The Export Council of Australia (ECA) interviewed a major Korean importer of fresh fruit about its mango imports from Australia. Australia’s key fresh fruit competitors in Korea include Peru (which has an FTA with Korea that came into force prior to KAFTA) and Brazil (which does not have an FTA with Korea).
The importer cited three factors as being key to it selling Australian fruit in Korea:
- volume,
- quality
- price.
Australia was always competitive with Peru when it came to quality, but after Korea’s prior FTA with Peru, Australia become uncompetitive on price. Brazilian mangoes are lower price, but also lower quality.
When KAFTA entered into force, the volume of mangoes that the importer sourced from Australia increased dramatically. In 2014 (before KAFTA came into force), it imported 25 million tons (mt) from Australia with a tariff of 30%; but in just 19 days at the end of 2014 after KAFTA entered into force, it imported 22 mt with a tariff of 27%. In 2015, it imported 83 mt with a tariff of 24%, and in 2016 it imported 110mt with a tariff of 21%. It imported less in 2017, but this was due to problems with the harvest in Australia.
In the competitive market for mangoes in Korea, the impact of KAFTA was to reduce the price for consumers. The market dynamic was such that a small reduction in price led to a proportionally much bigger increase in volume.
The importer highlighted the fact that the benefits of KAFTA went beyond tariffs—it led to a virtuous circle of lower costs. Lower tariffs led to lower prices for the consumer, leading to more Korean demand. More Korean demand led to higher volumes of Australian exports. Higher export volumes meant that both the exporter and importer could access more favourable rates from their logistics providers. This further lowered the cost for the consumer (although at a smaller rate than the tariff reduction), which again increased demand.
For mangoes, the benefits of KAFTA are shared between consumers, the exporter and the importer: consumers get greater choice and lower prices, while exporters and importers get higher volumes and therefore more revenue.