Region/Countries: Asia, South Korea Industry: Agriculture / Timber, Food and Beverage Date: November 2016

Why this is important to Wisconsin businesses: Demand for desserts is rising, while the supply of key ingredients has dropped.

Although the dessert market in South Korea is rapidly expanding, the industry is having severe difficulties caused by a shortage of fresh cream and butter. According to the Ministry of Agriculture, Food and Rural Affairs, desserts accounted for 10.7 percent of South Korea’s total foodservice industry in 2014, a 13.9 percent increase year-over-year. Due to changes in customers’ tastes and popularity of various dessert products, the number of bakery cafes and specialty shops has skyrocketed.

Since the supply of fresh cream and butter produced in South Korea has been tight, prices have been soaring and an increase in imports seems inevitable. While production of cream has sharply decreased since 2014, demand has been increasing every year. In 2016, cream production is expected to drop to 24,300 tons—60 percent of the total output in 2014—but demand is expected to increase. Through June of 2016, cream production was 15,300 tons, while demand reached 22,200 tons—an almost 7,000-ton shortage.

The low production of cream and butter results from the high price of raw milk in Korea, which is set by the government based on production cost, the inflation rate and agreements between dairy farmers and processing companies. Under this pricing system, the price of domestic raw milk is about three times higher than other countries, and prices of locally produced butter and cream are similarly high. Cream is made from butterfat, a byproduct from the production of powdered skim milk. Due to an excess stock of powdered milk, dairy companies are unwilling to produce more powdered milk. Domestic production of milk in 2016 is expected to decrease to 2.1 million tons from 2.2 million tons in 2015. Thus, the shortage of the cream and butter is expected to become even more pronounced.

As the gap widens between supply and demand, South Korea’s dessert cafes and bakeries are having difficulties in sourcing domestic cream and butter, and the shortage has directly affected the ability to serve tasty, high-quality products to customers. Wisconsin is already well-known as “America’s Dairyland,” and the current situation in South Korea creates a prime opportunity for Wisconsin dairy companies to succeed in the market.