Investment in land and water in the Republic of Korea - Hong Sang Kim

Kim, Hong - Sang, Research Fellow

Korea Rural Economic Institute, Seoul

INTRODUCTION

For the Korean government, ‘food security’ has been a centrally important agricultural policy. The critical importance of food security was widely understood when people went through the Korean War during the 1950s. In 1990s, it was issued again under the pressure of WTO system of opening the Korean rice market and of increasing movement of international grain prices.

Korea has the lowest grain self - sufficiency rate among OECD members. In 1996, Korea’s self - sufficiency rate of all grains dropped to the lowest rate of 26.4 percent (excluding those for feed use, 52.4 percent) since 1970s. After the 1970s, the self - sufficiency rate of rice, the most important crop in Korea, has been relatively increased at an annual average of 95 percent. It’s mainly due to the consistent efforts of Korean government for increasing and maintaining self - sufficiency of rice. The rate has been above 100 percent since 1999 and the inventory level of over - stocked rice is currently at issue in Korea.

For the goal of rice self - sufficiency, the Korean government has focused on the construction of farmland systems, and the investment in agricultural land and water development. Therefore, the main aim of the investment in agricultural land and water development in Korea can be said to “Mobilize Resources to Fight Hunger” one of two themes for the forthcoming World Food Summit: five years later (WFS: fyl).

The main purpose of this paper is to explain the historical contents of the agricultural land and water development projects in Korea. In addition, this paper will discuss the economic returns and lessons from the projects with the related systems and policy directions.

OVERVIEW OF CURRENT AGRICULTURAL LAND AND WATER DEVELOPMENT PROJECTS

Outline of main projects

Under the WTO system, the government regards “agricultural land and water development projects (investment in land and water)” as the most fundamental way to boost agricultural competitiveness and to maintain self - sufficiency of rice. The MAF (Ministry of Agriculture and Forestry) assigns about 30 percent of the agricultural budget for the agricultural land and water development projects.

The main projects, among all of the agricultural land and water development projects executed by Korean government, are land consolidation, irrigation water development, upland improvement, on - farm road improvement, drainage improvement, repair of irrigation facilities, large scale area development, and soil improvement project.

Land consolidation

The main purpose of land consolidation is enlarging lot size by collectivizing small lots of arable land which are irregularly scattered around, building irrigation canals and drainage canals, and improving on - farm roads. Land consolidation project is classified into two types: small - scale land consolidation (general type of land consolidation in Korea) and large scale land consolidation.

Small - scale land consolidation is the most general and oldest way of land consolidation in Korea. It aims at constructing the base for rice self - sufficiency by increasing land productivity and reducing labour hours for farming. It is classified into several types by size of lot such as 0.1ha, 0.2ha, 0.3ha, 0.4ha and 0.5ha.

Large - scale land consolidation is a newly adopted policy since 1994 under the changed environment of rice production. Although this policy has same goal, it aims at increasing the efficiency of farming machines use. For this, the size of already consolidated early lots was doubled to its previous size. This change of lot size allows easy access of large farming machines with enlarged farm roads. The minimum lot size of large - scale land consolidation is 1 ha (in 1999, the average farm size per household of the Republic of Korea was 1.37ha, and the average rice paddy field size per household was 1.0ha). This project costs about 25 million won (US$20 000)/ha. The financial source of large - scale land consolidation is special government tax named by “Special Tax Act for Rural Development.” This tax has been enforced since 1994 to cope with the pressure of WTO scheme.

In addition to small - and large - scale land consolidation projects, there is a third type of land consolidation. Recently, simple land consolidation is being tested. Its goal is reducing the size of idle land such as unfavourably suited arable land. The cost of this project is generally about one - fifth that of other land consolidation projects. However, it is very difficult to achieve good results.

Irrigation water development

Irrigation water development project is used to increase the utility of agricultural water supply and the percentage of irrigated paddy fields. To this end, reservoirs and pumping stations are built in areas of frequent drought. This project can be categorized into two projects such as “large scale water development” and “small - scale water development.”

Large scale water development projects means developing agricultural irrigation facilities in frequent drought areas where the size is more than 50 ha to establish an agricultural basis. Meanwhile, small - scale water development includes small - scale surface water development and water development against drought. The main target of small - scale surface water development is additional facility patch on an irrigation benefited area. On the contrary, the target of water development against drought is partially irrigated paddy fields.

Drainage improvement

The drainage improvement project is for improving surface and ground water drainage. To avoid water flood damages of agricultural products, improving the surface and ground water drainage facilities (such as drainage pumping stations and drainage canals) are playing a key role in agriculture. Obviously, these projects support additional increasing returns of farmland by making vinyl house agriculture and the like possible.

Repair of irrigation facilities

Repair of irrigation facilities is replacing outdated or inefficient facilities to prevent damage and to save enough agricultural water flow. Dredging reservoirs is included in this project.

Upland improvements

Upland improvement projects help farmers voluntarily respond to the growing demand for upland crops and to strengthen the competitiveness of these crops. This project especially ensures the absolute size of paddy fields. Due to the upland improvement project, farmers don’t need to discard their rice planting on paddy field for a high economic return from upland crops. Thus this project could be interpreted as a policy for stabilizing rice production. This project deals with irrigation facility development, on - farm road improvement, upland consolidation and so on.

On - farm road improvement

On - farm road improvement project is related to mechanization trend of agriculture. Improved on - farm road would facilitate an access of various agricultural devices. In addition, this project allows prompt connection between production fields and food processing fields. This project is usually conducted on already consolidated farmland.

Comprehensive land and water development initiated by local autonomy

This project concerns wide variety of agricultural water uses based on locally owned river basin. Under the project, each local river basin is widely upgraded to improve agricultural productivity. In addition, beside of agricultural water uses, this project concerns residential and industrial water uses. Thus, this project includes a lot of various policy issues and specified plans.

Soil improvement

Soil improvement project is executed to increase land productivity and improve quality of product by inputting soil conditioners on acidified arable land. This project needs relatively less cost than other projects.

Recent annual budget of main agricultural land and water development projects

The budget of agricultural land and water development projects increased until 1998 (see Table 1). In 1998, the annual budget of agricultural land and water development projects was about 2 290 billion won (about US$2 billion). However, the total budget has decreased from 1999. During the 1990s, the budget for land consolidation was considerably decreased but the budget for irrigation facilities has been increased continuously since 1994.

TRENDS AND OUTCOMES OF AGRICULTURAL LAND AND WATER DEVELOPMENT PROJECTS

Agricultural land and water development projects have been continuously executed by the Korean government since 1946. These projects have contributed to increase the productivity of arable land. As of the end of 1999, 878 000 ha of paddy field were irrigated and 802 000 ha were consolidated from Korea’s total paddy field of 1 153 000 ha (76.2 percent and 69.6 percent of total paddy filed respectively). From 1946 to 1999, slopeland reclamation projects were executed on 189 000 ha and contributed to enlarging uplands to 746 000 ha.

Tables 2 and 3 summarize the executed main agricultural land and water development projects and their cost from 1946 to 1998 (repair of irrigation facilities, surveys and natural disasters are excluded). From Tables 2 and 3 show that irrigation water development projects were the focus until the 1970s while land consolidation projects were emophasized during the 1980s and 1990s.

Trends in Korean agricultural land and water development projects since 1945 are as follows:

The 1950s (1945 to 1959)

Korea experienced social changes such as independence from Japan (1945) and the Korean War (1950 - 1953). During this period, war and the following baby boom led to a severe food shortage throughout the country. Agricultural land and water development projects succeeded previous irrigation water development projects operated by the Japanese (from about 1910 to 1945).

The 1960s (1960 to 1969)

In 1961 the first “Law of Farmland Improvement” was registered for a new farmland improvement project. During this period, farmland extension projects (such as slopeland reclamation and tideland reclamation) were executed with previous irrigation water development projects for paddy fields.

The cost of farmland extension projects was about 27.1 percent of total farmland improvement project’s cost. An annual average of 15 000 ha of new paddy fields were established by these projects during 1960s.

The 1970s (1970 to 1979)

The 1960's economic development movement and following drastic economic growth forced disparity between urban and rural area. A drastic economics growth needed massive labour forces from rural area. Thus, in the agricultural sector, the improved productivity of labour and farmland were desperately needed to substitute for lack of labour power.

In 1970, a new law allows use of foreign funds for the agricultural land and water development projects. With the aid of foreign funds, diversity of agricultural land and water development projects were successfully on the track. During the period, self - sufficiency of rice and rural modernization were achieved. Also, large scale agricultural irrigation water developments for five main river basins were heavily conducted during this period. These figures were mainly came from an availability of foreign funds.

TABLE 1

Annual budget: agricultural land and water development projects (1994 - 2000) (million won)

Note: US$=1 300 Won (1960 - 1990s: US$=800 ~1 100 Won)

Source: Ministry of Agriculture & Forestry (MAF)

The 1980s (1980 to 1989)

The range of agricultural land and water development projects was widely expanded during 1980s. The huge decreasing of agricultural labour needed a help of mechanized agriculture. This trend enforced land consolidation project as a main part of agricultural land and water development projects. Following the “General Rural Policy” in 1986, the annual cost of projects was more than 100 billion won and over 200 million won in 1989.

The 1990s (1990 to 1998)

This period could be classified as the total crisis of agriculture. Decreasing farmland and self - sufficiency rate in food, unexpected climate change, and the growing pressure for food market opening were main factors of the agricultural crisis. Under the circumstances, several policies were executed to reduce production cost and improve productivity. One policy was “Rural Structure Improvement Policy” in 1992. For this policy, 42 trillion won was scheduled to be spent until 2001. In 1993, the timetable of the policy was reduced to 1998 with different investment lists. A recent policy was “Rural Development Policy” in 1994. This policy constructed agricultural response scheme against WTO system with focusing on improving rural living environment. From this policy, the scope of government was changed.

TABLE 2

Main agricultural land and water development projects executed (ha)

Sources: Ministry of Agriculture & Forestry (MAF), Korea Agricultural & Rural Infrastructure Corporation, Yearbook of Agricultural land and Water Development Statistics.

TABLE 3

Costs of main agricultural land and water development projects (million won)

Note: US$=1 300 Won (1960 - 1990s: 1 US$ = 800 - 1 100 Won)

Source: Ministry of Agriculture & Forestry (MAF), Korea Agricultural & Rural Infrastructure Corporation, Yearbook of Agricultural land and Water Development Statistics, 2000.

COST SCHEME OF AGRICULTURAL LAND AND WATER DEVELOPMENT

The implementation status of agricultural land and water development projects was changed by need of specific periods. The implementation was affected by political and economical support. After the long period of focusing on agricultural irrigation water development, the main goal of agricultural land and water development projects was moved to “Large scale area development project” (1970s), “Farmland consolidation project” (late 1980s), and recent “Upland improvement project” and “Repair of irrigation facilities project.”

Until the 1980s, farmers had to pay a certain amount of money to the rural infrastructure improvement projects with specific rates (see Table 4). Thus, rural infrastructure improvement projects have difficulties to complete the project with a full satisfaction of participants. From 1989, all the cost of “Agricultural land and water development projects” was assigned to government subsidy. Due to this surprising change, farmer’s cost burden was considerably decreased. However, in some rural area, low level of local government subsidy prevents timely development.

OPERATION AND MAINTENANCE OF IRRIGATION WATER FACILITIES

Local government and the local Farmland Improvement Association (FIA) manages each facility built from agricultural land and water development projects. The responsibility of management is decided by the size of facilities. Usually, FIA manages facilities constructed by Rural Development Corporation (RDC). “Benefited pays principal” was traditionally the main rule to control facilities’ administration costs but government subsidized current expenses deficit to relieve farmer’s burden since 1987.

As mentioned, continued irrigation water development project improved the ratio of irrigated paddy to 76.2 percent in 1999. FIA administrated irrigation facilities in 58.2 percent of irrigated paddy fields and local government administrated the other irrigated paddy fields being controlled by farmer’s autonomy (see Table 5). The 46.2 percent of the latter paddy fields (about 169 000 ha) have Farmland Improvement Clubs (FIC) operated by farmers. Table 6 also shows total irrigated area by irrigation facilities in 1999.

In 2000, FIA, RDC, and Federation of Farmland Improvement Association (FFIA) have merged in Korea Agricultural and Rural Infrastructure Corporation (KARICO). The establishment of KARICO changes methods of agricultural land and water development projects and administrating irrigation facilities. This change of irrigation facilities administration method mainly affected farmer behaviour. Under the scheme of FIA, the participation of farmer was frequently made but farmers' voluntarily activity for administrating irrigation facilities was decreased after the launch of KARICO.

From Table 7, from 1990 to 1996, the average irrigation facility maintenance cost was 35 6000 won/10a to FIA and 3 750 won/10a to FIC. In spite of the high cost of FIA compared to FIC, FIC could charge only average of 5 400 won/10a to facility users. Including government subsidy (average of 18 300 won/10a) with this water charge income, average total FIA income was only 67 percent of its total managerial cost. The farmland improvement association law regulated the amount of water charge, and that water charge compensated only 15 percent of FIA’s managerial cost. Government possibly change the amount of water charge considering an inflation and other factors but actually changing water charge is difficult to conduct with a lot of barriers. Furthermore, this situation is going worse than before. In 2000, abolishment of the Farmland Improvement Association Law makes no water charge system for farmer. Thus, KARICO took all the cost burden of irrigation facility administration.

TABLE 4

Government subsidy & total cost of agricultural land & water development projects (%)

Note: 80 (30) means that 50% is government subsidy, 30% is local government (local autonomy), and 20% is charged to farmers.

Source: Ministry of Agriculture & Forestry (MAF)

OUTCOMES/PROBLEMS OF AGRICULTURAL LAND AND WATER DEVELOPMENT PROJECTS

Positive outcomes from agricultural land and water development projects

Establishment of basis for self - sufficiency of rice

Rapid economic growth and urban expansion has contributed to a falling grain self - sufficiency rate since 1970 with decline of the crop production area. The self - sufficiency rate of all grains dropped from 93.9 percent in 1965 to 29.4 percent in 1999 (excluding those for feed use). The self - sufficiency rate for rice, Korea's most important crop, has been relatively high at an annual average of 95 percent after the 1970s thanks to consistent efforts. The rate has been over 100 percent since 1999 (Table 8).

TABLE 5

Change in irrigated paddy field area (000 ha, %)

Source: Ministry of Agriculture & Forestry (MAF), Korea Agricultural & Rural Infrastructure Corporation, Yearbook of Agricultural land and Water Development Statistics, 2000.

TABLE 6

Irrigated area by irrigation facility (as of the end of 1999) (ha, %)

Note: Out of 10 878 ha project area and area irrigated by other facilities 53 268 ha are excluded.

Source: Ministry of Agriculture & Forestry (MAF), Korea Agricultural & Rural Infrastructure Corporation, Yearbook of Agricultural land and Water Development Statistics, 2000.

A key factor for stable commodity prices in national economy

The economic crisis resulting from the IMF and and WTO system boosted unstable commodity prices in Korea. The stable supply of domestic agricultural commodities contributed to lessening social turmoil and economic stabilization. From 1986 to 1991, annual average agricultural product prices increased about 8.5 percent and its high increasing ratio brought the pressure of inflation. However, since 1992, after massive investment in agricultural land and related development projects, the average price of agricultural products decreased considerably, by 5.5 percent. Table 9 shows the consumer price indexes of selected food items. The consumer indexes of vegetables and fruits show mostly decreasing figures among other categories. Again, this result was from agricultural land and water development projects.

TABLE 7

Note: Farmland Improvement Association (FIA) and Farmland Improvement Club (FIC) guided by local autonomy Status of water charge assessed by operator of irrigation facilities (won) (Si and Gun).

Source: Ministry of Agriculture & Forestry (MAF)¡¤Korea Agricultural & Rural Infrastructure Corporation, Yearbook of Agricultural land and Water Development Statistics, 1990 - 1997.

TABLE 8

Self - sufficiency rate of rice and all grains (%)

Source: Ministry of Agriculture & Forestry (MAF), Major Statistics in Agriculture and Forestry, 2000

Enhancing the efficiency use of agricultural land

The agricultural land and water development projects enhanced efficiency of agricultural land use with introducing mechanization methods. This project also saved labour input and opportunity cost of agricultural production. Thus, finally, this project has achieved low cost production and farmer’s positive attitude toward continuous farming.

Table 10 shows the results of a survey conducted by MAF. Following agricultural land and water development projects, rice production has increased about 5 percent, and rice production cost and total farming labour hour reduced 16.2 percent and 33.4 percent respectively. After drainage improvement projects, total agricultural field production increased by about 23 percent.

TABLE 9

Changes in Price Index

Source: Ministry of Agriculture & Forestry (MAF)

Preventing the spread of idle land

Due to the limited available arable land for Korea’s dense population, government needs slopeland reclamation and tideland reclamation for arable land expansion. It also exerted all possible efforts to prevent the spread of idle land. According to an MAF survey, the main reason for converting paddy field into idle land was unfavourable farming conditions for the farmer. Thus, MAF regards land and water improvement projects as the most influential means to prevent spread of idle land.

Problems in agricultural land and water development projects

Mood of avoidance to investment in agricultural land and water development

Financial experts and government officers argue that government should cut down its expenditure on agriculture, especially on land and water development budget, to put emphasis on the efficient investment. With respect to this opinion, government tends to put less weight on agricultural land and water development projects. It is easily shown that current agricultural investment project more emphasize on agricultural marketing improvement projects than agricultural land and water development projects.

Each time period has different goals to achieve from agricultural investment. Until the early 1980s, agricultural investment emphasized that the improvement of productivity, while more recently reducing production cost with reduced labour has been the focus. However, recent agricultural land and water development projects face the limit of maximized outcome.

TABLE 10

Economic returns from land consolidation: rice production (%)

Source: Ministry of Agriculture & Forestry (MAF)

Lack of matching funds from local autonomy

The launch of local autonomy by the previous central government provokes urgent need for locally focused investment projects with locally planned policies. However, most local government faces difficulty in conducting such projects with limited funds.

For land consolidation projects, the central government is supposed to support 80 percent of the project cost while local government pays 20 percent. In spite of original cost schedule, local government paid more than 20 percent and this figure has been gradually increased in each year (26 percent in 1996, 29 percent in 1997, 32 percent in 1997, 36 percent in 1999, and 38 percent in 2000). This increasing cost burden of local government forced to reduce size of land consolidation project. Thus, unbalanced development and low level achievement is expected in some local areas.

Manpower problem for irrigation facilities operation and maintenance

KARICO was intended to attain economy of scale, reduce farmer debt, and operate rationally. However, initiation of KARICO faced difficulty in proper operation of its irrigation facilities due to a 30 percent reduction of irrigation facility workers. KARICO also faced the problem of falling voluntarily participation by farmers in maintaining canals and drainage. The economics free riding problems were evolved in use of irrigated water.

POLICY DIRECTIONS

Basic policy directions

Some observations made be may regarding basic policy directions:

• because of financing difficulty, government must increase the efficiency of investment in land and water development;
• it is time to change the agricultural policy goal from quantity - to quality - focused;
• it is necessary to introduce environmentally friendly methods of development;
• the operation and maintenance of exiting irrigation facilities should be emphasized more than development of new water irrigation facilities;
• Removing the entry barriers of private construction companies to enter the agricultural land and water development project to allow competition between constructors.

Current issues and policy directions

Secure stable project funds

Agricultural land and water development projects need long term investment to attain desirable outcomes. To this end, securing sufficient, stable funding is very important.

Apposite project schedule and cost actualization

The goal of the project should be fully considered subject to available funding. Also, government realizes the geographical differences of each area and actualizes the cost for development project.

An alternative policy for reducing project cost

An alternative policy is needed to reduce the cost of development projects. For example, alternative projects such as on - farm road construction and exiting irrigation canal improvement project could be selected in specific area instead of large scale development projects to get a partial improvement. In addition, several projects may be bundled (packaged) to reduce additional costs under the long term plan. Introducing advanced techniques and methods could reduce project cost. To this end, developing new methods and technology is very important.

Improving system management methods

Agricultural irrigation water development project has focused on installing new facilities or upgrading exiting facilities. However, the capacity for drought and efficiency were continuously doubted. To reduce this uncertainty, irrigation water management systems should be changed to integrate existing small facility capacity with revised management. Also, it is necessary to put more emphasis on repairing and maintaining existing irrigation facilities.

Developing and maintaining information

Most previous development information was not systematically nor continuously managed. From the 1960s, government conducted many national surveys. However, the information from such surveys was not used for other purposes but forgotten. A more systematic approach to exiting data should be conducted to increase its capacity. This procedure could reduce additional cost for time and labour.

REFERENCES

FFIA KREI, Rice Farming and Water Management in East Asia, Seoul, Korea, 1995.

FFIA, Irrigation Water Management in East Asia, Seoul, Korea, 1996.

KARICO Rural Research Institute, 2000, A Study on the Performance of Agricultural Infrastructure Projects and the Measures of Efficient Rural Development, Ansan.

KCID RDC, Water in Asia in 2000s - Demand and Supply of Rural Water and its Efficient Management, Seoul, Korea, 1996.

Kim, Hong-Sang, Cost Share on the Management of Irrigation System among Government, Local Autonomy and User, KCID Journal, Vol.8 No.1, 2001.6.

Kim, Hong-Sang, et al., An Analysis of the Effect of Upland Improvement Project, Korea Rural Economic Institute, 2000.

Kim, Hong-Sang et al., Feasibility Study on the Agricultural Land and Water Development in Youngsan River 4 Project Area, Korea Rural Economic Institute, 2000.

Kim, Yong-Taeg et al., The Improvement of the Government Subsidy Program for the Irrigation Water Management System, Korea Rural Economic Insititute, 2000.

Ministry of Agriculture and Forestry, Agriculture and Fishery Statistical Yearbook, Kwachon.

Ministry of Agriculture and Forestry, Major Statistics in Agriculture and Forestry, Kwachon.

Ministry of Agriculture and Forestry, Data of Public Affairs, Kwachon.

Ministry of Agriculture and Forestry - KARICO, Yearbook of Agricultural Land and Water Development Statictics, Kwachon.

OECD, Sustainable Management of Water in Agriculture; Issues and Policies - The Athens Workshop, 1998.