Cases of Eco-Friendly Pigsty and Hog Feeding and Management Based on u-IT Information Systems, IH Jang, SH Park, YC Choi, YH Kim

Tags: Information Management, agriculture, Agribusiness, traditional markets, ginseng, agriculture industry, Seoul National University, South Korea, Fisheries, convergence, precision agriculture, information system, information technology, management information system, hog raising, rural society, agriculture products, Hyung soo Kim, Young Hwa Kim, agricultural sector, The Ministry for Food, Agriculture, Forestry and Fisheries, Korea Aerospace University, Forestry, sustainable agriculture, Korean government, Goryeo Ginseng, stock raising, feeding system, Minsu Lee, consumption, eco-friendly, Management System, information systems, agricultural information system, Ginseng Statistics Data Collection, Journal of Korean Society of Ginseng, Korean Ginseng, Korean Ginseng Studies, Ginseng Industry, demographic characteristics, Korean Ginseng Industry, purchase behavior
Content: Editor-In-Chief: Cheul Rhee Ajou University, Korea
Founding/Consulting Editor: Younghyo Ha Korea Agency of Education, Promotion and Information Service in Food, Agriculture, Forestry and Fisheries
Associate Editors Abdulai Mohammed-Sani, Innovation & Development Advanced Information Technology Institute, Ghana, Dae-Ho Kim, Mokwon university, Korea, Deokhyeon Kim, Jeollanam-do Agricultural Research& Extension Services, Korea, Francesco Bolici, Universita degli Studi di Cassino, Italy, Gu-Hyun Jung, GyeonggiDo Agricultural Research & Extension Services, Korea, Hangjung Zo, KAIST, Korea, Hans Knutsson, Lunds University, Sweden, Jin Ki Kim, Korea Aerospace University, Korea, Junghoon Moon, Seoul National University, Korea, Junyu Wang, Fudan University, China, Md. Dulal Hossain, Ministry of Science and Information & Communication Technology, Bangladesh, Minghao Huang, Konkuk university, Korea, Ping Jiang, University of International Business and Economics, China, Shu Shiller, Wright State University, U. S., Takashi Okayasu, Kyusu University, Japan, Yogesh Dwivedi, Swansea University, U. K. Advisory Board Members Chang yeol Lee, Dong-Eui university, Korea, Chang Yong Hur, UCUBE, Co., Ltd., Korea, Cheul Ho Ha, EPIS, Korea, Do Hoon Ahn, Woo Rim Info Tech, Corp., Korea, Han Woo Park, Yeung Nam University, Korea, Hyung soo Kim, Globit, Co., Ltd., Korea, Jey H Park, TLC Technology, Korea, Kang Oh Lee, EPIS, Korea, Seungwan Ryu, Chung-Ang University, Korea, Young Chan Choe, Seoul National University, Korea, Yun Yong Jung, EPIS, Korea
contents market segmentation Based on Attributes for the Purchase of Fresh Ginseng Dongmin Lee, Seul Gi Yu, Jaeseok Jeong, Junghoon Moon, Gu Hyun Jung ···················································· 1 Analysis of Agrifood Purchasing Pattern Using Association Rule Mining - Case of the Seoul · Gyeonggido · Incheon in South Korea Hyebin Jo, Young Chan Choe ······································································································································· 14 A Study on the Status and Future Directions of IT Convergence Policy by the Ministry of Food, Agriculture, Forestry and Fisheries in Korea Minghao Huang, Heun Dong Park, Junghoon Moon, Young Chan Choe ······················································· 22 Challenges and effective management of Supply Chain in wine industry and Agribusiness Tata Joseph Ngoe ·························································································································································· 32 Cases of Eco-Friendly Pigsty and Hog Feeding and Management Based on u-IT Information Systems Ik Hun Jang, Seong Hee Park, Young Chan Choi, Young Hwa Kim ································································· 42
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Market Segmentation Based on Attributes for the Purchase of Fresh Ginseng 1 Dongmin Lee · Seul Gi Yu · Jaeseok Jeong · Junghoon Moon · Gu Hyun Jung
Abstract This study aims to subdivide consumers by attributes determined mainly by consumers of fresh ginseng. It is to compare and analyze the characteristics by cluster, and to deduce the implications on distribution and marketing. For this study, a survey was conducted targeting 250 consumers of fresh ginseng. The factors were deduced through performing the exploratory factor analysis on the results of the survey, and the consumers of fresh ginseng were classified through cluster analysis. As a result of the study, the attributes considered for the purchase of fresh ginseng were condensed to the three factors: physical characteristic factor, safety factor, and cultivation indication information factor. With these as the standard, the consumers of fresh ginseng were subdivided into the three clusters: safety-oriented consumption type, label-centered consumption type, and high involvement consumption type. It was found that there were differences in demographic characteristics and attributes considered for purchase of fresh ginseng by cluster analysis. This study suggests the D. Lee · S. G. Yu · J. Moon College of Agriculture and Life Sciences Seoul National University, South Korea D. Lee e-mail : [email protected] S. G. Yu e-mail : [email protected]( ) J. Moon e-mail : [email protected] J. Jeong Department of International Business Graduate School of Pan-Pacific International Studies Kuyng Hee University e-mail : [email protected] G. H. Jung Gyeonggi-do Agricultural Research & Extension Services e-mail : [email protected]
implications for revitalization of the fresh ginseng industry by subdividing consumers of fresh ginseng and suggesting the characteristics by cluster. Keywords Fresh ginseng, market segmentation 1 Introduction The health functional food market is rapidly growing due to an increased desire for health and self-health care, development of biotechnology, and an acceleration of aging. The production of health functional food in Korea has increased from 250.6 billion won in 2004 to 1.368 trillion won in 2011, showing the annual average rate of increase of 27.4% (Korea Food & Drug Administration (KFDA), 2011). In 2011, red ginseng takes first place in health-functional foods production at 719.1 billion won. Ginseng (except red ginseng) is also in the top 10 of Korean health-functional foods at 38.1 billion won as of 2011. Hence, ginseng and red ginseng holds a key post in the Korean health functional food market. The annual average rate of consumption increased 23.7% for red ginseng and 12.1% for ginseng. Consumption of red ginseng and ginseng is expected to show a steady growth from now on (KFDA, 2012). Studies on ginseng have been conducted in various fields. Park, Cho, Pee & Hong (2006) found that 32% of these studies consisted of the study of ginseng cultivation and agricultural science, 25% of the studies concerned the medical effect of ginseng, 18% of the studies concerned functional food and product development, 15% of the studies concerned the field of chemical components, and 10% of the studies occurred in other fields. Studies on ginseng marketing and consumers are insignificant. An effective marketing strategy is needed for long-term
1 This research was financially supported by the Rural Development Administration (RDA) of Korea (Grant No.PJ008729).
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development of the ginseng industry. For this purpose, studies are needed on the segmentation of the ginseng consumption market and purchase behaviors of each subdivided market with demographic, psychological, and sociocultural standards. In particular, studies on the attributes considered when purchasing ginseng products are required. However, studies in Korea and abroad on ginseng market segmentation and attributes for purchase consist of less than 10 cases. In addition, most of the studies are on the entire ginseng market, including original and processed products such as red ginseng, red ginseng processed goods, fresh ginseng, and white ginseng, thus making market segmentation challenging. The purpose of this study is to determine the major attributes of consumers for the purchase of `fresh ginseng', which is ginseng that has not been processed, and to subdivide consumers of fresh ginseng on the basis of those attributes. This study examines the behavior of purchase of fresh ginseng, major attributes for purchase, behavior after purchase, lifestyle, and demographic characteristics by conducting a survey targeting consumers of fresh ginseng. Then we subdivided the consumers of fresh ginseng and deduced the implications on the revitalization of fresh ginseng market based on clusters. 2 Characteristics of Fresh Ginseng Market 2.1 Definition Ginseng is a plant belonging to the Araliaceae family and the genus Panax whose roots are used for medicinal purposes. Its botanical classification is the perennial plant of docotyledon, umbelliflorae, and araliaceae (Korea Agro-Fisheries & Food Trade Corporation, 2011). Ginseng grows naturally in East Asia including the Korean Peninsula and the Northeastern part of America, both of which are cold, humid, deciduous, forested areas with low temperatures in winter and sufficient rainfall in summer, ginseng's growing season. The quality of ginseng produced in Korea is acknowledged in the marketplace.
Korean ginseng is produced under proper geographical conditions which include good soil and weather. It contains many saponins, which are the pharmacological active component (Kim, 2010). Ginseng is classified into fresh ginseng, red ginseng, taegeuk ginseng, white ginseng, etc. The type of ginseng product that is not dried after harvest, and is still in its original shape, is called fresh ginseng. Fresh ginseng can be processed into red ginseng, Taegeuk ginseng, white ginseng, black ginseng, sliced ginseng, and tiny-sized ginseng depending on the processing method. Red ginseng is made by heating fresh ginseng with steam or other methods and then drying it. Red ginseng is a light reddish brown or dark brown. Taegeuk ginseng is made by cooking fresh ginseng with water or other methods then drying it. White ginseng is made by not cooking but drying with sunlight or hot air. Black ginseng is made by heating fresh ginseng with steam and so on, and is light dark blackish brown or blackish dark brown. Sliced ginseng and tiny-sized ginseng are distinguished from each other depending on which part of ginseng is used. Slicked ginseng is made by slicing the body of red ginseng and Taegeuk ginseng into a certain thickness, and tiny-sized ginseng is made by cutting and drying only the parts of the legs (Ministry for Food, Agriculture, Forestry and Fisheries (MIFAFF), 2012). 2.2 Production status The types of processing of ginseng produced in Korea in 2011 are listed in Table 1. Fresh ginseng distributed in its original shape accounts for 45.0%, by weight, of the ginseng produced in Korea. Production of red ginseng accounts for the greatest weight, 47.8%. Red ginseng is primarily consumed as a processed product in Korea (77.5% by weight) while red ginseng root represents 22.5% by weight. White ginseng accounts for 6.8% of ginseng production and is mainly processed for ginseng root. Taegeuk ginseng accounts for 0.4% by weight of Ginseng produced in Korea.
Table 1 Amount of Use of Ginseng Produced in Korea in 2011 by Type of Processing
(Unit : Tons, %)
Category For Fresh Ginseng For Red Ginseng
Amount of Use (Ton) 12,022 12,792
For White Ginseng
1,809
For Taegeuk Ginseng
113
Weight (%) 45.0 47.8 6.8 0.4
Detailed Usage (%)
Red Ginseng root
22.5
Processed Products
77.5
White Ginseng root
78.7
Processed Products
21.3
Source : MIFAFF (2012), 2011 Ginseng Statistics Data Collection, p. 7.
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The status of cultivation of ginseng produced in Korea and the distribution of fresh ginseng over the past 5 years are listed in Table 2. Farms cultivating ginseng have increased about 18.7% in 2011, from 19,850 households in 2007 to 23,578 households. The cultivated area has also increased from 17,831 ha in 2007 to 19,408 ha in 2009, and then gradually decreased to 17,601 ha in 2011.
The production of ginseng increased from 21,818 tons in 2007 to 27,460 tons in 2009 and then decreased to 26,737 tons in 2011. From among these, the distribution of fresh ginseng increased from 11,075 tons in 2008 to 12,377 tons in 2009 and then decreased to 12,022 tons in 2011. The data from 2007 was insufficient and thus excluded.
Table 2 Status of Production of Ginseng in Korea and the Amount of Distribution of Fresh Ginseng from 2007 to 2011 (Unit : Tons, %)
Year
Farms Cultivating Ginseng (Household)
Cultivated Area for Ginseng
Production of Ginseng (Ton)
Weight of Ginseng for Fresh Ginseng (%)
Amount of Distribution of Fresh Ginseng (Ton)
2007
19,850
17,831
21,818
-
-
2008
24,298
19,408
24,613
45.0
11,075
2009
23,285
19,702
27,460
45.1
12,377
2010
23,857
19,010
26,944
45.7
12,313
2011
23,578
17,601
26,737
45.0
12,022
Source : MIFAFF (2008 through 2012), 2007 through 2011 Ginseng Statistics Data Collection.
2.3 Export and Import status The export of fresh ginseng is insignificant compared with other ginseng products (Table 3). The reason for the lack of export is because of the difficulties in distribution due to the characteristic of fresh ginseng, which is not
processed. The export of ginseng is on the rise from 381 thousand US dollars as of 2007 to 591 thousand US dollars as of 2011, but fresh ginseng shows only a slight increase accounting for 0.3 to 0.5% among all the ginseng items. Most of the export of ginseng items (95.3%, 2011) consists of red ginseng root and other processed products.
Table 3 Results of Export by Type of Ginseng in 2007 through 2011
Category
2007
2008
2009
Fresh Ginseng
381
0.4
108
0.1
262
0.2
White Ginseng
4,695
5.1
3,435
3.5
5,856
5.4
(root)
Red Ginseng (root)
36,554
39.7 41,574
42.8 44,703
41.0
Other Processed Products
50,538
54.8 52,114
53.6 58,107
53.3
Subtotal
92,168
100 97,231
100 108,928
100
Source : MIFAFF (2012), 2011 Ginseng Statistics Data Collection.
(Unit : US Dollars in Thousands, %)
2010
2011
622
0.5
591
0.3
9,515
7.7
8,480
4.5
52,695
42.4 108,405
57.3
61,372
49.4 71,870
38.0
124,204
100 189,346
100
The import of fresh ginseng decreased from 45 thousand US dollars in 2007 to 17 thousand US dollars in 2011, and is extremely insignificant accounting for 0.3 through 1.0% among all types of ginseng products (Table 4). In
addition, the amount of money used for the import of ginseng is about 2% of the amount of money used for the export of fresh ginseng.
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Table 4 Results of Import by Type of Ginseng in 2007 through 2011
Category
2007
2008
Fresh Ginseng
45
1.0
17
0.3
White Ginseng
1,251
27.5 1,260
25.3
(root)
Red Ginseng (root)
95
2.1
276
5.5
Other Processed Products
3,162
69.4 3,421
68.8
Subtotal
4,553
100 4,974
100
Source : MIFAFF (2012), 2011 Ginseng Statistics Data Collection.
2009
13
0.4
841
27.4
206
6.7
2,008
65.4
3,068
100
(Unit : US Dollars in Thousands, %)
2010
2011
11
0.3
17
0.5
656
16.3
10
0.3
190
4.7
25
0.7
3,160
78.7
3,465
98.5
4,017
100
3,517
100
3 Theoretical Backgrounds According to Park, Cho, Pee, and Hong (2006), the studies on ginseng in Korea consist of the field of cultivation and science of agriculture at 32%, medical effects at 25%, functional food and product development at 18%, chemical components at 15%, and other fields at 10%. The other fields at 10% include the studies on policy measures, consumer awareness, consumer behavior, measures for revitalization of e-commerce, etc. Jeong and Kim (2011) found that studies conducted on ginseng worldwide in 2010 consisted of pharmacodynamics at 44%, analytical chemistry at 15%, horticulture at 10%, manufacturing at 9%, pharmacokinetics at 7%, medicine at 7%, and other items at 7%. According to this study, the studies dealing with marketing examination in 2010 accounted only for 1% of all the studies on ginseng. The following review of the literature focuses on studies of marketing ginseng products. Marketing studies of ginseng products are listed in Table 3. The mainstream studies examine the realities of the Korean ginseng market focusing on: production, processing, distribution and so on, and suggests long-term strategy for the development of the ginseng market (Yang, 1996; Lee & Doh, 2005; Noh & Kwon, 2006; Kim, 2010; Lee & Lee, 2010). The studies conducted that focused on brands and consumers include Seong, Yang, Jeon, Kim, & Kim (1989), Seong, Lee, Kim, & Seo (1989), Seong, Jeon, Lee, & Yang (1989), Lim, Koh, Heonbae Jeong, & Yundu Kim (2005), Hyeonwan Kim (2010), and Jang, Park, Cha, & Yun (2011) were conducted. The studies on ginseng product marketing targeting overseas markets mostly present the export strategies through analysis of the ginseng market at home and abroad (Kim, 2000; Seong, Lee, Lim, & Lee, 2004; Kim, 2007) or deal with overseas consumer surveys (Jeong, Koh, Park, Cho, & Lim, 2005; Park, 2006; Kim et al., 2010; Chung et al.,
2011). In the past, studies focused on the macroscopic ginseng market research, but currently the studies on the ginseng consumption market are on the rise. Kim (2010) presented the need for consideration of a marketing aspect of the enhancement of consumption of GAP ginseng, and emphasized that systematic examination and studies are needed on the production and distribution structure of ginseng and consumer reactions. In their study to deduce the development plans for organic ginseng industry, Jang, Park, Cha, & Yun (2011) also mentioned that the marketing strategies should be established by the consumer to deal with changes in the ginseng market at home and abroad and to strengthen competitiveness. Jang, Park, Cha, & Yun's survey on the ginseng purchasing behavior of consumers and attributes for the purchase of ginseng products conducted in the pertinent study is important data for the establishment of a marketing strategy. This study also intensively reviews the studies utilizing the attributes for the purchase of ginseng products and studies dealing with ginseng consumption market segmentation for the ginseng consumption market research. Jeong, Koh, Park, Cho, and Lim (2005) classified the attributes for purchase of ginseng products into the country of origin, price, packing design, packing unit, remedial effect, scent, and taste. Kim (2010) utilized the three attributes of safety, size, and price, and clustered the consumers following the preference score. Lee & Lee (2010) aimed to deduce the importance by product attribute by presenting the items in a list of price, nutritive components, scent, color, whether the raw material is from Korea or not, manufacturer, brand, reputation, food safety, new packaging and new product, taste, product diversity, eco-friendly cultivation of raw material, seller and place of sales, convenience for use, certification mark, and area of production as the attributes of ginseng products. Jang, Park, Cha, & Yun (2011)
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utilized the items of price, kind, grade, whether it is organic or not, country of origin, and etc. Of the studies on ginseng consumption market segmentation, Seong, Yang, Jeon, Kim, & Kim (1989), Seong, Lee, Kim, & Seo (1989), and Seong, Jeon, Lee, & Yang (1989) presented the necessity of classification of consumer groups and conducted study by dividing consumers into three groups: housewives, college students, and those specializing in handling ginseng in advance. Lim, Koh, Jeong, & Kim (2005) presented the marketing strategies for ginseng products through subdividing the ginseng markets into a total of seven kinds of markets by using the Tree analysis. Park (2006) conducted the study on ginseng market segmentation in Japan and in the U.S. with 7 attributes
for purchase of ginseng products consisting of country of origin, price, and etc. and 10 variables in total on the frequency of purchase of the product, age, income, etc. Kim (2010) also presented a study subdividing the Korean ginseng market with three attributes of safety, size, and price. The existing studies on attributes for the purchase of ginseng had a small number of attributes dealt with and the attributes were not systematically categorized. In addition, though the necessity of segmentation of ginseng product consumption market emerged earlier, there are few studies targeting Korean consumption market. Also, the variables used for segmentation in the existing studies are fragmentary.
Table 5 Marketing Studies Targeting Markets at Home and Abroad
Researcher
Main Contents
Taste survey on ginseng products by three devided group : housewives, college students, and those Seong et al. (1989) specializing in handling ginseng
Yang (1996)
Examination of the market status of ginseng products and study trends on processed products
Kim (2000)
Analysis on supply and demand for ginseng at home and abroad and presentation of export marketing goals and strategies by overseas market
Seong et al. (2004)
Analysis of impacts of the settlement of negotiation of WTO/DDA on the ginseng industry and presentation of development plans of the field of consumption, production, processing, distribution, export, and import of the ginseng industry
Lee et al. (2005)
Presentation of issues and prospects of the ginseng industry based on necessity of health functional food, composition of laws, and market status survey
Lee et al. (2005)
Subdivision of consumption behavior of Korean consumers on ginseng products by utilizing the tree technique and presentation of a proper marketing mix strategy for each subdivided market
Jeong et al. (2005) Survey on status of consumption and awareness on ginseng products on overseas ginseng consumers
Noh et al. (2006)
Analysis on realities of production of ginseng in Korea, market trends by major country, status of manufacturers and processing companies, presentation of main issues of ginseng industry, and measures for enhancement of competitiveness
Park (2006)
Analysis on trends of production, export and import of ginseng of Japan, and the U.S. and local consumer survey
Kim (2008)
Comparison and analysis on export conditions such as geographical characteristics, cultivation technology, production cost, price, and quality competitiveness of Korean and competitor countries in export, and presentation of measures for the strengthening of international competitiveness of Korean ginseng
Kim (2010) Kim et al. (2010) Kim (2010) Lee et al. (2010)
Analysis on GAP ginseng production, distribution, consumer, and quality differentiation based on operation of GAP system, ginseng industry, and presentation of marketing strategy of GAP ginseng from now on Production of customized ginseng products and test products through consumer demand research by America, Europe, and Southeastern Asia on Goryeo ginseng Presentation of strategy for revitalization of agricultural commodities and joint brand focusing on Geumsan ginseng brand Analysis on structure, behavior, and results of food processing industry utilizing ginseng, medical herbs, and presentation of development strategy
Jang et al. (2011) Chung et al. (2011)
Consumer preference survey on organic ginseng products and presentation of directions of settlement of organic ginseng Examination of attitudes and expectations of American consumers on ginseng processed products and clarification of processing type with growth possibility in the American market
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4 Study Methods 4.1 Data Collection and Analysis Methods This study conducted surveys and analysis focusing on the attributes for the purchase of fresh ginseng. As mentioned in the status of the Korean ginseng market, ginseng is classified by processing or non-processing type into fresh ginseng, red ginseng, white ginseng, etc. Red ginseng has a high weight consumed as processed products at 77.5%. When the processed products are included in the scope of study, it was judged that the scope may be too broad to generalize attributes considered by consumers when purchasing ginseng products. This study selected `fresh ginseng', which is unprocessed, as the subject of survey for the deduction of intensive attributes for consumers. This study conducted a survey to collect data on major attributes for the purchase of fresh ginseng by consumers. The subject of survey was the consumers 20 years old or older who have purchased fresh ginseng over the past year. The period of survey was spanned one week from May 9th, 2012 to May 16th, 2012. The survey was conducted under the name of `Survey on Fresh Ginseng Purchase and Consumption Behavior' through an online survey institution. The 250 pieces of survey data collected were used for the empirical analysis. The empirical analysis on the collected data was conducted by using the SPSS 18.0 program. First, the frequency and descriptive analysis were conducted to grasp the characteristics of the data. The exploratory factor analysis and reliability analysis were conducted to analyze the validity and reliability of variables of attributes for purchase. N ext, the cluster analysis were conducted in the order of hierarchical technique and non-hierarchical technique on the basis of deduced factors to classify the fresh ginseng consumers into homogeneous groups. The ANOVA and Post-hoc test (Duncan test) were conducted to verify the differences between groups. Finally, the crosstab analysis was conducted to grasp the demographic characteristics by groups, and difference analysis (T-test and ANOVA) were conducted to grasp the differences in the purchase behavior and behavior after purchase by types of attributes for purchase. 4.2 Composition of Questionnaire The questionnaire was divided into five areas concerning fresh ginseng: purchase behavior, major attributes for purchase of fresh ginseng, behavior after purchase of fresh ginseng, VALS, and demographic characteristics. The
questionnaire consisted of a total of 72 questions. The fresh ginseng purchase behavior was composed of 10 questions including reason for purchase, informant, expected effect, place of purchase, and frequency of purchase. For the attributes considered by consumers when purchasing fresh ginseng, 17 questions were on the stage of cultivation (species, period of cultivation, time of harvest, and so on), physical characteristics (weight, thickness, color, etc.), indication data (product certification, nutritional information, quality grade) and was measured by using 5-point Likert scales; the respondents could select the item of `I don't know'. The behavior after purchase was measured through three questions: satisfaction, willing to purchase again, and willing to recommend by using the 5-point Likert scales. The `VALS' program to grasp the lifestyle of consumers was measured through 35 questions with 5-point Likert scales. Demographic characteristics were examined through 7 questions of gender, age, marital status, educational level, and etc. The VALS (Value and Lifestyle) included in the questions, which is value measuring tool that considers the values on the life of the individuals as the most important reflected element in the consumer behavior. VALS is a program developed by Mitchell at SRI, and it aims to divide the subdivided markets following the values and lifestyle of consumers and to conduct a follow-up survey for the changes in each of the subdivided markets. The usefulness of VALS is acknowledged in that it casts light upon not only the demographic data and consumption statistics but also the individuals in general. The questionnaire items used in this study consisted of 35 items with the VALS-2 program, and classifies the consumers into a total of 8 groups: innovators, thinkers, achievers, experiencers, believers, strivers, makers, and survivors. 4.3 Demograhpic Characteristics The frequency analysis was conducted to examine the demographic characteristics of the respondents. The analysis results are listed in Table 6. Women accounted for 55.2% (138 persons) of all the respondents, while men accounted for 44.8% (112 persons). Those in their 50s accounted for the majority of respondents of those surveyed at 49.6% (124 persons) with those in their 40s accounting for 28.4% (71 persons) and those in their 30s accounting for 20.0% (50 persons). Hence, more than half of the respondents were middle-aged. Most respondents were married (88.8%). Those with average monthly income of 2 million through 3.99 million won accounted for 38.4% (96 persons) of those surveyed, while those with that of 4 million
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through 5.99 million won accounted for 35.6% (89 persons). More than half of the respondents were at college or had graduated from college (64.0%, 160 persons), followed by those graduated from high school (26.4%, 66 persons). Most respondents lived in the capita area (Seoul,
Gyeonggi, Incheon) accounting for 59.2% of those surveyed (148 persons). The occupations of respondents were company workers (44.4%, 111 persons), housewives (24.8%, 62 persons), and self-employed (16.4%, 41 persons).
Table 6 Demographic Characteristics of Respondents
Variable
Questionnaire Item
Frequency Ratio (%) (Person)
Gender
Male Female
112
44.8
138
55.2
20s
5
2.0
30s Age 40s
50
20.0
71
28.4
50s
124
49.6
Marital Status
Single Married
28
11.2
222
88.8
Under 2 Million
15
6.0
Won
2 Million through
96
38.4
3.99 Million Won
Average
4 Million through
Monthly
89
35.6
5.99 Million Won
Income
6 Million through 7.99 Million Won
33
13.2
8 Million Won or More
17
6.8
Variable
Questionnaire Item
Under Graduation from Middle School
Education al Level
Graduated from High School At College/Graduated from College
At Graduate School/Graduated from Graduate School
Residenti al Region
Capital Area (Seoul, Gyeonggi/Incheon) Metropolitan Cities (Excluding Capital Area)
Other Provinces
Company Worker
Public Servant
Occupati on
Self-Employed Student
Housewife
Others
(Unit : Person, %) Frequency Ratio (%) (Person)
1
0.4
66
26.4
160
64.0
23
9.2
148
59.2
51
20.4
51
20.4
111
44.4
13
5.2
41
16.4
2
0.8
62
24.8
21
8.4
5 Results 5.1 Verification of the Validity and Reliability of the Measuring Tool Of the 250 pieces of questionnaire data, 206 pieces, excluding 44 pieces that has the missing value, were used for the analysis of the validity of attributes for the purchase of fresh ginseng. In addition, the factor analysis was conducted with 11 items, excluding the cross-loaded 4 items and 2 items with low reliability of the attributes for
purchase. The principal component analysis and Varimax rotation were used for the extraction and rotation method respectively, and the factors with the Eigenvalue of 1.0 or higher were extracted. The KMO value is 0.793, and sphericity test of Bartlett is І=786.034(.000). Thus, it is judged that the overall correlation between variables is significant, and the data is proper so as to be able to use the factor analysis. The total variance explained is 62.313%, and Cronbach's Alpha, which is the internal consistency reliability by factor, is 0.612 through 0.832. Hence, the reliability was
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secured. As a result of factor analysis, the 11 items of attributes for the purchase of fresh ginseng were condensed to the three factors: physical characteristic, safety, and cultivation indication information (Table 7). The first factor, `physical characteristic', pertains to the items of color, shape, thickness, and scent loaded and is reflected by the common characteristics explaining the external appearance of fresh ginseng. The second factor, `safety', contains items of
whether the ginseng passes the test of environment of cultivation, whether the ginseng passes the residual pesticide test, and product certification indication loaded. It explains the dgree of the safety of the fresh ginseng. The third factor contains four items concerning species of fresh ginseng's own, region of production, period of cultivation, and quality grade loaded. It was named as the `cultivation indication information factor' on the basis of indication information generated during the process of cultivation.
Table 7 Results of Factor Analysis and Reliability Analysis on the Items of Attributes for the Purchase of Fresh Ginseng
Name of Factor
Factor Variable
Factor
Variance
Eigen Value
Loading
Explained
Crombach's
Physical Characteristic Factor
Color Shape: Shape of roots and stem Thickness Scent
.794
.787
3.843
23.321%
.821
.780
.701
Whether the environment of cultivation passes the .901 heavy metal/soil/water quality test
Safety Factor Whether the ginseng passed the residual pesticide test
.900
1.940
22.623%
.832
Product certification indication: Eco-friendly .745 certification, GAP, organic certification, etc
Species
.787
Cultivation Indication
Brand name of region of production : Punggi, Geumsan, etc.
.637
Information
Period of cultivation : 4-year-old, 6-year-old, etc.
.589
Factor
Quality grade indication : Extra-large, large, medium, .471 small
1.071
16.370%
.612
- KMO = .793, Bartlett Sphericity Test І=786.034(.000), Total Variance Explained: 62.313%
The descriptive analysis was conducted on each factor extracted through factor analysis to grasp the degree of importance (Table 8). Of the factors of attributes for pur-
chase, the physical characteristic factor was the highest at the average of 4.14, followed by the cultivation indication information factor, and the safety factor.
Table 8 Degree of Importance of Attributes for Purchase Considered When Purchasing Fresh Ginseng
Attributes for Purchase
Category Importance of the physical characteristic factor Importance of the safety factor Importance of the cultivation indication information factor
Average 4.14 4.06 4.08
(Unit : Point) Standard Deviation .545 .770 .505
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5.2 Cluster Analysis based on Attributes for the Purchase of Fresh Ginseng The cluster analysis was conducted by three attributes for purchase to classify the fresh ginseng consumers into the subdivided groups considering the homogeneous attributes. First, the hierarchical technique was used to determine the number of clusters. There were 205 stages of clusters, and the proper number of clusters was determined by applying the `stopping rule'. The cohesion coefficient increases as the stage indicated by the cluster schedule progress, and the stopping rule is the method to stop the clustering at
the immediate prior stage of rapid rise of fluctuation ratio (Haksik Lee and Jihun Lim, 2009). In case of Table 9 indicating the last 10 stages where the changes of the cohesion coefficient are great following the decrease in number of clusters, the cohesion efficient rapidly increases when passing from the stage 203 to the stage 204 (59.4%). Hence, this study stopped at the stage 203 and determined the number of final clusters to be three. Afterwards we finalized the clusters by using the k-average cluster analysis among the non-hierarchical techniques.
Table 9 Analysis on Fluctuation of the Cohesion Coefficient
Stage
Number of Clusters
Cohesion Coefficient
196
10
5.156
197
9
5.592
198
8
6.078
199
7
6.745
200
6
6.936
201
5
7.804
202
4
8.759
203
3
10.416
204
2
14.061
205
1
14.125
Ratio of Fluctuation of Cohesion Coefficient (%) 3.3 8.4 8.7 11.0 2.8 12.5 12.2 18.9 35.0 0.5
The one-way ANOVA was conducted with the factor score of clusters deduced to verify the differentiation between the subdivided three clusters, and the Duncan test (post-hoc test) was conducted. As a result of analysis, the significance level was 0.000 through 0.003 showing that there is a significant difference between the subdivided three clusters (Table 10). There was a significant difference
between the physical characteristic factors of Cluster A, B, and C. There was a significant difference between the safety factor of Cluster A and C with Cluster B. There is a significant difference between the cultivation indication information factor of Cluster B and C with Cluster A.
Table 10 Verification of Differentiation Following the Type of Attributes for Purchase
Category
Cluster A (n=85)
Cluster B (n=47)
Physical Characteristic Factor***
-0.7260
-0.1367
Safety Factor***
0.4410
-1.4020
Cultivation Indication Information Factor**
-0.2824
0.1485
- Significance at the level of ** p < 0.01 and *** p < 0.001 - Duncan test was conducted at the significance level of 5%
Cluster C (n=74) 0.9207 0.3840 0.2301
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5.3 Characteristics by Consumer Cluster The crosstab analysis was conducted with the variables on demographic characteristics, purchase behavior, behavior after purchase, and lifestyle in order to understand the characteristics by cluster deduced through cluster analysis. In addition, this study conducted the one-way ANOVA and performed the post-hoc test with a Duncan test to verify the differentiation of age (ratio scale) and the will to purchase again and the will to recommend (interval scale) by deduced cluster. The results are listed in Table 11. Cluster A is a group considering the safety factor as relatively important and not considering the physical characteristics greatly; it is named `the safety-oriented consumption type'. It has the greatest scale (n=85) with a similar distribution of women and men with an average age of 44.3 years. The respondents with an average monthly income of 2 million through 3.99 million won account for 48.2%. The company workers account for a relatively high ratio of 54.1%. The reason for the purchase of fresh ginseng accounted for the greatest weight is the family's intake at 65.9%. But, the respondents' own intake accounts for 23.5%, which is higher compared with that of other clusters. Of the respondents of Cluster A, 44.7% purchase fresh ginseng at traditional markets, and 22.4% at department stores and large discount stores. The regional brands for purchase are Geumsan at 51.8% and Punggi at 15.3%. The average amount of money spent on a purchase at one time of 100 thousand won or less accounts for 94.2%. Cluster B considers the cultivation indication information factor as the most important, and is named `the label-centered consumption type'. That is, it can be judged that the fresh ginseng consumers belonging to the Cluster B purchase fresh ginseng by considering the place of production, species, quality grade, and its age. It is the smallest group (n=47) with women accounting for a relatively high ratio (55.3%). The most respondents are company
workers (46.8%), but the ratio of housewives (29.8%) is relatively high compared with the first cluster, the safety-oriented consumption type. The purchase for the family's intake accounts for 72.3%, and mostly the purchases are made at traditional markets (55.3%). The ratio of purchases of 6-year-old ginseng is high at 42.6%, but the ratio of purchases of 3-year-old ginseng (14.9%) is relatively high compared with other clusters. The average amount of money spent on a purchase at one time of 100 thousand won or less accounts for 72.3%. Cluster C is a group considering all factors as important, and is named `the high involvement consumption type'. It is composed of more women (58.1%) than men. The average age is 48.4 years with a significant difference from the safety-oriented consumption type and the label-centered consumption type. With the older age, the weight of self-employed (24.3%) and housewives (29.8%) is higher than that of other clusters, and also the average monthly income is higher with those with an income of 4 million through 5.99 million won accounting for 41.9%. In Cluster C, 76.0% of the consumers purchased the product at traditional markets and agricultural cooperatives specializing in ginseng. The ratio of purchase of the regional brand of Geumsan (58.1%) and the ratio of purchase of 6-year-old ginseng (51.4%) are higher than those of other clusters. The average amount of money spent on a purchase at one time is relatively evenly distributed. The will to purchase again (4.14) and the will to recommend (3.92) have a significant difference from the safety-oriented consumption type and the label-centered consumption type as a result of post-hoc test with Duncan test after one-way ANOVA. In addition, on the basis of the results of VALS in Table 9, it can be known that the high-involvement consumption type consumers are interested in contentious issues, like to hold a meeting and to wear and make sophisticated clothes, and have an active lifestyle preferring many changes.
Table 11 Characteristics of Consumer Clusters Following the Type of Attributes for Purchase
Category
Safety-Oriented Consumption Type (n=85)
Label-Centered Consumption Type (n=47)
High Involvement Consumption Type (n=74)
Gender
-
Relatively higher ratio of women (55.3%)
Relatively higher ratio of women (58.1%)
Age**
44.3 years
44.6 years
48.4 years
Demographic Characteristics
Average Monthly Income
Occupation
Majority with the income of 2 million through 3.99 million won per month (48.2%) Relatively higher ratio of company workers (54.1%)
Majority with the income of 2 million through 3.99 million won per month (42.6%) Relatively higher ratio of housewives (29.8%)
Majority with the income of 4 million through 5.99 million won per month (41.9%) Relatively higher ratio of self-employed (24.3%) and housewives(29.8%)
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Reason for
Relatively higher ratio of purpose of respondents'
Relatively higher ratio of purpose of family's
-
Purchase
own intake (23.5%)
intake (72.3%)
Place of Purchase
High ratio of purchase at traditional markets (44.7%), and department stores/large discount stores (22.4%)
High ratio of purchase at traditional markets (55.3%)
High ratio of purchase at traditional markets (51.3%) and agricultural cooperatives specializing in ginseng(25.7%)
Purchase Behavior
Regional Brands of Purchase
Relatively higher preference for regional brands of Geumsan (51.8%) and Punggi (15.3%)
Relatively higher preference for regional brand of Punggi (23.4%)
Relatively higher preference for regional brand of Geumsan (58.1%)
Years of Ginseng Purchased
Relatively higher ratio of
-
purchase of 3-year-old ginseng (14.9%)
Relatively higher ratio of purchase of 6-year-old ginseng (51.4%)
Average Amount of Money of Purchase
Majority with the purchase of 100 thousand won or less (94.2%)
Majority with purchase of 100 thousand won or less (72.3%)
Relatively even distribution of purchase of 100 thousand won or less (60.0%) and purchase of more than 100 thousand won (40.0%)
Behavior
Will to
after
Purchase
3.94
3.81
4.14
Purchase
Again***
(5-Point
Will to
Scale)
Recommend**
3.71
3.53
3.92
Interested in
Contentious
3.40
3.11
3.45
Issues*
Preference for
Many
3.07
2.72
3.09
Changes*
VALS
Preference for
(5-Point Scale)
Holding
3.05
3.09
3.50
Meetings**
Wearing
Sophisticated
2.98
3.11
3.31
Clothes*
Preference for
3.25
3.28
3.58
Making*
Main Characteristics
- Company workers 44.3 years old on average with average monthly income of 2 million through 3.99 million won - Purchase of fresh ginseng of 100 thousand won or less on average at traditional markets or large discount stores for the intake of themselves or family
- Company workers or housewives 44.6 years old on average with average monthly income of 2 million through 3.99 million won - Purchase of 6 - or 3 year - old fresh ginseng from Punggi region of 100 thousand won or less on average for the family's intake at traditional markets
- Women 48.4 years old on average with average monthly income of 4 million through 5.99 million won - Purchase of 6-year-oldfresh ginseng from Geumsan region at traditional markets or agricultural cooperatives specializing in ginseng - Relatively higher will to purchase again or to recommend - Interested in contentious issues and preference for many changes. Preference for holding meetings and wearing and making sophisticated clothes.
- One-way ANOVA and post-hoc test with Duncan test at the significance level of 5% (gray shadow) - Significant at the level of * p < 0.05, ** p < 0.01, *** p < 0.001
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6 Conclusion This study aims to deduce the attributes for fresh ginseng purchase to compare and analyze the characteristics of clusters by subdividing the fresh ginseng consumers by attributes for purchase, and to deduce the implications on distribution and marketing. Major conclusions of this study are as follows. The attributes for purchase were condensed to three factors; the physical characteristic factor, the safety factor, and the cultivation indication information factor. The cluster analysis was conducted with this standard to divide into three clusters of safety-oriented consumption type, label-centered consumption type, and high-involvement consumption type. This study grasped the demographic characteristics, purchase behavior, behavior after purchase, and lifestyle (VALS) characteristics by cluster through crosstab analysis and one-way ANOVA on the deduced clusters, and verified if there is any significant difference between clusters. As there are differences in the main attributes considered by a subdivided cluster of fresh ginseng consumers, the inducement to consumers should be strengthened by conducting the proper publicity marketing for each subdivided cluster reflecting that. The characteristics by subdivided type of attributes for purchase of ginseng and the implications are summarized as follows: First, a device is needed to sufficiently check the safety at the time of purchase of fresh ginseng for the safety-oriented consumption type groups considering that the safety of fresh ginseng is important. In this cluster, the weight of those in their 30s (23.5%) and company workers (54.1%) is higher than that of other clusters. Thus, it is thought that relatively objective data should be presented. For example, the anxiety can be dispelled by suggesting objective data that can enhance the safety of agricultural commodities such as GAP, organic certification, residual pesticide assessment, etc. at the place of sales. Second, a device is needed to increase the reliability of labeling for the label-centered consumption type group considering the `label' including the ginseng from Geumsan region and 6-year-old ginseng known to be great. For example, the reliability can be raised by attaching an instruction on self-diagnosis that allows the consumers to check the age of the ginseng and quality grade visually or by presenting concrete information on the producers and place of production.
In particular, as many purchase ginseng products for their family's intake, it is necessary to present the mixed products so that family members of various ages and genders can intake the product together. Third, the high involvement consumption type consumers who consider all the attributes for the purchase of fresh ginseng should be set as the major target as they have a significantly higher will to purchase again and to recommend compared to other clusters. Their average age is 48.4 years, which is relatively high. Therefore, they are judged to have many experiences in purchasing fresh ginseng. In addition, their average amount of purchase for one time is higher than other clusters, and they have a leading and active lifestyle to be thought of as a group with far-reaching power. Their choices should be broadened by preparing a variety of information and products focusing on their main places of purchase, that is, traditional markets and agricultural cooperatives specializing in ginseng. In conclusion, this study is significant in that it deduced the major attributes for purchase of fresh ginseng by consumers, and deduced the theoretical and practical implications for revitalization of the fresh ginseng industry by subdividing consumers. However, as it is an online survey, it has limitations in samples in that it failed to include consumers in their 60s or older, and has a problem generalizing the results of study. Therefore, in the subsequent studies, it will be meaningful to conduct a survey focusing on the field that can expand the range of subjects of the survey. In addition, if the survey is conducted targeting not only fresh ginseng but also various types of processing of ginseng products, it will be more helpful for the establishment of a marketing strategy with a greater diversity. References Kwanhu Kim. (2010). Marketing Strategy for GAP Certified Ginseng. Doctor's thesis at Chungnam National University. Doeon Kim, Jaeyun Jeong, Heecheol Jeong, Hyoungmin Kim, Jiseon Lim, Jaegak Lim, et al. (2010). Development of Customized Ginseng Products for Overseas Potential Ginseng Markets. Newtree Co., Ltd., MIFAFF. Seongyeop Kim. (2000). Export Marketing Facilitation Strategy for Korean Ginseng Industry. Social Science Research. 2000(4), 95-117. Hyeonwan Kim. (2010). Strategy for Revitalization of Agricultural Commodities Joint Brand: With Special Emphasis on Ginseng Brand of Geumsan-gun, Chungcheongnam Province. Master's the-
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sis at Paichai University. Heecheol Kim. (2008). Process of Changes and Strengthening Measures of International Competitiveness of Korean Ginseng. Business History. 23 (3), 69-102. Jaeseon Noh, Ohsang Kwon, and College of Agriculture and Life Sciences at Seoul National University. (2006). Measures for Nurture and Competitiveness Enhancement of Ginseng Industry. Suwon: Rural Development Administration. MIFAFF. (2012). 2011 Ginseng Statistics Data Collection. Seoul: MIFAFF. MIFAFF. (2011). 2010 Ginseng Statistics Data Collection. Seoul: MIFAFF. MIFAFF. (2010). 2009 Ginseng Statistics Data Collection. Seoul: MIFAFF. MIFAFF. (2009). 2008 Ginseng Statistics Data Collection. Seoul: MIFAFF. MIFAFF. (2008). 2007 Ginseng Statistics Data Collection. Seoul: MIFAFF. Sujin Park, Yongjin Cho, Jaeho Pi, and Heedo Hong. (2006). Realities of Korean Ginseng Studies and Future Demand Forecast: With Special Emphasis on Science of Agriculture, Food Science and Pharmacology over the Past 5 Years. Journal of Korean Society of Ginseng. 30 (4), 212-219. Seonghun Park. (2006). Ginseng Market Segmentation in Japan and the U.S. Food Distribution Study. 23 (1), 127-143. Myounghwan Seong, Dongpil Lee, Songsu Lim, and Wonjin Lee. (2004). Strategies and Measures for Expansion of Mid- and Long-Term Export of Goryeo Ginseng. Seoul: Korea Rural Economic Institute. Hyeonsun Seong, Jaewon Yang, Byoungseon Jeon, Nami Kim, and Yundong Kim. (1989). Taste for Ginseng of Koreans. ­ Vol. 2: With Special Emphasis on College Students. Journal of Korean Society of Ginseng. 13 (1), 130-135. Hyeonsun Seong, Jongtae Lee, Nami Kim, and Kibong Seo. (1989). Taste for Ginseng of Koreans ­ Vol. 1: With Special Emphasis on Housewives. Journal of Korean Society of Ginseng. 13 (1), 123-129.
Hyeonsun Seong, Byoungseon Jeon, Jongtae Lee, and Jaewon Yang. (1989). Taste for Ginseng of Koreans ­ Vol. 3: With Special Emphasis on Those Specializing in Handling Ginseng. Journal of Korean Society of Ginseng. 13 (1), 136-141. KFDA. (2012). 2011 Analysis on Production Results of Health Functional Food. Cheongwon: KFDA. Jaewon Yang. (1996). Realities of Ginseng Products and Study Trends. Journal of Korean Society of Ginseng. 20 (4), 501-519. Yongseon Lee and Seonryoung Lee. (2010). Development Strategy for Food Processing Industry Utilizing Ginseng and Medical Herb. Seoul: Korea Rural Economic Institute. Jongwon Lee and Jaeho Doh. (2005). Realities of Market of Health Functional Food and Prospect of Ginseng Market. Journal of Korean Society of Ginseng. 29 (4), 206-214. Haksik Lee and Jihun Lim. (2009). SPSS 16.0 Manual. Paju: Bobmunsa. Byoungok Lim, Seongkwon Koh, Heonbae Jeong, and Yundu Kim. (2005). Marketing Strategy for Ginseng Products Using Tree Analysis: With Special Emphasis on Domestic Market. Food Distribution Study. 22 (2), 19-43. Inbok Jang, Kichun Park, Seonwoo Cha, and Byoungsam Yun. (2011). Consumer Preference for Organic Ginseng and Development Plans of Organic Ginseng Industry. Agricultural Science Study. 27 (4), 245-251. Heonbae Jeong, Seongkwon Koh, Seonghun Park, Hunhyeon Cho, and Byoungok Lim. (2005). Realities of Ginseng Consumption and Awareness of Major Countries. Journal of Korean Society of Ginseng. 29 (3). 152-158. Korea Agro- Fisheries & Food Trade Corporation. (2011). Information on Realities of Distribution by Item, Ginseng. Seoul: Korean Agro- Fisheries & Food Trade Corporation. Chung, H. S., Hong, H. D., Kim, K., Cho, C. W., Moskowitz, H. R., & Lee, S. Y. (2011). Consumer Attitudes and Expectations of Ginseng Food Products Assessed by Focus groups and Conjoint analysis. Journal of sensory studies. 26 (5), 346-357. Kim, S. K., & Park, J. H. (2011). Trends in Ginseng Research in 2010. Journal of Ginseng Research. 35 (4), 389-398.
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Analysis of Agrifood Purchasing Pattern Using Association Rule Mining 1 - Case of the Seoul · Gyeonggido · Incheon in South Korea - Hyebin Jo · Young Chan Choe
Abstract Since the free trade Agreements (FTAs) with Chile, the EU, and the U.S., Korean agricultural produce markets have turned into a fierce competition landscape. Under these competitive circumstances, marketing is critical. The objective of the research presented herein is to understand the characteristics of customer preferences after locating trends of purchased items. So This research establishes sustainable strategies for Korean agricultural produce. This investigation used market-basket analysis techniques and panel data for its research. Market-basket analysis is a technique which attempts to find groups of items that are commonly found together. The results show that, for one year, processed food using wheat, processed marine products, and pork are commonly bought together and that yogurt and milk also are bought together. The characteristics of customers buying these items are 44 years old and live in a four-person household with two children. These customers do not live with their parents. Keywords Association rule mining, Market basket analysis (MBA), agri · food product, purchasing behavior of South Korea. H. Jo · Y. C. Choe College of Agriculture and Life Sciences Seoul National University, South Korea H. Jo( ) e-mail : [email protected] Y. C. Choe e-mail : [email protected]
1 Introduction Due to the growth of global food enterprises and the conclusion Free Trade Agreements (FTAs) with Chile, EU, and U.S. , consumers are able to purchase a variety of inexpensive foods. Recently, with the rising interest in a healthy well-being, consumers purchasing foods have begun to look for eco-friendly and organic products. As the scale of the food market increases and the preferences of consumers become diversified, it is important for food enterprises to successfully identify the needs of customers. Large enterprises can respond to changes in the market relatively quickly due to their rapid collection of market information and bargaining power in the distribution network. However, small- and mid-sized food enterprises and agricultural product producing organizations have difficulties in getting a competitive edge in the rapidly changing market environment because of the hardship in stable information about the market, and insufficient strategic marketing competence. Hence, it is important to provide products reflecting the needs of consumers at a proper point of time, and for this purpose, it is necessary to accurately identify the agrifood purchasing patterns of consumers. The purpose of this study is to examine whether or not consumers have a specific purchasing pattern when buying agrifood. For example, identifying what products are simultaneously purchased by consumers purchasing milk. This study uses the market basket analysis (MBA) as the study method. The MBA is one of the data mining techniques also referred to as association-rule mining. The MBA has been used in various fields such as cross-selling, analysis of the traffic line of users on Websites, decision-making, credit evaluation in the financial sector, personal issues, etc. This study involves the examination of 1,000 panel households residing in the capital area, and the examined
1 This research was financially supported by the Rural Development Administration(RDA) of Korea (Grant NO. PJ008729)
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data includes the details of agrifood purchases of the panels during the year of 2010. The MBA presents the association rule of the product purchase data of the panels; the association rule indicates which items are cross-purchased with each other. This study intends to draw the association rules by month and to examine the differences in the product mixes where cross-selling occurs between months and seasons. In addition, this study will examine the differences in the demographic characteristics of the customer base, illustrating a specific rule over several other association rules. The results of this study will provide information on agrifood purchase patterns. These patterns can be utilized to establish marketing strategies for agrifood enterprises wishing to acquire competitiveness by rapidly responding to the needs of customers, including the development of bundled products. 2 Literature Review In 2011, the scale of the Korean food and food service industry market was 133 trillion won, which is almost double of that of 10 years ago. The Korean food and food service market is expected to have a high probability of growth from this date on (Electronic Times Internet, June 13th, 2012). With the growth of the food industry in Korea, the propensity of consumers to consume certain foods is also changing. From this viewpoint, many studies have been conducted on food consumption in Korea. Youngsu Jang and Kyounghee Lim (2000) found that in Korea, the food consumption has changed because of the swift improvement of income and the premiumization of food materials. Jang and Lim stated that the structural response in the aspect of production is very important through an analysis of food consumption. They conducted an analysis on consumption of foods, in particular, the consumption of fish and shellfish. They also conducted quantitative analysis and analyses using the dynamic demand function. The data used for their analysis was previously released statistical data related to food consumption from 1975 through 1997. As a result of quantitative analysis, urban households showed a gradual decrease in expenditures for traditional foods such as grain, marine products, and vegetables and an increase in expenditures for other items including meat. In view of the gradual increase in expenditures for processed products using fish and shellfish, it can be assumed that these expenditures are oriented to convenience. In addition, while intensive consumption was indicated for popular fish species until the mid-1980s,
the consumed fish species have become diversified since the late 1980s. As a result of the dynamic demand function, the researchers stated that the decrease in consumption of fish and shellfish should be interpreted as such: after the consumption of fish and shellfish reached its peak, the preference for fish species was changing from popular species to various minor species, rather than the decreasing consumption of fish and shellfish as replacement with meat. Soyi Yoo (2005) measured the Berry index and Entropy index, which can explain the diversity of food consumption by using the data of food expenses of urban households. As a result of the two indices, values with opposite meanings were calculated, and it was concluded that there may be differences depending on the measuring method. As a result of analysis of the factors influencing the diversity of food consumption, all factors (household income, possession or non-possession of a house, residence in Seoul or other regions, presence or absence of a young child, number of employed persons in the household, and the number of people in the household) were significantly influencing the Berry index and Entropy index. Jongseong Kim and Kyusu Hah (2010) intended to examine the general consumption realities of processed marine products and the factors influencing the consumer satisfaction and willing to purchase. As a result of correlation and multiple regression analysis based on the survey data, the product with a high purchase frequency of processed marine products was tuna (74.4%) with the average purchase frequency of 1 through 3 times per month (82.6%). The places of purchase were mostly large discount stores (71.7%). The satisfaction with purchase was high with 44.8% responding. Others responded ordinary(44.3%). As a result of the survey, which divided the factors influencing the willing to purchase into the product information, brand, recipe, and price, it was found that the product information was the most important factor. Minah Kim et al. (2011) aimed to classify the types of consumers through cluster analysis and food consumption pattern by type by using the multinomial logit model. As a result of cluster analysis, consumers were classified into six types, and it was found that there was a difference in the consumption patterns between types. As a result of the multinomial logit model, it was found that factors such as household income, type of household, age of householder, possession or non-possession of a car, etc. influenced the classification of types of consumers. Seungguk Choi (2011) analyzed the factors on consumer recognition and purchase decision of unheated fresh fruit juice and identified the purchase attributes on consumers of unheated fresh fruit juice. It was found that consumers
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purchase products with fresh fruits for the health of themselves or their family. Consumers considering health as the reason for purchase of unheated fresh fruit juice represented 68.5% of the total respondents. This study examined the patterns of consumers from a marketing viewpoint with the demographic variables as the standard. As a result of analysis of the purchase or non-purchase, depending on the state of display in store, men had a higher concern of purchase than women. In addition, consumers under 30 years of age showed the highest concern of purchase. In relation to the purchase or non-purchase of product at taste events, the consumers with the educational level of graduation from college or higher had the highest desire for purchase, and the households with an income of 2 through 3 million won per month showed the highest desire for purchase. On the basis of these results, the marketing strategy for sales of fresh fruits was shown. A number of studies have been performed on food consumption. However, the previous studies excluding the study of Minah Kim et al. (2011) and the study of Seungguk Choi (2011) did not attempt to classify food consumption or to find the characteristics of consumers coming under a specific demographic. This study and the study of Minah Kim et al. (2011) intend to grasp the food consumption pattern. But this study has a difference with the study of Minah Kim et al, which is provision of the product mix with high association by using the MBA, and it then classifies the consumers purchasing the product mix. In addition, the study of Seungguk Choi (2011) is similar to this study in that it aims to clarify the demographic characteristics of consumers purchasing a specific product, but it is different from this study in that this study deals not with a single product but with a product mix. Moreover, this study deserves attention in that it draws the product mix by conducting the MBA by month and by season. 3 Research Method This study used the MBA in order to analyze the purchase data of consumers. The MBA is a useful technique in extracting the product bundle with association from the product purchase data and analyzing the purchase pattern of consumers (Chen et al., 2005). According to Agrawal et al. (1993), when there are two different products, X and Y, and a consumer purchases product X, one can examine if the consumer also purchases product Y; this is to clarify the purchase pattern through product association. The MBA, which is introduced by Michael et al. (1997), consists largely of three concepts: support, confidence, and
lift. Support refers to the frequency of the purchase of product X and Y together for the total product trade frequency (N). Confidence, which is the concept to measure the accuracy of association rule, measures the degree of trade, including product Y of the trades of purchase of product X with probability. Finally, lift indicates the ratio of random purchase of product Y to the purchase of product X and Y together of the total purchases. The composing concepts can be shown as follows:
Support =
Confidence =
Lift
=



Expression (1) Expression (2) Expression (3)
According to the results of experiment on accuracy of the MBA, it was found that the accuracy is higher in the order of support, confidence, and lift (Namkyu Kim, 2008). That is, in order to be a meaningful association rule, the values of support and confidence should reach some level, and if these values are high, the value of lift should also be considered. However, the standard for the values of these indicators are not absolute, and thus the analyzer should repeatedly change the values by his or her judgment to find a meaningful rule. This study aims to draw the association rule by month by using the purchase data for one year and deduce a meaningful rule from these rules of support, confidence, and lift.
4 Data Collection and Sample Characteristics The data used for this study is based on the panel database constructed by the Rural Development Administration as `the agrifood consumption trend' business. For the operation of panels, 1,000 households were recruited from 200 Eups, Myeons, and Dongs (names of districts) in the capital area (Seoul, Gyeonggido, Incheon) in October 2009. However, only 995 households excluding the 5 households with a missing value were used for the analysis. The households attached the receipts for purchase of foods or register by day from January 2010 through December 2010; the receipts and registers were collected once a month. The information on agrifood was converted into data including: place of purchase, standard, price, indication or non-indication of cropping system, country of origin, etc. Agrifood was classified into some groups on the basis of the national food composition table as follows:
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Table 1 Classification of Agrifood Products
Group
Contents
Processed Food
Snacks, kimchi, processed food using wheat, side dishes, sauces, processed food using rice, processed food using soybeans, tea, alcoholic beverages, instant food, HMR, beverages, seasoning, etc.
Grain
Sweet potato, rice, corn, bean, polished barley, etc.
Marine Products
Processed marine products, fish and shellfish, seaweed, etc.
Vegetables
Eggplant, potato, chili, root vegetables, herbs, garlic, white radish, Chinese cabbage, etc.
Dairy Products
Lactic acid (also known as milk acid), milk, other dairy products, cheese, etc.
Meat
Egg, pork, beef, chicken, etc.
Fruits
Banana, pear, peach, blueberry, apple, orange, plum, etc.
This study examined household size, income level, age of panels, number of children, etc. related to food purchase patterns. The average household size was three to five persons, and the majority (73.6%) did not live with their parents. The number of children was on average one to two persons at a rate of 74%. The income level of less
than 4 million won accounted for 55% of total respondents, and the age of panels were, on average, in their 40s at a rate of 40.1% of total respondents. The frequency of eating out was on average two to three times a month at a rate of 76%.
Table 2 Demographic Characteristics of Subjects of Survey
Category
Item
Number of samples (Household)
Ratio (%)
1 person
94
9.4
2 persons
72
7.2
3 persons
208
20.9
4 persons
456
45.8
Household size
5 persons 6 persons
109
11.0
37
3.7
7 persons
5
0.5
8 persons
3
0.3
9 persons
1
0.1
No response
10
1.0
Category
Item
Income level
Less than 2 million won 2 through 2.49 million won 3 through 3.49 million won 3.5 through 3.99 million won 4 through 4.49 million won 4.5 through 4.99 million won 5 through 5.99 million won 6 through 6.99 million won 7 million won or more No response
Number of samples (Household) 148 131 156 102 88 66 66 31 39 19
Ratio (%) 14.9 13.2 15.7 10.3 8.8 6.6 6.6 3.1 3.9 1.9
18
0 person
49
1 person
206
2 persons
530
Number of
3 persons
95
children
4 persons
12
5 persons
3
No response
100
Less than below
52
Once/6 months
1
Once/2 months
49
Once/3 months
32
Eat out
Once/a month
186
Twice/a month
296
Thrice/a month
271
No response
108
Agribusiness and Information Management Vol.4 No.2 2012
4.9
No
20.7
With both
53.3
With mother
9.5
Parents
With father
1.2
No response
0.3 - 10.1
5.2
20-29
0.1
30-39
4.9
40-49
3.2 Age 18.7
50-59 60-69
39.7
No response
37.2 - 10.9
732
73.6
34
3.4
42
4.2
74
7.4
113
11.4
-
-
34
3.4
276
27.7
399
40.1
233
23.4
37
3.7
16
1.6
-
-
5 Analysis and Results This study used SAS 9.3 to analyze the product association rule. The product association rule had the frequency of purchase by panels as the standard. As a result of the analysis, a major rule was drawn, as shown in the following table, which reflects the dietary life of the panels. The most frequently discovered association in the market basket during the year 2010 was that of processed marine products, pork, and processed food using wheat (Rule 11) and that of milk and yogurt (Rule 15). Product mix
with high lift, which means the nature of purchasing a product leads to the increasing possibility of purchasing other products, was analyzed to be that of milk-processed food using wheat- yogurt and that of snacks-milk-processed food using wheat. When excluding processed foods, the possibility to purchase together was high for the mix of pork and lettuce and that of bean sprouts and processed food using soybeans. It was analyzed that the association rule of processed foods was higher than that of meat, vegetables, etc. The 15 association rules frequently discovered in the market basket are provided in the table below.
Table 3 Major Association Rules in the Market Basket
Rule 1
Rule 2
Lettuce, pork
Pork, beef
Rule 5
Rule 6
Processed food using wheat, milk, pork
Processed food using wheat, processed food using soybeans, milk
Rule 9 Processed food using wheat, processed marine products, egg Rule 13 Processed food using wheat, yogurt, milk
Rule 10 Processed food using wheat, processed marine products, milk Rule 14 White radish, spring onion
Rule 3 Processed food using soybeans, soybean sprouts Rule 7 Processed food using wheat, processed food using soybeans, pork Rule 11 Processed food using wheat, processed marine products, pork Rule 15 Yogurt, milk
Rule 4 Processed food using wheat, milk, egg Rule 8 Processed food using wheat, processed food using soybeans, processed marine products Rule 12 Processed food using wheat, processed marine products, seashell -
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This study drew the representative rules from No. 15 to analyze how different the rules were by month. The products coming under Rule 11 (processed food using wheat, processed marine products, pork) and Rule 15 (yogurt, milk) appeared almost every month. The rate of Rule 3 (processed food using soybeans, soybean sprouts) and
Rule 13 (processed food using wheat, yogurt, milk) being contained in the market basket together was high during six months from March through August. In November, Rule 14 including white radish and leaf mustard was higher than average.
Table 4 Association Rule by Month
Rule
L
S
C
Mar.
Rule 1 2.66
2.75
47.32
Rule 8 2.19
2.72
38.75
Rule 11 2.33
3.22
41.09
Rule 13 2.84
2.4
51.37
Rule 15 2.48
3.81
44.93
Jun.
Rule 5 2
2.1
33.65
Rule 11 2.37
2.02
33.37
Rule 13 2.85
2.1
47.94
Rule 15 2.51
3.53
42.24
Rule Rule 1 Rule 8 Rule 11 Rule 13 Rule 15 Rule 6 Rule 11 Rule 13 Rule 15
L
S
Apr.
2.36
2.54
2.31
2.86
2.5
3.68
2.54
2.35
2.34
3.67
Jul.
2.03
2
2.47
2.46
2.49
2.22
2.28
3.7
Rule 2 Rule 3 Rule 6 Rule 11 Rule 15 Rule 3 Rule 7 Rule 8 Rule 11 Rule 15
Sep.
2.21
2.16
2.36
2.48
2.07
2.03
2.55
2.72
2.25
2.98
Dec.
2.14
2.55
2.04
2.27
2.07
2.45
2.17
3.11
2.36
2.92
32.41 33.02 35.88 41.03 38.99 32.1 34.11 36.88 36.28 37.24
Rule 1 Rule 3 Rule 7 Rule 11 Rule 15 Rule 1 Rule 3 Rule 4 Rule 13 Rule 15
Oct.
2.58
2.28
2.27
2.83
2.22
2.46
2.4
3.1
2.32
3.16
Jan.
2.54
2.08
2.11
4.3
2.21
2.09
2.54
2.45
2.36
3.65
C 40.9 41.75 45.1 43.46 40.08 37.16 36.16 45.48 41.7 43.74 35.69 37.69 40.99 39.25 52.93 39.74 39.86 45.83 42.51
Rule Rule 1 Rule 3 Rule 11 Rule 13 Rule 15 Rule 3 Rule 8 Rule 11 Rule 13 Rule 15 Rule 3 Rule 10 Rule 11 Rule 14 Rule 15 Rule 8 Rule 9 Rule 11 Rule 12 Rule 13
L
S
May.
2.33
2.74
2.19
2.45
2.38
3.25
2.62
2.15
2.51
3.71
Aug.
2.41
2.41
2.27
2.28
2.48
3.29
2.29
2.05
2.14
3.28
Nov.
2.35
2.29
2.1
2.29
2.47
2.44
4.54
3.16
2.68
2.98
Feb.
2.08
2.91
2.25
2.01
2.18
3.38
2.37
2.15
2.71
2.17
C 41.42 33 40.66 43.76 41.85 34.06 38.1 41.56 43.05 40.24 32.1 32.04 36.95 38.49 41.06 39.79 42.98 41.6 45.38 45.48
This study analyzed the demographic characteristics of the consumers who put Rule 11 (processed food using wheat, pork, marine products) and Rule 15 (milk, yogurt) showed a high association throughout the year in their market baskets. During one year, the consumers who put Rule 11 in their market baskets were 854 persons, which account for 86% of the total panel of consumers, while those who
put Rule 15 in their market baskets were 808 persons, which account for 81% of the total panel consumers. It can be viewed that most panel consumers purchase the product mix of Rule 11 and Rule 15 throughout the year. The panels purchasing Rule 11 and Rule 15 have two children or eat out once to twice a month. In addition, 40% or more of them are in their 40s.
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Table 5 The Result of Demographics Related to Rule 11 and Rule 15
Rule 11
Household size
Frequency
Percent
Household size
Missing value
6
0.7
Missing value
1
40
4.7
1
2
54
6.3
2
3
182
21.3
3
4
423
49.6
4
5
102
12
5
6-9
46
5.4
6-9
Sum
853
100
Sum
Number of children
Frequency
Percent
Number of children
Missing value
44
5.2
Missing value
0
33
3.9
0
1
178
20.9
1
2
489
57.3
2
3
94
11
3
4
12
1.4
4
5
3
0.4
5
Sum
853
100
Sum
Parents
Frequency
Percent
Parents
Missing value
46
5.4
Missing value
With both
31
3.6
With both
With either one
100
11.7
With either one
No
676
79.2
No
Sum
853
100
Sum
Eat out
Frequency
Percent
Eat out
Missing value
45
5.3
Missing value
Less than below
42
4.9
Less than below
Once/2months
46
5.4
Once / 2months
Once /3months
26
3
Once / 3months
Once /a month
167
19.6
Once / a month
Twice/a month
270
31.7
Twice / a month
Thrice/a month
257
30.1
Thrice / a month
Sum
853
100
Sum
Age
Frequency
Percent
Age
Missing value
7
0.8
Missing value
20-29
17
2
20-29
30-39
238
27.9
30-39
40-49
376
44.1
40-49
50-59
187
21.9
50-59
60-69
28
3.3
60-69
Sum
853
100
Sum
Rule 15 Frequency 5 39 55 167 408 94 40 808 Frequency 41 35 170 466 84 11 1 808 Frequency 50 29 92 637 808 Frequency 45 44 41 25 149 261 243 808 Frequency 6 19 224 343 187 29 808
Percent 0.6 4.8 6.8 20.7 50.5 11.6 4.9 100 Percent 5.1 4.3 21 57.7 10.4 1.4 0.1 100 Percent 6.2 3.6 11.4 78.8 100 Percent 5.6 5.4 5.1 3.1 18.4 32.3 30.1 100 Percent 0.7 2.4 27.7 42.5 23.1 3.6 100
Agribusiness and Information Management Vol.4 No.2 2012
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6 Discussion The purpose of this study is to draw a specific cross purchase pattern in the agrifood consumption and to provide implications for the establishment of an agrifood marketing strategy. As a result of the analysis, many product mixes of processed products, milk, processed foods for meal replacement, etc. were discovered, and it is considered that this reflects Korean dietary life changing into a westernized taste. It should be noted that the results of this analysis do not vary greatly by season or by month. This seems to have been caused by the fact that processed foods account for a great part of foods and that vegetables, meat, marine products, etc. are supplied throughout the year. The association rules of note purchased throughout the year are Rule 11, which is the mix of processed food using wheat, processed marine products, and pork, and Rule 15, which is the mix of milk and yogurt. This means, on the basis of Rule 15, that panels have a high probability to purchase milk and yogurt together. The type of consumers purchasing in this pattern were those in their 40s with two children and four household members. And they do not living with their parents. Therefore, when establishing the marketing strategy such as the development and release of new products, joint marketing, display at stores, bundling, etc., these consumer types need to be utilized. For example, marts can establish a plan referring to Rule 15 to sell the bundled products of milk and lactic acid (acid milk) that target the housewives with children. According to the data of Statistics Korea in 2011, the population of the capital area (Seoul, Gyeonggido, Incheon) accounts for 49.5% of the total population of South Korea, and it was judged that the analysis of only the panels residing in this region would be significant. However, there are limitations in generalizing the result into the characteristics of nationwide consumers. Therefore, this study is proper as a subject to be studied after constructing a database related to national food consumption afterwards. According to the `Realities and Characteristics of One Person Households in 2010 Population and Housing Census' released by Statistics Korea, the ratio of one person households to general households is 23.9% (4.142 million households), which means one out of four households earns a living independently. This is a figure that increased by 8.4% from ten years ago (Electronic Times Internet* 2012). The ratio of one person households is gradually increasing in the food consumption market. Therefore it is
an important research task to analyze their characteristics in order to grasp a sales strategy reflecting single person household purchasing patterns. References Minah Kim, Kwansu Kim, Donghwan Ahn (2011), Analysis of Causal Factors of Food Consumption Pattern, Journal of Korean Food Marketing Association, 28 (3) Jongseong Kim, Kyusu Hah (2010), Selection Attributes and Pursued Benefits of Processed Marine Products, Journal of Korean Society of Food Culture, 25 (5) Seungwoo Paik, A Study on Operation Activation Plan for Agri-food Joint Marketing of Mountains Area (13:3) 2009, pp 37-44. Soyi Yoo (2005), Diversity of Food Consumption of Urban Households, Consumption Culture Research, 8 (2) Jeongbin Lim, Donghwan Ahn, (2007). Impacts of Korea-US FTA on Regional Agriculture of Gyeonggi-Do and Policy Implications (9:3), pp 49-70. Youngsu Jang, Kyounghee Lim (2000), Characteristics of Consumption of Marine Products : Focused on the Urban Household, Food Distribution Research, 17 (3) Electronic Times Internet (The Aju Business/Reporter Wun Jeon), 2012.06.13., Korean Food and Food Service Market Doubled Than Ten Years Ago ... at `133 Trillion Won' Last Year Electronic Times Internet* (Ulsan Maeil/Reporter Kyoungjin Kim), 2012.12.11., Era of `One Person Household', Urgent Need for Tailored Policies Seungguk Choi, Purchase Attributes of Consumers on Unheated Fresh Fruit Juice, Master's Thesis at Konkuk University, Korea Education and Research Information Service, 2011 Statistics Korea (Korean statistical information Service) (2010) http://kosis.kr/abroad/abroad_01List.jsp?parentId=A Ahn, K. I. (2012). "Effective product assignment based on association rule mining in retail," Expert Systems with Applications Chen, Y. L., Tang, K., Shen, R. J., and Hu, Y. H.(2005). "Market basket analysis in a multiple store environment," Decision support systems (40:2), pp 339-354. Cil, I. (2012) "Consumption universes based supermarket layout through association rule mining and multidimensional scaling," Expert Systems with Applications. Ford, P. B., and Dzewaltowski, D. A. (2008). "Disparities in obesity prevalence due to variation in the retail food environment: three testable hypotheses," Nutrition reviews (66:4), pp 216-228. Han, J., and Fu, Y. (1999). "Mining multiple-level association rules in large databases," Knowledge and Data Engineering, IEEE Transactions on (11:5), pp 798-805. Kim, N. (2008). "Effect of Market Basket Size on the Accuracy of Association Rule Measures," Asia Pacific Journal of Information Systems (18:2), pp 95-114 Michael, J., and Gordon, S. L. (1997). "Data mining techniques: for marketing, sales, and customer support," New York: John Wiley&Sons INC (445).
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A Study on the Status and Future Directions of IT Convergence Policy by the Ministry of Food, Agriculture, Forestry and Fisheries in Korea Minghao Huang · Heun Dong Park · Junghoon Moon · Young Chan Choe
Abstract Research and technology has been transforming the agriculture to agribusiness which encompasses all operations with all the connections from faming per se, to manufacture & distribution of production supplies and farm commodities. Further, with the revolutionary development of information technology in the last two decades, we cannot talk about agribusiness process alone without considering the information technology embedded in the artifact, process, and structure. Despite the emergence of precision agriculture (PA) which is supported by IT based innovations which can not only improve efficiency in farming operations but also contribute to environmental sustainability, the adoption of IT among farmers and in agriCulture Industry are rather low than expected. Thus, Korean government has been seeking to converge IT into food, agriculture, forestry and fisheries to improve the competency of the agribusiness, and much progress has been made. M. Huang Department of international trade College of Commerce & Economics Konkuk University e-mail : [email protected] H. D. Park ezfarm, Inc e-mail : [email protected]( ) J. Moon · Y. C. Choe College of Agriculture and Life Sciences Seoul National University, South Korea J. Moon e-mail : [email protected] Y. C. Choe e-mail : [email protected]
This paper investigated the status quo of the current IT convergence with Food, Agriculture, Forestry and Fisheries in Korea, and further proposed future policy directions. Keywords IT Convergence, Agribusiness, Policy Direction, Food, Agriculture, Forestry, Fisheries, Korea 1 Introduction Agriculture has been experiencing fundamental alterations of the entire rural society (Davis, 1956), and rural Korea is not an exception. With the dawn of the twenty first century, emerging crisis of agriculture from both internal and external environments plays a key role as triggers of the transformation of Korean rural society. Among them are the transformations of consumption and distribution, structure of agriculture, the subject of regional agriculture, and global mega trends (Lee et al., 2011). The transformation of the structure in consumption and distribution embodies in the following four areas. First, the growing uncertainty and instability of agriculture mainly comes from globalization, farmland loss, and climate change. The interdependence between and among countries has been extraordinarily increased through WTO, UR, and FTA, and it not only accelerates the arrival of unlimited competition era but also exaggerates the instability of the international agriculture products market (Park, 2012). Further, urbanization and desertification threatens the degradation of farmland which also affects the international market of agriculture products. In addition, the emergence of venture capital distorts the flow of agriculture spot market, and the climate change and meteorological damage also enhance the instability of the demand and supply of agriculture products. Therefore, a demand and supply forecasting system for agriculture products should be adopted
Agribusiness and Information Management Vol.4 No.2 2012
23
to seek market stabilization. More precision of some basic statistics such as major agricultural products acreage and yield, as well as weather conditions should be included in the comprehensive analysis (The Federation of Korean Information Industries, 2009). Secondly, agriculture food consumption and needs have also been transformed from the original uniformity to diversifications based on different ages, status, and life styles. More and more households are inclined to go eat out, and they concern more about health, taste, convenience, diversifications, and professionalization. These new trends on agriculture food consumption lead to the stratifications of different consumer groups: egocentric sense style, natural simplicity style, and elite style. Consumers with egocentric sense style pay more attention on their egoistic subjective satisfaction, and they care about sense, feeling, beauty, and experience. With the increasing economic power and the trends toward a nuclear family, more and more consumers explosively become egocentric sense style (Kim et al., 2011; Seo et al., 2010). Thirdly, diffusion of ICT-based agriculture products consumption and distribution structure becomes a new trend, and this trend leads to the change of consciousness of producers on ICT applications. There is a trend that the percentage of the wholesale market on agriculture products are decreasing, while the market power of large scale retailers and direct marketing has been greatly increased, which means that e-Commerce has been settled down as
a new important distribution channel of agriculture products. Further, the ICT-based consumptions and distributions of agriculture products become routine for everyday life. Since e-Consumers are more likely to search and order agriculture products through internet, producers begin to promote and sell their products through homepages. They also adopted blog marketing, SNS marketing, etc (Park et al., 2011). Fourthly, expansion of export market and IT convergence will provide good opportunities to Korean agriculture industry. During the last decade, the trade volume of world agriculture food products appeared a phenomenal growth with the open policy of market, and the agricultural exports of Korea also increased during the last decade (See Figure 1). However, through the survey on the challenges of agricultural exports faced by farmers and exporters in Korea, we have identified several factors which inhibit their capacity to meet the customers' needs such as lack of information of export market, product, and information of export technology, hardship of exploiting new buyers and foreign market, difficulties in selecting exporting items and in developing new items, intensified price competition among exporters, and difficulties in securing labors for cultivating exporting items. These handicaps make it necessary to converge IT with agricultural export to improve its responsiveness to consumer needs and its fundamental effectiveness (Seo & Kang, 2011; Im & An, 2010).
Fig. 1 The Trend of Agricultural Exports of Korea
Next, the transformation of the agricultural structure mainly embodies in the following three areas. First, there is a growing sense of crisis on sustainable agriculture. Continuous withering phenomena of agriculture industry caused by industrialization and urbanization are requesting
various strategic approaches to seek agricultural sustainability. Second, IT convergence with agriculture has been attempted to make it highly developed. Among the IT applications in agricultural sector are management informatization of agricultural technologies, internet and remote farm-
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Agribusiness and Information Management Vol.4 No.2 2012
ing consulting service, and IT convergence with BT, CT, and ET. However, the aging rural society and lack of succeeded agricultural workforce are rising as critical limitations of agricultural informatization. Third, vulnerability
of agricultural workforce is another important factor which requires enhancing the agricultural industry competitiveness through IT convergence (The Ministry for Food, Agriculture, Forestry and Fisheries, 2012).
Fig. 2 Distribution Corporation Types, Business Items, and Cases
Further, the subject of regional agriculture has been greatly changed since the year of 2000. First, the growth of market based on the direct marketing has been demanding farming scale promotion and standardization. As a result, agricultural producers begin to have the increasing power to bargain with the large scale retailers. Second, the increasing bargaining power comes from the fact that various distribution corporations are emerging nowadays. The agricultural producers create many different distribution channels such as associations, large scale farming corporation, large scale fresh and convenient agricultural products distribution companies, next-generation businessmen, and professional vendors, and their business items have expanded to the area of agricultural products being used for school foodservice and processed food (See Figure 2). Third, to meet the demands of standardization, high-quality, and farming scale promotion, agricultural producers developed mainly based on the hardware. Therefore, for the lack of software based support and applications, the market responsiveness falls into stagnations. Thus, the development of both hardware and software based convergence should be greatly enhanced (Kim et al., 2010). Finally, global megatrends such as aging society, global hyper-competition, climate change, development of convergent technologies, and new value orientation also funda-
mentally impact and transform the agriculture industry (Lee et al., 2011). Above all, research and technology has been transforming the agriculture to agribusiness which encompasses all operations with all the connections from farming per se, to manufacture & distribution of production supplies and farm commodities (Davis, 1956). Further, with the revolutionary development of information technology in the last two decades, we cannot talk about agribusiness process alone without considering the information technology embedded in the artifact, process, and structure. Despite the emergence of precision agriculture (PA) which is supported by IT based innovations which can not only improve efficiency in farming operations but also contribute to environmental sustainability (Aubert, Schroeder, & Grimaudo, 2012), the adoption of PA technology among farmers (Bramley, 2009) and in agriculture industry (Chiasson & Davidson, 2005) are rather low than expected. Thus, Korean government has been seeking to converge IT into food, agriculture, forestry and fisheries to improve the competency of the agribusiness, and much progress has been made (The Ministry for Food, Agriculture, Forestry and Fisheries, 2012). This study simply aims at evaluating the current status of the progress and also at exploring future directions of IT convergence policy by the Ministry of Food, Agriculture, Forestry and Fisheries in Korea.
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Source : aT Fig. 3 Internalization of IT into the Whole Cycle of Production, Distribution, and Consumption
2 The Current Status of IT Convergence with Food, Agriculture, Forestry and Fisheries in Korea IT convergence with food, agriculture, forestry and fisheries refers to the way of creating product, service and engineering innovation and value through the internalization of IT into all the processes including production, distribution, and consumption (See Figure 3). At the production stage, web camera and environmental sensor are used to monitor environment and to control temperature, humidity, CO2, etc. Further, by applying LED light and CO2 sampling technology, energy can also be automati-
cally controlled through Integration Control Center. During the processing and marketing process, storehouse environment management, RFID tag publishing and attaching, as well as GPS tracking technology can be applied to create value. One of the most important values is to provide consumers food tracing information and environment friendly secured food information through their mobile terminals. As we can see from Figure 4, IT is embedded in the products, process, and structure, and how to converge IT with food, agriculture, forestry, and fisheries in Korea has become a critical challenge (The Ministry for Food, Agriculture, Forestry and Fisheries, 2012).
Fig. 4 Vision Map for IT Convergence with Agro Food Industry (The Ministry for Food, Agriculture, Forestry and Fisheries, 2012)
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To meet the challenge, Korean government has launched comprehensive plans of informatizing the agricultural society, and they can be divided into two stages. The first comprehensive plan is from 2002 to 2006. To set up the IT infrastructure for rural society in the stage, policies are focused on promoting the knowledge and information by developing the online administrative system (Agrix). By evaluating the performance of the policies, some index has been greatly improved. After the first comprehensive plan by 2006, Korean agricultural sector had made some progress by achieving 69.5% accessibility, 29.1% capabilities, and 36.2% applications (The Ministry for Food, Agriculture, Forestry and Fisheries, 2007). Greatly increased coverage and accessibility provides a good infrastructure for developing capabilities and applications, while the latter two are relatively low and had potential to grow. The second comprehensive plan for informatizing the agro food industry has been executed from 2007 to 2011. During this period, adopting the IT convergence with agricultural sector has been the major issue by integrating and connecting with Enterprise Architecture (EA). At this stage, although accessibility has continually increased up to 86.2% and some progress has also been made in capabilities and applications, up to 38.2% and 45.0%, respectively, by 2011, there are still great potentials for improving capabilities and applications (The Ministry for Food, Agriculture, Forestry and Fisheries, 2012). On the other hand, Korean government has also initiated 27 national projects on developing fundamental technologies and applications and 10 on testing and diffusing models of IT convergence in agricultural industry, and some successful cases has been introduced to the public and media. Agro food IT convergence modeling projects have been implemented by both public and private sectors such as bureau, companies, or universities. Public institutes first develop new technologies through R&D and explore new business model, and then they will testify the demonstration project, technology and model (commercialization). After that, the testified project will be diffused throughout the agriculture, forestry and fisheries with investment and financing. Comparatively, private institutes like companies or universities first guarantee the original technologies and realize the technology transfer and commercialization through private finance initiatives so as to enter the market. Despite the progresses that have been made through the two comprehensive plans, the third comprehensive plan for IT convergence with agriculture, forestry and fisheries becomes a must for agro food industry and regional economic development (The Korea Society of Food and Agricultural Information Science, 2010).
3 The Vision and Policy Directions for IT Convergence with Food, Agriculture, Forestry and Fisheries 3.1 Vision To set up and design a vision for the new IT convergence, informatizaion requirements have been collected based on the review of Law on Industrial Convergence and analysis of the policies of IT convergence with other industries. Then, vision, policies, and strategic projects of agro food IT convergence have been derived to effectively deliver the policies of Ministry for Food, Agriculture, Forestry and Fisheries in Korea. The focus of the policies has been greatly changed in the following three areas. First, rather than price, competition, and efficiency, sustainability issues like environment, safety, and recycling structure are more concerned about. Second, production and supply oriented agriculture put more and more emphasis on safety of consumption, quality, and convenience. Third, the pendulum seems to have swung from macro policies toward micro policies. In such an industrial convergence era, the association between industrial policies and science & technology policies should be enhanced to internalize IT artifacts into all the value chains of different industries. Thus, developing competitive business models is the key for survival. From this perspective, we set up the vision as to securely provide safe food to the Korean people and to reinforce the vitality of farming and fishing villages. As for the delivery policies, we proposed the organizational system, infrastructure development & improvement, and promoting and supporting policies by effectively integrating with the Law on Industrial Convergence (See Figure 4). As the strategic projects, we argued that organic cooperation among university, industry, and government (UIG) in agro food industry and praxis-centered model should be developed.
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Fig. 5 Strategic Goal of Securing Food Safety and Promoting Korean Agro Food Consumption and Preference
To achieve the strategic goal of securing food safety and promoting Korean agro food consumption and preference, several approaches can be applied in the whole value chains of agro food industry (See Figure 5). With the phenomenally increased diffusion of smart terminals, N Screen service can be provided for consumers to check agro food production & distribution traceability and authentication information in multiple languages anytime and anywhere. Also, the system which can monitor the whole value chains of agricultural and marine products from production to processing to distribution, including import and export process, which can highly develop the quality of digital control of endemic diseases. Further, threatens caused by climate change can be appropriately changed into opportunities by creating good ideas and terminologies. Food mileage which can be attained by multiplying the food's volume with its moving distance, and the lower food mile-
age represents a more environment friendly local food. Green IT can also be applied to reduce the CO2 emission along with the whole value chains. Expanding Korean agro food export to foreign market has to be supported systematically. The second goal is to innovate faming and fishing companies and develop their competitiveness (See Figure 6). To achieve that, first, by internalizing IT artifacts into production, process, and distribution process to expand the high precision and intelligence. Second, systematically propagate the need systems to the companies based on different business models to increase the applications. Third, by providing premium information, cropping system and distribution/sale decision making can be highly developed. Fourth, it can contribute to the overseas agricultural development by exporting "Agro Food IT Convergence Service" solutions.
Fig. 6 Strategic Goal of Innovating Farming and Fishing Companies and Develop Their Competitiveness
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Fig. 7 Strategic Goal of Improving Life Satisfaction of F&F Villages and Developing Regional Economics
The third goal, also an ultimate objective, is to improve life satisfaction of farming & fishing villages and develop regional economics (See Figure 7). Divide between city and village on healthcare, education, culture and crime prevention can be reduced by adopting IT so that increase
life satisfaction of farmers. What's more, storytelling of farming and fishing villages' amenity resources, as well as various touching service, can be greatly enhanced. Varieties of rural return business model can also be fully developed through IT convergence.
Table 1 Delivery Policies and Related Policy Projects
3 Delivery Policies Establishment of Organizational System (6 Projects) Infrastructure Development and Improvement (6 Projects) Establishment of Applications and Diffusion Models (7 Projects)
Policy Projects Building IT Governance System by Strengthening Agro Food CIO Council Systemizing with Focus on Bureau which is in Charge of IT Convergence Execution and Resource Allocation, Management, and Evaluation Informatization Project Delivery Organizational System Innovation Agro Food IT Convergence Integrated Control Tower Development Software-centered Agro Food Investment and Financing Policy Transformation Enhancement of Cooperation between Bureau's to Develop Living Infrastructure for Farming and Fishing Villages Information-based Fundamental Research and Observation, Enhance the Information Infrastructure for Business Analysis Promote u-IT-based Convergence Fundamental Technology R&D in Agricultural Universities and Research Institutes "IT Convergence Integrated Data Center" Field based Research Farm for UIG Cooperation System Establishment IT Convergence Technology Standardization and Authentication System Cultivation of Farming and Fishing Village Contents related Industry Conducting Informatization Level Research on Agro Food Companies IT Convergent Education Farm Development Adoption of Authentication System for Private IT Convergence Development Companies Delivering Company Informatization with Information-based Consulting and Human Resources Cultivation Enhancing the Practice-oriented IT Policy for Cultivating and Supporting Agro Food Companies Discovering and Propagate Best Practices and Promote Export of IT Convergent Products Leveraging International Regulations such as Emission Reduction Purchase Agreement, Food Mileage
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3.2 Policy Directions To discover highly developed and successful IT convergence models and further propagate them systematically and efficiently, the following three policies should be concomitantly delivered. They are establishment of organizational system, infrastructure development & improvement, and establishment of applications and diffusion models. Table 1 shows us the three delivery policies and list of proposed policy projects to be finished. To establish an effective organizational system, it is necessary to consolidate information-oriented organization's role as control tower which can plan and manage the whole agro food informatization project. Agro Food CIO Council has been proposed to be the control tower, and it can play a critical role among several institutes, such as Ministry of Agriculture, Food, Forestry and Fisheries, University and Research Institutes, and Rural Corporations & IT software companies. Agro Food CIO Council is mainly composed of experts on collaborations and IT to promote IT convergence project at different institutional levels. Through regular conferences on informatization project and information exchange on the promising project among those different institutes, standardization of convergent technologies and high technologies can be attained to reduce the redundant investment and to use resources more efficiently. As to the efficient management policy of CIO Council, some specific guidelines have been suggested. First, strategic decision making on the project have to be made and delivered by discussions and mutual agreements within the council, while the specific management policies can be customized to the leading subject of the council. Second, institute the specific management policies to share the local needs with the department in charge of and to connect technologies with the delivery policies. Third, improve the important role of Korea Agency of Education, Promotion and Information Service in Food, Agriculture, Forestry and Fisheries (EPIS) as the agro food IT convergence exclusive agency. On the other hand, building the agro food IT convergence integrated control center is equally important for the establishment of organizational system. To improve the efficiency of the project management, the exclusive informatization projects management/monitoring institute should be established. With the operation of the central data center, it can not only connect distributed systems but also provide data-based high quality service to the rural corporations. The control center has several functions. First, by providing a single integrated management environment for all the IT resources of the corresponding in-
dustry, the control center can play a role of central hub for the connected network. Second, through the commonly shared DB, the control center can provide infrastructure that connects not only both external and internal stakeholders but also rural corporations' IT environment. Finally, the control center can provide many services such as corporations' facility/circumstance control, service monitoring, and process & Performance Management of related on-going projects. To deliver the second policy of improving and developing infrastructure, agro food IT convergence research center should be initiated within the university. According to the No. 28 in the Law of Promoting Industrial Convergence, universities specialized in industrial convergence should be designated by the government. In this way, the private collaboration network and capabilities for research and commercialization of universities and research institutes can be greatly enhanced as well. For the innovation of manufacturing process through IT convergence, it is urgent to research and develop the model which can analyze, predict, and control the sensing information. Besides the research center in university, research farm as the industry-based UIG triple helix collaboration system should be developed. Because of the small scale of IT convergence private software developing companies, they have limited capabilities to develop an integrated system. The superabundance of testing technologies in the field makes them useless even if they have been successfully developed. Thus, we suggest that R&D should be activated by collaborations with private software companies under the direction of IT convergence research institute with specific technology, respectively, and that EPIS can directly promote the initiatives of the research projects and modeling of testing projects.
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Fig. 8 IT Convergence Applications & Diffusion Model
The third delivery policy is to establish IT convergence applications and diffusion model. Up to now, by adopting the system with high configuration which fails to meet the needs of the corporations, rural corporations have excessive cost for the unsustainable system. Such a result might be caused by the fact that rural corporations cannot get the management consulting service at the priority, and they even don't have the awareness of the necessity for the service. To solve the problem, we proposed the IT convergence applications and diffusion model (See Figure 8). Best practices of informatizaion can be developed in IT convergence experimental farm, and it can provide rural corporations trust to believe that benchmarking the best practice can help them to achieve competitive advantage. By collaborating with those certified IT convergence software companies, consulting service can be provided at first, and then customized support in different information levels and development stages follows. At all stages, EPIS will provide IMS certifications to control and monitor the IT convergence implementation. In this way, IT convergence best practices can be fully applied and successfully diffused among rural society. To develop and diffuse successful cases and to promote the agro food export, we suggest the commercialization of the projects of u-Farm with great potential to succeed. Rather than developing new business model, maximizing and upgrading the potentials of the current projects are at the first priority. For those business models which are bound to create value and performance, extra commercialization project can be applied. Secondly, best practices and successful cases can be collected and published in book, and practice manuals for different model commercialization can also be produced. Finally, we can proactively combine agro food IT convergence practice with KOICA's
ODA projects. With the accumulated performance and experiences in farming and fishing informatizatin, we can help developing countries to build e-Government system and promote farming and fishing companies' informatization projects. In other words, agro food IT convergence practices can create synergy and value when it contribute to the development of agriculture in developing countries. 4 Conclusion Fundamental transformation occurred on agriculture sector by research and technology has forced Korean government to converge IT into all the aspects of rural society. Although great progress has been made during the first two comprehensive plans for informatization, barriers and challenges still exist. How to converge IT into food, agriculture, forestry and fisheries seamlessly is the key question we have to face and to answer. This paper first analyzed both inherent transformations of agriculture into agribusiness and macro trends which make it necessary to converge IT into agricultural sector. Then, after describing the status quo of IT convergence with food, agriculture, forestry and fisheries, we proposed the vision and policies for the future agro food IT convergence. Such an effort can contribute all the stakeholders involved in the agro food IT convergence projects by providing both specific guidelines and a visionary blueprint. However, this research has some limitations by remaining as a descriptive analysis. Future research can be conducted on developing the CSF of IT convergence in different levels like individual farmers, rural corporations, villages, and rural society. Since agro food IT convergence
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covers many different disciplines from natural science to socio-economic-political science, multilevel interdisciplinary research methodologies should be applied to tackle more specific interesting research questions. From this perspective, we believe this research provide a good starting point for those future researches. References Aubert, B.A., Schroeder, A., & Grimaudo, J. (2012). IT as Enabler of Sustainable Farming: An Empirical Analysis of Farmers' Adoption Decision of Precision Agriculture Technology, Decision Support Systems. 54, 510-520. Bramley, R.G.V. (2009). Lessons from Nearly 20 Years of Precision Agriculture Research, Development, and Adoption as a Guide to its Appropriate Application, Crop and Pasture Science. 60, 197-217. Chiasson, M.W., & Davidson, E. Taking Industry Serously in Information Systems Research. MIS Quarterly, 29, 591-605. Davis, J.H. (1956). From Agriculture to Agribusiness. harvard business review, 34 (1), 107-115. Im, J.B., & An, D.H. (2010). A Policy Direction for Promoting the Korean Agro-food Export. Korean Journal of Food Marketing Economics. 27(4), 107-135. Lee, C.H., Lee, M.Y., Cho, Y.M., Cho, W.S., & An, O.S. (2011). Forecasting Agricultural Science & Technology. In Korea Rural Economic Institute, Agricultural Outlook 2011 (pp. 1025-1045). Seoul. Kim, J.H., Kim C.G., Song, M.R, Han, S.H., & Chang, D.H. (2010). Vision of 2030/2050 Agriculture and Rural Sector in Korea. Korea Rural Economic Institute Kim, M. A., Kim K. S., & An D. H. (2011). An Analysis of Factors
influencing the Food Consumption Pattern. Korean Journal of Food Marketing Economics. 28 (3), 37-55. Park, H.D., Kim, S.K., Kim, M.J., & Choe, Y.C. (2011). An Study on Difference of Performance of e-Business Farmers by Subject-resource-environment Factors. Korean Journal of Agricultural Management and Policy, 38 (3), 573-600. Park, H.D. (2012). The Relationship between Determinants and Performance of e-Business Farmers Focusing on Competitive Strategy. (Doctoral Dissertation). Retrieved from SNU Dissertations and Theses. (Accession Order No. [TD 378.51 Se67a 21749]) Seo, D.K., & Kang, J.G. (2011). World Agricultural Supply and Demand Estimates with Coping Strategy of Korea, Proceedings of the Summer Conference of Korean Food Marketing Association, 25-36. Seo, J.W., Kim, D.H., & Oh, S.H. (2010). Analysis for Consumer Agricultural Cyber Shopping Mall Purchase Behavior on the Patterns of Lifestyle. Korean Journal of Food Marketing Economics. 27 (2), 47-66. Seoul National University Information Center for Agriculture and Life Sciences. (2011). Report on Establishing the Next Generation IT Convergence Master Plan for the Policies of Food, Agriculture, Forestry, and Fisheries. The Federation of Korean Information Industries, (2009). A Private White Book of Korean Information Industries in 2009. The Korea Society of Food and Agricultural Information Science. (2010). Report on Establishing u-IT Business Diffusion Policies in the Agriculture, Fisheries, Livestock Industry. The Ministry for Food, Agriculture, Forestry and Fisheries. (2012). The 3rd Master Plan for Informatization of Food, Agriculture, Forestry and Fisheries ('12~'16) The Ministry for Food, Agriculture, Forestry and Fisheries. (2007). The 3rd Master Plan for Informatization of Food, Agriculture, Forestry and Fisheries ('07~'11)
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Challenges and Effective Management of Supply Chain in Wine Industry and Agribusiness Tata Joseph Ngoe
Abstract Studies have shown that the future of the wine market rests on the effective and efficient changes in technology to the supply chain used by most of the major global players. In today's wine industry, companies are faced with the ever-shifting demand for their products, strict regulation and increasing price competition. Even at that, mature companies in the wine industry are succeeding by scaling up production, streamlining their supply chains, expanding into new geographic areas, implementing more efficient processes, cleverly marketing products, and focusing on ever closer relationships with suppliers, partners and customers. However, this paper looks at supply chain challenges in the wine industry from a global perspective presented in the inbound, manufacturing and outbound processes as well as offer effective solutions in order for companies to gain a competitive advantage and succeed on a global level. Keywords Inbound and outbound systems, IP (Intellectual Property), AOC (Controlled Designation of Origin), item procurement matrix, Just-in-time system, MPR (Material Requirements Planning System), PICA smart vineyard system, 3PL (Third Party Logistics), INCOTERMS, RFID (Radio Frequency Identification), ABC system. T. J. Ngoe Sejong-Syracuse Professional Global MBA (SSMBA) Graduate School of Business, Sejong University, South Korea e-mail : [email protected]
1 Introduction Studies have shown that the future of the wine market rests on the effective and efficient changes in technology to the supply chain used by most of the major global players. Whilst the internet had opened up the world of wine to the general consumer, it is now being held back by inefficiencies in the supply chain. In today's wine industry, companies are faced with the ever-shifting demand for their products, strict regulation and increasing price competition. Even at that, mature companies in the wine industry are succeeding by scaling up production, streamlining their supply chains, expanding into new geographic areas, implementing more efficient processes, cleverly marketing products, and focusing on ever closer relationships with suppliers, partners and customers. Christian Adamo (June, 2004) argues that as "consumers keep demanding for better products, with lower prices, along with better overall services and customer supports, companies themselves are struggling with shorter product life cycle, increased product variety, and lower profit margins due to fierce global competition." Giving the fact that the market for the wine industry is highly competitive, many of the leading players try to leverage their size and geographical reach to cut procurement costs and deliver more efficiently and at lower costs to their target markets. As the wine industries become consolidated in recent years, both production and distribution capacity becomes increasingly concentrated in the hands of companies with global reach, and there has been consolidation in the retail market as well. The stronger bargaining power of large supermarket chains and buying groups, together with increased competition from private label brands, has put pressure on the wholesale and distribution industry's already thin margins. During the last few years most production based industries and wineries in particular have been under serious pressure to improve upon their top-line growth and bottom-line savings. In this regards, many companies are
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turning to systems and technologies that can help optimize the inbound and outbound supply chain activities and improving short-term and long-term demand forecasting. 2 Challenges of Wine Supply chain In line with the inbound system of the wine industry supply chain, there are a number of inputs and a number of suppliers that affect the wine making process. In this section I will be focusing on grapes, cork and glass as the main inputs, and the potential supply chain problems experienced by the suppliers themselves as well as the relationships between the suppliers and the winery. Within the Wine industry the source or origin of the grapes and the wine are very important. One example of the push for the protection and distinction of brands is the establishment of the distinction of origin and the Country of origin Systems. This is, although developed and administered by the EU was quickly adopted by the wine
producers in the new world. The system allowed marketers to reap increased profits by having their wines designated AOC (Controlled Designation of Origin). The Designation of Origin gave producers significant benefits such as: · Designations of the geographic area, production quantities within a quality classification type were defined. · Attributes were limited in regards to grape varieties, yield and output. · The IP was protected. Although on one hand the designation of the Controlled Designation of Origin enabled the wineries to command premium prices, it caused some of the supply issues for growers as will be seen in more detail in the following section. For the winery within the sourcing area the grapes are the most vital component. In regards to the item procurement matrix, there are four categories of items that a company may analyze as shown in figure 1 below.
Fig. 1 Item Procurement Importance Matrix
According to this graph the grapes would fall into the critical segment. Although one could argue that the value of the grapes themselves are not great and that they should fall in the distinctive quadrant that is only true if the grapes are looked at as the final product. However in the eyes of a wine producer, grapes have high value, high risk characteristics of a critical, while cork would fall into the distinctive quadrant and glass possibly into the generic quadrant. This is mainly due to the fact that, unlike grapes, if cork and glass are relatively cheap and alternative sources can easily be acquired.
2.1 Grapes The main strength for wineries at the same time becomes a major weakness. Although the mark of Controlled Designation of Origin as mentioned previously commands a premium in price, it causes several issues. By limiting grape varieties, outputs and yields the suppliers have much less flexibility and options in case there are disruptions in supply. A winery, unlike most other industries, cannot easily acquire additional grapes or juice from outside sources or from vineyards outside of its specific geographic
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location. This in turn makes the supply of grapes very irregular, and unpredictable. 2.2 Over supply and Undersupply Over supply and Undersupply is another challenge in regards to the replanting of the vines. Due to the time that needs to pass between planting the vines and them starting to produce adequate grapes, causes a constant disconnect between supply and demand. This in turn leads to a boom bust cycle in regards to the grapes that repeats itself circa every 10 years as followed in this historical account. In 1970 in California traditional grape shortage cycles lasted between 6 and 10 years (Joe Ciatti and Cody Jennings, April 9, 2012). In 1970, due to the shortfall, Ciatti et al (April 9, 2012 article) argued that California saw large scale vine plantings driven both by tax incentives and a growing interest in wine shown by the baby boomers. Ciatti et al (April 9, 2012 article) pointed out that the plantings continued into the 80s and the beginning of the 90s. As a direct result of that there was a large oversupply of grapes that lasted till 2010. During that time there was limited replanting since there were several good harvest years. Due to the long time needed for the vines to start bearing the oversupply came at the start of the economic crises. However with the economic recovery the demand for wine increased again, which led to a grape shortage and subsequent mass plantings. Those wild swings between oversupply and supply deficiencies caused issues regarding forecasting and the availability of supply. The primary solutions to alleviate the wide swings in supplies are that growers should replant their vines with new varieties and higher yields on longer term contracts. Another solution is to turn the grapes into bulk wine, since wine has a better return than grapes currently. In order to move less desirable varieties like Syrah, growers should package them together with varieties that are more in demand such as Cabernet. 2.3 Forecasting In most industries forecasting and inventory management are relatively straightforward. A given company may use a fixed quantity approach, whereby after a given period of time when inventory drops below a certain point, the company would reorder the inventory. However, within the Wine industry forecasting is much more complicated. The first issue is that tastes for wine among consumers may change rapidly. Due to the long lead time needed for the planting of new vines it makes it hard for grape growers
to switch grape varieties. On the grape growers end, since the harvest basically depends on nature, it is hard to predict the yield and sugar quantities within the grapes. A third factor that affects supply is that grapes take a given time to ripen, meaning that unlike other industries the input (in this case grapes) that will be sold for several years, is collected within a matter of weeks once per year. Initially the predictions for the future price of grapes were done using a linear model, whereby it was assumed that prices would increase over time. However this approach didn't take into account the cyclical nature of prices and the effect on prices that the current harvest and previous harvest had. A new model was developed that looked at acreage planted, yield and price. From the article of "Forecasting California Wine Supply Cycles" Steven Cuellar states as follows: To begin with, it is clear that the price per ton of grapes depends on the current year's harvest. Similarly, the current year's harvest depends on the amount of acreage cultivated (i.e., the supply side of the market). The amount of acreage currently cultivated will in turn depend on the current price and past price of grapes. Again, economic theory tells us that when the price of grapes is high, suppliers will increase the amount of grapes planted. Likewise, high prices in the past, which induced suppliers to increase acres planted, will result in a greater current grape stock. This in turn enables the new model to follow the cyclical patterns of the supply and demand and more accurately predict the future price of grapes. The new model, unlike the old model of the past which only had approximately a 50% accuracy rate has an accuracy rate of over 90% and allows for both short and long term forecasts. 2.4 Production Process With regards to raw materials the wine grape itself contains almost all of the necessary ingredients to begin the production process, in fact other than grapes just yeasts and a few chemicals are needed. wine production can vary depending on the type of grape and the amount and type of wine being produced. The process of wine production has remained similar throughout the years, however, new innovations to the manufacturing process have helped to streamline some of these processes and produce a higher yield. In most mid to large sized wineries the manufacturing processes are automated in order to ensure accuracy and efficiency. The wine making process is comprised of four specific steps as shown in figure 2 below.
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Fig. 2 Wine Production Process
In order to begin the grapes must be harvested and crushed. Once the vineyard harvester has determined that the grapes are ready to be harvested, a mechanical harvester funnels the grapes either into a field hopper or some type of mobile storage container. Depending on the technology of the harvesting system the crushing can be done either at the farm or the winery. Most harvesters will have grape crushers mounted on them, which helps to streamline the process by picking and crushing the grapes at the same time. This is the preferred way, as it prevents oxidization of the grape through tears or splits in the skins. Once the wine is transported from the farm to the winery it is unloaded into a crusher-stemmer machine, where the grapes are pressed further and the stems are removed. This leaves a liquid "must" which is then pumped into a fermenter in order to settle, clarify and filter. During this process yeast is added into the fermenter in order to turn the sugars from the grape liquid in to alcohol. The time varies from one to two weeks depending on the type of wine and the desired pigment for each type. After the fermentation process is complete the wine is aged in stainless steel tanks or wooden vats. The duration of the aging process is dependent on the quality and the type of the wine that is being produced. White and Rose wines can be aged anywhere from one to four years whereas reds may age from seven to ten years. The majority of mid to large sized wineries age their wine in temperature controlled stainless steel tanks. Smaller wineries will store them underground in wooden barrels in an attempt to keep the wine in a cooler climate without having to pay for the tanks and energy of having the wine at a controlled temperature. In the packaging stage most wineries use automated bottling machines which differ from corks made of oak for moderately priced and expensive wines to screw off caps or plastic stoppers for cheaper wines. In the production process there are numerous complica-
tions and challenges that can be presented. The ones that will be the focus of this paper are chosen as they relate to the supply chain. Wine production has to coincide with the harvesting of the grapes. With this there is a three month window starting in the beginning of August and completing in the end of November. For example, pinot and moscato grapes may be ready for harvest in early August; Merlot, Cabernet Frac, Barbera grapes will not be ready until late September; whereas for Shirz, Nebbiolo and Sangiovese November will be the right harvest period. Furthermore, each type of wine that is being produced is allocated a different amount of time that it needs to be in the fermenter. Coordination between the farmer and winery is challenging due to the timing of each different wine and the vulnerability of the grapes when in transition from the farm to the winery. When the grapes are harvested they need to be crushed and put into the fermenter as soon as possible. If the timing is not effectively coordinated the grapes could arrive while another batch is still in the fermentation process and have to sit. This can have a direct effect on the quality of the grape and leaves it vulnerable to changes in temperature while it is being stored. As a result, a just in time inventory management system is essential for timely information and coordination. Another challenge is that production runs continuously from the first batch to the last batch for every year. This provides for limited windows to modify equipment and to ensure that you have not changed the production process. Another challenge is finding effective ways to control cost while improving the quality of the product. Quality control during the production process is essential where once a mistake has been made it is not possible to go back and fix it. Therefore it can be difficult for wineries to find effective cost saving methods or strategies in the production process without having an impact on quality. After the initial investment, the largest cost factors in production
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are labor and energy. Since wine production is seasonal there are very few full time, year round employees that work in the production department for wineries. Most seasonal workers are coming from neighboring countries which can pose some challenges. First, every year a new group of seasonal employees must be properly trained in order to be able to fulfill their responsibilities. Because the work is seasonal it is very difficult for wineries to hire back existing employees. Training is a time consuming and costly expense where training can take anywhere from one to two months for an employee to be ready to partake in the production process. Furthermore, language barriers with seasonal employees can pose problems as production is run continuously and is not able to be stopped. If there is an employee that does not fully understand the process or there is miscommunication it can result in costly mistakes. 3 Effective Management of Wine Supply Chain As a result of the complexity and specific needs of having
a Just-in-Time system (JIT), effective communication and visibility is vital to the success of coordinating on time deliveries from the farm to the winery. A solution to implement an efficient JIT system as well as increasing production efficiency can be found in Material Requirements Planning System (MPR). MPR deals specifically with supplying materials and component parts to those whose demand depends on the demand for a specific end product. The MPR system consists of a set of logically related procedures schedule into time-phased net inventory requirements and planned coverage of such requirements for each component items needed to implement this schedule. Therefore, implementing MPR systems wineries can more easily achieve just in time delivery, ensure the availability of materials and plan manufacturing activities. As earlier discussed, the yearly wine production for each company is concentrated to just a few months which mean that smaller errors can jeopardize the entire production and can eventually lead to a company failure. That's why wineries should study and roll out MPR planning very carefully. The figure below shows how an MPR system can be applied to the wine industry.
Day 1
Day 2
Moscato from Vineyard "A" unloading and crushing step
First tank fermentation and yeast adding step(-1Kg)
Day3 Second Tank fermentation and Chemicals adding step (if needed) (-10g)
Day 4 Second fermentation day in the second tank
Day 5 Bottle in step (-100 cork unit -100 bottle units)
Yeast procurement +10 kg
Chemicals procurement +2 Kg
Nebbiolo from Vineyard First tank fermentation
"B" unloading and
and yeast adding step
pressing phase
(-1.2Kg)
Cork procurement +1000 units Bottle procurement +1000 units Second Tank fermentation and Chemicals adding step (if needed) (-12g)
Second fermentation day in the second tank
Day 6 Second fermentation day in the second tank
Yeast Invetory 9kg Bottle in step (-180 cork unit -180 bottle units)
Chemicals Inventory (1.9kg)
Cork procurement 900 units Bottle procurement 900 units
Fig. 3 MPR system, possible example for Wineries
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From the diagram above, one can argue that E-collaboration tools can help to improve efficiency in the process. However it is not very realistic for a grape farm to have the available resources and knowledge to invest in these technologies. According to researchers, a possible solution to improve collaboration comes from Italy and is called PICA (Agricultural and Wine-producing Integrated Cartographic Platform) smart vineyard. This is a software/hardware system that allows real time vineyard monitoring (type of grape, quality of soil, grapes volume forecasting etc.). Many other similar products are available on the market but the revolutionary difference is the price. Installation of a PICA system is relatively inexpensive and allows for a new form of collaboration. In fact, due to the low purchase and maintenance price, Winemakers will be able to install this system to all of their suppliers. Farmers can have information tools for their vineyards and winemakers can have more visible, real time information resulting in a win-win situation for both parties. In order to increase efficiency and ensure quality control during production E-optimization software can help the winery to allocate areas that are the most costly and work to provide solutions to the problems. Furthermore, E-optimization and sensor tools allow for transparency through the production line and are able to pick up on prospective problems in the production process in order to solve them before they start. To benchmark this, Vintegrate, an E-optimization and sensor software program supplies benchmarking and self assessment tools in order to improve production efficiency in the wine making process. The program takes the latest trends in wine production and is able to provide information and application tools to achieve the desired benchmarks for the winery. It also analyzes where costs are most heavily allocated and provides insight on how to resolve them. For example, the cost factors for a winery are mainly comprised of labor and energy. This E-optimization tool has helped wineries find unique ways to reduce their electricity use and CO2 emissions as well as reduce the amount of labor. The sensory tool monitors each machine and process in order to ensure that every machine is working at full capacity. When problems are detected, it can then notify the management team and offer effective solutions to the problem. When dealing with outsourced or immigrant labor there are some effective approaches in order to breakdown communication barriers and increase efficiency in the training process. The first is hiring a trainer that speaks the native language of the employees being trained. For example, most wineries in the US hire Latin Americans for seasonal work, as wineries in Italy will hire Eastern European or
North African immigrants respectively. A larger issue is the time and money of having to continuously train employees year after year. The ability to rehire previous seasonal employees or hire workers that have past experience in wine manufacturing would enable the company to save time and money on training. In order to execute this, a company could establish recruiting pools domestically as well as in the foreign country where the majority of their seasonal employees are coming from. If a winery wishes to establish recruiting pools in another country a 3PL provider would be the best option where they are specialized and will have access to more information than if the company tries to navigate it alone. Domestically, a winery could either hire a 3PL or establish recruiting pools through collaboration with other wineries in their area. With this, the wineries can share their knowledge and expertise in order to find employees that have previously been trained in the manufacturing process. 4 Distribution and Global Market Wine distribution focuses on three different modes of transportation. Historically, truck and rail were the main modes of transportation where distribution was largely domestic. Due to the global demand of wine throughout the years, ocean transport has become an increasingly popular and necessary mode of transportation for global distribution. This has also brought on a rising demand for intermodal services. The service availability for transporters in the supply chain becomes a critical part of demand fulfillment. Global distribution has increased the complexity in outbound processes with a larger amount of products to store and a greater need to effectively manage inventory in order to increase efficiency and lower overhead costs. E-commerce is another dimension to distribution where the purchasing from online stores of the individual wineries or from online marketplaces has become a popular and convenient way to connect wineries with the end buyers. There are numerous challenges when transporting wine. The first challenge is that wine is temperature sensitive. It is imperative for it to be kept in a temperature controlled climate. With this, different types of wine require different storage temperatures making it difficult to transport different wines in the same container. As a result of not being able to consolidate different types of wine, this can lead to having to utilize multiple containers that are not fully stocked. Quality control with regard to storage temperature also brings in questions of who is liable if the temperature
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in the containers are not effectively regulated and how can negligence of a party be proven. Historically, when issues arise with wine being corked due to temperature fluctuations in the shipping process, there is very rarely any record of variations in temperatures once the wine has left the producers cellar. This brings in the need for increased knowledge and specialization when handling INCOTERMS as well as the need for tracking technology. Tracking technology has been primarily through barcode systems which pose their own challenges and limitations in the distribution process. Barcode labels can be easily damaged or misread as well as have restricted data length. They are also time consuming and difficult to maintain as they require specials printers and label stock. In addition, when barcode data is updated old labels have to be torn off and new labels with barcodes have to be installed with costs time, money as well as the further potential for human error. Finally, all data that is captured by the scanners has to be manually synchronized and correlated. As wine is distributed in glass bottles another challenge to shipping is how to effectively pack it. At the end of the bottling process wine is either loaded into crates or boxes to be palletized and then either stored or loaded into a container to be shipped. With this, one has to look at the safest way to pack it, organize it on a pallet and then organize the pallets in the containers. With intermodal transportation the shifting of the containers differs from truck to ship. On a truck, the pallets are more vulnerable to shifting from back to front where on a ship they are more vulnerable to shifting from side to side. Furthermore, once bottles are broken they can also affect the packaging of the other bottles. Because wine is done seasonally and in batches it is not replaceable which makes quality control in shipping the top priority for transportation companies. Warehousing and inventory management have posed challenges for wineries and distributors alike. Due to the many different types of wines and their individual temperature constraints it makes it difficult and costly to store. With these constraints warehousing managers must look to find the most effective and efficient ways to organize the warehouse in order to fully utilize all of the available space but still make it easy to navigate when the wine needs to be loaded. Furthermore, taking accurate inventory has posed problems for warehousing managers in the past due to the complexity in the multiple types of wines which can also differ by the year. The development of E-commerce in recent years has also brought upon questions of efficiency in shipping and warehousing depending if the company is selling directly from their website or from a different online marketplace. Depending on the regions of
the buyers it brings into question of whether the company should fulfill orders in house or establish distribution centers closer to the location of the buyers. The recent developments of RFID (Radio Frequency Identification) tracking systems have allowed for increased visibility during the handling, transportation and distribution processes. It has been slow to catch on in the wine industry due to the relatively high cost. However, some wineries have begun to see the substantial benefits with regards to visibility, quality control and inventory management. A specific type of RFID tag called IPICO provides solutions to quality control concerns of producers as well as facilitates in quick and accurate inventory readings. Traditional RFID tags have some engineering and physics issues that can result in unreliable tag readings on containers that are filled with liquids. The liquid can absorb the RF signal which prevents the tag from being read. IPICO tags are the only RFID tags that have been proven to accurately tag readings from containers filled with liquids. There are different types of IPICO tags depending on whether they are being placed in a container, barrel or on the bottle. The IPICO tags placed in containers track the location as well as monitor the temperatures during shipping three times a day. When there is a quality control issue it can help producers and distributors determine where the issue arose, making liability and insurance claims easier to determine and manage. Another advantage to these tags is that they are significantly more durable than barcodes where they are sealed onto the bottle instead of printed onto the label. By providing real time data the tag allows producers and manufacturers transparency through the transportation process in order to indentify where there are inefficiencies and take the necessary steps to find effective solutions for them. For warehousing and storage, RFID chips can allow for efficiencies in inventory management. Because there is a chip placed on each bottle, inventory is taken with the click of a button, where a tracking system can relay and synchronize data from multiple warehouses and present them in a clear and organized format. To increase efficiency in warehousing space and organization there are multiple options to take into account. First, for global distribution it will be the most efficient to organize the wine using the ABC system. If any company decides to distribute their wine globally, in order to maximize profits we suggest a "market segmentation" process. Following the concept of ABC segmentation, wineries should divide their market into different groups ranking those using appropriate criteria or metrics. As in the ABC segmentation process, there is no fixed criterion, instead every company should pick up the criteria that will
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most accurately align with the companies wants and needs. ample to have better practical understanding of this Nevertheless, the following section will provide an ex- concept.
Table 1 Gross Revenue
In this case a Gross Revenue can be used. Nevertheless, Gross Revenue doesn't give any information about profitability or cost to serve. As a result, this kind of criteria
can be used by wineries which don't distribute but just sell wine to importers and exporters, hence no extra logistic costs are involved.
Table 2 Gross Revenue-Logistic cost
Wineries can also develop their own distribution system. In this case logistics must be added in the market evaluation. The new criteria may be Gross Revenue-
Logistic cost. Companies that decide to entrust a 3PL to do the distributions instead of using logistic cost will use the 3PL hiring costs.
Table 3 Dynamic Growth
We call the last possible criteria Dynamic Growth, which is the difference between the revenue for the current and previous year. This can show another market dimension being revenue growth for each single market.
Doing this kind of segmentation through metrics wineries may be able to better allocate their resources in each market. Better resource allocation and planning will lead the company to achieve profit maximization year by year.
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With this system a pallet runner satellite system will help to utilize the maximum space available and increase efficiency in the handling of the pallets. The runner system has the ability to run up and down lanes to retrieve pallets and bring them to the front. This increases efficiency by making the storage system denser by eliminating the need for multiple lanes in the warehouse. While the forklift driver is delivering the pallet to the trucks, the pallet runner is moving the pallet to the front which cuts down on the amount of time the forklift driver has to spend moving and picking up the pallet. In order to mitigate the cost of having to use different containers for wines that need to be stored at different temperatures, wine producers and distributors should look at horizontal integration or collaboration with producers or distributors in order to combine like shipments. This will allow for companies to increase efficiency by sharing information and aligning alike wine shipments in order to utilize all of the available space in the container. This results in equal cost savings for each company where they can pay for the amount of space that they are utilizing in the pallet. There are numerous third party logistic providers that offer services to wine producers and distribution companies. 3PL companies can help to provide solutions and increase efficiency in many aspects of the supply chain. The challenge is finding the right 3PL provider that offers the value added services that can align with the wants and needs of the company. For example, for quality control measures that deal with temperature regulations, 3PL companies can provide the information and systems technologies with RFID technology to effectively manage and measure and control the products from the producer to the end buyer. However, RFID chips are not able to prevent the challenges of shipping fragile products. In order to improve this quality control measure it is essential to find a 3PL provider that can offer services of finding the most effective ways to organize pallets in a container as well as implement stuffing and destuffing systems in order to ensure that bottles are not broken through transport. 5 Conclusion Historically, the wine industry and the processes from the farm to the consumer have presented numerous challenges. As the wine industry is romanticized as being a simple and traditional process, the logistics and supply chain throughout the wine industry is a complex process that
needs to be continuously monitored and innovated in order to keep up with a growing demand and gain a competitive advantage. In recent years, the global demand for wine has turned efficiencies in logistics and supply chain into a vital part and necessity for wineries to be successful. The main focus of wine has always been on taste and quality. While this is true, the onset of globalization has put emphasis on the need for companies to continuously change and adapt their processes through the supply chain in order to stay competitive in the market and to ensure that their wines are reaching the end consumer in a timely fashion and in the same condition from beginning to end. In order to do that company should invest more time and resources in improving their logistic chain system through new technology as well as through better integration and cooperation between all the actors involved: wine producers, farmers and 3PLs. However, given the enormous complexities of planning and scheduling in agricultural supply chain, many new solving methods such as evolutionary algorithms, fuzzy systems, Genetic Algorithms, have been introduced into software applications to help manage and optimize this complexity at the level of grape production and processing. Therefore, future research on the impact of technology in the wine supply chain is of paramount. Reference Christian Adamo., (June, 2004). A Global Pespective of the Wine Supply Chain- The case of Argentinean Wineries and the U.S. Market, (Lic. en Aquitectura, Universidad de Belgrano, 1997). Michalewicz, Z.; Schmidt, M.; Michalewicz, M.; Chiriac, C. (2007). Adaptive Business Intelligence: Springer. John J. Coyle, C. John Langley Jr., Robert A. Novack, & Brian J. Gibson (2009). Managing Supply Chains, (SOUTH-WESTTERN, CENGAGE Learning). Joe Ciatti and Cody Jennings, Monday, April 9 (2010). "Winegrape shortage could last six to eight years". Business Journal. h t t p : / / w w w . n o r t h b a y b u s i n e s s j o u r n a l . c o m / 5 2 1 4 1 / w i n egrape-shortage-could-last-six-to-eight-years/ Paul Franson, 02.24.2012, "Sourcing Winegrapes in a Shortage": h t t p : / / w w w . w i n e s a n d v i n e s . c o m / t e m p l ate.cfm?section=news&content=97815 Larry Lockshin, "Consumer Purchasing Behaviour for Wine: What We Know and Where We are Going". Wine Marketing Research Group, University of South Australia John Hall, Victoria University, Australia: http://academyofwinebusiness.com/wpcontent/uploads/2010/05/SupplyChainManagement.pdf. Steven Cuellar and Aaron Lucey, December (2005). "Forecasting California Wine Grape Supply Cycles". Wine Business Monthly: h t t p : / / w w w . w i n e b u s i n e s s . c o m / w b m / ? g o = g e t A rticle&dataId=41513 Wine, "How Products are Made" Volume1:
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http://www.madehow.com/Volume-1/Wine.html#b Mike Veseth. (2011). "The Wine Economist". Wine Distribution Bottleneck. http://wineeconomist.com/2009/05/05/the-distribution-bottleneck/ Wine Business Monthly (2012). h t t p : / / w w w . w i n e b u s i n e s s . c o m / w b m / i ndex.cfm?go=getArticle&dataId=15472 Falken Security Network, "RFID for the Wine Industry". Quality Tracking from Vineyard to Glass. http://www.falkensecurenetworks.com/PDFs/0819_RFID_for_t
he_Wine_Industry.pdf Wine and Spirits Shippers Association Inc (2010): h t t p : / / w w w . w s s a . c o m / t o o l s - a n d - r e s o u r c e s / i s o - c o n t a i ners/index.html Gary Mintchell, "Packaging World". Information Solves Wine Bottling Problems: h t t p : / / w w w . p a c k w o r l d . c o m / c o n t r o l s / s t r a t e g y / i nformation-solves-wine-bottling-problems Angelo Depalma (2009) Confronting Scaleup Head on: http://www.genengnews.com/gen-articles/confronting-scaleup-challenges-head-on/4564/?page=2
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Cases of Eco-Friendly Pigsty and Hog Feeding and Management Based on u-IT Information Systems 1 Ik Hun Jang · Seong Hee Park · Young Chan Choi · Young Hwa Kim
Abstract This study introduces cases of individual feeding systems for sow and the sow sorters which are the subparts of an eco-friendly feeding and management system based on a u-IT program using the hog feeding and management information system. The purpose of this study is to conduct an analysis of economic feasibility on cases of the improvement of the system using the u-IT and to provide information on the positive effects of an introduction of an eco-friendly pigsty and hog feeding and management system to hog raisers and government officials. The literature review and background section examine the effects of the introduction of u-IT technology into the field of livestock raising, hog feeding and management information system, and the eco-friendly feeding and management system based on the u-IT. This paper will present the results of the analysis on the effects and the economic feasibility of the individual feeding system for sow and the sow sorter utilizing the u-IT technology and information systems. The results of this study will contribute to the sustainable devel- I. H. Jang · S. H. Park · Y. C. Choi College of Agriculture and Life Sciences Seoul National University, South Korea I. H. Jang( ) e-mail : [email protected] S. H. Park e-mail : [email protected] Y. C. Choi e-mail : [email protected] Y. H. Kim Researcher at Swine Science Division at Department of Animal Resources Development of National Institute of Animal Science e-mail : [email protected]
opment of the hog raising industry by showing that the new feeding and management system utilizing the u-IT can not only increase the efficiency and productivity of farm management but also contribute to efficient, eco-friendly hog feeding and management. Keywords Hog feeding and management computation, u-IT, eco-friendly pigsty, eco-friendly hog feeding and management 1 Introduction Issues such as climate change and energy as well as development of technology have caused new changes in the environment and agriculture. The Korean hog raising industry is struggling due to an acceleration of foreign imports and increasing feed prices following an increase in international grain and oil prices. In addition, internally, the conversion of the raising method of sow and the improvement of the pigsty environment are required because of the difficulties in management such as the increase in facility management cost and the decrease in productivity caused by the vulnerability to disasters due to the use of old pigsties. Moreover, in early 2011, 3.32 million pigs, which account for about 30% of the total hog population in Korea, were buried because of an occurrence of FMD (foot-and-mouth disease). In order for the Korean hog raising to overcome the issues described above and develop the pork industry into a long-term sustainable industry, the Korean hog raising industry must expand the consumption base of pork by developing consumer trust. Following the settlement of UR agricultural negotiation in 1993, the foundation of the WTO regime in 1995, and the conclusion of Korea-Chile and Korea-U.S. FTAs, etc., the
1 This research was financially supported by the Rural Development Administration (RDA) of Korea (Grant NO. PJ007604062012)
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agricultural product market is moving towards the stage of a complete opening of the international market. As the opening of the agricultural product market expands, the amount of imports of agricultural and livestock products may exceed 40% of production, and exports are expected to expand. This leads to the progress of globalization of agriculture. Globalization means the intensification of competition not only in Korea but also between other countries, which makes the strengthening of competitiveness of Korean agriculture in the global market, emerge as the most important task. The scale of production of the hog raising industry in Korea is about 5.6290 trillion won, which accounts for one-third of the entire livestock industry, but it was found that the number of hog farms have decreased by half from 11,300 farms in 2006 to 5,700 farms in 2011. The livestock industry is recognized as a hated industry by local communities because of the occurrence of FMD, etc. In addition, livestock industry regulations are strengthening due to the work of local governments. Hence, an eco-friendly stock raising base should be constructed by considering regional characteristics and the improvement of the environment of stock raising farms. In addition, the EU is strengthening livestock welfare regulations including the prohibition of sows raised in stalls by 2013. Various attempts and efforts are being made in order to adapt to these changes, and of these, the grafting of IT technology and agriculture is recognized as a method for the new era. In Korea, the application of agricultural IT technology has been conducted to demonstrate examples to some local governments, and as a result, successful commercialization cases are recently increasing. In the field of hog raising, the feeding and management information system was developed in the late 1990s though it had been used earlier in other fields of agrifood. Recently, the u (ubiquitous)-IT technology began to be used as an example of IT fusion for technological innovation and enhancement of a competitive edge. `Ubiquitous' means an environment where the users can access the network freely, without use of the main computer or network, regardless of where they are. That is, through the ubiquitous sensor network, the optimum swine raising environment including optimum temperature, humidity, concentration of CO2 and oxygen in the pigsty can be obtained. The information systems and u-IT technology have commercialized in the field of agrifood and started to be used practically in the industry. Therefore, the related success cases of IT adoption needs to be recognized widely in the whole Korean hog raising industry. This goes together with the reflection on animal raising in the form of a
factory, animal welfare, the eco-friendly pigsty, and the hog feeding and management system using the u-IT technology which is expected to have positive effects on issues such as animal welfare. This study introduces cases of individual feeding systems for sows and the sow sorter, which are sub parts of the eco-friendly feeding and management system based on the u-IT using the hog feeding and management information system. The purpose of this study is to conduct an analysis of the economic feasibility of cases on the improvement of system using the u-IT and to provide the information on the positive effects of the introduction of an eco-friendly pigsty and the hog feeding and management system to the hog raisers and government officials. The parts of the literature review and backgrounds examine the effects of the introduction of IT technology into the field of stock raising, hog feeding and the management information system, and the eco-friendly feeding and management system based on the u-IT. This paper will then present the results of analysis on the effects and economic feasibility of the individual feeding system for sows and the sow sorter utilizing the u-IT technology and information systems. This study will contribute to the sustainable development of the hog raising industry by showing that the new feeding and management system utilizing the u-IT can not only increase the efficiency and productivity of farm management but can also improve eco-friendly hog feeding and management. 2 Literature Review and Backgrounds 2.1 Effects of the Introduction of IT Technology into the Field of Stock Raising In the field of stock raising, as information on each individual is needed for the decision-making, feeding and management information system have been developed since the late 1990s, which is earlier than in other fields of agriculture. In addition, the fact that the field of stock raising was specialized and commercialized earlier than other fields of agriculture also accelerated the introduction of information systems (Minsu Lee et al., 2010). However, Verstegen et al. (1995) said that a high acceptance ratio does not show the objective effects of an agricultural information system. The objective information on the effects of an agricultural information system is a very important standard for the farmers who want to invest in an information system and enterprises and public research institutions that intend to provide an agricultural information
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system. Hence, it is of great importance to objectively measure the effects of an information system when developing the agricultural information system (Minsu Lee et al., 2005). In the field of stock raising, while the feeding and management information system was developed earlier than in other fields of agriculture and has a variety of research periods and scope, in reality the related studies are very insufficient numerically. The studies that analyzed the effects of the introduction of IT technology into the field of hog raising are mostly about the changes in productivity or other outcomes after the introduction of the feeding and management information system. In view of related studies, Verstegen et al. (1995a) examined the effects of the use of the information system by using panel data collected, which targets hog raising farms in the Netherlands. The study targeted 93 hog raising farms using the information system (the production management information system at an individual level) from 1983 through 1991, and then used the data on the management performance (Pig per Sow per Year, PSY) of each year of before, on, and after the year of introduction of the information system. As the analysis model, a linear mixed model was used. In view of the results of the study, the PSY of the farms increased by about 0.56 head by the use of the information system, and the return on investment (ROI) of the information system was about 220% through 348%. Verstegen and Huirne (2001), using the survey data conducted in 1983 and 1992, verified the relationship between the management level of hog raising farms and the effects of the information system targeting the same 71 hog raising farms. As a result, it was found that the farms with a higher management level obtained more values from the information system. Tomaszewski et al. (1997) measured the effects of the information system (the production management information system at an individual level) by applying the linear mixed model, which targeted the hog raising farms and dairy farms in the Netherlands. As a result, it was found the hog raising farms had a ROI of 220% through 348% and that the dairy farms had a ROI of 52% through 205%. Minsu Lee et al. (2010) analyzed the effects of the use of the system by collecting the data targeting the farms using the Pigplan (a hog raising production and business management program), and found that the PSY and the sow's turnover ratio increased in the farms using the system. Kwangho Cho (2000) aimed to grasp the realities of the management of the farms producing pork for export in the South Jeolla Province and conducted the management diagnosis, such as the analysis of production cost of fed pigs, etc., by using the "hog raising management
diagnosis and economic feasibility analysis program (HOGAID)". Due to the information system's improved ability to highlight and diagnose certain issues, the introduction and use of the information systems for the Korean hog raising industry is encouraged. 2.2 Hog Feeding and Management information system The field of hog raising was specialized and commercialized earlier than other fields of agriculture, and the feeding and management information system was actively introduced. In the United States, the University of Minnesota developed a program called PigCHAMP in the early 1980s and for the first time the world of hog raising took notice. In Korea, Purina Korea first developed a program called Doncom in 1989. In 1995, Seoul National University and Ezfarm Co., Ltd. developed a program called PigPlan, which, currently, is the most widely used program. The PigPlan for general farms supports the feeding and management of farms and disease control through the management of breeding herds, growing pigs and the prevention of epidemics. In addition, the PigPlan program analyzes and compares the general state of management of individual farms by using breeding results of farms, feed transaction information and shipment information through connections with other businesses including feed companies and slaughter houses to support management improvement of the pertinent farms. The PigPlan for pig breeding farms manages performance-tested pigs and provides the functions of management of sales and parceling-out of breeding pigs, gathering sales, management of boar semen, and the business management for general state of management of farms. The PigPlan also provides services supported by the program for general farms, which is now a Web-based information system available on the Internet is provided. PigPlan provides optimized functions through long-term upgrades of the system and program. According to `the Written Investigation on the Realities of Management of Nationwide Specialized Hog Raising Farms (2011)', which is presentation data from the Korea Pork Producers Association, it was found that about 42.2% of Korean hog raising farms use the feeding and management information system. This result of constant spread and expansion is thanks to the demonstration of the effects of use of the feeding and management information system. 2.3 Eco-Friendly Feeding and Management System Based on the u-IT Today the IT is evolving into the ubiquitous Information
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Technology (u-IT) centering on users, and it is also being applied to the hog raising industry. The current, automatic green house and pigsty management technology is devel-
oping into unmanned precision agriculture based on the u-IT. [Table 1] shows the shape of utilization of the u-IT in the field of agriculture and its expected effects.
Table 1 Shape of the Utilization of the u-IT in the Field of Agriculture and its Expected Effects
Field of Utilization
Shape of Utilization
Expected Effects
Agricultural Production
- Automatic greenhouse, pigsty management system - Livestock feeding standard management - Soil verification and agricultural technology - Farmland management through field server
- Reduction of labor and production cost - Realization of precision technological agriculture
Distribution of Agricultural Products
- E-commerce of agricultural products - Traceability system of agricultural products - Intelligent, real-time logistics information system
- Reduction of transaction costs and improvement of the distribution structure - Differentiated distribution of agricultural products - Quality management of agricultural products and settlement of disputes
Education, Medical Treatment, Welfare Services
- Remote education, medical treatment, and culture system - Home management system for the elderly and the disabled - Disaster control system
- Improvement of quality of public services in rural areas - Enhancement of the quality of life of rural residents - Prevention of disasters
Source : Yunsik Shin et al., 2007, Rural Informatization Model in the Ubiquitous Era, National IT Industry Promotion Agency
In view of the cases of the application of u-IT in the field of hog raising, in 2008, the South Gyeongsang Province introduced the u-pork uniform pig growth management system utilizing the `u-IT' to Kaya Inte Co., Ltd., which is a subsidiary company of PKPORK, for the first time in Korea. The u-IT let the state of growth of each individual, including the amount of intake of feed by pigs and measurement of weight, be easily distinguished by utilizing the RFID. Furthermore, u-IT made the weight management by growth stage and the automatic sorting management at the best age for shipment possible through the automatic pig weight sorter. In addition, the Universal Sensor Network (USN) and CCTV were utilized together to form the optimum environment by monitoring and controlling the growth and development environment of the pigsty and the pigsty model. This u-IT method has helped establish an environment management standard indicator proper for a windowless pigsty. The Jeju Special SelfGoverning Province developed the hog raising system where the growth and development monitoring for prevention of disease of pigs based on the RFID/USN technology and the feeding and management based on the HACCP are possible through the business of the construction of a u-IT convergence hog raising FCG integrated system in 2008. This system was developed to automate the HACCP
work by using the USN; it was to enable the self-diagnosis at the production stage. Jangsu-gun was selected for the business of the `construction of an eco-friendly hog feeding and management system utilizing the u-IT' supervised by the Ministry for Food, Agriculture, Forestry and Fisheries in 2010 in conjunction with Farmsco. This was done to develop an eco-friendly hog feeding and management model based on the USN for the efficiency of farm management and an increase in productivity utilizing the u-IT and information systems. This system is obtaining the effects of the increase in the shipping heads, reduction of feed cost and cost of prevention of epidemics, etc. by using the functions of feed bin, drinking water management, and maternity barn management using the u-IT. The shape of the utilization of the eco-friendly feeding and management system utilizing the u-IT by function in the field of hog raising is summarized as in [Table 2].
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Table 2 Functions of the Eco-Friendly Feeding and Management System Utilizing the u-IT
Field of Utilization
Shape of Utilization
Expected Effects
Pigsty Environment Management Based on the USN
An automatic control of the USN temperature, humidity, and CO2 sensor is possible by using the controllers and communication devices based on the USN, and the real-time monitoring is possible through the Internet and smart phones.
Rapid countermeasure at the time of an unusual symptom and the enhancement of productivity through an analysis of the measured data and patterns of pig behavior
Feeding and Management Based on the u-IT
It becomes possible to automatically control the feeding and management facilities such as the feed bin and drinking water management, the individual feeding system for farrowing sow, group feeding system, market pig sorter, etc., and to diagnose the state in real time.
The accuracy of feeding and management becomes increased by pigsty, and the unusual symptoms can be identified in real time. Hence, the reduction of production cost and the reduction of productivity can be achieved at the same time.
Hog Production and Business Management
It grasps the realities of management through the information systems by collecting information on the environment of the pigsty and feeding and management in real time, and helps conveniently manage the production results of farms, the HACCP reports, etc.
It can be utilized as an important base for the decision-making needed for the operation of farms and the farm improvement activities such as the reduction of management cost, etc. become possible.
3 Cases of Analysis of the Effects and Economic Feasibility of the Eco-Friendly Feeding and Management Based on the u-IT
agement information system. 3.1 Individual Feeding System for Sow
For the analysis of the actual effects and economic feasibility of the cases of construction of the eco-friendly feeding and management system using the u-IT technology, this study conducted an analysis on the basis of the data drawn from the results of the operation of two actual application cases of the pilot projects in which the agricultural IT consulting companies operating the feeding and management information system participated. The cases of individual feeding system for sow were examined in the business of `the construction of the eco-friendly hog feeding and management system utilizing the u-IT' conducted in Jangsu-gun, and the market pig sorter was examined on the basis of the cases of the introduction and operation of the equipment in the farms using the feeding and man-
The control of the proper amount of feed intake for sows in the maternity barn influences the enhancement of productivity and reduction of feed cost, and needs to be managed. The efficiency can be increased if the amount of feed is controlled by using the electronic feeding system, but there are difficulties in constant monitoring and analysis of data of the amount of feed intake if it is not interlocked with the information systems. When using the individual feeding system for sow utilizing the u-IT, the feed that is needlessly eaten or the feed left to be abandoned can be reduced by letting out the proper amount of feed for the sow only when the sows want to eat. The concept of this individual feeding system for sow is as in the below .
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Fig. 1 Concept of Individual Feeding System for Sow
The use of the individual feeding system for sow has qualitative effects including: the prevention of waste of feed by reducing the loss of feed, the prevention of the danger of an attack of diarrhea of sows because of the change of the quality of the feed left in the feed bin in the hot pigsty environment, etc. In addition, it has the benefit to induce the optimum sucked feed amount proper for the growth and development of piglets by controlling the amount of feed inputted by the time of suckling after
farrow. The results of the analysis of economic feasibility as the quantitative effects of the individual feeding system for sow are as in [Table 3]. The break-even point is calculated to be 2.8 years if one considers an average reduction in feeding costs of 12% against the initial installation cost of an individual feeding system for sows. The analysis conditions for are based on cases of raising 100 sows for three years as the standard.
Table 3 Analysis of the Economic Feasibility of the Individual Feeding System for Sow (3 Years of Raising of 100 Sows)
Loss Elements (A)
Profit Elements (B)
Increased cost: - Individual feeding system: 400,000Ч100 EA = 40,000,000 won - Supplementary installation cost: 2,500,000Ч2set = 5,000,000 won - Total (A): 45,000,000 won
Increased profit - Reduction of the amount of loss of feed: 12% - Amount of reduction of feed: 6kgЧ365 daysЧ100 headsЧ 600 wonЧ12% = 15,768,000 won - Total (B): 15,768,000 won
Estimated amount of profit (B-A) = (15,768,000 wonЧ3 years)-45,000,000 won = 2,304,000 won
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3.2 Market Pig Sorter The market pig sorter is equipment that sorts pigs reaching the shipment standard through an automatic measurement of weight and is installed where the pigs pass by to drink water. The purpose of the market pig sorter is to determine if it is impossible to measure the weight of individual pigs with a scale. The realities of motion of the sorter are monitored in real time through communication devices and information systems. The sorter can also guide the light pigs and the heavy pigs to different rooms. RFID tags can be attached to each individual pig in order to make better use of the market pig sorter. This monitors the weight of individual pigs and checks the physical conditions of the pig and discovers unusual symptoms described earlier. The use of the market pig sorter can have qualitative effects such as fasting at the time of shipment and before shipment of standard pork, the convenience of shipment
work, etc. The standard pork responds to the changing demand of standard of weight of shipment and supplements the errors of sorting with the naked eye (by season and by pedigree) to increase the rate of appearance of AB grade, which are the high levels, in the standard grade. The effects of fasting before shipment can lead to mooring at the shipment space for 0 through 24 hours, the reduction of feed, the decrease in stress during transport, and the increase in the carcass yield percentage. In addition, the market pig sorter can sort automatically by measuring the weight of all market pigs and can reduce the time for shipment work by guiding pigs to the shipment space; it can increase the convenience of the shipment work. In view of the case of Farm B, it can be observed that after the introduction of the market pig sorter on May 1st, 2012, the frequency of appearance of the First class, which is the grade of quality of meat, steadily increased and the AB grade which is the standard grade, certainly increased.
Fig. 2 Effects of the Improvement of Shipment Grade after Sorting of Market Pigs (Date of Introduction: May 2012)
The results of the analysis of the difference per head following an increase of pay rate of 1% with a per pig at 4,000 won and a weight of shipment of 110 kg as the standard, and the analysis of excess profits by assumption
of shipping heads per year at 1,800 heads for the analysis of economic feasibility because of the introduction of this sorter are as in [Table 4]. The break-even point is calculated to be 1.9 years.
Table 4 Analysis of Economic Feasibility of Market Pig Sorter (Stock Raising of 1,800 Market Pigs for 2 Years)
Loss Elements (A)
Profit Elements (B)
Increased cost: - Sorter: 1 unitЧ15,000,000 won - Total (A): 15,000,000 won
Increased profit - Increase in the pay rate of live weight from 70% to 71% - Standard: Pig price of 4000 won/Kg, 110Kg - Reduced amount per shipping head: (4,000Ч110Ч0.71) ­ (4,000Ч110Ч0.70) = 4,400 won - Excess profits at the time of shipment of 1,8000 heads per year = 1,800Ч4,400 - Total (B): 7,920,000 won
Estimated amount of profit (B-A) = (7,920,000 wonЧ2 years) - 15,000,000 won = 840,000 won
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4 Conclusion and Consideration Eco-friendly hog feeding and management programs utilizing u-IT technology have passed the pilot project stage and are now in the commercialization stage. An analysis of technical issues and economic effects was conducted in some cases; however it has not been proven that it deserves investment in the long-term viewpoint despite the initial cost. This study examined the cases of construction of the u-IT eco-friendly hog feeding and management system using the feeding and management information system. The study conducted an analysis of this system's economic feasibility by examining the effects drawn at the farms where the system was actually introduced. As a result of analysis, the introduction of the individual feeding system for sows can expect a profit of 15,768,000 won per year with an operation of 100 sows as the standard. The break-even point was determined to be 2.8 years. The introduction of the market pig sorter can expect profits of 7,920,000 won per year with the shipping of 1,800 heads as the standard, and the break-even point examined to be 1.9 years. In this connection, the introduction of eco-friendly feeding and management systems using the u-IT can achieve profits in the long-term despite the burden of investment cost in the short term, and can expect additional effects including the improvement of the pigsty environment, the strengthening of the immunity level in pigs, and the reduction of labor cost. Hence, farmers need to consider the introduction of this latest system. Government must also support businesses by examining the effects, compatibility, and economic feasibility of a variety of eco-friendly feeding and management technologies using u-IT technology in order to improve the Korean hog raising industry. Currently, this industry still presents a high risk of hog disease due to group raising and fails to satisfy the Quality standard demanded by advanced nations. Recently, the uncertainty of the pork market is increasing along with the rising interest of consumers in the eco-friendly agrifood market and with the possibility of animal welfare regulations working as a trade barrier.
Therefore, it is time for the hog raising industry to introduce new technologies and new systems, escaping the existing mass-production systems in the form of factories to make a leap forward. The meeting of the u-IT technology and the hog raising industry is expected to serve as an important bridge for the development of the Korean hog raising industry. References Hyeokjin Kim, Byeongchan Jeon, Changho Lee, (2005), Development of Tailored Feed Service System for Hog Raising Farms, Journal of Computer Industrial Education Society, 6 (3) Minku Kuh, (2011), Realities of the Hog Raising Industry and the Recognition of Consumers on Feeding and Management on Using the IT, Master's thesis at Graduate School of Agriculture & Animal Science at Konkuk University Yunski Shin et al., (2007), Rural Informatization Model in the Ubiquitous Era, National IT Industry Promotion Agency OhmyNews, 2012-07-02 Minsu Lee, Youngchan Choi, Sangho Choi, (2005), Distinction of Consumers of Agricultural Management Information System Using the Logit Model and the decision tree Model ­ Application to Hog Raising Farms - , The Korean Journal of Agricultural Economics, 46 (2) Minsu Lee, Youngchan Choi, (2010), Acceptance of Management Information System of Hog Raising Farms and Related Variables, and Agricultural Education and Human Resources Development, 37 (2) Kwangho Cho, (2000), Examination of Technology and Realities of Management of Hog Raising Farms: With Special Emphasis on Farms Producing Pork for Export in South Jeolla Province, Agricultural Management Policy Research, 27 (3) Tomaszewski, M. A., Sudweeks, E. M., Dijkhuizen, A. A., & Huirne, R. B. M., (1997), Determining the effect of a management information system on herd production, Journal of Dairy Science, vol. 80 Verstegen. J.A.A.M., & R.B.M. Huirne, (2001) The impact of Farm Management on Value of Management Information Systems, Computers and Electronics in Agriculture, 30 (1­3) Verstegen, J. A. A. M., Huirne, R. B. M., Dijkhuizen, A. A. & King, R. P., (1995), Quantifying Economic Benefits of Sow-Herd Management Information Systems Using Panel Data, American Journal of Agricultural Economics, 77 (2)
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IH Jang, SH Park, YC Choi, YH Kim