Chapter 4. Capacity building and public services in Korea

Capacity building, including provision of essential public services, is one of the main channels or incentive areas to support innovation and sustainable development. This chapter concerns four relevant policy areas: infrastructure and rural development policy; land use planning and regulation, water policy; labour market policy; and education and skills policy.

    

4.1. Infrastructure and rural development policies

Investments in physical and knowledge infrastructure, from ICT to transportation facilities, are important for overall growth and development. They are vital to the delivery of and access to important services and play a critical role in linking farmers and related businesses to markets, reducing food waste, boosting agriculture productivity, raising profits, and encouraging investment in innovative techniques and products. Productive and profitable enterprises may have higher incentives to invest in sustainable practices that yield long-term benefits.

Broader rural development measures also affect sustainable agricultural development and structural adjustment. Increased off-farm income and employment opportunities mitigate farm household income risks, facilitate farm investment, and enable a wider range of farm production choices. Improved rural services, from banking to ICT, are important to ensure needed connectivity to suppliers, customers, and collaborators. Rural policy can also attract innovative upstream and downstream industries, with possible spill-over effects locally. By reducing inequalities in economic development and access to services across regions, rural development policies improve the diffusion of innovation.

Infrastructure development

Korea has developed a high-quality transport infrastructure, reflecting the continuous efforts to expand infrastructure since the 1970s. According to the Global Competitiveness Index on the quality of transport infrastructure, Korea ranked 7th among the OECD countries and 10th globally (Figure 4.1). In 2017, the government spent KRW 22.1 trillion (USD 19 billion) for Social Overhead Capital (SOC) investment, which accounts for 5.5% of total expenditure.1 The investment in roads and railway has the highest shares in public investment: 33.4% and 31.2%, respectively. According to the National Fiscal Operation Plan 2016-2020, the government is planning on gradually reducing SOC investment as spending on the welfare sector increases as the stock of SOC has already reached the level of developed countries.

Though responsible for building and maintaining public infrastructure, the government is encouraging private investment in infrastructure. To this end, it has drawn up the Master Plan for Public-Private Partnerships in Infrastructure as a guideline for Public-Private Partnership projects. These projects can be classified into two groups: Build-Transfer-Operate (BTO) and Build-Transfer-Lease (BTL). The BTO mode is mainly for traffic facilities such as roads, railways and ports, while the BTL mode is mainly for education, welfare, culture, medical facilities and environmental facilities. The size of infrastructure investment through the Public-Private Partnership was KRW 2.7 trillion (USD 2.3 billion) in 2016.

Figure 4.1. Global Competitiveness Index: Quality of transport infrastructure, 2015-16
Scale from 1 (worst) to 7 (best)
picture

Note: Indices for EU28 and OECD are the simple average of member-country indices. OECD top 5 refers to the average of the scores for the top five performers among OECD countries (the Netherlands, Japan, France, the United States and Germany).

Source: World Economic Forum (2016), The Global Competitiveness Report 2016-2017: Full data Edition, Geneva 2016. www.weforum.org/reports/the-global-competitiveness-report-2016-2017-1.

 StatLink https://doi.org/10.1787/888933851761

ICT development in rural areas and application to agriculture

ICT penetration such as fixed broadband internet subscription and internet use is particularly high in Korea (Figure 4.2). The Ministry of the Interior and Safety has been implementing the Information Network Village Project to promote high-speed internet access in rural areas, expanding the number of participating villages from 25 to 359 between 2001 and 2013. The project reduced the digital divide between urban and rural areas. By 2016, the penetration rate of the broadband network in rural areas increased to 92.8% (KREI, 2016), while 23.2% of farm households were using computers and smartphones in agricultural production (KOSTAT, 2016a).

A high-level ICT infrastructure has the potential to increase agricultural productivity by reducing costs in the production process and mitigating volatility caused by natural environmental conditions. MAFRA is promoting the Smart Agriculture project to integrate ICT with agriculture and rural areas. This project established more than 45 cases of model development and field demonstration. The area of greenhouse vegetable production using ICT expanded from 40 077 to 52 526 ha between 1995 and 2015. The project also introduced an automatic feeding system for pig farms. To promote effective integration of ICT with the agri-food industry, the Korean government is developing farming systems where artificial intelligence (AI)-based systems automatically control farm operation; it is also enhancing the use of drone technology and geographic information systems (GIS).

Figure 4.2. ICT penetration, 2016
picture

Source: World Bank (2017), World Development Indicators (database), https://data.worldbank.org/products/wdi (accessed 4 October 2017).

 StatLink https://doi.org/10.1787/888933851780

Rural development policy

Balanced regional development has been a major policy issue in Korea, whose economic growth has concentrated on urban areas and the manufacturing sector, increasing the income gap between rural and urban households. Younger generations continue to leave rural areas for more lucrative opportunities in urban ones, accelerating the ageing of the rural population. Non-farm industries also have less incentive to relocate to rural areas, reducing off-farm income opportunities (Figure 4.3).

Rural development policy in Korea evolved from participatory community-based programmes in the 1950s to nation-wide comprehensive programmes, widening the scope from agriculture to non-agricultural industries (). The government enacted the Special Act on Improving the Quality of Life in Rural Areas and Rural Development Promotion in 2004 to attract human resources and economic activity to rural areas. In 2016, investment and financing were focused on projects such as revitalisation of rural hubs, village maintenance, housing maintenance, water use improvement, and safety management of rural areas. The National Standards for Rural Area Services set a concrete policy target in 2010 to guarantee a high quality of life for rural residents by 2019. The 2016 assessment of policy achievement shows that most areas still fell short of the standards, except for emergency services and the broadband convergence network (Table 4.1). For example, the nationwide water supply ratio at the rural district was 69.3% in 2016, while the target in 2019 is 82%.

Figure 4.3. Korean rural circular and cumulative vicious cycle
picture

Source: Modified from Hodge and Whitby (1981).

The promotion of non-farm industry in rural areas has been a major policy objective since the 1980s, with the government promoting the construction of industrial complexes there. By the end of 2015, 420 rural industry complexes were constructed, providing 150 000 jobs in agricultural product processing as well as other manufacturing industries (MAFRA, 2016a). Special tax treatment is one of the main policy incentives to relocate firms to rural industry complexes. Firms that locate in rural industrial complexes benefit from a 50% reduction of personal or corporate income tax for five years, starting from the first year the business has positive income since locating there.

As a part of the income diversification strategy, the so-called “6th industrialisation policy” has been implemented to promote the production of high-value-added agricultural products through expansion of farm operations to processing, marketing and tourism.2 Since 2014, the government has installed 6th industrialisation support centres in 10 regions to investigate the development of 6th industrialisation activities and undertake business support projects. The government also established the 1st Basic Plan for the Development of the 6th industrialisation (2016-20) and introduced the certification system of 6th for business operators with a potential to lead the process and to foster outstanding enterprises. In 2016, 1 130 business operators received the certificate.3 The Basic Plan has a target to maintain the sales growth rate of certified business operators at 5% by 2020, to increase the number of 6th industrialisation start-ups from 1 600 in 2016 to 3 000 in 2020, and to increase the number of rural tourism visitors from 6 million to 8 million during the same period.

Table 4.1. National standards for rural area services in Korea

Sector

Policy Target by 2019

20162 (%)

Health/welfare

Medical service

City and county ratio to receive medical care for important subjects (such as internal medicine, oriental medicine, orthopaedics, obstetrics and gynaecology) should be 80% or more.

73.9

Emergency service

In case of an emergency, the rate that the ambulance will arrive within 30 minutes and receive first aid service should be 97% or more. In the case of the island area, a system of patient transport using helicopters and ships should be established.

98.6

The aged

The rate that elderly people can receive welfare services at home more than once a week should be 80% or more.

70.1

Young children

The rate to use day care facilities for infants and toddlers within eup and myeon districts should be 80% or more.

69.2

Education

Elementary/middle school

Foster rural schools for local conditions and provide appropriate transportation to students who need transportation assistance.

71.8

Lifelong education

The rate to receive lifelong education programmes at the service centre facilities within eup and myeon districts should be 40% or more.

19.7

Settlement conditions

House

The percentage of households living in homes that meet minimum housing standards should be 95% or more.

88.3

Water supply

Water supply ratio in myeon districts should be 82% or more.

69.3

Heating

City gas supply rate in eup districts should be 65% or more. The government should promote a reduction in heating costs in regions where it is difficult to supply city gas.

57.0

Public transportation

Use transport more than 3 times a day within the village. Quasi-transportation programmes should be introduced to regions where it is difficult to operate transportation system. In case of island areas, more than one round-trip passenger ship should be operated per day.

90.4

Broadband convergence network

Broadband convergence network construction rate should be 90% or more.

92.8

Economic activity/job

Start-up and employment consulting/education

Professional consulting and education service about start-ups and employment should be available within cities and counties.

67.4

Culture/leisure

Cultural facilities and programmes

It is possible to see a culture programme more than once a month and professional performance programme more than once a quarter in cultural facilities such as Culture and Arts Centre within cities and counties.

92.0

Environment/landscape

Sewerage

The diffusion rate of sewerage should be 85% or more.

81.0

Safety

Crime prevention equipment

CCTV installation rate should be 85% or more to prevent prevention of crime.

43.2

Police patrol

Patrols in villages vulnerable to crime should be conducted more than once a day for each village.

N/A

Fire call

The rate that a fire truck arrives at the scene within 5 minutes after receiving a report should be at least 55%.

41.1

1. In Korea, dong districts are termed urban areas while eup and myeon districts are classified as rural areas.

2. 2016 indicates the year of publication using most recent data available.

Source: KREI (2016) Monitoring and assessment on the implementation of rural area service standard.

Box 4.1. History of the rural development policy in Korea

Korea’s rural development policy began with community development movements in the late 1950s to overcome absolute poverty and increase agricultural productivity in rural areas. The community development programmes focused on the agricultural extension service and improvement of the residential environment. The Saemaeul (new village) Movement, widely cited as the model for rural development in developing countries, began in the 1970s. The Movement was implemented as a nationwide comprehensive development project, including improvement in rural infrastructure and residential environment as well as income generation activities such as the introduction of cash crop production and building factories. An important aspect of the Saemaeul Movement was co-operation between the government and rural residents through both the government budget and private funds.

In the 1980s, rural development policy shifted to a more state-led comprehensive rural development framework. Increased government budgets in the 1980s and 1990s enabled the central government to develop roads, communication facilities and water sources in rural areas, and to improve educational, medical and welfare systems. The major goals of the rural development policy during this period were to improve the living conditions in rural areas and to increase the rural income through creation of off-farm activities. The Act on Promoting the Development of Income Sources for Agricultural and Fishing Villages in 1983 promoted policies for Rural Industrial Complexes and rural tourism.

In the 2000s, the paradigm of the rural development policy was extended from agricultural production to settlement and recreation. The government focused on enhancing the amenity function of rural areas, boosting environmental protection and emphasising agriculture’s role for preservation of the national land. The government has promoted an autonomous development strategy that strengthens local competencies and utilises local resources through projects. In 2005, the Special Account for Balanced National Development was established to reduce imbalances among regions. In 2010, this account was transformed to the Special Account for Metropolitan and Regional Development, converting a project-based budget support method to a region-based budget support. In this process, 210 existing regional development projects were merged into 24 comprehensive projects and the autonomy of local governments increased.

4.2. Land policy

Korea’s farmland policy is rooted in the post-war farmland reform in 1950 which introduced the land-to-the-tillers principle and reallocated farmland to small-size tenant farmers. As the competitiveness of the agricultural sector became a major policy issue, the objective of farmland policy has evolved from promoting owner farming to consolidation of farmland to larger size units (Box 4.2).

Box 4.2. Evolution of farmland regulation in Korea

Korea’s farmland regulation is based on the land-to-the-tillers principle originated from the farmland reforms in 1950. Based on the principles of owner farming, the Farmland Act explicitly states that farmland cannot be owned by anyone other than those who use it or intend to use it for farming by his or her own self. The Act also adopts an acquisition qualification system for farmland that authorises only eligible applicants. The farmland reform created owner farmers by buying the farmlands from landlords and distributing farmland to actual cultivators, imposing a maximum limit of farmland ownership to 3 ha. This maximum limit of land ownership existed until 2002. In 2003, the deregulation allowed non-farmers to own land of less than 1 000m2 for the purpose of hobby farming.

The corporate ownership of farmland was not allowed under the original Farmland Act. In 1990, the law introduced an agricultural corporation system to allow corporate ownership of farmland on the condition that all members of the corporation be farmers. In 2009, the membership condition for agricultural corporations was relaxed so that non-farmers can own less than half of the shares. Since 2011, the required share of farmer’s investment was reduced to 10%, as was the restriction on executive members. Currently, agricultural corporations can be categorised into two types: farming corporations and agricultural company corporations. A farming corporation can be established by farmers and an agriculture-related producers' organisation with a minimum five members. Similarly, only a farmer or an agricultural producers' organisation can establish agricultural company, but non-farmers may invest up to 90% of the total investment if its value is less than KRW 8 billion (USD 6.9 million). If the total investment exceeds KRW 8 billion, non-farmers can invest the amount achieved by subtracting KRW 800 million (USD 700 000) from the total investment amount. Since the introduction of a farmland bank in 2005, non-farmers are also allowed to own a limited amount of farmland if they lease it from the bank on a long-term basis.

Promotion of land consolidation

Land leasing has become a major channel of land consolidation as a result of high land prices. The ratio of leased farmland has continuously increased from 17.8% in 1970 to 37.4% in 1990, 47.9% in 2010 and 50.9% in 2015. However, the Farmland Act allows leasing of farmland only in the exceptional case that the owner of the farmland changes due to migration or succession. Since 1990, the Korea Rural Community Corporation (KRC) has operated the Farm Scale Expansion Project, whereby farmers are provided with financial support for leasing and acquiring farmland through low interest loans, with a focus on young and full-time producers.4 In 2005, the Farmland Act was revised so that KRC can perform the role of farmland bank that intermediates in the leasing of farmland. Farmland banks provide information to farmers who wish to own or rent farmland from the KRC or others who want to sell or lease farmland. The restriction on farmland leasing does not apply to long-term leasing of entrusted farmland from KRC, thereby allowing anyone to lease farmland. Under the farmland bank scheme, the lease period has to be more than five years, with annual rent determined in the agreement between the bank and the tenant. The bank deducts 5% of the rent and pays the remainder to the landlord.

Non-KRC land rental transactions are sometimes made without formal contracts. A tax incentive exists for land owners not to have a formal land lease contract (Box 4.3). The use of unstable contracts makes establishing long-term farming plans difficult, in particular for greenhouse farming or fruit farms, which require long-term investment. Additionally, land owners have an incentive to rent out land informally and still receive area-based payments, which should be paid to the actual cultivator. Chae, Gwang-seok et al. (2016) propose the introduction of a Farm Land Lease Management Act and land lease reporting system to create an incentive for long-term investment in farmland.

Box 4.3. Special tax treatment for agricultural land in Korea

The government provides a number of special tax treatments for acquisition, ownership and transfer of farmland. A reduced rate of acquisition tax is applied when the farmland is acquired by a farmer on the condition it is used for agricultural production within two years. In 2010, this tax benefit also became available to ‘non-farmer’ rural residents who moved from urban areas three years or less before the acquisition; the aim being to assist the “returnees” in their settlement in the rural areas. While general property tax is imposed according to the value of land as well as other properties with a progressive tax rate (0.2%, 0.3%, and 0.5%), farmland that lies outside of urban areas is taxed with a flat rate of 0.07% if it is owned by a farmer.1 Property tax is exempted if the land owner participates in the farmland pension programme on condition that farmland is used for agricultural production. Similarly, real estate tax on farmland is also partly or fully exempted from comprehensive real estate tax.

The capital gain from the sale of land is taxed separately from other income by a progressive system that has six different marginal rates between 6% and 40%, with a higher tax rate imposed if the land was owned for less than two years before the sale. However, a capital gain from the sale of farmland is exempted from the taxation if the owner lived near the land and used it for agricultural production for more than eight years.2

Another important special tax treatment for farmland is the exemption of gift tax, which is normally taxed progressively with five marginal tax rates (10%, 20%, 30%, 40%, and 50%). The gift tax is fully exempted if a farmer transfers farmland as a gift to a child who is a farmer. To be eligible, farmland must be near the parent farmer and have been cultivated for at least three years up to the time of the transfer. The child must use the land for agricultural production for at least five years, otherwise the child has to pay back the full amount of the exempted tax. The exemption of farmland from gift tax does not contribute to any increase of the tax base arising from another gift given later by the same person. This differs from the treatment of other properties, which are included in the gift tax base if they were transferred from the same person within ten years of the latest gift; by comparison, the exemption of farmland constitutes a significant favour. Concerning the inheritance of agricultural business, properties used for agricultural production, including farmland, are exempted from inheritance tax up to KRW 1.5 billion (USD 1.29 million) on the condition that both parties have been engaged in farming and the inheritor uses the land for agricultural production for at least five years after the inheritance.

1. The value of property such as land parcels and houses are assessed and announced by the government every year by Act on Real Estate Price Announcement and Appraisal and Assessment. The assessment is, in principle, based on ‘market value’. This would reflect the current use value of the property as well as the expectation on potential, alternative uses of the property.

2. This special treatment applied even if the land is used for non-agricultural purposes after the sale. However, if the land became included in a residential zone before the sale, the treatment applies only to the income that was generated until that inclusion.

Land conservation policy

During the period of Korea’s rapid economic growth since the early 1970s, as the population grew and urbanisation and industrialisation progressed, significant amounts of farmland were converted to other uses, such as residential, commercial-industrial and public. In response, the government enacted the Farmland Preservation and Utilization Act in 1972 and strictly restricted the conversion of farmland for non-agricultural purposes. The Act designated two types of farmland: absolute farmland, which needs to be strictly protected for agricultural production, and relative farmland, which is less suitable for agricultural production. Government permission is required to convert farmland and developers pay a fee to the Farmland Management Fund to make alternative land available for farming.

In 1992, to preserve the area of high-quality farmland, the plot-based farmland preservation system of designating absolute and relative farmland was replaced by a new system of designating good collectivised farmland as an agriculture promotion region (APR). Farmland within an APR has restrictions on land conversion as it formerly would under the absolute farmland system. Farmland conversion is restricted to installation and construction of agricultural facilities and social infrastructure to help preservation of the land. Farmland benefits from several measures, including improvement and maintenance of agricultural and agricultural facilities, expansion of agricultural roads and agricultural product distribution facilities, funding assistance and tax reduction. In 2015, the size of APR was 810 000 ha, accounting for 48% of total farmland. Despite the benefits, owners of farmland lack incentives to include their land in APR as it makes land conversion to non-agricultural use difficult, thereby reducing farmland price: the high price of farmland reflects its potential option value for future non-agricultural use.5

In addition to conversion to non-agricultural use, idle farmland contributed to the reduction of total farmland area from 2.298 million ha to 1.679 million ha between 1970 and 2015. In terms of farmland conversion by land type of use, government and public use accounts for the largest share, 38% in 2015, whereas the use for agricultural facilities represents only a small portion. On the other hand, the idle farmland area is three to four times larger than the converted farmland area. If farmland is not used for farming without justifiable reasons, the head of the local government can issue a disposal order to the idle farmland owner. If the owner cannot find a suitable buyer the idle farmland, they can request the KRC to purchase it.

4.3. Water policy

Sustainable productivity growth in agriculture requires a sufficient and stable quantity of usable freshwater for crops and livestock, and minimised impacts of agriculture activities on water resources. Water policies can support or hinder the capacity of the sector to reduce its impacts on water resources, increase its overall water use efficiency and its resilience to water risks.

Water governance

Water is an essential natural resource for all economic activities, including agricultural production. The characteristics of water make it difficult to manage effectively: its shape and location are not fixed, and its circulation on earth makes it difficult to specify water rights and to designate water management authorities. The potential conflict of interests among individuals, interest groups and even public agencies obliges the establishment of a good water governance system.

In Korea, the management of water and watersheds has been classified into two types of activities: water use and water control. Water use incorporates the activities of managing water quantity and quality, while water control implies the activities primarily related to water risk management (i.e., flood and drought control). For water use, Civil Law grants customary rights to the operators of farms or factories to withdraw certain amounts of water from common rivers.6 The water use right is not tied to land property rights, and the trading of rights or entitlements is not permitted. Meanwhile, the River Act requires that anyone who intends to use river water for domestic use, manufacturing, agriculture, environmental improvement, or shipping is required to obtain permission to do so. The Act allows the government to deny permission or restrict water withdrawal if there is a possibility of damaging ecosystems or the safety of water infrastructure.

The Constitution adopts the principle of nationalisation of water resources, which emphasises equity in water use. In the early stages of economic growth, the government developed water sources and managed rivers with an emphasis on storing water, constructing hydro-power generators and delineating rivers. In the 1980s, when the issue of water pollution arose, a sequence of laws for water quality management and environment-friendly river management was introduced. Although water management based on demand control has come under discussion as the private sector of the economy has grown, the government still remains the most influential player in water governance in Korea.

Responsibility for water management is divided among six ministries (although the allocation of roles is being discussed under the new government as of 2017): the Ministry of Land, Infrastructure, and Transport (MOLIT), the Ministry of Environment (ME), the Ministry of Agriculture, Food and Rural Affairs (MAFRA), the Ministry of Interior and Security (MOIS), the Ministry of Trade, Industry, and Energy (MOTIE), and the Ministry of Oceans and Fisheries (MOF). In addition to drawing up the comprehensive water development plan, MOLIT is in charge of water quantity and river management. It manages rivers and multi-purpose dams, and it develops metropolitan waterworks. MAFRA is in charge of managing agricultural water resources. ME is in charge of water quality and ecosystem management, and manages local waterworks in co-operation with local governments, which supply drinking water to the final consumers. The role of local governments is quite limited in overall water resource management.

Specialised public water companies play an important role in the management of water resources and supply of water to consumers. K-Water, a public company, is involved in all the duties of MOLIT. The company constructs, operates, and manages facilities for water resource development, constructs and manages metropolitan waterworks facilities, provides water to local waterworks, and so on. The agricultural water duties of MAFRA are implemented by KRC and the local governments. KRC constructs and operates irrigation facilities such as reservoirs, pumping stations, groundwater tube wells, and irrigation channels. Under the authority of ME, another public company, the Korea Environment Corporate (KECO), supports policy making and implementation for water, sewage and water quality management (OECD, 2017b). Local governments also usually establish a local public company to provide residents with tap water and sewage treatment services.

Figure 4.4 shows the water flow in Korea. Only 26% of total available water resources are used due to loss and the leakage to the seas. More than half of water used has to pass through dams, which store water for dry seasons. Agriculture accounts for just under half of water use, municipal water for 23%, and industrial use for 6%.

Recent water policy reviews noted insufficient co-ordination in and among the multiple ministry-level agencies which are in charge of particular aspects of water management (Lee, K., 2016; OECD, 2017b). To be effective, the management of water quality should be closely co-ordinated with that of water quantity. In the current system, those two duties are separately implemented by ME and MOLIT, respectively. Because multiple agencies are participating in water management with different roles, it is more difficult to introduce structural changes in water management (Hong et al., 2006).

Kim (2016) also points out an ambiguity in the establishment of water rights. The Civil Act acknowledges a customary right of those who have been using water before the introduction of the permission system. The principle of allocating water to particular usages and regions is not clear enough. Because of this ambiguity, several disputes have arisen on water pricing and allocations (OECD, 2017b), especially between K-Water and the local governments.

Figure 4.4. Flow of water resource in Korea
picture

Source: Ministry of Land, Infrastructure and Transport (2013), Water vision 2020.

Water pricing

Korea’s water supply and sanitation charges are the lowest in the OECD. Charges related to water resource management are uniform across the country and so do not signal regional differences in water availability and risk. The low collection rates on certain taxes and charges, particularly related to water quality, suggest imperfect enforcement, which further weakens incentives for pollution reduction and efficient use (OECD, 2017d).

Korea has three different types of water prices; metropolitan water prices, local water prices, and irrigation water prices. Metropolitan water prices are applied when K-Water withdraws water from the rivers and dams that it manages and supplies this water to the local governments. The prices of water that the local governments supply are determined by the local councils, and they incorporate production costs. The local price clearly depends on the water resource availability, water infrastructure, geographic characteristics, market size, and other socio-economic conditions of the region (Kwon, 2009). In 2013, the highest local price was 3.6 times higher than the lowest local price (Kim, K., 2013). Moreover, the prices determined by the local councils do not cover the actual production costs; hence, the local governments record a substantial deficit in their water businesses. Low water prices induce overconsumption, indicated by far larger per capita water consumption in Korea than the OECD average (Kim, K., 2013). Currently, local water prices, which are differentiated among usages, have the form of two-part tariffs: the price is composed of a fixed fee and a use price.

Farmers usually receive their irrigation water either from KRC or from their local government. In regions where KRC provides the irrigation water, no irrigation price is currently in place and the water is free. KRC meets its operating costs from two financial sources: a grant from MAFRA and revenue from sales of the company’s assets. These assets include reservoirs and other facilities that farmers had previously financially contributed to building but which were taken over by KRC mostly in the late 1990s. Because of their historical contribution to KRC, farmers are considered to bear some of the irrigation costs. In regions where irrigation water is provided by the local government, farmers have to pay for the water, but the price is still very low compared to the production cost; hence, the local government also records a deficit in the irrigation water business (Kim et al., 2014).

The full cost of water is the sum of supply cost (capital cost, and operation and maintenance cost), opportunity cost, and externality cost (OECD, 2010a). Although comparing agricultural water charges among countries requires considerable caution, the agricultural water charge in Korea does not recover even the direct supply cost. There are concerns that full-cost-recovery pricing for water in agriculture would penalise low-income farm households relative to urban workers.

Providing water, especially irrigation water, may become more costly in the future because of climate change, increased competition to access the resource (driven by economic development and urbanisation), degraded water quality and limited capacity to build more dams. In this context, an increase in water charges to at least reflect full supply costs (and ideally cover the opportunity cost of water withdrawals) would help agriculture to adapt to these future constraints (Table 4.2). In return, social and adjustment policies could be used to compensate the poorest farmers or to facilitate necessary consolidation in the affected sectors (OECD, 2016a). Prioritising targeted actions at the subnational level, via the identification of hotspots, may help increase efficiency and effectiveness of policy responses if water risks differ in different part of the country (OECD, 2017c).

Table 4.2. Full supply cost recovery1 for surface water delivered on-farm across OECD countries2, 2008

100% cost recovery of Operation and Maintenance and Capital Costs:

Austria; Denmark; Finland; New Zealand; Sweden; United Kingdom

100% cost recovery of Operation and Maintenance Costs, but less than 100% recovery of Capital Costs:

Australia; Canada; France; Japan; United States

Less than 100% cost recovery of Operation and Maintenance and Capital Costs:

Greece; Hungary; Ireland; Italy; Mexico; Netherlands; Poland; Portugal; Spain; Switzerland; Turkey

Less than 100% cost recovery of Operation and Maintenance Costs, with Capital Costs supported:

Korea

Recovery of other costs through water charges or water pricing: Opportunity costs, economic and environmental externality costs:3

Australia, some environmental costs already recovered, but planned to recover opportunity costs;

Australia, some environmental costs already recovered, but planned to recover opportunity costs; economic and environmental costs by 2010;

France, is recovering a share of the environmental costs through water charges;

United Kingdom, currently recovering share of environmental costs.

1. The full supply costs include operation and maintenance costs and capital costs (renewal and new costs).

2. No information is available on the following OECD countries: Belgium, Czech Republic, Germany, Iceland, Luxembourg, Norway, Slovak Republic.

3. Other costs including opportunity costs, economic externality costs constitute the ‘full economic cost’ with the full supply costs, which make up ‘full cost’ with environmental externality costs.

Source: OECD (2010b), Sustainable Management of Water Resources in Agriculture, p.91.

Water quality management

Water quality control is one of the main objectives of the national environmental control. Managing industrial sewage and implementing the Total Maximum Daily Load Management System (TMDL) are the two main policy instruments for pursuing the policy goals. Water quality standards are imposed on rivers, lakes and marshes, and groundwater.7 For rivers, lakes and marshes, the Health Protection Standards are imposed on 20 common substances. Another group, the Living Environment Standards, is imposed on nine substances for rivers and ten substances for lakes and marshes. For groundwater, there are standards on five toxic substances and four general substances.

The water quality of public rivers and lakes is monitored by ME through its network of water quality monitoring stations (ME, 2017a). The monitoring is conducted by two research institutes, the National Institute of Environmental Research and the Public Health and Environment Research Institute, and KRC. The Water Quality Monitoring Network tracks about 40 water measures, including water temperature, pH, BOD (Biochemical Oxygen Demand), and COD (Chemical Oxygen Demand). It also measures sediments and radioactive materials. Each item is measured at different intervals, from once a week to once a year. The measurements are published in the Environmental Statistics Yearbook.

KRC monitors the agricultural water quality of 975 stations quarterly. In every other year, 17 000 reservoirs and artificial lakes are inspected. The water sources and facilities whose water quality does not satisfy the quality standards are classified as focus objects requiring intensive quality management. Table 4.3 shows that the majority of agricultural water quality indicators measured at 825 sites in 2014 are “Slightly Good,” “Normal,” or “Slightly Bad”. Use of agricultural water is approved if its quality is no worse than “Slightly Bad”. Municipal sewage, livestock manure, and land use effluents were the three main sources of agricultural water pollution.

Table 4.3. Agricultural water quality measurement in Korea, 2014

 

Number

Ratio (%)

Water quality grade

 

Very good

3

0.4

Good

64

7.8

Slightly good

162

19.6

Normal

165

20.0

Slightly bad

257

31.2

Bad

93

11.3

Very bad

81

9.8

Total

825

100.0

Main pollutant sources

Municipal

233

28.2

Livestock manure

223

27.0

Land

363

44.0

Industry

2

0.2

Aquaculture

4

0.5

Total

825

100.0

Source: Rural Agricultural Water Resource Information System, https://rawris.ekr.or.kr/.

 StatLink https://doi.org/10.1787/888933852369

The total budget of the Ministry of Environment (ME) increased by an average of 5.9% annually during the last 10 years. The budget for water quality control also increased by 5.2%, but it has been decreasing since 2015. The annual budget of the (ME) was KRW 5.7 trillion (USD 4.9 billion), of which KRW 3.4 trillion (USD 2.9 billion) (or 60%) was used for water and sewage related managements (ME, 2016b). MAFRA also allocates part of its budget to preventing pollution of rural water and improving agricultural water quality; the expenditure was KRW 12 billion (USD 10.6 million) in 2015. The public companies, K-Water and KRC are the distribution and implementation channels of the budgets for water quality improvement.

Like other environmental regulations, those on water quality also comprised command-and-controls and incentives (Kwon, 2013). Most of the regulations are applied to the point sources, but a regional level comprehensive pollution control system exists for diffuse pollution (OECD, 2017a).

  • Permission and Limitation of Effluent Facilities: Either installing new waste-water emitting facilities or altering existing facilities must be permitted by the local authorities. Permission is given only if the facility’s effluent does not violate the effluent standards. Installation of the facility can be limited if there is a probability of its resulting in violation of any water quality standards, or if it is to be located in a region designated as a source of drinking water.

  • Regulations on the Operation of Effluent or Preventing Facilities: All permitted effluent facilities have to install water pollution preventing facilities to keep the effluent standards.

  • Total Maximum Daily Load Management System: This policy sets up the water quality targets of a selected river and controls the total water pollution load in the river basin. The total load of a river basin is allocated to the local governments and facilities in the region. Instead of targeting the achievement of all 20 water quality standards, TMDL clarifies the liabilities of local governments by means of designating only two criteria, BOD and total phosphorus discharges. Once the target load is reached, the local government is subsidised by the central government for constructing environmental infrastructure for the region. Moreover, the River Basin Fund collected from the tap water fees of downstream consumers are also provided to the participating local governments under the TMDL system.8

  • Environment Improvement Charge: This is an economic incentive applied for water quality improvement. It is a price incentive and currently no cap-and-trade system is operating for water quality management in Korea. The charge is applied to facilities and automobiles emitting air or water pollutants. The charge on sewage is adjusted by the pollution intensity and location.

More recent policy interest is in the control of non-point sources, especially agricultural source runoff. ME and MAFRA are working together to introduce a joint agricultural runoff management programme (ME, 2017b). The programme may designate agricultural runoff management zones, and farmers in the zones will be subsidised if they apply best management practices under contracts with the government. Thus the system will require the cross-compliance of farmers.

Farmers cultivating land near drinking water sources will be assisted if they change their production items to those generating less soil erosion, under which polluters are paid rather than paying for diffuse pollution (OECD, 2012). In this way, they may provide a service to city through lowering treatment costs. Discussions are ongoing on the possibility of linking runoff management with the TDML system. Abatement of agricultural runoffs in a region may be deducted from the total water pollution load of the region. Regulations on livestock manure are becoming stricter, and stricter standards on manure effluent will be imposed. At the same, the government is increasing its investment for public facilities to treat and recover manure for fertiliser use: the aim is to treat 50% of total manure with these facilities by 2025.

4.4. Labour market policy

Labour market policy influences employment composition and labour mobility. It can play an important role in facilitating structural adjustment in agriculture, for example by assisting excess labour in farming to exploit more remunerative non-farm income and employment opportunities. Policies on skills improvement and on international mobility of human resources can also help to match labour supply with demand and can affect innovation and knowledge transfer through exchange of skills and skilled labour. Skills improvement policies could encourage young and better educated farmers to enter the sector and adopt more productive and sustainable practices.

Korea’s labour market policy has moved towards enhancing flexibility, but controversy continues over this policy direction. Labour market challenges include long working hours, polarisation of the labour market between regular and contract workers, deterioration of employment elasticity, and a low employment rate among women. The labour mobility rate in Korea was 62% in 2014, the second highest in OECD countries after Turkey. The proportion of temporary workers is 22%, which was higher than the OECD average of 11% in 2014.9 The average number of years of workers’ service in Korea is 5.6 years in 2014, which is the lowest among OECD countries excluding the United States, and the proportion of long-term employees over ten years is also very low.

Comparisons between contract and regular workers in Korea show big differences in working conditions such as wage, social insurance, and employment stability. The social insurance coverage rate of contract workers is half of that of regular workers. While the average employment period of regular workers is seven years and three months, that of contract workers is two years and five months. This difference becomes larger for large enterprises. The wage of contract workers in SMEs is only 35% that of regular workers in large enterprises.

The OECD indicator of employment protection that compares the strictness of employment protection legislation among member countries shows that the severity of dismissal in Korea is less flexible than the average (OECD, 2016b).10 The individual dismissal severity for regular workers in Korea was slightly higher than the OECD average, while the severity of collective dismissal was less restrictive than the average. On the other hand, the World Economic Forum ranked Korea’s labour market efficiency 77th out of 138 countries in 2016/17. The least competitive areas were co-operation in labour-employer relations, hiring and firing practices, redundancy costs, weeks of salary and ratio of women to men in the labour force (Figure 4.5).

Figure 4.5. Global Competitiveness Index: Labour market efficiency, 2016-17
Scale from 1 (worst) to 7 (best)
picture

Note: Indices for EU28 and OECD are the simple average of member-country indices. OECD top 5 refers to the average of the scores for the top 5 performers among OECD countries (Switzerland, United States, United Kingdom, New Zealand and Canada).

Source: World Economic Forum (2016), The Global Competitiveness Report 2016-2017, https://www.weforum.org/reports/the-global-competitiveness-report-2016-2017-1.

 StatLink https://doi.org/10.1787/888933851799

Korea’s declining working population (since 2017) are leading to supply and demand unbalances across the sectors. In particular, youth unemployment problems, labour shortages in agriculture, forestry and fisheries, construction and small and medium manufacturing sectors have intensified in recent years. As Korea's agricultural labour force is mostly family labour, the proportion of regular workers, temporary workers, and daily workers is very low (Table 4.4). Farmers traditionally used unpaid family labour when they had a temporary need. However, the number of household members between 15 and 65 years old per farm household decreased from 3.0 to 1.4 between 1970 and 2012. This increased the temporary need for non-family labour in labour-intensive periods (Eom et al., 2016).

Table 4.4. Employment in agriculture by status in Korea, selected years
Share (%)

2006

2010

2014

Regular workers

0.9

1.1

1.8

Temporary workers

1.2

1.8

1.2

Daily workers

6.1

6.3

5.1

Employers

2.6

3.2

2.8

Self-employed

60.3

60.1

61.3

Unpaid family workers

28.9

27.5

27.7

Total

100.0

100.0

100.0

Note: Regular workers are those whose contracts last for 12 months and over; temporary workers are those whose contracts last for more than one month and less than 12 months; daily workers are those whose contracts last for less than one month or who are employed daily; employers are those who run a business with one or more paid employees; the self-employed are those who perform professional work or run a business on their own or with unpaid family members; unpaid family workers are those who work for 18 hours and over during the period of one week in a family business or in farm without pay.

Source: KOSTAT (2016b), Economically Active Population Survey.

 StatLink https://doi.org/10.1787/888933852388

Previously, the main labour market policy in agriculture was to promote family succession. However, as the farming population declined and aged, the lack of agricultural workers was recognised as an important area for policy attention. In the 2000s, the government implemented policies to support agricultural labour that suits local characteristics, to promote professional agricultural companies, to introduce foreign agricultural workers, to promote agricultural mechanisation and to utilise unemployed labour in rural areas (Box 4.4). In 2004, comprehensive measures to support elite farmers were launched, and investment in agriculture manpower and agriculture education strengthened at the national level.

Korea’s labour-related legislation stipulates minimum standards for working conditions such as wages and working hours. For example, the minimum wage system was applied only to manufacturing firms with 10 or more workers when it was first implemented in 1988. In 1990, however, the system was extended to cover workplaces with more than ten workers in all industries. In 1999, the system was further expanded to include workplaces with more than five workers. It was finally expanded to all workplaces in all industries from 2000. The minimum wage system is now applied to all agricultural workers.11

While most labour laws apply to the agricultural sector, there are some exceptions. For example, in the case of dismissal for business reasons, the employer must notify the Ministry of Employment and Labour 30 days before the dismissal if the business is over a certain size. However, since the agricultural sector is mostly composed of small-scale businesses, it is very unlikely that this provision will be applied. Korea’s labour laws also protect contract workers, ensure stable employment of fixed-term workers, and impose overtime restrictions for short-time workers. However, such laws apply to businesses or workplaces that employ more than five workers at all times. Since only some provisions of relevant laws apply to businesses or workplaces employing four or fewer employees, most agricultural workers are unlikely to be covered by all provisions. Although the Employment Insurance Act applies to all businesses and all workers, it does not apply to employers with four or fewer employees. In addition, the Industrial Accident Compensation Insurance Act does not apply to businesses that are corporations of agriculture, forestry (excluding the lumber industry), fishery and hunting, and employ less than five full-time workers. Additionally, the dispatch of agency workers is allowed only for those judged to be appropriate in view of expertise, skill, experience or nature of work, but the agricultural sector is not eligible for agency workers.

Box 4.4. Development of immigration policy related to Korea’s agricultural labour force

Foreign labour accepted through the Employment Permit System (EPS) has largely filled labour shortages in horticulture (berries, vegetables, mushrooms, etc.) and stockbreeding. Although the data on the proportion of foreign labour in the total agricultural labour force is incomplete, the number of agricultural foreign labourers has been steadily increasing over the past decade, when the problem of agricultural labour shortages have become severe. According to the 2016 Foreigner Labour Force Survey, 5.3% of all foreign employees are employed in agriculture, forestry and fisheries, and 2.8% of all foreign employees are employed as “skilled” in agriculture, forestry and fisheries by occupation. The number of foreigners engaged in agriculture, forestry and fisheries has been on an increasing trend since 2013. This figure includes all types of migrants employed in Korea, including marriage migrants and ethnic Korean returnees, but most male migrant workers are estimated to be EPS workers.1

Since the official launch of the EPS in 2004, foreigners from 15 countries have been allowed to work in the agricultural sector in Korea.2 A farmer who wants to hire migrant workers must submit an application for the recruitment of local workers to the job centre. The recruitment advertisement is posted for 7 days and if the posted job vacancies are left unfilled even though the job posting period is over, the farmer can then make an application to hire migrant workers. The government has also established qualification requirements for hiring migrant workers. With the adoption of a point system in 2012, farmers with the highest points are first allocated migrant workers. A maximum of 5 to 20 foreign workers can be hired per farm depending on the type of agricultural product and farm size.

The Korean government employs migration policy to induce migrant workers to work in the agricultural sector on a long-term basis. Migrant workers on E-9 visas are allowed to sign an employment contract for up to three years. If the employer expresses his willingness to rehire, migrant workers can extend their contract for up to four years and ten months. Beginning July 2012, a re-entry scheme for qualified migrant workers on E-9 visa was launched. The Korean government issues an E-7 visa to E-9 visa holders who have upgraded their job skills and proved their proficiency in the Korean language. This policy applies to migrant workers who have worked in agriculture for four years within the past ten years. Those eligible for E-7 visas need to meet other qualifications set by the government. For example, they need to earn at least the average wage of Korean workers employed in the same job or have a national technical qualification certificate. E-7 visa holders may extend their stay as long as they have a job in Korea, and may be accompanied by family members.

With the introduction of a working visit (H-2) visa in February of 2007, ethnic Koreans from the People’s Republic of China and the former Soviet Union are also officially allowed to work in agriculture. However, ethnic Korean workers on H-2 visas tend to work in the capital and its vicinities as they are allowed to choose their jobs freely. Nonetheless, the government has been promoting their employment in the agricultural sector since 2008, providing incentives for those working in agriculture. In 2008, those who have served for two years or longer in agriculture without changing their workplace are allowed to invite up to two members of their family. In December of 2009, the government implemented a policy to grant permanent residency (F-5) to H-2 visa holders who have continuously worked for one workplace in agriculture for more than four years. In April of 2010, the government issued an Overseas Korean (F-4) visa ensuring better rights to migrant workers on H-2 status who have worked for one workplace in agriculture for more than one year, or who have done so for more than six months and acquired a national technical qualification certificate in a related field (Choi et al., 2016).

In the case of the EPS, migrant workers are required to be employed throughout the year. As a result, when labour demand is temporary, farmers tend to hire undocumented migrants through their acquaintances or private recruitment agencies. The Korean government uses two methods to respond to seasonal labour shortages in horticulture. In July 2009, the government introduced a new Addition of Workplace System that allows migrant workers to enter into an employment contract with and work for another farmer for a certain period of time while maintaining a contractual relationship with the initial employer. Migrant workers on E-9 visas return to their original workplace when their new employment contract between two to four months expires. However, the utilisation of this system is not high because of its complex process. The government also implemented a seasonal worker pilot scheme from the second half of 2015 and formally announced the introduction of a seasonal worker system from 2017. The seasonal workers can be hired for up to three months, and the term is not renewable.

1. Recognizing a growing need for labour in agriculture, the government decided in 2002 to launch the foreign training system in agriculture. The foreign trainee system had been criticised for being more of a ‘labour’ programme than one for transferring skills to foreign workers. In 2007, the two systems for admitting migrant workers to Korea were integrated into the EPS. The quota for EPS workers in agriculture increased from 6 000 to 7 900 between 2007 and 2013.

2. Fifteen countries include the Philippines, Thailand, Indonesia, Sri Lanka, Viet Nam, Mongolia, Uzbekistan, Cambodia, Pakistan, China, Bangladesh, Kyrgyzstan, Nepal, Myanmar and East Timor. Laos was added to the list of source countries in 2016.

4.5. Social security policy

As a result of outmigration and limited new entrance to agriculture, the proportion of the farm population over 65 years old increased from 5% in 1970 to 38% in 2015. Agricultural activity has become a form of social safety net for the older-age rural population (OECD, 2017e). Korea has been increasing policy efforts to support the voluntary retirement of aged farmers (Box 4.5). However, the general social security policy, including the pension system, has a strong implication on the structural adjustment of Korean agriculture through retirement of aged farmers.

Social pension system

The social security system of Korea is composed of three main building blocks: social insurance, public aid, and social services. Social insurance consists of social pension programmes, national health insurance, unemployment insurance, and industrial accident compensation insurance. The social pension system is currently composed of a basic old-age pension, a national pension (NP), and public occupation pensions. NP is by far the most important pension in terms of the number of insured and the total amount of contribution. It was introduced in 1988 and its compulsory application was gradually expanded from workplaces with ten or more employees to all workplaces with one employee or more, in 2006. The number of the insured increased from 4.4 million in 1988 to 21.6 million in 2015. The expansion of compulsory coverage and progressive ageing of society has increased the number of beneficiaries from 0.5 million in 1993 to 4.0 million in 2015 (NPS and NPRI, 2016).

In spite of its expansion of coverage, a number of issues concerning NP have been debated in recent years. First, NP is a defined benefit-funded scheme and not a pay-as-you-go system as in many other OECD countries. However, it is projected, even after two major reforms in 1998 and 2007, to be depleted in 2060 due to the rapid ageing of the society and the imbalance between the contribution and the income replacement rates (Kim, S., 2013). Second, the coverage of pension beneficiaries among the elderly remains low because NP has a short history and the initial coverage was limited to those who were employed by larger companies. In 2015, only 40% of the population aged 65 and older were beneficiaries of the public pension system. Third, the level of the pension benefit is too low to guarantee a reasonable living standard mainly because of the short contribution history for the most beneficiaries. In 2015, the average old-age benefit was KRW 337 560 (USD 290) which was 13% of the average monthly wage of SMEs in the manufacturing sector and 55% of the minimum living expenses of a one-person household that the government applied in National Basic Livelihood Guarantee programme (NPS and NPRI, 2016).

To cope with low pension coverage, the government established a basic old-age pension in 2008. Persons aged over 65 years old who pass a means test are entitled to receive this basic pension, with a ceiling of KRW 200 000 (USD 172) per month in 2016. The amount of the basic pension increases as the recipients contributed to NP in a shorter period. However, Won (2013) suggests that the design of the basic pension discourages participation in NP.

Farmers also have a relatively short history with the NP system, as their participation only became compulsory in 1995. Since then, the government has financially supported their contribution. In 2017, the government covered half of the statutory premium if the self-reported monthly income, including salary, wage, and business income, is less than KRW 910 000 (USD 784). Support to the pension premium is fixed at KRW 40 950 (USD 35) a month if the contributor’s income exceeds the threshold. The total amount of support was estimated at KRW 176 billion (USD 151 million) in 2017 (MAFRA, 2016b).

Despite compulsory participation and financial support from the government, a number of farmers are still not participating in NP. A survey in 2011 reported that 16.9% of 112 farmers from four villages who were younger than 60 were not insured by NP (Park et al, 2011). Similarly, a large number of farmers at retirement age are not covered by NP. The same survey reported that about 61% of the sample farmers aged 60 years and older were not paid NP benefits. This reflects the fact that compulsory participation of farmers in NP started in 1995 and that the actual participation rate of the farmers has been low. Secondly, the amount of the pension is not high enough to ensure a reasonable level of income. In 2017, 534 000 farmers received pensions from NP; their average amount was KRW 248 000 (USD 213) per month, which was 68% of the average of all NP recipients.

Nevertheless, the basic old-age pension contributes significantly to the alleviation of poverty among elderly farmers. A survey in 2014 reported that 95% of 300 elderly farmers from three villages had applied for the basic old-age pension and 81% were receiving it. Most of them were receiving the maximum pension amount, reflecting the low NP coverage ratio of the farmer. Almost all of the recipients thought the basic pension was “helpful” or “very helpful” for living (Park and Choi, 2014).

Box 4.5. Policy to support retirement of aged farmers in Korea

Korea’s extraordinarily rapid ageing is progressing especially quickly in the agricultural sector and rural areas. In 2015, the share of persons aged 65 years and older in the employed was 42% in agriculture, compared with 8% in the whole economy. Heads of households aged over 65 years of age made up 20% of the total households, but 54% of agricultural households. At the farm level, ageing can decrease productivity and income because of health conditions, adaptability to changing market situations, and new technologies (Lee, 2015). Furthermore, if intergenerational transfers of resources do not take place smoothly, for example due to a lack of alternative income sources such as pension for older generation farmers, the overall productivity enhancement of the sector can be hampered.

Korea introduced several policy measures to support the retirement of aged farmers. An early retirement payment was introduced in 1997 as the first direct payment programme in Korea. A farm operator aged between 65 and 75 years can receive a fixed payment per ha every month until he reaches 75 years old if the farmland is “transferred” by either selling or renting it out. The farmer is required to have continuously operated the farm for at least 10 years before the transfer. If the farmland is sold, the buyer must be a farmer who is younger than 64 years old and operates the farm on a full-time basis or who is younger than 50 years old and has continuously operated the farm for at least three years. This programme has a clear structural policy objective: to enlarge the operation size of young, active farmers by proving incentives for elderly farmers to transfer their land. By the end of 2015, about 100 000 farmers had participated in this programme, transferring 76 000 ha of farmland. It is often claimed that the payment per ha per year (KRW 3 million – USD 2 584 – in 2017) is not sufficient to encourage transfer. For example, MAFRA (2016b) indicates that it covers only half of the income from rice production per ha (KRW 5.6 million – USD 4 950 – in 2015). Price support and direct payment requires farmers to produce, in general, provide incentives for farmers to stay in farming. Rice production is easy for the elderly to perform due to an adequate supply of contract machine services. The inadequate income from other, more general sources such as NP or basic income also induce elderly farmers to retain their farmland and remain farm operators.

As a part of its farmland bank activities, KRC has also been implementing the farmland pension programme since 2011.The programme provides a monthly pension to farmers over the age of 65 who enter a contract with KRC using their individual farmland as collateral. To enter the contract, a farmer is required to have operated a farm for at least five years. The amount of the monthly payment is determined by the age of the famer and the value of the farmland. KRC is repaid on the basis of the collateral after the death of the farmer. The remainder of the value of the land is inherited by the farmer’s legal heirs after deducting the amount of the pension paid. If the remaining value is negative, the heirs bear no liability. By the end of 2016, about 6 783 farmers had entered contracts. The average size of the farmland under the contracts was about 4 000 m2 and the average monthly pension was about KRW 1 million (USD 860). Unlike the early retirement payment, the farmer is not required to rent out their land to receive the pension. There is a concern that the farmland transfer direct payment programme and the farmland pension might not be well-aligned because the former encourages the transfer of farmland while the latter allow farmers to continuing farming without selling or renting their land.

National health insurance

National Health Insurance (NHI) was introduced in 1977. Initially covering those employed in workplaces with 500 or more employees, the scheme expanded to cover smaller workplaces in 1981, farmers and fishermen in 1988, and the self-employed in 1989. The coverage of NHI increased to 97% of the population in 2015 (NHIS, 2016). The government supports up to half of the NHI premium for farmers, among whom coverage has increased to around 90% (Park et al., 2011).

Public aid system

Unlike social insurance systems based on the contribution of the insured, the public aid system guarantees the social minimum level of living mainly though cash transfers. The National Basic Livelihood Guarantee programme (NBLG) is the most important safety net programme. It defines the threshold income by taking various factors into account and pays welfare benefits to households or persons whose income is below the threshold. Seven categories of benefits exist to cover basic needs, including housing, education and medical services. In 2015, 1.10 million households (1.65 million persons) benefited from this programme.

However, NBLG covers only a very small number of farmers. In 2015, the programme covered only 3 758 farmers, or 3.4% of those covered by the programme who were economically active; this was lower than the share of employment in agriculture of 5.2%. Considering that the incidence of poverty among rural households is more than two times higher than among urban households, the coverage of farm households is very low. This suggests that the income generation rate of their assets (mainly farmland) is set too high, although special treatment is applied in the calculation of their earned income.12

4.6. Education and skills policy

Overall education status

Korea has a 6-3-3-4 educational system, which consists of pre-primary education, primary education, secondary education, and higher education. One of the highest intensities of public and private education expenditure (6.7% of GDP) among the OECD countries supported the achievement of its high enrolment and advancement rate. The enrolment rate has steadily increased to over 90% for elementary, middle, and high schools, and 69% for higher education in 2016 (Figure 4.6). Generally, the advancement rate in Korea is very high. For example, in 2010 the advancement rate in vocational high school was 71%.

The Korean education system is often criticised for its overemphasis on tertiary education over vocational education (Jones, 2013). In contrast to most other OECD countries, the share of inactive youth is higher for tertiary graduates in Korea than for those with high-school education. The employment rate of university graduates is lower than average employment rate among OECD nations (OECD, 2014). The mismatch rate between undergraduate major and the first job among university graduates is reported as 37% (Lee, 2016). While university graduates are mismatched to their jobs, SMEs face labour shortages, including in agriculture. One main potential reason for the high mismatch rate is consistently voiced by employers: that the curricula of the formal educational institutes are not deeply related to the skills required at the workplaces. It is necessary to gradually shift the focus of the Korean education system from chasing the degree and prestige of high-ranking universities to rewarding the acquisition of skills that are demanded in the labour market (Jones, 2013).

Figure 4.6. Educational attainment, 2016
Percentage of the population aged 25-64 years old
picture

Note: Upper secondary education includes post-secondary non-tertiary education. In most countries, data refer to ISCED 2011. For Indonesia, Saudi Arabia and South Africa data refer to ISCED-97. Data for Brazil, Chile, Indonesia, Ireland, Russia and South Africa refer to year 2015, for Argentina and Saudi Arabia to 2014; for India to 2011 and for China to 2010.

The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

Source: OECD (2017), Education at a Glance 2017: OECD Indicators, http://dx.doi.org/10.1787/edu-data-en.

 StatLink https://doi.org/10.1787/888933851818

Recently, the concept of a competency-based society has gained prominence and the government guides the graduates from vocational high school to put jobs at first. Since 1999, the Korean government has developed national standards regarding abilities required in real workplaces. From 2002, the Ministry of Education started to develop the Korea Skills Standards and the Ministry of Employment and Labor started to develop the National Occupational Standards. In 2010, those efforts to establish a skills standard were unified to the National Competency Standards (NCS) as the nationally developed systemic contents of knowledge, skills, and attitude required for workers to perform jobs in real workplaces. By December 2014, 797 NCSs had been developed.

The development of the educational environment is an important element to enhance the quality of life in rural areas. It includes the acquisition of excellent teachers, the improvement of career education, the extension of pre-school programmes, and the improvement of foreign language, physical and art education (Jeong et al., 2014). Overall, the educational environment of rural areas has fallen behind that of urban areas. In response, the Ministry of Education is implementing two major projects to improve the quality of life for farmers and fishers. The project supports a hub of excellence for middle schools in rural areas to promote the influx of students from urban areas. Since 2013, the Ministry of Education selected 80 middle schools and provided approximately USD 1 million for each school for three years. The financial support allowed the selected middle schools to improve educational facilities and delivered various educational programmes (such as the School Creative Career Education Program, sports clubs, orchestra, foreign language programmes). The second project involves ICT facility construction and the distribution of educational content at primary, middle and high schools.

Vocational education in agriculture

According to the Statistical Yearbook of Education (Ministry of Education, 2016), there are 472 vocational education specialised high schools with 287 772 students. Approximately 6% of them study at 37 agricultural high schools. Some agricultural high schools are specialised in specific areas such as horticulture, horseracing, cooking and herbal medicine. Approximately 40% of the graduates of agricultural high schools are employed after graduation, of which half obtain agriculture-related jobs and another 40% proceed to higher educational institutes. The share of graduates who become self-employed farmers is about 1%. At the tertiary level of education, Korea has 37 agricultural colleges in four-year universities and five agriculture-specialised two- and three-year colleges. According to Yang et al. (2015) approximately 30 000 students are enrolled in agricultural colleges and universities. The overall employment rate was 59%; of those students, 62% get a job in agriculture and the rate of becoming a self-managed farmer is about 7%.

The government also established the Korea National College of Agriculture and Fisheries in 1997 as a professional school to foster future leaders in agriculture. The tuition and admission fees are exempted for three-year programmes and the government also supports other expenses. Graduates are eligible for a subsidy for young farmers, but required to engage in farming for at least six years.

The Korea Agency of Education, Promotion and Information Service in Food, Agriculture, Forestry and Fisheries (EPIS) is responsible for delivering education and MAFRA training policies. One of its major projects is financial support for agricultural high schools and agricultural colleges. In 2015, EPIS supported 19 high schools and 14 colleges in delivering a practical curriculum to support students in advancing to an agriculture-related career. In 2016, MAFRA selected three agricultural high-schools and provided approximately USD 2 million for each to raise practical competencies required in the agricultural field. In those high-schools more than 70% of the curriculum should be vocational subjects and more than 70% of vocational subjects should consist of experimental subjects.

4.7. Summary

Korea has developed a competitive transportation and ICT infrastructure, including in rural areas. The government promotes the Smart Agriculture project to make use of ICT to improve the competitiveness of Korean agriculture, but the application of ICT to agriculture tends to be supply-driven. Collaboration between producers, retailers, R&D institutions and ICT industries is key to developing ICT to meet the demands of stakeholders and induce the adoption of technology at the farm level.

A widening income gap between urban and rural areas arising from rapid industrialisation has been a major policy issue in Korea. Together with structural change in the agricultural sector, diversification of income sources to off-farm employment is the main pathway to address low income issues in rural areas. Despite government efforts to develop rural infrastructure and provide incentives to attract non-farm business activity to rural areas, young and skilled workers tend to leave those areas and the ageing of the rural population has advanced much quicker than in urban areas. Korea can exploit the opportunities in rural area for more space intensive activities, more flexibility in land use, less congestion, lower housing costs and less environmental pressure (OECD, 2016c). A comprehensive rural development policy beyond primary agriculture should play a major role in redressing this issue. OECD (2016d, 2018) finds that taking a more bottom-up approach and promoting integrated investments and public services that are geared to local needs contributes to increasing rural competitiveness and productivity.

The food manufacturing industry has the potential to create more employment in rural area, add more value to primary agricultural production and open more possibilities to explore export markets. The government should enhance vertical co-ordination between producers and downstream industries by removing the restrictions on investment in agriculture, particularly in terms of ownership of farmland and investment in agricultural corporation. Promoting partnerships between producers and participants in the food supply chain (retailers, manufactures and others) allows farmers to respond to market demand and to introduce new technology or business models.

Korea’s low-income issue concentrates on small-scale aged farm households. The short history of Korea’s compulsory national pension system has led to a low level of social protection for farmers. Under the current production-based support system, older farmers tend to continue farming to secure their livelihood. Korea could develop a more coherent policy framework to address this low-income issue and encourage the voluntary retirement of aged farmers through enhancing the role of general social security system and possibly increasing the linkage to agricultural policy objectives. For example, Korea’s National Basic Livelihood Guarantee is a general social welfare programme, but only a very small number of farmers are covered by it due to their ownership of agricultural production assets such as farmland, and the difficulty of assessing their income in the absence of an income declaration requirement for farmers.

Fragmentation of farmland is a major constraint to improving the productivity of land-intensive agriculture in Korea. The main drivers accelerating this fragmentation are subdivision of farmland ownership through inheritance and land conversion to non-agricultural use. The land tax system could be improved by encouraging inheritance to a single successor as well as imposing a higher property tax if farmers do not use farmland. In Korea, strong protection of farm ownership based on the owner farming principle restricts farmland leasing except for a few exceptional cases. This discourages land owners from leasing farmland based on a formal land lease contract. Informal land lease contracts are often unstable and short-term, and they discourage long-term stable farm management and investment. The farmland regulations should be revised to promote tenant farming and penalise undocumented land rental transactions, which would also contribute to the targeting of the direct payment programme to the actual cultivator.

Farmers usually receive their irrigation water either from KRC or from the local government. In regions where KRC provides irrigation water, there is currently no irrigation price and the water is free; in other regions, the price of water does not recover operation and maintenance charges. This system encourages farmer to continue using water despite increased water stress – already very high relative to other OECD countries – and demand from other sectors. It also reduces the incentive to adopt water saving technologies, which could increase the risk to sustainable use of water in the face of climate change.

A well-functioning labour market gives the agri-food sector the flexibility to adjust quickly to change in labour and skill needs. Given the current demographic trend, Korea will increasingly face greater labour shortage problems, particularly in agricultural sector. The capacity of agriculture to attract skilled labours from both domestic and foreign labour markets is crucial for sustainable productivity growth in the sector. Promoting the corporate organisation of agricultural operations facilitate the entry of young generations based on a formal employment contracts. The labour market should also be able to meet the need for temporary agricultural labour. One possible area of reform is to allow human resource companies to dispatch agency workers to agriculture.

The intensity of public and private expenditure on education in Korea is one of the highest among OECD countries. The government is also increasing investment in improving the quality of education in rural areas. Enrolment rates to higher education reached 69%, and the education system in Korea is largely degree-oriented. Strengthening professional education to provide the skills required in agriculture is an important policy agenda to foster human capital in the sector.

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Notes

← 1. “Social Overhead Capital” is the capital that is available for everyone and used for the overall production of society, which includes various public facilities such as ports, roads, railways, electricity, and gas (MOSF, 2016).

← 2. The term of the 6th industry is based on the three-sector theory which divides economies into three sectors of activity: extraction of raw materials (primary), manufacturing (secondary), and services (tertiary). Naming a certain business as the 6th industry indicates that it connects primary industries with the secondary sector such as processing of agricultural products and the development of specialities and the tertiary sector such as marketing and tourism business.

← 3. Certified business operators can use the certification mark on the business site, the product, and the promotional material. And they are given points when selecting the applicants for support projects for funding, consulting, finding a market and promotion. In addition, the government is providing management consulting and financial support. In 2016, 38% of certified business operators were non-agricultural businessmen, 33% agricultural corporations, and 19% individual farmers.

← 4. KRC is a public enterprise that contributes to increasing agricultural productivity through water resources development and management in addition to farmland development and management. KRC uses the Farmland Management Fund established by government to conduct projects related to the scale of farming and the collectivisation, creation and efficient management of farmland.

← 5. Chae, Gwang-seok et al. (2016) find that the agricultural revenue generated by farmland purchase is lower than the case of leasing farmland.

← 6. In Korea, the expression water use right is preferred to water right. It refers to the right to withdraw water from natural water sources such as large and small rivers and aquifers.

← 7. There are 2 703 monitoring sites of groundwater quality, and the quality is inspected twice a year. In 2014, 8% of the sites could not satisfy the standards. The use and development of groundwater are prohibited unless the standards are satisfied (ME, 2016a).

← 8. TMDL is applied to the watersheds of four major rivers, and the system controls the quantity of pollutants discharged into these rivers within the scope of load allocation by means of setting a water quality target achievable at each end site of watersheds. Introduction of the system substantially reduced the pollutant load in the four major rivers in 2010 compared to that in 2004 (Park and Park, 2017).

← 9. As of 2016, 66%, of the total wage workers are regular workers, 26% are temporary workers and 8% are daily workers. Non-regular workers take up 33% of all wage workers and their monthly earnings are only 54% of those of regular workers (Korea Statistical Office, 2016)

← 10. The indicator covers three main areas: (1) protection against individual dismissals of regular workers, (2) regulations involving temporary employment, and (3) additional and specific requirements for collective dismissal.

← 11. Korea’s minimum wage is determined annually by the Minimum Wage Committee composed of labour and management and applies equally to all workplaces, regardless of region or industry.

← 12. This includes exclusion of direct payment for small farmers, day-care expenses, and interest costs for agricultural production. (Article 7 of MOHW Implementation Regulation for the Special Act for the Improvement of Welfare of Rural Residents).

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