The views expressed in this presentation are the views of the author and do not necessarily reflect the

views or policies of the Asian

Development Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI
does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use.
Terminology used may not necessarily be consistent with ADB official terms.

A Review of Agro-GVC
Development and a Korean Case
Song Soo Lim
songsoo@korea.ac.kr
Korea University

October 2019
 Contents
Concepts and landscapes of agro-GVC

Factors promoting agro-GVC participation

GVC income from Korea’s paprika exports

Lessons and road ahead

Concepts.GVC consists of spatial distribution of
value; production process and scope; actor
relations and connectivity; and knowledge flow

Source: Cui and Lui (2019)

Concepts. GVC involves fragmented production
networks across countries: backward and forward
participation

Source: World Bank (2019)

Landscape.Agro-GVC participation is expanding
along with other sectors

Source: World Bank (2019)

Factors. Availability of low-cost labor augmented
by FDI
Factor endowment is an important determinant of
international trade
Abundant supply of low-cost labor in developing
countries can be a gateway to forward GVC
participation
FDI can promote domestic upstream activities and
reinforce backward GVC participation
Quality upgrading requires capital, technology, skills
and institutional intervention
Tea quality upgrading program in South India (Larsen, 2016)
Voluntary Sustainability Standards for Columbian coffee (World
Bank, 2019)
Factors. About 74% of the estimated 570 mill farms in
the world are in Asia

Source: Lowder et al. (2016)

Factors. Market size augmented by freer trade
Trade may help to overcome the constraints of
market smallness or limited local supply of
inputs or technology
See Korea and Indonesian cases

Developing countries can take advantage of

market access with respect to special and
differential treatment (SDT)
Factors.Connectivity augmented by
international production networks
Getting closer to the GVC hubs such as China,
Germany and USA can promote GVC
participation
But countries with larger geographical distance to
the major GVC hubs may specialize in certain
agro-GVCs
Efficient, competitive transport and logistics
services, and communication (internet use)
lower transport costs and thus improve market
access
Factors.Institutional quality augmented by
trade agreements
Legal and regulatory reforms enhanced through
trade agreements and trade facilitation efforts
can increase GVC integration
Trade Facilitation Agreement (TPA) of 2017 is
estimated to reduce global trade costs by 14%
(WTO, 2015)
Cuts in import time by 47% and export time by 91%
African countries and LDCs are expected to gain
the biggest reduction in trade costs
 A Korean Case
Agricultural value chain is a set of linked
activities or functions that bring agricultural
products from its R&D to production,
processing, marketing and delivery to
consumers
AVC is assessed by key components (Kim, 2018)
Markets
Stakeholders
Linked Coordination
Supporting Services, and
Enabling Environment
 MSCSE Framework
Markets are the place where values are determined
Stakeholders are participants in the value chain
Linked Coordination refers to trust, cooperation and
mediation among participants
Supporting Services include financing,
communication, inputs, skill trainings and
other services
Enabling Environment consists of value chain VC
systems and regulations
Paprika Value Chain
 Domestic Markets
Non-existent domestic markets until early 1990s
Pioneer farms began to produce paprika in 1993 for
the exportation to Japan
Since then, exports have played as a driver of
domestic markets, leading to a rapidly expanded
market size
About 80,000 tons of production in 2017
Cultivated areas rose from 335 ha to 712 ha over
2006~17 periods
Consumption per capita has steadily increased from
0.3kg in 2006 to 0.9kg in 2016
Second to the EU in the world
 Market Creation
90 800
80 700
70
Production 1,000 tons

600
60
500

Area ha
50
400
40
300
30
20 200

10 100
0 0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Cons (kton) Exp (kton) Area (ha)

Note: Consumption in 2018 is assumed to be the same as that in 2017

Source: MAFRA; KATI
 Export Markets
Backward participation in AVC
All seeds (Enza and Rijk Zwaan) and most equipment and
materials are imported from the Netherlands
This pattern is quite chime with semiconductor
industrial development led by Samsung in the early
1970s
Japan accounts for over 99% of export volumes
Japan began to grow paprika in mid-1990s but faced
with lower price competitors
Korea accounted for 79% of Japanese imports in 2017
Korea’s price were lower than those of the
Netherlands and New Zealand
 Export Markets
96
94
92
90
Mill US$

88
86
84
82
80
78
2013 2014 2015 2016 2017 2018
Japan Taiwan Hong Kong Singapore
Canada China Others
Source: KATI
 Monthly Exports
5000
4500
Average Export over 2016-18, tons

4000
3500
3000
2500
2000
1500
1000
500
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Source: KATI
 Export Markets: GVC Income
Item 2017 2018
Domestic price (won/kg) 2,549 2,774
Exchange rate ($/won) 1,071 1,116
Export price (won/kg) 2,749 3,225
Seed costs (won/kg) 137 152
Energy costs (won/kg) 436 476
GVC income for Korea
2,176 2,596
(won/kg)
 Stakeholders
Producers, including farms, crop units and
agricultural companies
Exporters, including 36 production organizations
with 429 farms in 2017
Consumers have steadily increased consumption,
showing preference to healthy, ease of access
and lowered prices
Governments engage in R&D, financial
arrangements and trade policies(phytosanitary
issues)
 Linked Coordination
Self-Help Paprika Association (www.paprika.or.kr)
Established in 2000 as the first agricultural self-help
single-product organization
Became a mandatory self-help fund in 2017
Fund contributions are required for export ID registration
Relatively large 400 farms (about 60% of all farms)
accounting for 70% of total areas are subject to self-help
fund contributions
The annual fund size is about 1.3 bill won inclusive of a
matched fund by the government
Implementing “marketing agreements” as a mean of supply-
demand control and price stabilization
A measure to address over supply since 2016
 Linked Coordination
Agricultural company, KOPA (kopap.co.kr)
Established in 2017 as an export integrated
organization
A Korean version of a “marketing board”
KOPA consists of 352 farms and 22 export firms
KOPA accounts for almost all paprika exports and
leads export strategies
Reaching out to relatively smaller cities in Japan
Building a designated export zone for Chinese markets
 Linked Distribution: Supply Chain

Wholesale Restaurant C
market Meal-kits o
companies n
F
Seed s
a Local SM distributor u
r distributor
m
m
e
Cooperative Large distributor r

backward participation
backward participation

Indonesia Dairy
Supply Chain

Source: Morey (2011); Bang et al.(2018)

 Supporting Services
Financial provisions provided by the government
Large investment and operational costs are required
Smart Farm Comprehensive Financing Program arranges lower
interest rate loans (about 1% annually) to especially
young farmers
R&D support by public institutes
Farms rely on mostly imported seeds from the Netherlands
whose costs are about 500~600 won; about 10 times
greater than other pepper seeds
Golden Seed Project is developing seeds (www.gsp.re.kr)
Raon, a mini-paprika variety (50g weight) was developed in
2016 to replace imports and exert exports
 Enabling Environment
Efforts to increase consumption of heathy, colorful
and nutritious vegetables with maintaining cost
advantage in export markets have provided
proper economic incentives for enlarging value-
added activities
Governments and public entities have provided
capacity building measures, including
technological innovation, education and trainings
on ICT and big data, and venture capital
Alerts about overly supply in domestic markets and
greater competition in export markets (too many
exporters?) are motivating stakeholders to
coordinate one another
 Road Ahead
New technological innovation and modernization is
likely to spread smart farms
765 ha in 2015; 4,010 ha in 2017; 7,000 ha by 2022
High health and nutritional benefits associated with
paprika could further consumption (RDA, 2016)
K-Seed Valley project established in 2016 is expected to
increase productivity and diversities in use
This project hosted 20 private seed companies and the Seed
Industry Center (seedcenter.fact.or.kr)
 Lessons and Implications
Export-driven value chain development based on
outsourcing trade (backward participation) can be one
viable solution for resource-limited developing
countries
Countries with higher backward participation have
shown stronger domestic value added growth and
exports (Greenville et al., 2019)
Trade connectivity and trade facilitation efforts are
divers of GVC development
Aid for trade can help developing countries trade (ITC,
2013)
 Lessons and Implications
Cultivating pioneering minds and nurturing
coordination by producers, policy makers and other
stakeholders are important prerequisites for creating
successful value chains
Public R&D support, investment aids and enabling
environments are key contributors to productivity,
competitiveness and sustainability
 References
Bang, H.K. et al. 2018. Development cooperation between Korea and developing countries by
utilizing global value chains. KDI.

Greenville, J., Kawasaki, K. and Jouanjean, M. 2019. “Dynamic Changes and Effects of Agro-
Food GVCs”, OECD Food, Agriculture and Fisheries Papers, No. 119, OECD Publishing,
Paris.

ITC. 2013. LDCs and Global Value Chains: Using Aid for Trade to Seize New Opportunities.
International Trade Center Technical Paper, Geneva.

Kim, YT. 2018. Value Chain Analysis for Horticultural Products. Presented at Korea Society for
Horticultural Science, Oct. 19, 2018.

Larsen, M. 2016. “Sustaining upgrading in agricultural value chains? State-led value chain
interventions and emerging bifurcation of the South Indian smallholder tea sector.”
Sustainability 8, 1102.
Lowder, S., Skoet, J. and Raney, T. 2016. “The number, size, and distribution of farms,
smallholder farms, and family farms worldwide.” World Development 87:16-29

Morey, P. 2011. Dairy Industry Development in Indonesia. IFC, World Bank.

Rural Development Administration. 2019. 2018 Agricultural Income Data Book. Agri-business
Report No. 148.

World Bank. 2019. Trading for development in the age of global value chains. World
Development Report 2020.
WTO. 2015. World Trade Report 2015. Geneva.