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FOO
D &
BEVERA
GE
FOOD & BEVERAGE
INVESTMENT OPPORTUNITIESIN KOREA
KOTRA자료 17-063
04 Industry Overview Definition and Scope Current State Industrial Competitiveness Industry Prospects
16 Locational Competitiveness Locational Status Foodpolis Location and Government Support
21 Government Policies and Regulations Government Policies and Incentives Related Legislation
25 Cost Cost and Labor Profitability
29 Success Cases of Foreign Investment
31 Related Companies and Associations
Contents
Most figures in this report are converted from KRW into USD based on yearly average exchange rates. But growth rates (e.g. CAGR and YoY growth rate) are calculated based on KRW to prevent any distortion caused by changes in exchange rates.
FOOD & BEVERAGEI N V E S T M E N T O P P O R T U N I T I E S I N K O R E A
Global Link to Success, Invest KOREA
4FOOD & BEVERAGE
INDUSTRY OVERVIEW01
5
Definition and Scope
In general, "food" refers to any natural substance or processed good that contains one or more nutrients.1)
• From an industrial point of view, however, the definition of food is limited to a substance made edible through
a certain degree of processing.
• Various legislation on the food industry, depending on their nature, use slightly different definitions for food.
- The Framework Act on Agriculture and Fisheries, Rural Community and Food Industry defines food as any
edible or drinkable agricultural or fishery product fit for human consumption, or any edible or drinkable
substance made from agricultural and/or fishery products.
- The Food Sanitation Act defines food as any type of edible or drinkable substance that is not intended for
medical use.
• In a broad sense, "food" refers to any fresh agricultural, livestock, or fishery product as well as any type of
manufactured product made from agricultural, livestock and/or fishery products; while "food" in a narrow sense
refers only to any processed or manufactured substance intended for human consumption.
The "food industry" refers to the industry centered on the processing and manufacturing of foods, and includes
the process of cooking, packaging, transporting, etc., prior to and following production.
• In other words, the food industry is an industry that covers the entire range of economic activities carried out by
all parties involved, including the production, importation, and delivery of foods to end consumers.
- The food transportation industry, the food storage industry, the food catering industry, etc., therefore, are all
components of the food industry.
- From an industrial point of view, however it is desirable to limit the definition of the food industry to the
secondary industry of food processing and manufacturing.
- The Korean Standard Industrial Classification (KSIC) system largely divides the food industry into the
manufacturing of food products and the manufacturing of beverages, which can then be further divided into
nine categories and 17 sub-categories.2)
1) Kim, Seong-min (2011), "Food Industry Policies and Clusters in Korea."2) Nine categories of the food industry: Slaughtering of Livestock, Processing and Preserving of Meat and Meat Products; Processing and Preserving of Edible Marine
Products; Processing and Preserving of Fruit and Vegetables; Manufacturing of Vegetable and Animal Oils and Fats; Manufacturing of Dairy Products and Frozen Desserts; Manufacturing of Grain Mill Products, Starches, and Starch Products; Manufacturing of Alcoholic Beverages; Manufacturing of Nonalcoholic Beverages and Ice; Manufacturing of Other Foods
INDUSTRY OVERVIEW
6FOOD & BEVERAGE
Scope of the Food Industry
Primary industry
Agricultural, livestock, and fishery products
Secondary industry
Food processing
Food manufacturing
Tertiary industry
Distribution services
Wholesale and retail services
Food industry in a narrow sense
Food industry in a broad sense
Food services
Source: Korea Institute for Industrial Economics and Trade (KIET), based on Kim, Seong-min (2011)
The food industry value chain covers food processing and manufacturing, and centers on food manufacturing
industries that use food ingredients and additives to manufacture and process foods.
• Industries involved in the production of basic ingredients (agricultural, livestock, and fishery products)
necessary for providing food ingredients, and input (fertilizers, feed, seeds, agricultural machines, etc.) that
supports the production of basic ingredients, are located upstream on the value chain.
• Meanwhile, industries located downstream include logistics, distribution and food services that supply
consumers with foods manufactured during the upstream process through distribution and sales.
Food Industry Value Chain
Source: Korea Institute for Industrial Economics and Trade (KIET), based on data from KPMG (2013)
Upstream Midstream Downstream
Input related to production of agricultural, livestock, and fishery products
- Fertilizer, feed- Seed- Agriculturalmachine,
etc
Production of agricultural, livestock, and fishery products
- Grain- Meat- Dairy products, etc
Wholesale distribution of agricultural, livestock, and fishery products
Import from the world’s 4 major grain companies (Cargill, ADM, Louis Dreyfus, and Bunge), etc.
Processing and manufacturing of food
- Processed meat- Dairy products- Bakery- Snacks- Beverages- Sources
Food distribution
- Large retailer- Food ingredients
distributor- Food Service- Feeding Service- Catering, etc
Consumer
7
Current State
Since 2008, the global market for processed foods has continued to grow at an annual average of 3%, as foods
are characteristically consumer staples that tend not to be affected by economic conditions.3)
• The global food market is estimated to have accounted for some USD 6.3 trillion in 2016, and is expected to
reach about USD 6.6 trillion by 2019.
- The global food market is much larger in scale than the global market for existing main manufacturing
industries, such as automobile, IT, steel, etc., and in comparison grows at a stable rate.
Global Food Market Scale and Prospects (USD billion)
7,316.2
6,601.9
6,939.9
6,298.36,598.56,491.2
6,147.7
6,559.2
8,000
7,500
7,000
6,500
6,000
5,500
5,0002012 2013 2014 2015 2016 2017(p) 2018(p) 2019(p)
Source: Korea Agro-Fisheries & Food Corp. (2016), "Main Food industry Statistics for 2016," based on data from Canadean (2016)
Global Market Size by Industry (USD billion, %)
Industry 2012 2015 2017 2019 CAGR(12-19)
Food 6,491.2 6,147.7 6,601.9 7,316.2 1.7
Automobile 1,099.4 1,252.6 1,427.2 1,577.1 5.3
IT 1,332.7 1,606.1 1,821.7 2,048.5 6.3
Steel 1,117.7 845.0 1,193.0 1,355.6 2.8
Source: Korea Agro-Fisheries & Food Corp. (2016), "Main Statistics on Food Industry in 2016," based on data from Canadean (2016) and Marketline (2015)
• The growth of the global food market is led by the Asia-Pacific market where many emerging and developing
economies, such as China, India, ASEAN, etc., are located.
- The Asia-Pacific region is estimated to have amounted to USD 2.04 trillion in 2015, accounting for around 33.2%
of the global food market, and that figure is expected to grow to 37% by 2019.
3) Kim, Seong-min (2011), "Food Industry Policies and Clusters in Korea."
INDUSTRY OVERVIEW
8FOOD & BEVERAGE
- In contrast, Europe and North America, which used to account for a significant portion of the global food
market, are currently showing stagnant growth.
Global Food Market Size by Region (USD billion, %)
Global markets 2012 2015 2017(p) 2019(p) CAGR (12-19)
World 649 615 660 7,31 1.7
Europe 228 198 207 224 -0.2
Asia-Pacific 199 204 232 271 4.5
North America 124 131 139 149 2.7
Central and South America
80.4 63.6 62.5 66.7 -2.6
Middle East and Africa 17.9 17.5 19 21.1 2.4
Source: Korea Agro-Fisheries & Food Corp. (2016), "Main Statistics on Food Industry in 2016," based on data from Canadean (2016)
• Processed meat products, which account for the highest percentage of processed foods, amounted to about
USD 660 billion in 2015.
- However, while the demand for processed meat products is expected to decline significantly, the growth
prospects of oils, fats and snacks will remain robust.
- Oils, fats, and snacks are representative of items that see a rapid increase in demand as the economy grows.
Their current prospects for growth are based on the high demands of Asia-Pacific consumers.
- Meanwhile, soft drinks, which make up the largest category of the beverages market, which in turn also
accounts for a significant portion of the processed foods market, is expected to grow to about 13% by 2019.
Global Food Market Categories (2015)
Baked goods 7.8%
Chocolate snacks 2.6%
Snacks 1.5%
Beer 9.2%
Beverage 13.4%
Others 32.0%
Spirits 10.4%
Dairy products 10.1%
Processed meat products 10.8%
Oil and fats 1.4%
Pasta(noodles) 0.8%
Source: Korea Agro-Fisheries & Food Corp. (2016), "Main Food Industry Statistics for 2016," based on data from Canadean (2016)
9
Korean food markets have rapidly grown since the 1970s due to rapid economic growth and the resulting
increase in consumer spending.
• Since 2005, Korean food industry production has grown at an average annual rate of 6.9%, reaching about USD
72,705 million in 2014.
- Household consumer spending has grown by more than 100 times, from KRW 25,000 (USD 20.8) in 1970 to
KRW 2.41 million (USD 2,008) in 2010.
- The Korean food market has only recently started to see a slowing down of growth, due to economic stagnation
and changes in demographics that has ensued since the outbreak of the global financial crisis.
Production Scale of the Korean Food Industry (USD million)
43,167 47,732 51,43643,836* 52,186
60,95570,194 73,261 72,705
2005 2006 2007 2008 2009 2011 2012 2013 2014
Foods Beverage Food & Beverage
Note: From 2007 to 2008, the USD amount decreased due to the exchange rate surge in 2008 (global finance crisis), but the actual production scale in KRW increased during the period
Source: Statistics Korea, "Mining and Manufacturing Industry Survey (on Businesses with 10 or More Employees)"
• Food manufacturing takes up a small portion of the Korean economy compared to other countries, meaning
there is still room for growth in the future.
- Korea only has about one quarter the number of food manufacturing businesses in France and one half of
those in Japan, while food shipments only equal about one half of the volume of the most advanced countries.
Importance of Food Industry in the Economy by Country (%)
Classification Germany Spain France Italy UK US Japan Korea
Share of businesses
15.7 14.8 28.2 13.4 5.9 10.3 13.5 6.9
Share of employees
12.6 18.4 20.2 10.7 15.0 13.9 14.7 6.6
Shipment volume share
9.4 21.6 18.3 13.4 17.7 14.7 8.3 4.7
Source: Statistics Korea, "Mining and Manufacturing Industry Survey (On Businesses with 10 or More Employees)"; US Census, "Annual Survey of Manufacturers," "County Business Patterns"; EUROSTAT, "Structural Business Statistics"; Japan Ministry of Economy, Trade and Industry, "Census of Manufactures."
INDUSTRY OVERVIEW
10FOOD & BEVERAGE
• In contrast, exports have recently increased significantly due to the popularity of Korean processed foods in
East Asian countries, including China.
- Korean food exports have increased rapidly since 2006 at an annual average rate of 10% to about USD 4.1
billion in 2015.
- Processed food exports had decreased considerably in 2015, but have recently seen growth, due to an upswing
in exports to Chinese-speaking countries and the rise of new export products.
- As always, cookies, noodles, alcoholic beverages, etc., continue to lead in processed food exports, with the
export of coffee, dairy products, beverages, etc., showing a significant rise.
- Exports to Chinese-speaking economies (China, Hong Kong, and Taiwan) have increased considerably, while
exports to Japan, once the biggest buyer of Korean food products, decreased.
Korean Food Industry Import and Export Trends (USD million)
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
5,4876,759
8,403
6,835
8,452
11,063 11,313 11,209 11,58110,795
1,740 1,893 2,230 2,3012,928
3,798 3,937 3,954 4,187 4,087
Exports Imports
Source: Korea International Trade Association
Korean Food Exports by Category and Market (2015) (USD million, %)
Category Export Percentage Market Export Percentage
Noodles 330.7 8.1 Japan 933.0 22.8
Alcoholic beverages 389.7 9.5 China 880.7 21.5
Beverages 293.6 7.2 US 512.1 12.5
Cookies 452.2 11.1 Hong Kong 265.8 6.5
Coffee 272.3 6.7 Taiwan 142.1 3.5
Sauce 173.7 4.3 ASEAN 854.4 20.9
Dairy products 166.2 4.1 EU 306.1 7.5
Source: Korea International Trade Association
11
A total of 251 cases of foreign direct investment (FDI) were made in the Korean food industry during the past
decade (2006–2015), amounting to about USD 1.27 billion.
• FDI in the food industry had increased considerably in 2010 and 2011, then decreased somewhat in 2013, but
has recently started to increase considerably again.
- In 2015, a total of 33 cases of FDI were made in the food industry, amounting to about USD 230 million.
- As if to reflect how characteristically small in scale the food industry is compared to other industries, about USD
5 million is invested per case (based on data cumulated over the past 10 years).
FDI Trends in the Korean Food Industry (no. of cases, USD million)
35
30
25
20
15
10
5
0
250
200
150
100
50
0
1816
23 23
32 32 32 33
24
18
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: Foreign investment statistics, Ministry of Trade, Industry and Energy, based on notification
• By region, Europe accounts for the highest proportion of FDIs in the Korean food industry, with a total of 56
cases made from 2006 to 2015, amounting to some USD 710 million.
- FDIs from Europe accounts for 56% of the total amount invested and 22% of all reported cases, signifying that
the region is by far Korea’s biggest FDI investor.
- Meanwhile, FDIs by Asian countries accounts for 56% of all reported cases and 14% of the total amount
invested amounts, suggesting that the Asian region’s FDIs in Korea were made on a relatively small scale.
FDI Trends in the Korean Food Industry by Region (no. of cases, USD million)
Classification Europe Asia Americas
Cases 56 140 57
Amount 709 180 375
Source: Foreign investment statistics by the Ministry of Trade, Industry and Energy
INDUSTRY OVERVIEW
Cases Amount
12FOOD & BEVERAGE
Industrial Competitiveness
Based on a broad definition of the agri-food industry that includes food products, Korea’s technological prowess
in that sector is thought to be about 70% of that of advanced countries.
• The technological prowess of advanced economies, such as the US, EU, Japan, etc., is about 85 to 95%, resulting
in a substantial gap with much lower figures for Korea, China, Taiwan, etc.
Food Industry Technological Competitiveness by Economy (the highest = 100)
100
80
60
40
20
0
Tech
nolo
gy le
vel
US EU Japan Korea China Taiwan
96.4
85.1 86.2
68.9
54.465.1
Source: Korea Institute of Planning and Evaluation for Technology in Food, Agriculture, Forestry and Fisheries (IPET, 2010)
• While overall the Korean food industry boasts a mid-upper level in R&D capacity, and relative technological
advantage in adding high value to processed foods, the country is still behind in terms of food safety
technology.
Korean Food Industry Capabilities by Technology (the highest = 100)
100
80
60
40
20
0
Tech
nolo
gy le
vel
New processing Distribution Functional ingredients
Food hazard factor detection
Food safety evaluation
Food hazard factor control
7585
7567 63 65
Technologies that add high value
Technologies that enhance food safety
Source: Korea Institute of S&T Evaluation and Planning (KISTEP) (2008)
13
Even if traditionally the Korean food industry has focused on domestic demand, lately it has been expanding in
scope to improve value chain efficiency and optimize conditions for entering global markets.
• Various food industry value chains exist for different parts of the world, either by item, or in terms of the supply
and demand of basic ingredients, manufacturing costs, logistics costs, or whether the item has entered export
markets.
- Value chains for the supply and demand of basic ingredients are highly dependent on foreign sources.4)
- One recent change in value chain management has been the increase in overseas production, particularly in
China and the ASEAN region where the demand for Korean processed foods is high.
Share of Overseas Sales of Main Food Companies (%)
Period Orion Corp. CJ Lotte Confectionery Nongshim Lotte
Chilsung Dongwon Lotte Food
2013 Q1 55.0 29.6 19.4 13.4 7.4 3.1 1.5
2014 Q1 57.1 27.6 23.2 15.8 8.5 2.8 0.6
Source: Financial Supervisory Service and business reports from each company
• While most activities in the value chain take place in Korea, overseas activities are also increasing in certain
fields, centered on products with high overseas demand.
- However, because it has predominantly been an industry for domestic demand, investments in the
development of new products and new food industries are also being made in Korea, while even export and
overseas market expansion decisions are being made based on domestic demand.
Characteristics of Korean Food Industry Value Chain Activities
Activity Characteristics
Production・Most products designed to meet domestic demand. ・More export products for China, etc. being developed recently.
Basic ingredient procurement
・Five main basic ingredients highly dependent on imports.・Vulnerable to international grain prices and exchange rate fluctuations.
Overseas production
・Localization taking place through overseas production, focusing on items with high overseas demand.・ Various overseas production systems exist to meet the needs of specific companies, where certain
items are localized by transferring the entire value chain, while in other cases the value chain has been transferred only partially, with the core activities of the value chain still being carried out in Korea.
R&D・�While R&D usually takes place in Korea, companies that have succeeded in localization to a certain
degree carry out R&D locally in order to develop products that better meet local demand.
New product development
・�Short product life cycles and rapid changes in trends make it necessary to continuously develop new products through R&D.
4) Reliance on domestic ingredients: wheat (10%), dry milk (20.6%), soybean (10.9%), corn (0.3%), tapioca (0%), etc. (Source: Korea Agro-Fisheries & Food Trade Corp.)
INDUSTRY OVERVIEW
14FOOD & BEVERAGE
Industry Prospects
The global food market is expected to continue on a path of stable growth, supported by a firm foundation.
• Developed countries have already reached maturity, and are only maintaining existing growth levels by making
up for the decrease in consumption with higher costs, mainly of high-value and highly functional foods.
- Meanwhile, developing countries in the Asia Pacific, Central and South America, and the Middle East, are
expected to increase their consumption of processed foods, and thereby lead the overall expansion of the
global food market.
- There is still room for global food companies to enter these markets as many local companies continue to suffer
from low competitiveness.
• The global food market is expected to increase by about 41% from 2015 to 2025, ultimately reaching USD 8.7
trillion.
- Changes in demographics are altering the food industry toward products with higher quality, minimal
packaging, and higher added value, etc.
- Also, the expansion of the convenience food market and distribution market, along with the growing demand
by the aging population for high functional foods are expected to raise the industrial value of food markets in
the future.
Global Food Market Outlook (USD billion, %)
2015 2020(e) 2025(e)CAGR
2015–2020 2020–2025 2015–2025
6,148 7,455 8,676 3.9 3.1 3.5
Source: Korea Institute for Industrial Economics and Trade (KIET), based on data from Canadean
Current State and Prospects of the Global Functional Food Market (USD billion)
639.4
CAGR 7.7%
346.4300.4283.4
2009 2010 2012 2020(p)
Source: Korea Health Supplements Association, KB Securities Co., Ltd
15
In response to the Korean market, which has entered a period of maturity, and fiercer competition, major food
companies are seeking ways to continue on a path of growth by expanding their export markets.
• The Korean food markets are structured in a way that encourages fierce competition and rapid changes in
consumer preference.
- As life cycles for food products are shorter than those of most other manufactured goods, the supply is
continuously evolving to meet changes in demand.
- Renewed interest in the food industry, increase in exports, growing public interest in food safety, and
advancements in processing technology are expected to improve overall productivity.
• The Korean food markets, evaluated at around USD 63.3 billion in 2015, are expected to grow to about USD 85
billion by 2025.
- The Korean food industry has grown steadily at an annual average rate of 3%.
- While exports have recently seen a slight increase, the Korean food industry is still typically heavily reliant on
domestic demand, which amounts to 95% of the entire industry.
- The Korean food markets account for less than 1% of the global food market, making it difficult to increase
production volumes unless the domestic market expands first, considering the close relationship between
production scale and market size.
- In response, the Korean food industry is currently trying to offset the decrease in quantity by diversifying
product lines and developing new high value-added products.
- Aggressive export promotion policies are also expected to accelerate industrial growth.
- With Korean food companies actively expanding overseas, increasing their export volumes, refocusing export
structures on high value-added products, striving to resolve non-tariff barriers in major exporting countries,
and expanding partnerships with foreign companies, the Korean food industry is expected to witness all-
around growth.
The Korean Food Market Outlook (USD billion, %)
2015 2020 2025
3.5 87.2
63.373.4
3.25
3
amount CAGR
Source: Korea Institute for Industrial Economics and Trade (KIET)
INDUSTRY OVERVIEW
16FOOD & BEVERAGE
LOCATIONAL COMPETITIVENESS 02
17
Locational Status
Businesses in the food industry are concentrated in areas where it is easy to procure basic ingredients, as the
industry is heavily dependent on basic ingredients.
• Upon analysis, many food manufacturers were found to be located in Gunsan, Iksan and Jeonju area, the Gumi,
Gyeongsan and Daegu area and the Gyeongju and Pohang area.
• Locational characteristics related to the supply and demand of basic ingredients, as well as proximity to
demand areas, are crucial when food manufacturers decide on locations.
- In particular, numerous food manufacturers were found to be located near the densely populated in the capital
area, such as in Gyeonggi-do, Incheon, and Gangwon-do.
Food Manufacturing Density by Region
Source: Kim, Yeong-su et al. (2014)
• Food manufacturers are distributed across the country in consideration of the supply and demand of basic
ingredients, as well as accessibility to demand areas, etc.
• Business clusters mainly form around leading companies in the relevant field.
LOCATIONAL COMPETITIVENESS
Legend
HH (Higher High)
HL (Higher Low)
LH (Lower High)
LL (Lower Low)
18FOOD & BEVERAGE
Food Manufacturing Density by Industry
Source: Kim, Yeong-su et al. (2014)
To discover new industrial values of the food industry and preemptively respond to quickly growing food
markets in the Northeast Asia, a food cluster is being built in Korea on the national level.
• Foodpolis is a national industrial complex in Iksan, Jeollabuk-do, jointly developed by the Ministry of
Agriculture, Food and Rural Affairs, Jeollabuk-do and Iksan, as a core infrastructure to promote the Korean food
industry.
- The Food Valley in the Netherlands, the Oresund Food Cluster in Denmark and Sweden, and the U.S. Napa Valley
were benchmarked in the process.
• To foster a global business-friendly environment, Foodpolis aims to be a smart food industry complex equipped
with the best infrastructure in transportation and logistics, water supply, IT and green energy.
- Foodpolis will be located in the midwestern city of Iksan, North Jeollabuk-do, within 50 km from the reclaimed
land in Saemangeum, Jeonju Innovation City, and Daedeok Science Complex.
- Centers of public administration (Sejong), production and distribution (Saemangeum), as well as research and
education (Jeonju Innovation City) will all be easily accessible from Foodpolis.
Fishery Product Processing
Beverage ManufacturingDairy Product Processing
Meat Processing
Legend
HH (Higher High)
HL (Higher Low)
LH (Lower High)
LL (Lower Low)
19
Honam Expressway
Seohaean Expressway
Iksan-Pohang Expressway
Honam Expressway(KTX)
Iksan
Incheon International Airport(180 min)
Incheon Harbor(150 min)
Pyeongtaek Harbor(100 min)
Dangjin Harbor(60 min)
Gunsan Harbor(40 min)
Gunsan Airport(50 min)
Gwangju Airport(70 min)
Saemangum Harbor(50 min)
Gyeonggi-do
Seoul
Gunsan JeonjuDaegu
Busan
Gwangyang
Mokpo Yeosu
Pohang
Gwangju
Gangwon-do
Chungcheongnam-doGyeongsangbuk-do
Gyeongsangnam-do
Jeollabuk-do
Jeollanam-do
LOCATIONAL COMPETITIVENESS
Foodpolis Location
Source: Kim, Yeong-su et al. (2014)
Foodpolis Location and Government Support
To help domestic and foreign food companies foster a high value-added market, an R&D center will be built
inside Foodpolis, along with a one-stop support system for the entire food manufacturing process.
• A low-cost, high-efficiency distribution system will be established by selecting full-service distribution
companies capable of supporting resident food companies.
- Locational strengths include connections to main national roads, railroads, as well as air and sea ports.
20FOOD & BEVERAGE
• Foodpolis will play a pivotal role in national food R&D.
- A close R&D network will be fostered with the adjacent Daedeok Science Complex, Sejong Government
Complex, and six R&D institutes in Jeonju City.
• An efficient human resources matching system will be launched to connect food companies with professionals
seeking jobs.
- Human resources training will be customized for each company through opportunities in industry–university
cooperation research, internship programs, and food academies.
A financial support system will be established by the Korean government, providing one-stop optimized
support for food businesses.
• National and regional tax exemptions
- National tax exemptions: corporate tax and income tax (100% for 5 years, 50% for 2 years thereafter).
- Regional tax exemptions: acquisition tax (100%), property tax (100% for 5 years, 50% for 3 years).
• Various subsidies will be offered in relation to investments, employment, and training.
Government Subsidies for Foodpolis
Subsidy Details
Investments
Large-scaleJeollabuk-do: within 10% of investments that exceed KRW 1 billion, KRW 10 billion maximum.
Iksan: within 5% of investments; KRW 10 billion maximum.
GeneralJeollabuk-do: within 10% of investments that exceed KRW 1 billion; KRW 5 billion maximum.
Iksan: within 5% of investments that exceed KRW 1 billion; up to KRW 5 billion.
Employment
Jeollabuk-doKRW 1 million for every person hired after the workforce reaches 20 employees, every month for 6 months, and up to KRW 1 billion per company.
Iksan-siWhen employing more than 20 employees, KRW 0.5 million for every person hired after the workforce reaches 20 employees, every month for 6 months, and up to KRW 200 million per company.
Education and training
Jeollabuk-doUp to KRW 0.5 million for every local resident newly hired after the workforce reaches 20 employees, for 6 months, and up to KRW 500 million per company.
Iksan-siUp to KRW 0.5 million for every local resident newly hired after the workforce reaches 20 employees, for 6 months, and up to KRW 200 million per company.
EmployeeSettlement
Jeollabuk-do KRW 0.1 million per employee, each month, up to 1 year (for large-scale investments).
Small and medium businessesSubsidies for facilities and transportation (Jeollabuk-do), market development, and marketing activities (Iksan).
Source: Foodpolis website
• A support system will be built that meets the needs of resident businesses.
- Customs procedures will be simplified.
- Resident companies will be given priority when using the six support facilities inside Foodpolis: the Food
Quality Safety Center, the Food Functionality Support Evaluation Center, the Food Packaging center, the Pilot
Plant, the Food Venture Center, and the Foodpolis Support Center.
- A total of 10 business support programs will be provided (in relation to human resources, exports, R&D and
connections with the agricultural industry, with priority given to resident companies).
21
GOVERNMENT POLICIES AND REGULATIONS03
GOVERNMENT POLICIES AND REGULATIONS
22FOOD & BEVERAGE
Government Policies and Incentives
The Basic Plan for Food Industry Promotion of the Ministry of Agriculture, Food and Rural Affairs was established
in 2011 with the vision to nurture global food companies that lead in agricultural and fishing industries.
Basic Plan for Food Industry Promotion
Category 2009 → 2017
Food industry sales KRW 1.31 trillion → KRW 2.45 billion
Agri-food exports USD 4.8 billion → USD 20 billion
Employment in the food sector 1.76 million → 2 million
• Objectives
- Transforming the food industry into a new national growth engine by expanding related infrastructure.
- Establishing a virtuous cycle for mutual growth between agricultural, fishing, and food industries.
- Developing new overseas markets and new strategic products.
- Improving the image of Korea’s agri-food industry by reinforcing food services for the public.
Tasks for Food Industry Promotion
Task Details
Food R&D•Developing 18 core technologies in consideration of technology level, marketability, etc.•�Expanding national R&D investments that befit the scale of the food industry (to 3% of
food manufacturing sales by 2020).
National food clusters •Creating R&D and export-oriented food complexes
Professional training •Training 100,000 food industry employees by 2017
Statistics and data management•�Developing a comprehensive database on foods and restaurants; making the database
more accessible to users.
Private investment•�Attracting private investments through investment in agri-food funds (up to KRW 402.5
billion until 2017).
Agriculture, Fishery and Foods Business Support Center
•�Providing consultation services and comprehensive support on exports and marketing for businesses in agricultural, fishery and food industries through the aT Agriculture, Fishery and Foods Business Support Center.
Systematic procurement of basic ingredients
•��Raising the target for food self-sufficiency rates, and developing overseas grain procurement systems.•�Developing national grain procurement systems by establishing grain companies abroad.
23 GOVERNMENT POLICIES AND REGULATIONS
The Agriculture, Fishery and Foods Business Support Center was established at the Korea Agro-Fisheries & Food
Trade Corp. (aT) to nurture and support food companies.
• Professional training for food industry employees.
- Training food specialists who will promote the food industry and reinforce its competitiveness by forging
connections with agricultural and fishing industries.
- Training experts in each food industry sector and serving as a control tower for all food specialist training
institutions in Korea.
- Employees in food manufacturing, processing, distribution, exporting or catering business, as well as farmers’
and fishermen’s associations, etc., are eligible for training.
- Regular program: KRW 3.5 million in education fee per person, KRW 1.9 million from national funding.
- Short program: KRW 100,000 per person (for 1 day), KRW 180,000 per person (for 2 days), and KRW 280,000 per
person (for 3 days), all from national funding.
- Department in charge: aT Agri-food Distribution Training Institute Food Training Team.
• Consultation services regarding food management and technologies.
- Specialized consultation to raise business competitiveness by helping small and medium food manufacturers
streamline management and improve technology in response to the changing environment.
- Services offered to Korean food manufacturing and processing businesses.
- Support for improving management: 50% of consultation expenses regarding small-scale HACCP designation,
product nutrition design, shelf-life setting, online marketing design, etc.
- Support for continuous growth: 50% of consultation expenses regarding ISO22000, health functional food,
GMP certification, etc. (up to KRW 10 million per company).
- Department in charge: aT Consultation Team.
• Consultation services on building a foundation for exports.
- Consultation for businesses hoping to build a foundation to expand Korean agri-food exports.
- Services offered to Korean agriculture and fishing corporations, food manufacturing and processing businesses,
agri-food wholesale business, etc.
- 50% of consultation expenses will be provided, regarding market development, trade business practices,
localization, etc. (up to KRW 10 million per company).
- Department in charge: aT Consultation Team.
24FOOD & BEVERAGE
Related Legislation
The Food Industry Promotion Act aims to promote the sound development of the Korean food industry by
reinforcing its connection to agricultural and fishery industries, and ensure the stable supply of various quality
foods by enhancing the competitiveness of the food industry, and thereby contribute to national economic
development.
Main Legislation of the Food Industry Promotion Act
Regulation Details
Article 4 (Establishing a Master Plan to Promote the Food Industry)
The competent minister shall formulate and implement a master plan concerning the promotion, etc., of the food industry in order to promote the food industry and to increase its competitiveness.
Article 22-2 (Origin Certification for Processed Foods and Restaurants)
The competent minister may operate an origin certification system for processed foods, restaurants, etc. in order to promote the joint development of the agriculture and fishery industry and the food industry, as well as to reinforce the reliability of the origin of foods made by processing or cooking agricultural and/or fishery products.
Article 24 (Designation, Etc. of Agencies for Quality Food Certification)
The competent minister may certify, by field, businesses equipped with outstanding human resources, facilities, etc., and subject them to regular inspections.
Article 31 (Tax Exemptions)
In order to effectively implement policies for promoting the food industry under this Act, the national government and local governments may reduce or exempt taxes imposed on food business operators, as prescribed in the Restriction of Special Taxation Act and the Restriction of Special Local Taxation Act.
The Food Sanitation Act aims to ensure food hygiene, promote the qualitative improvement of food nutrition,
and provide accurate information on food products.
Main Legislation of the Food Sanitation Act
Regulation Details
Article 6 (Prohibition against the Sale of Chemical Synthetics, Etc., with
Unspecified Standards or Specifications)
The use of chemical synthetics with unspecified standards or specifications, and substances containing such chemical synthetics, as food additives is prohibited.
Article 7 (Standards and Specifications Concerning Foods or Food Additives)
The Minister of Food and Drug Safety shall determine and publicly announce amendments to the Act concerning foods or food additives for sale, if necessary for public health.
Article 7-3 (Request, etc. for the Establishment of Residue Limit Standards
for Pesticides, etc.)
Any person who needs to establish limits for residual pesticides under the Pesticide Control Act, or veterinary drugs under the Pharmaceutical Affairs Act, for food products must file an application through the Ministry of Food and Drug Safety.
Article 11 (Food Nutrition Labelling, Etc.) The Ministry of Food and Drug Safety may determine and publicly announce standards for the nutrition labeling of food as prescribed by Ordinance of the Prime Minister.
25
COST 04
COST
26FOOD & BEVERAGE
Cost and Labor
In the food manufacturing industry, productions costs account for 78% of average sales, while production costs
in the beverage manufacturing industry accounts for only 57% of average sales.
• This reflects the characteristics of the beverage manufacturing industry, which requires larger facilities and
equipment than the food manufacturing industry.
- The beverage manufacturing industry, composed of alcoholic and nonalcoholic beverage manufacturing
businesses, is dominated by a small number of companies, making it more difficult for new businesses to enter
the market than in the food manufacturing industry.
- A clear difference in cost structure exists between food and beverage manufacturing because of the structural
characteristics of each stated above.
Production Cost to Sales Ratio of Food Industry (%)
Food manufacturing Beverage manufacturing
78.0 77.8
56.9 57.5 56.5 57.256.3 57.7
79.2 79.1 78.7 78.6
90
80
70
60
502009 2010 2011 2012 2013 2014
Source: Company Management Analysis, Bank of Korea
• Food manufacturing requires a higher percentage of spending on ingredients than beverage manufacturing,
while the opposite is true for labor and advertising expenses, etc.
- In 2014, spending on ingredients and labor expenses in food manufacturing took up 68.6% and 5.4%,
respectively, of all production costs.
- In beverage manufacturing, however, spending on ingredients and labor expenses accounted for 60.7% and
13.7%, respectively, of the total production costs, whereas a considerable portion of the production costs,
12.5%, was used on advertising.
- This is reflective of the current beverage industry structure as an oligopoly dominated by a small number of
companies.
27 COST
Food Industry Expenses (%)
Food manufacturing Beverage manufacturing80
60
40
20
0
Prop
ortio
n
Labor Advertising R&D Ingredients
60.768.6
12.52.45.4
13.7
0.10.3
Source: Company Management Analysis, Bank of Korea
In 2014, the food industry hired about 195,000 employees, accounting for about 6.7% of employment in all
manufacturing industries.
• At about 93%, food manufacturing accounts for the predominant share of employment in all food industries.
• In contrast, a food manufacturing company hires around 38 employees, while a beverage manufacturing
company hires an average of 52 employees.
- This reflects how the beverage manufacturing industry is composed of a few companies over a certain size,
unlike the food manufacturing industry which is composed of numerous small companies.
- The annual wages also reflect this difference, where, the average per capita annual wages in food and beverage
manufacturing were KRW 26.9 million and KRW 40.5 million, respectively, in 2014.
Food Industry's Employment Size and Proportion to Manufacturing Industry(no. of employees, %)
200,000195,000190,000185,000180,000175,000170,000165,000160,000155,000150,000
7.0
6.8
6.6
6.4
6.2
6.02009 2011 2012 2013 2014
6.7
6.56.5
6.6
6.8
Source: Mining and Manufacturing Industry Survey, Statistics Korea
Employment Status and Wage of Food Industry
Industry Employees Per Company Annual Wage Per Capita (USD)
Food manufacturing 38.4 23,780
Beverage manufacturing 51.8 35,802
Source: Mining and Manufacturing Industry Survey, Statistics Korea
Employment size Proportion against Manufacturing Industry
28FOOD & BEVERAGE
Profitability
In 2014, the average operating profit rate was only 3.1% for food manufacturing, while the figure for beverage
manufacturing was higher at 11.6%.
• In 2009, the profit rates of food and beverage manufacturing were 5.1% and 15.0%, respectively, although both
figures have slightly decreased as of 2014.
Food Industry Operating Profit Rates by Year (%)
Food Manufacturing Beverage Manufacturing
5.16.5
12.2 11.6
14.2
11.6
15.0
6.5
3.6 3.6 3.5 3.1
2009 2010 2011 2012 2013 2014
20
16
12
8
4
0
Source: Company management analysis, Bank of Korea
• Domestic food companies are substantially less capable of making profits than their global counterparts.
- According to a survey by Forbes, the operating profit rate of CJ, the largest food company in Korea, was only 1.1%.
However, the operating profit rates of leading global food companies exceeded 10%.
Leading Global Food Company Sales and Profits (USD billion, %)
Company Country Sales Profits Profit Rate
Nestle Swiss 92.2 9.4 10.2
AB InBev Belgium 43.6 8.3 19.0
Coca-Cola US 43.5 7.3 16.8
CJ Korea 18.7 0.2 1.1
Source: Forbes’ 14th annual Global 2000
29
SUCCESS CASES OF FOREIGN INVESTMENT
05
SUCCESS CASES OF FOREIGN INVESTMENT
30FOOD & BEVERAGE
Recently, foreign investments are increasing as Korea becomes a more attractive location to do business due to
an excellent commercial environment, and the rise of China and other newly developing countries in the region.
In particular, efforts through Korea’s national food industry cluster Foodpolis have been attracting the interests of
global food companies.
Gold of Praque
Gold of Prague, a beer manufacturer in the Czech Republic, directly invested in constructing brewing facilities
on a 16,500 m2 site in the foreign investment zone within Foodpolis as a stepping stone to enter the greater
Northeast Asian beer market.
The site can be used for up to 50 years (contract renewal required every 10 years) for an annual rent equaling
1% of the land acquisition value, where 75 to 100% of the rent may be exempted, depending on the size of the
investment and employment, and use of Korean basic ingredients, etc.
The decision to invest was made in consideration of the various business support systems and incentives of
Foodpolis, a government-led food industry complex complete with an R&D system and an environment that
fosters synergy among resident companies.
Also important in the decision was its excellent location, especially the close proximity to Gunsan Port, etc.,
making it easy to access the Chinese market, as well as to clean water supply, which is essential in manufacturing
beer.
Corebio, Inc.
Corebio is a fermented beverage manufacturer established with capital investments from a Russian company
and technological investments from the U.S.-based Capital Kombucha.
Corebio is scheduled to build production facilities (across 23,140 m2 of land, investing USD 4.5 million) in the
foreign investment zone within Foodpolis in order to enter Chinese and other Northeast Asian fermented
beverage markets.
Like Gold of Prague, Corebio based its investment decision on various benefits, such as the different rent waivers,
subsidies for investment and employment, etc., offered through Foodpolis depending on future investment size.
31
RELATED COMPANIES AND ASSOCIATIONS
06
RELATED COMPANIES AND ASSOCIATIONS
32FOOD & BEVERAGE
List of Related Companies
Name Main Items Website Location
CJ Cheil Jedang Sugar, processed meats, instant foods, etc. www.cj.co.kr Seoul
Lotte Chilsung Beverage Co., Ltd. Beverages company.lottechilsung.co.kr Seoul
Nongshim Co., Ltd. Noodles, such as instant noodles, pasta, etc. www.nongshim.com Seoul
Ottogi Co., Ltd. Instant noodles, processed marine products, etc. www.ottogi.co.kr Gyeonggi-do
Lotte Confectionery Co., Ltd. Cookies, instant cocoa, etc. www.lotteconf.co.kr Seoul
Lotte Foods Co., Ltd. Frozen desserts, processed meats, etc. www.lottefoods.co.kr Seoul
Hitejinro Co., Ltd. Alcoholic beverages, such as soju, beer, etc. www.hitejinro.com Seoul
Daesang Co., Ltd. Starches, sauces, processed meats, etc. www.daesang.co.kr Seoul
Dongwon F&B Co., Ltd. Processed marine products, dairy products, etc. www.dongwonfnb.com Seoul
Maeil Co., Ltd. Dairy products, instant coffee, etc. www.maeil.com Seoul
Namyang Dairy Products Co., Ltd. Dairy products, instant coffee, etc. company.namyangi.com Seoul
Samyang Corp. Sugar, starch, etc. www.samyangcorp.com Seoul
TS Corporation Co., Ltd. Sugar www.ts.co.kr Incheon
Samlip General Food Co., Ltd. Bread, baked goods, etc. www.spcsamlip.co.kr Gyeonggi-do
Binggrae Co., Ltd. Frozen desserts, dairy products, instant coffee www.bing.co.kr Gyeonggi-do
Harim Co., Ltd. Processed meats www.harim.com Jeollabuk-do
Haitai Confectionery & Foods Co., Ltd.
Cookies, instant cocoa, etc. www.ht.co.krChungcheongnam-
do
Orion Co., Ltd. Baked goods, cookies, etc. www.orionworld.com Seoul
Sajo Haepyo Co., Ltd. Animal and vegetable fats and oils hp.sajo.co.kr Seoul
Crown Confectionery Co., Ltd. Cookies, instant cocoa, etc. www.crown.co.kr Seoul
Sajo Daerim Co., Ltd. Processed marine products dr.sajo.co.kr Seoul
Daehan Flour Co., Ltd. Processed grain products, such as flour www.dhflour.co.kr Seoul
Hansung Enterprise Co., Ltd. Processed marine products www.hsep.com Busan
Samyang Food Co., Ltd. Noodles such as instant noodles, pasta www.samyangfood.co.kr Seoul
Sajo Seafood Co., Ltd. Processed marine products sf.sajo.co.kr Seoul
Muhak Co., Ltd. Soju www.muhak.co.krGyeongsangnam-
do
Maniker Co., Ltd. Meat processing www.maniker.net Gyeonggi-do
Sempio Co., Ltd. Sauces such as soy sauce, soybean sauce www.sempio.com Seoul
CJ Seafood Co., Ltd. Processed marine products www.cjseafood.net Gyeonggi-do
Source: Food Industry Statistical InformationNote: Listed in order of sales (as of 2015)
33 RELATED COMPANIES AND ASSOCIATIONS
List of Related Associations
Name Website Main Roles
Korea Food Industry Association
www.kfia.or.krProviding food industry information, food safety training, support for the establishment of the government policies, support for entering foreign markets, etc.
Korea Dairy Industries Association
www.koreadia.or.krContributing to the development of the milk processing and dairy industries, greater milk and dairy consumption , greater demands for raw milk and dairy products, and providing support for entering foreign markets, etc.
Korea Health Supplements Association
www.hfood.or.krConducting research on policies, making policy suggestions, promoting health supplements to the public, participating in government-entrusted projects, etc.
Korea Rice Foodstuff Association
www.krfa.or.krManaging the supply and demand of rice for processing, promoting rice consumption, contributing to industrial development, conducting research, etc.
Korea Alcoholic Beverage Industries Association
www.kalia.or.krContributing to the development of the alcoholic beverage industry, conducting research, promoting alcoholic beverages to the public, etc.
List of Companies of Related Industries
Name Main Items Website Location
Lotte Shopping Co., Ltd.Department stores and large
discount storesstore.lotteshopping.com Seoul
E-Mart Inc. Large discount stores www.emartcompany.com Seoul
GS Retail Co., Ltd. Convenience stores www.gsretail.com Seoul
BGF Retail Co., Ltd. Convenience stores www.bgfretail.com Seoul
Hotel Shilla Co., Ltd. Comprehensive retail www.hotelshilla.net Seoul
CJ Fresh Way Co., Ltd.Distribution and wholesale of
processed foodswww.cjfreshway.com Gyeonggi-do
Shinsegae Department stores www.shinsegae.com Seoul
Hyundai Green Food Co., Ltd.Distribution of food and food
ingredients www.hyundaigreenfood.com Gyeonggi-do
Hyundai Department Store Co., Ltd. Department stores www.ehyundai.com Seoul
Dongsuh Companies, Inc. Distribution of food ingredients www.dongsuh.com Seoul
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FOO
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ISBN 979-11-6097-316-7 (95320)
