etc.

3.3. Potential to Create Canadian Image

In discussion in focus groups conducted for this study the Korean consumer has a high, but unclear, expectation about Canadian product. There is a strong potential to create a "Canadian" image in the mind of the consumer but this cannot be done by a single food manufacturer alone, but could be developed to the benefit of many Canadian producers on a collective or collaborative basis.

4. Threats

4.1. Canadian Manufacturers Face Well Established Competition

As diagrams 6 and 7 show, Canada performs badly compared with other cheese producers, notably Australia and New Zealand who together have 75% market share of imports.

Diagram 6. Cheese and Curd (0406) Imports by Country 1996-1999

Diagram 7. Cheese and Curd (0406) Imports by Country 1996-1999

Diagram 7 shows the steady decline of the US in the cheese market in the late 1990s, almost certainly first because of price relative to Australia and also because Australia is becoming identified as "the quality place where cheese comes from."

The second threat is from Korean manufacturers such as Namyang who wish to develop their own branded imports. This could however be an opportunity for partnering.

US products have a place in the soft cheese spread market which is dominated by Kraft

Kraft has a strong brand image, and a strong local organization. The local dairy companies are now serious importers and are beginning to source product overseas, especially in Australia.

5. Market Strategies

The Korean cheese market is a relatively difficult market to get started in. It requires investment, knowledge and patience. Until a secure marketing organization is set up it cannot be an orderbook market. To establish a presence in the Korean market will require proactive measures by the Canadian exporter. Unless any investment in the market is well planned, the development of long term business in the cheese sector is not likely to be attractive. The following set out possible approaches to the Korean market and the kind of investment needed.

5.1. Looking for a Niche Market

Creating a mass market takes time and money. A Canadian exporter will start by seeking a way to establish a niche market. The following table shows the price build up for bakery products, and the potential exporter can multiply through his product to obtain an idea of the potential retail price in Korea and compare it with competitors. The following table shows the price build up for cheese products. Because of the need for chilled distribution, most cheese products will require the higher distribution margin shown in Table 9.

Retailers attempt to return out of date stock and an allowance for returns must be made of 2-3%.

The niche market exists in terms of delicatessen sales, and the high class HRI sector. This market is estimated to represent about 12% of sales by value, but both trade and retailers expect it to grow rapidly in the future.

For a niche market approach the company would either use an agent or import and distribution company. In the case of an agent, he would be responsible for finding a freight forwarder and physical distribution. The following companies are interested in increasing their portfolio of imported goods and have a good reputation in the trade.

All are Korean companies except Edward Keller, which is a subsidiary of a Swiss Trading firm. All have a good track record in starting up imports of new food products. The other companies importing cheese are listed in the appendix and could be approached.

5.2. Looking for a Mass Market

The pricing structure of the Korean market is such that a mass market in imported cheese product could be created if the FOB price can be competitive.

The new distribution systems described in section 1.7 are only affecting about 12% of the market for cheese at the current time. (23% if CVS are classed as new distribution systems as well).

This means that at the present time to reach 77% of the market, the old distribution system must be used, which is in the hands of the large competitors.

A mass market means success with a brand name which can be supported by advertising and trade promotions. A brand name can only be established with the Korean consumer through intensive TV advertising geared to Korean tastes. To achieve this, it would normally be necessary to find a large company which will to act as partner/distributor. This could be one of a select number of large companies running sales and distribution for other brands.

In both cases the willingness to invest in advertising and promotion will essential and a first year budget of US$3 million might be appropriate.

Only one hypermarket, Costco, is currently a major importer. Costco has only three outlets and naturally wishes to be sure that a container load can be sold.

Two brands have achieved some level of mass market, Kraft, and Land of Lakes with both spreads and hard cheddar cheese. It is clear that a much more satisfactory solution would be partnering with a major Korean dairy company eager to expand its business.

In the current market there are two leaders, Namyang and Maeil with this kind of idea. Either would make an excellent partner. In a similar category Yoplait licensed its brand to Bingrae, third food and dairy company many years ago and has grown to be a household name in Korea.

The cheese market is one area where Canadian companies should be able to build up a long term market position worth millions of dollars.

5.3. HRI Market

The HRI market for cheese is probably the largest single immediate opportunity. The rapid growth of pizza parlours and their take home operations has given rise to a rapid demand for mozzarella cheese.

The HRI market can be thought of as two very different segments in the case of cheese:

• A very high quality segment covering every type of cheese, looking for premium products
• A market looking for the cheapest product.

Cheese is rapidly spreading to other cooking including Caesar salads, gratine dishes and cheese toppings.

Hotels are the largest consumers of other fine cheeses.

For Pizza Cheese, the HRI market will be much larger than the retail market, as the home delivered pizza, pizza parlour market is growing very fast.

The HRI market is a dispersed field, but generally has a large number of independent wholesale agents supplying restaurants and food outlets. The larger chains such as Pizza Hut, McDonalds, and Burger King have central purchasing outlets. The biggest chain, Lotteria, is aligned with the Lotte Food Group. Some major outlets are served by the KTSC.

The KTSC is the major supplier of hotels. It does not have an exclusive right, but claims the widest distribution to more than 700 hotels and tourist restaurants and simplest import procedures.

5.4. Alternative Approaches

Cheese manufacturers should look for other opportunities. The following should be considered.

Wine and cheese promotions

Wine clubs are becoming popular in Korea. These form a natural outlet for cheese promotions. Cheese exporters could look to establish relations with the growing number of wine shops.

E-commerce

According to surveys 81% of Koreans have visited an e-shopping mall and 51% have bought something. Inclusion of product in a company's cybermall requires very little stock and no shelf space. This is a business still in its infancy. The biggest cyber shopping mall is run by Lotte Department Store, but there are currently 139 other malls to choose from.

A cheese website or cheese department of existing websites run by a Canadian company offering a variety would be the obvious way to create a sizeable proprietary market.

For cheese the biggest opportunity is certainly linking with Korean e-commerce which requires no in-country larger stock than a single container able to deliver to the central distribution point of the e-commerce partner.

E-commerce through a well visited cyber mall allows detailed merchandising to potential customers, offering cheese gift selection packs and other possibilities.

Warning If this site is run as an annex to the Korean site but administered by the Canadian company(i.e the click through moves seamlessly to a Canadian site) make sure that the server can handle a large number of hits simultaneously. Korea will have 30 million users on line and most popular Korean sites are unstable due to too many users.

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

Do you have a product which fits the Korean market in terms of taste and SKU size? The preferred retail size in Korea is:

6.2. Partner

Given the rapidity of change in Korea, the past may not be a guide to the future, but some 70% of foreign companies dealing with Korea have learnt expensive lessons with respect to agents and partners. Time spent in studying the market and learning who has a successful trackrecord is essential.

A Canadian company will want a reliable partner in Korea. Korean business ethics are not always impeccable and 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. Our recommendation is to approach large food companies first.

Korea has changed a great deal and the important issue is whether the partner has the experience and capacity to handle the problem, or can outsource it reliably. Older Koreans often approach problems in a very old fashioned way and this adds cost and inefficiency to the process. In general Canadian exporters should take advice of their agent talks too much about "understanding Korean customs". Even without direct payments the exporter may find himself paying for expensive entertainment.

The Confucian nature of Korean society means that a business relationship with a small company is also a personal relationship. With bigger companies the relationship would also be expected to transcend a simple profit and loss relationship.

The partner must also recognize the long term commitment that is needed, and must have contacts in the food business that know how to run a chilled distribution service.

6.3. Package

Packaging has two elements, the type of package and the design of the label or other material.

In focus groups, consumers criticized Canadian packaging as being unappealing.

Imported products which have done well in the Korean market have tended to have very distinctive packaging. A careful field study of existing packaging and how distinctive a competitive product the Canadian packaging is will indicate the potential and whether adaptation is required. Korean consumers are very sensitive to colour, materials and design.

6.4. Pricing

Consumers agree that price is an important signal of quality. Importers and the trade agree that quality product may be priced at up to twice the basic price without damaging its appeal. Importers, distributors and retailers will expect to share in the higher margin structure and this is their incentive to carry and promote this product. As noted Korean consumers are also willing to accept up to 100% higher prices for a quality cheese product. This has been demonstrated by new entrants into a wide range of processed food products.

6.5. Willingness to Modify the Product

Where Korean companies have sourced cheese from overseas they have flown taste panels to the originating country to get the taste right. Some cheese producers may resist this attitude, but will then need to carry out extensive taste tests in Korea.

7. How Do I Start?

7.1. Start as Simply as Possible

No potential exporter of cheese products should start without a week long visit to Korea. But this first visit should be well prepared without committing to an agency relationship first. It should include visits to several large food manufacturers, hypermarket buyers, the KTSC and one or two major hotel managers, and others in the food business.

The preparations would begin with fax contact with selected importers to see whether they have an interest in importing cheese products 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 a minimal response, and that one of two decisions must be made, to look for a suitable agent, or to attend a trade show or make an independent assessment.

• Agents may be found either by a professional consulting company, an embassy or a trade organization such as AFTAK.
• It is more likely that they will be the result of a trade visit. The next Canadian food trade fair will be held in Seoul in March, 2001.
• 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 inspect the market for cheese, visit some of the potential partners and distributors.

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

For cheese the biggest opportunity is certainly linking with Korean e-commerce which requires no in-country larger stock than a single container able to deliver to the central distribution point of the e-commerce partner.

E-commerce through a well visited cyber mall allows detailed merchandising to potential customers, offering cheese gift selection packs and other possibilities.

Warning If this site is run as an annex to the Korean site but administered by the Canadian company(i.e the click through moves seamlessly to a Canadian site) make sure that the server can handle a large number of hits simultaneously. Korea will have 30 million users on line and most popular Korean sites are unstable due to too many users.

In selecting an agent attention should be given to his proven track record, and to whether he has an organization which can deliver the product to the retail or HRI outlets, or whether he is only the first in the chain of middlemen. Note that the suggested price build-up in Table 9 allows for only two middlemen, an importer and a distributor.

Before leaving Canada an adequate supply of brochures and name cards(100 is not enough) should be prepared. At the same time at the start of the process, the company website should be reviewed. Current big Korean company and hypermarket practice is to look at the website on receipt of a fax or inquiry.

The Canadian company may be judged purely on its Canadian website and on this may hang the acceptance of a proposal for a meeting.

7.2 Attend the Next Canadian Trade Show

There is no better way to try to enter the Korean market than by exhibiting at the next Canadian Trade Show. In 2000 there were more than 450 visitors all interested in Canadian products. Importers could also exchange experience with one another and Embassy specialists.

7.3. Getting a Container Load Together

A single container of cheese would require about 40-60 outlets willing to take the product, or a major promotion to move the stock.

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

7.4. 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 actions 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:

• Paperwork not in order. The necessary documentation on contents are inadequate.
• Korean labels proposed for the product are too small or do not conform to specification.
• Products tested reveal minimal trace elements of proscribed products.

The most celebrated case was the change in shelf life.

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

• Change in local official
• Change in local regulations

2000 is predicted to be more difficult than 1998-1999 because the rise in imports will encourage nationalistic officials to look for ways to create problems, meaning that due diligence will be even more important, to avoid problems.

7.5. Regulatory Issues Check up

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 cheese HS0406 into Korea must not contravene the Livestock Processing Law & the Food Hygiene Law.

Tariff Rates

The tariff for cheese (HS0406) is 40% in 2000.

The tariff for cheese (HS0406-10, 20, 30, 40 & 90) are 37.6% in 2000.

Inspection of Goods

Inspection of goods is 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, and 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.

Appendix 1. Further Information on Import Procedures and Regulations

1) Local customs Commissioners or Directors may deploy a special inspection team for fast processing for "fresh food". Processed meat should not be included as "fresh food" but the discretion of local authorities in case of chilled products should be noted.

2) In principle, the inspection should finish within 5 working days from receiving the import report. The imported foods etc. subjected to incubation test such as canned or bottled foods and retortable pouched foods, and the other imported foods etc. subjected to inspection by special order from the Commissioner of Korea Food and Drug Administration, are exempted from the processing date limit.

3) 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. As noted this has not been applied to Korean processed meat products.

Inspection and Clearance Procedures for Foods

Diagram shows the inspection procedures.

The documentation required is:

a) Certificate of Quarantine by Orign Country
b) B/L
c) Import Declaration
Need to attachment of copy of Korean label
(manufacturing progress, Ingredient, shelf life)
d) Copy of Livestock Import Sales Certificate

1) Application for food safety inspection

Since 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 five days before the arrival of the shipment. In the case of processed meat this would normally be handled by the NVRQS.

The criteria and the types of inspection

a) Confirmation of safety

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

b) 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

c) Provision of consumer information

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

d) Ensuring the soundness of food

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

2) Procedures after rejection of food

a) 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

b) 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)

3) Improvement of the imported food product inspection system

a) 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.

b) 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 Data

Table 2-1. Import by Country of Origin:
0406 20 Grated or powdered cheese, of all kinds

Diagram 2-2. Processed cheese (0406 30) Imports by Country 1996-1999

Diagram 2-3. Processed cheese (0406 30) Imports by Country 1996-1999

Table 2-5. 10 High Ranked Cheese

Table 2-6. Imported Cheeses Rate by Countries

Appendix 3.

Appendix 4. Importers of Cheese

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

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