| Promoting Overseas Private Investments for Northern Economic Cooperation in the Agriculture Sector | |||
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| Author | Kim, Jongsun | ||
| Views | 81741 | Publication Date | 2020.03.04 |
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Research Background The Korean government has recently made efforts to promote overseas investment and capacity building of the private sector based on the New Northern Policy and Overseas Agriculture Development Policy. However, Korean agricultural companies with experiences of overseas investment have low settlement rates due to the reasons such as insufficient preliminary investigation, lack of accessibility toward local resources, including human resources and other facilities, and administrative and institutional burden. The purpose of this study is to analyze the current status of overseas investment by the Korean agri-food companies that are planning to enter or already entered the Northern countries, and to propose overseas agriculture development policies and strategies to activate private investment in the Northern countries. Research Methodology To identify the current status of agriculture and investment environment in the Northern countries, the research team analyzed the statistical data and reports from multiple institutions such as the FAO, World Bank, OECD, Heritage Foundation, International Transparency Organization and Korea Export-Import Bank. For the investigation of current status and performance of government-supported programs and companies, the research team conducted several interviews with relevant institutions such as the Korea Rural Community Corporation and Korea Overseas Agro-Resources Development Association. Also, the research team had a survey to ask the status of overseas investment, the performance of each company, policy satisfaction levels and other detailed information from the companies in the various stages of overseas agriculture investment. The survey has been conducted simultaneously by on-site visit (Uzbekistan, Kazakhstan, and Kyrgyzstan) and the online. Moreover, the external experts’ research to analyze Japan's overseas agricultural development policies and private investment cases in the agro-food industry was conducted. Findings The Northern countries can be divided by three groups: East region (Far East Russia, northeast China), Central region (Kazakhstan, Uzbekistan, Kyrgyzstan, Turkmenistan, Tajikistan, Mongolia) and Western region (Ukraine, Belarus, Armenia, Azerbaijan, Georgia, Moldova). Countries in the East region mainly produce grain(wheat, maize, soybeans), and the industries such as grain production, food processing and logistics can be a potential investment field. Countries in the Central region is famous for its production and export of the crops like wheat, cotton, tomatoes, and grapes. The major sectors which can attract investments are food processing (fruit and vegetable), seed industry and horticulture infrastructure. Lastly, in the Western region, crops such as wheat, grapes, potatoes, and livestock products are the main agricultural products and the investment for the agricultural facilities and processing of livestock products are highly expected. Considering the features of agricultural production and investment environment, Russia (East region), Kazakhstan (Central region), and Ukraine (Western region) can be a hub-country for each region. The Ministry of Agriculture, Food, and Rural Affairs of Korea has supported the expansion and settlement of Korean private Agri-food companies in other countries. The support program is classified mainly into a loan program and an assistance program. A loan program is designed to help the stable operation of Korean private companies abroad with the low interest (2%) and extended repayment period (10 years). An assistance program consists of environmental surveys for overseas investment, human resources development, provision of information and technical support. As of 2019, the total budget for the loan program was 119.7 billion KRW and the budget for the assistance program was 31.6 billion KRW. Also, in 2018, 184 companies declared overseas agricultural activities in 29 countries. In the case of Northern countries, the proportion of production-type firms with grains was relatively high compared with the other regions. In 2019, Korea developed 9 million ha of farmland abroad, produced 622 thousand tons of agricultural products, of which 47 thousand tons were imported to Korea. The problems of the government’s support program for overseas agriculture development lacks a monitoring system which can track the performance of supported companies and recent trend of international agriculture and food system. Concerning this problem, the Japanese government emphasizes cooperation among the government, academia and the private sector and focuses on indirect supports such as consulting service, trade insurance and loan supports. To analyze the status of overseas investment of Korean agricultural enterprises, the research team analyzed the business continuity of 184 overseas agricultural development report companies, and surveyed 58 companies in the post- and pre-investment stage including both unregistered and registered companies. Based on Kaplan-Meire survival analysis (1958) by country, firm type, investment type and scale, a firm with production-type, single entry and large scale of investment have a higher survival rate in the Northern countries. To see the impact of government policy and corporate features on business continuity, the research team conducted the analysis based on the Cox proportional hazards regression model (1972). According to the analysis results, the enterprises in Northern countries and enterprises supported by government policy tend to have a higher business continuity survival rate. According to the result of a questionnaire survey, most of the enterprises, which currently have a business in the Northern countries, are the production-type firms cultivating agricultural and livestock products. Compared with the period, the companies entering Northern countries before 2010 had a strong tendency to produce agricultural products on their own and bring them into Korea. However, the companies entering the market after 2011 tend to improve their business efficiency and profitability with diverse ways of entry, business type and marketing. Also, compared with the other regions, the companies in Northern countries tend to have an extended preparation period and smaller investment scale. Moreover, they prefer single entry and direct management system for their overseas business. Regarding the government-support program, the primary needs of the companies were ‘reflection of detailed needs from the private sector’ and ‘expansion of the range of support program and reduction of conditions and restrictions.’ Most of the companies in the Northern countries insist that they have difficulties due to the administrative burden, lack of business fund, market information and infrastructure. Notably, the international economic sanctions toward the Russian Federation has affected the overall economic depression in Northern countries, which hinders Korean companies from actively engaging in overseas agriculture development. In the case of companies that withdrew their business, most of them were processing-type firms. Regarding the reasons for withdrawal, the respondents answered ‘lower profitability and productivity,’ ‘lower credibility of local partner companies,’ ‘price and selling channels of their products.’ Most of the companies, preparing for their entry to the Northern countries, are engaged in agricultural infrastructure and farm materials. 81% of them were not registered as the overseas development companies and most of them were not aware of the registering system. Further, even if they knew about the system, they did not think it is necessary to be registered under the system. The primary difficulties they faced were a lack of market information and business funds. Also, most of the companies wanted continuous governmental supports based on the on-site supporting center. The major tasks for promoting overseas private investment in the Northern countries include fostering hub-countries in each region, improving the government-support program for overseas agriculture development, establishing overseas agriculture development information systems, and stabilizing agricultural investment cooperation systems. Firstly, based on the three hub countries representing each region, the alliance with ODA projects and the establishment of ‘on-site supporting center for agriculture investment and cooperation (tentative)’ should be considered. This can help to drive private investment from companies and reinforce the function of hub-countries as the center of logistics among the countries in each region. Secondly, to improve the government-support program for overseas agriculture development, the financing source should be changed into the FAFF fund of funds from Agricultural Policy Insurance and Finance Service for the stable and professional management of a loan support program. Also, the role and duties of each institution should be clarified regarding the implementation of a subsidiary program with the overall growth of the scale of the support program. For the establishment of the overseas agriculture development information system, it is necessary to provide timely and accurate information and statistics based on regular monitoring and need assessment from the companies. Lastly, to stabilize agricultural investment cooperation systems, the role of each actor should be clarified, which leads to the cooperation among the government, academia and the private sector such as in the case of Japan. Researchers: Kim Jongsun, Cha Wonkyu, Choi Jihyun, Park Chami, Won Jieun Research period: 2019. 1. ~ 2019. 10. E-mail address: sun589@krei.re.kr |
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