Japan Livestock and Products Semi-annual Report 2009

Preface

Japanese consumers will continue to turn to less expensive food products in 2009. A factor affecting Japan’s 2009 livestock market outlook is the deepening economic recession triggered by global financial crisis. This stands in contrast to food price inflation experienced in 2008 due to high energy, fuel and grain prices. This report updates JA8060.

Outlook projections for 2009 were made based upon the following assumptions:

• Economic recession will support demand for inexpensive foods.
• The Export Verification (EV) program with Japan will remain for U.S. beef, including the restriction that U.S. beef only be from animals aged 20 months or less.
• The pork differential duty system (The Gate Price System) will remain for pork cuts.

Quantities listed in the text are made on the basis of Carcass Weight Equivalent (unless specified otherwise).

2009 Beef Market Outlook (Revised)

Modest Beef Consumption Recovery Forecast in 2009

Amid a weak economy, consumers are eating more at home or choosing low-priced fast food. A strong yen has already resulted in discounting and price-based promotions as retailers pass on reduced costs. Major fast food chains, such as those selling hamburgers and ‘beef bowl’-style Japanese food are reporting increased sales. Higher-end outlets are believed to be suffering. Lower prices should cause an uptick in beef consumption. Japan’s total beef consumption in 2009 is forecast up by 2% to 1.20 million MT.

Modest Bounce of Beef Imports Forecast in 2009

Total beef imports in 2009 are projected to recover, up by 5% over last year, at 690,000 MT (Beef Cuts: up by 5% to 672,000 MT, Prepared/Processed: unchanged at 18,000 MT). Average prices of imported beef cuts this year from major suppliers, namely Australia and the United States, are expected to stay lower compared to last year. A strong yen is major factor in the downward price pressure. Outside of Japan, a general weakening of beef demand could also play a factor in reduced prices (e.g., Russia).

Australia will continue to be the major beef supplier to Japan in 2009. A 3% increase for Australian beef is forecast for 2009 at an estimated 518,000 MT (beef cuts). Improved access to feed in Australia should contribute to exports of grain fed chilled cuts. Furthermore, brisk fast food sales (esp. hamburgers) will lead to increased imports of grass fed trimming from Oceania.

U.S. grain beef should also do well by taking full advantage of strong yen. Post projected a 20% increase for American beef, albeit from a low base, to 91,000 MT. Strong demand for short plate is expected for beef bowl chains (such as Yoshinoya) and popular ready-to-eat lunch boxes called bentos.

Weak Demand Persists for Domestic Beef in 2009

An increased supply of domestic beef is forecast for 2009, projected up by 1% to 525,000 MT (or a slaughter of 1.25 million head). Continuing last year’s trend, relatively large numbers of Wagyu and F1 cross bred animals are expected to be coming to reach slaughter age in 2009, which will more than offset smaller numbers of slaughtered dairy breed animals (Holstein). Weak demand for domestic beef will likely keep the average wholesale carcass prices below last year’s level. The situation will likely push many Japanese beef fattening operations to below breakeven. Continued subsidies from the Beef Cattle Fattening Operation Stabilization Measure, an income loss compensation scheme, are expected. For the last fiscal year (April 2008 to the present) the amount paid out of this scheme has reportedly reached 18.8 billion yen (about $192 million at current rates).

Beef Safeguard Unlikely for JFY 2009

For the fourth year in a row, it is likely that Japan will use a ‘special’ method of calculating its beef import safeguard in JFY 2009 (Ref. JA8077). This method of safeguard calculation, under some circumstances, could prevent additional duties being levied on imported beef in the event of an import surge. At the projected level of imports, triggering beef safeguard is unlikely. (See Supplemental Table II)

2009 Pork Market Outlook (Revised)

Pork Consumption Holds at High Level in 2009

2008 was a very good year for pork. Although underlining consumption trends support sustained high levels of pork consumption in 2009, other competing factors will be affecting this year’s outlook. The increased tendency for households to eat at home is a positive factor, particularly for domestic pork. Retail chains, food service companies/ready to eat food businesses will continue to favor less expensive cuts like shoulder loins and belly, sausages, and meat balls. Conversely, sales of relatively expensive items such as loin (currently in surplus) and ham are anticipated to be somewhat slower this year. Japan’s total pork consumption in 2009 is projected marginally lower from last year at 2.46 million MT.

Total Imports Forecast to Fall in 2009

Japan’s total pork imports in 2009 are projected to fall below the last year, down by 2% to 1.22 million MT (Pork Cuts: down by 5% to 1.014, Processed/Prepared Products: up by 2% to 208,000 MT). Factors contributing to the projected decline are the increased distribution of competitively priced beef, surplus supplies of pork loin cut, ample supplies of low priced broiler meat, static demand for the processed products, and high year beginning frozen stocks.

The United States will remain to be the largest pork supplier to Japan in 2009. U.S. pork is projected down by 4% to 535,900 MT (Pork Cuts: down by 4% to 422,500 MT, Prepared/Processed Products (mostly seasoned ground pork): down by 4% to 117,000 MT). Price competitions with domestic cuts, which are priced lower, will likely intensify for U.S. chilled cuts this year. Less expensive imported beef cuts will also likely join for the competition on both retail and food service front. Imports of U.S. frozen pork cuts are expected to be lower than the last year given a static market demand for processed products overall.

Vietnam and Brazil are said replacing China as alternative supplies for the finished sausages and other prepared pork products since last year. Imports of Chinese made prepared/processed pork products and the sausage products plummeted in 2008, the result of food safety incidents. (See Table 3-d and Table 4)]

In theory, Japan’s ‘gate price system’ places a higher import duty on lower priced pork products. If functioning as designed, the system would negate price advantages resulting from the currently strong yen. However, large and widely publicized convictions for tariff fraud suggest that enforcement of the gate price system is sporadic.

Domestic Production Forecast Slightly Lower in 2009

Total domestic pork production in 2009 is projected to fall slightly to 1.24 million MT (or 1.612 million head). According to the data from a Japan pork producers association, in August 2008 total sow numbers were down 3 – 4% compared to last year. Also, swine producers continue to exit the business in some hog producing regions, namely Kyushu and Hokuriku. This suggests that Japan’s hog slaughter and pork production will decline in 2009. The national hog inventory, which includes the beginning year sow numbers, has not yet been published by Japan's Ministry of Agriculture, Forestry and Fisheries (MAFF).

Pork Safeguard Unlikely for JFY 2009

On preliminary basis, JFY 2009 first quarter (April – June) the trigger level is calculated substantially lower (12%) at 233,664 MT on a product weight equivalent basis. However, at the projected level of the imports, triggering the pork safeguard is unlikely (See Supplemental table III). [Note: The safeguard applies to imported cuts (including carcasses) which are subject to the gate price system but does not apply the prepared pork products and sausages, which are under an ad valorem tariff category.]

2008 Beef and Pork Market Summary

Consumption Favored Less Expensive Foods in 2008

Energy and food price inflation and high international grain prices were two major economic factors impacting the Japanese livestock market in 2008.

On the consumption front, Japanese households became increasingly price conscious. Consumers favored less expensive food items (pork, chicken, ground meat products like hamburger, and sausages) over expensive items (beef and ham). (See Supplemental Table I).

The same is seen in the food service sector. Data from the Japan Food Service Association (JF) showed that sales in 2008 fell across the board with the exception of Western style fast foods such as hamburger chains (up 3%) and Chinese style family restaurant chains (up 1%). All others suffered an annual sales decline. In summary: Fast Foods [Japanese style (down 1%), noodle style (down 1%), take out/belt conveyer sushi shops (down 0.2%)], Family Restaurants [Western style (down 4%), Japanese style (down 6%), Korean style barbecue (down 5%)], and Drinking Pubs [pub/beer hall (down 3%), Japanese style pub (down 4%)]. Note: Data are on existing store basis.

Beef Market Summary

Beef Consumption Fell in 2008

Japan’s total beef consumption in 2008 was down 1% to an estimated 1.174 million MT. Domestic beef supply was up 3% to 520,000 MT (or cattle/calf slaughter of 1.238 million head), reflecting a large slaughter increase for beef breeds. However, sales of high priced domestic beef slumped in 2008 due to weak market demand. The average wholesale market price of medium grade beef carcasses was lower across all breeds. (See Supplemental Table V-a) Domestic producers were squeezed by high feed costs and high prices for feeder calves. Many reportedly remained below break even and, in June, MAFF announced a 45 billion yen (then about $415 million) feed price stabilization subsidy to help livestock producers cope with increasing feed prices (Ref. JA8041).

Beef Imports Dipped Due to High Prices in 2009

Mainly due to reduced imports from Australia, total beef imports in 2008 were down 4 % to 659,000 MT (Beef Cuts: down 3% to 641,000 MT, Prepared/Processed Products: down 23% to 18,000 MT). Australia remained the largest beef supplier to Japan in 2008, claiming a 78% share of total beef imports. A stronger Australian dollar and solid international demand for Australian beef, and a tight supply of grain fed beef kept, export offer prices for Japan relatively high. As a result, Japanese retail and food service companies reduced purchases of Australian beef in 2008, particularly for chilled cuts. On the other hand, sales growth by fast food chains attributed increased purchases of Australian frozen grass fed trimming. (See Table 1 and Table 2-a, 2-b and 2-c).

Japanese consumer acceptance of U.S. beef has rebounded in recent years, due in large part to a multi-million dollar investment in marketing programs run by the U.S. Meat Export Federation. U.S. beef is now available in over 11,000 locations in Japan and, in 2008, U.S. beef sales to Japan were up 58% from last year to 76,000 MT. Increased handling of Japanese retailers and beef bowl chains were the major driving force behind for the increase. However, the supply level of U.S beef in 2008 remains still one sixth compared to 2001 with the share only 12% of the total imports. Japanese demand for U.S. beef now significantly outstrips the available supply of animals under 21 months of age.

Pork Market Summary

High Level Pork Consumption Sustained in 2008

Japan’s consumption of pork cuts was estimated up 1% to 2.265 million MT. However, as the consumption of the prepared/processed pork products (imported) was estimated down 10% to 200,000 MT, total pork consumption was marginally lower at an estimated 2.465 million MT.

Because of solid household demand for pork, domestic hog producers enjoyed higher average prices in 2008. Domestic pork production in 2008 was stable at 1.249 million MT (or a slaughter of 16.191 million head). We noted that the market showed symptoms of oversupply and in fact average wholesale prices for domestic cuts started to fall in the fourth quarter. (See Supplemental Table VI-a)

Pork Imports Continued to Expand in 2008

Because of solid market demand, total pork imports in 2008 rose 3% to 1,245 million MT (Pork Cuts: up 8% to 1.063 million MT, Prepared/Processed Products, down 8% to 204,000 MT). The United States remained the number one supplier of pork to Japan and saw strong growth. Imports of pork cuts accounted 41% for the total imports [or 438,000 MT, up 25%]. Japanese retailers frequently featured low priced U.S. chilled cuts in promotions. There was strong food service demand for frozen loins (and tender loins) as well as continued demand for picnics for sausage. This contributes to blending of high and low value shipments to minimize duties under the gate price system. For similar reasons, Canadian pork cuts were up 5% from a year before at 175,000 MT. Stable demand for Danish bellies for bacon pushed Denmark to third place at 160,000 MT. (See Table 3-a, 3-b and 3-c) Because frozen pork cuts imports outpaced domestic utilization, year ending stock levels rose 14% to 237,000 MT. (See Supplemental Table VII-a) The United States also accounted for 60% of imports of the prepared/processed products category (or 122,500 MT, up 15%). The most common U.S. product was seasoned ground pork (See Table 3-d).

Take out and ready-to-eat foods play a large role in daily Japanese life. Significant quantities of imported products, especially of pork and chicken, are utilized in this business. In 2008, the market was shaken by food safety concerns over tainted Chinese dumplings. These were reinforced by China’s problems with melamine tainted dairy products. Japanese import demand for Chinese products quickly faded. (See Table 3-d, and Table 4) Thailand, Brazil and, partially, the United States emerged as alternative suppliers for Chinese animal products. For example, there was extra demand for U.S. and Canadian seasoned pork for processing.

Further Reading

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