The debate on whether or not to cultivate corporate farms has heated up in Korea since a Dongbu Group subsidiary decided to pull out of its tomato production business in March, under pressure from farmers’ interest groups.

Dongbu Farm Hannong, a leading crop producer in Korea, invested about 40 billion won ($36 million) to build and operate a 150,000-square-meter greenhouse farm for tomato production in Hwaong, an area of reclaimed land in Hwaseong, Gyeonggi Province.

The government removed barriers to non-agricultural firms that want to engage in farming in 2009 to raise competitiveness of the agricultural industry. 

With the legal revision, companies from non-agro industries can set up a corporate farm and control it by raising shareholdings of their farm up to 90 percent.

“We spent a lot of time developing a win-win business model that would not affect the livelihoods of local family farmers from the business planning stage,” said Kim Sun-ki of Dongbu Farm Hannong.

“As a result of this, we chose tomatoes and decided to export the entire crop. Small farms in Korea grow tomatoes mostly for local needs, not exports.”

The company pushed for the business with support of the Ministry of Agriculture, Food and Rural Affairs and Hwaseong City authorities, but faced protests from farmers when the greenhouse was completed at the end of last year.

“We had no choice but to drop out, as demonstrators, most of them being our clients, boycotted other company products, including crop protection products,” Kim said. “The company is now looking for a buyer to get our investments back.”

Rising demand for structural reform in agriculture

Despite continued strong opposition from local farmers, Agriculture, Food and Rural Affairs Minister Lee Dong-phil reconfirmed in a recent meeting with local media that the government would continue to seek ways to bring capital, technology and personnel of non-agricultural industries into farming to raise the sector’s competitiveness.

“The ministry is looking for a win-win business model between corporate farms and family farms; developing a guideline for corporate farms to do business, while protecting family farms,” the minister said.

The reason why the minister pushes for this policy is because of lingering structural issues in the agricultural sector, including the aging population and mounting pressure to open markets to foreign competition in line with the growing number of free trade agreements.

According to a report by the Korea Rural Economic Institute, the population in rural areas has continued to drop and age in line with industrialization of the country. The ratio of the number of farmers to the total population decreased from 50 percent in 1970 to 7.6 percent in 2005.

The aging of the rural population has increased leased farms and farmland trusts, while the lack of successors to full-time farmers presents a barrier to the transition of farming to the next generation of farm operators.

According to the report, in 2012, those 65 years old and above made up about 35 percent of the rural population, while whose 14 and younger made up only 7.4 percent.

“There is no future of the agro-business without inflow of youth. To lure them to the sector, Korean farms need to be scaled up and offer more benefits with support from other sectors,” Nonghyup Economic Research Institute Kim Chul-min said.

A rising number of free trade pacts also put other pressure on the farming industry. Korea currently has FTAs with 45 countries.

“Taking into account the benefit of trade pacts, it is time for the industry to turn its eyes to the overseas market for survival,” Minister Lee said.

Learning from the Dongbu case, companies with an interest in entering farming are strengthening communication with farmers.

“It is the most important to get an understanding and cooperation from all stakeholders through continued communication if you want to enter a new sector,” an official from the KREI advised.

By Seo Jee-yeon (jyseo@heraldcorp.com)