Factors affecting imported dairy product marketing margins in Korea : a thesis presented in partial fulfillment of the requirements for the degree of Master of Business Studies in Agribusiness, Massey University
Over the past decade, the Korean dairy industry has been affected by considerable reductions in non-tariff barriers as a result of trade liberalisation. The dairy marketing system in particular has had many regulations and barriers removed. The question arises as to the effect of trade liberalisation and reductions in protection on imported dairy product marketing margins in Korea. This study determined imported dairy product marketing margins in Korea and assessed how they had changed over the past 15 years. The most important factors responsible for the trends and fluctuations observed in those margins were identified and estimated. An attempt at a product-focused method was made on cheese and skim milk powder (SMP), which are generally representative of dairy products as a whole. Descriptive and econometric methods were both used to identify the most important determinants of the aggregate cost of processing and distributing imported dairy products. A cheese (MMCHE) model and a SMP (MMSMP) model were developed and estimated. The two models estimated cheese and SMP marketing margins respectively as functions of exchange rates, trade liberalisation, wage rates and transportation costs. Both models were estimated using standard and stepwise regressions. Results obtained from this analysis suggest that changes in earnings (wages) were the strongest influence on imported dairy product marketing margins during the past 15 years. However, these results cannot explain the fall in cheese and SMP marketing margins after 1995 as this coincided with a rise in wage rates. The increase in CIF (Cost of Insurance and Freight) prices for these products was largely responsible for the smaller margins. Because exchange rates are a large element of CIF price, it is believed that marketing margins were closely associated with the value of the exchange rate. Conclusions are based on descriptive indicators and an econometric analysis that examined the relationships between economic factors and marketing margins. The impact of trade liberalisation on imported dairy product marketing margins was mixed with other economic factors. This study concludes that trade liberalisation has not in general been associated with lower imported dairy product marketing margins in Korea. Labour costs (wages) appear to have been the most important influence on those margins during the period 1985-98.