Agricultural Policies Structural Adjustment in NICS : Lessons from Korea - KDI 한국개발연구원 - 연구 - 보고서
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Working Paper Agricultural Policies Structural Adjustment in NICS : Lessons from Korea 1986.12.01


Series No. 8611

Working Paper Agricultural Policies Structural Adjustment in NICS : Lessons from Korea #시장구조 #산업연구: 농업 #한국 발전경험


  • KDI
  • KDI
In the initial stage of economic development in the early
1960s, government policy on rural development focused on
agricultural production increase through the improvement of land
productivity and the expansion of farm land to achieve
self-sufficiency in staple foodgrains.

From the late half of the 1960s, as a means of narrowing
the rural-urban income gap and promoting rural development,
this policy on rural development shifted towards the
enhancement of farm household income. Accordingly since the
late of the 1960s, applying the high farm price support program
and the fertilizer price subsidy program, the government began
to place emphasis on increasing farm household income.

Because small-scale farming is prevalent in Korea and its
farming system is expected to continue for some time in the
future, the price policy for agricultural products is not effective.
One reason is that the public funds transferred from non-farm
sector to agricultural sector through the subsidy program in
terms of per capita base of non-farm sector will be large
compared with advanced countries because a large proportion of
the total population in Korea still lives in rural areas. Another
reason is that the price elasticity of foodgrain production in a
small scale farming system is inelastic.

Thus from the early 1980s the main core of the farm
income policy was placed on the increment of non-farm income
in rural areas through rural industrialization. Even though the
high farm price support policy contributes apparently to increase
farm income, it accelerates the inflation. Thus because not only
the economic stability but also balanced regional development
can be achieved by the rural industrialization, as one of the
non-inflationary measures, the government has given policy
priority on rural industrialization.

The imbalance between rural and urban areas and among
regions has prevailed as the result of the past Korea's economic
development strategy which was mainly based on the
large-scale, urban-concentrated and capital-intensive
manufacturing industries. But we expect that the rural
industrialization which based on the development of small and
medium industries can create the rural non-farm employment
activities for promoting rural development and increasing farm

New comprehensive program which was enacted recently to
eliminate the shortcoming of the previous government programs
through rural industrialization seems to be more appropriate
measure to accelerate rural development and to improve farm
income. But considering the following restrictions, that is,

1) In contrast to the relatively decentralized pattern of
industrialization in Taiwan and Japan, industrialization in
Korea has been concentrated in the Seoul and Pusan
areas(Seoul, Pusan, Gyeonggi, and Gyeong Nam area),
2) Small commercial and service establishments, industrial
workshops, and homecraft activities have not developed in
rural areas,
3) A depletion of human capital in rural areas has occurred
as a result of migration form rural to urban areas,
4) A modernized credit system has not developed in rural
areas, and it has been extremely difficult to get credit for
rural non-farm activities, and
5) In contrast to the relatively well developed technical
infrastructure in primary cities, rural infrastructure has not
been developed, even of factories built in the newly
designated rural industrial parks under construction in the
optimum industrial sites are entitled to preferential
financial and tax treatment over a certain period, as well
as to technological and managerial guidance from the
government agencies, it is questionable that the rural
industrialization program for increasing rural income will
be successful.

Farm management diversification policy executed since 1983
was one of the government efforts to eliminate the risk of
decreased farm income which we experienced in 1980. This
policy option in the early 1980s was very reasonable and the
most appropriate measure because rice is the most important
single crop to give crucial influence on the determination of farm
income and on the national economy in Korea. In short run
under the small scale farming system it will be one of the
feasible options for maintaining farm household income. But it is
not desirable for the specialized commercial large scale farming
system in long run.

The government has offered every effort to increase
agricultural production for easing the shock from the poor crop
harvests in 1979 and 1980. Accordingly the production of the
crops included rice, barley vegetables and fruits except wheat,
soybeans, and foodgrains have been surplus. This production
policy has contributed considerable to expand and stabilize the
national economy in the early 1980s.

But in recent years as the self-sufficiency in stable food has
been achieved, the structural transformation of agricultural
production sector was required for efficient allocation of
production resources. Even if the international economic
cooperations, specialization and division of labor based on the
comparative advantage theory has become an important policy
option, the present agricultural production policy will be
maintained in near future period in Korea.

The government has established and enforced the institutes
to control domestic demand for and supply of foodgrains and to
stabilize grain prices for increasing farm income and protection
of the welfare loss of the urban consumers. This policy has
been reasonable in the period in which the size of national
economy was small and the disparity between demand for and
supply of main foodgrains had been prevailed.

During the period that the food supply was not sufficient to
meet food requirement, the government attempted to increase
farm products and to reduce consumption to keep the aggregate
demand and supply in balance. Thus the purchase prices should
be maintained at a relatively high level and the selling prices
must be kept at a relatively low level. The hish price of farm
products certainly contributes to increase farm revenue as well
as saving foreign exchanges through reduction in consumption.
But high farm prices have caused an upward pressure on
general price level and negative effects upon urban consumer's

The dual price policy, higher price for farmers and lower
prices for urban consumer, might have contributed to increase
farm income and at the same time to alleviate an upward
pressure on consumer prices. Also it caused government costs
for grain operation to increase at an accelerating pace.

Form 1980 the government began to adjust the dual price
system to eliminate the GMF deficit. Narrowing the price
differentials between purchase and selling prices, the government
has increased selling price enough to cover the handling cost
with low rate of increment in purchase price. What with national
economic stability, and what with extinction of the GMF deficit,
the government tried to adjust the dual price system. But this
policy gave negative effect for farmers to increase their income.
Ⅰ. Introduction
Ⅱ. Major Issues in the Agricultural Sector in the 1970s
1. Widened Income Disparity between Agricultural and
Urban Sectors
2. Relatively Slower Growth in Agricultural Value Added
Since the Late 1970s
3. Grain Management Fund Deficits
Ⅲ. Policy Development in the early 1980s
1. Policies for Increasing Farm Household Income
2. Policy Options for Increasing Agricultural Production
3. Policy Alternatives in Government Foodgrain Operations
for Reducing Grain Management Fund Deficits
Ⅳ. Summary and Conclusions
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