Sustainable Farm Development in the Republic of Korea in a Global Economy

Abstract

The Republic of Korea will need to alter many of its national economic and agricul- tural policies to meet the requirements of new global trading agreements. One farm structure that is being encouraged is sustainable farms that use less inorganic fertilizer and pesticide. The main reasons for reducing pesticide and chemical fertilizers on rice, vegetable, and fruit farms are environmental and nutritional: to improve the quality of agricultural products and to protect drinking water supplies for large cities, including Seoul. Other reasons are economic. Korea has to import more than 80% of its food and agricultural products, and the present shortage of foreign currency contributes to a rapidly increasing trend in farm debt on all types of farms: only 20.4% of Korean farms were debt-free in 1997 (MAF 1998). The present goal of Koreas agricultural policy is to reduce pesticide and chemical fertilizer use on farms by 50%. Koreans consume about $120 million worth of organic food products annually, and this figure is grow - ing by between 30% and 40% per year (UNCTAD). The number of organic farms is increasing, and the government has promised to compen- sate farms which convert to organic methods for lower yields of production, one of several gov- ernment strategies which envisage even greater numbers of organic farms in the future. These structural adjustments to farms and businesses will have a significant impact on the agriculture industry. This study estimates the economic effects on farm household production of altering input levels and adopting sustainable farming techniques. A Cobb-Douglas production function was applied to derive production elasticities for farm input materials. The data come from a Ministry of Agriculture farm household economy sur- vey of 3,085 farms conducted between 1980 and 1997. The value of farm income was adjusted according to the Consumer Price Index, and the value of input materials was adjusted according to the Farm Input Materials Index. The results suggest that converting to sustainable organic farming methods would economi- cally benefit most farms. The coefficient estimate for pesticides was -0.9691, and the marginal value of production was 0.57 at the mean. The average farm management unit gains no advan- tage by applying more pesticide; in fact, it would benefit from reducing pesticide use. A 1% increase in pesticide cost would decrease farm income by 0.57%. The coefficient for chemi - cal fertilizers was 0.28, but was not significant at the 5% level. A 1% increase in the cost of chemical fertilizer would increase the level of farm income by 0.17%. The coefficient for farm machinery was 1.14. A 1% increase in the cost of machinery use would increase farm income by 0.74%. By reducing levels of chemical fertilizer and pesticide application and by adopting sustainable farming techniques, managers of Korean peasant farms could not only contribute to a healthier environment, but could also improve their management systems, reduce farm debt levels, and increase profits.