Japanese mills feeling pinch of high wheat prices

by Arvin Donley
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The Japanese flour milling industry has experienced consolidation for many years, and that trend may continue with the price of wheat having soared in recent months and likely to remain high for the foreseeable future.

All Japanese millers and the smaller milling companies, in particular, are having a difficult time coping with recent increases in the cost of wheat imposed by the Ministry of Agriculture, Forestry and Fisheries (MAFF), the government body that purchases imported wheat for Japanese mills.

The MAFF raised the price of wheat sold to mills by 10% in October 2007, a whopping 30% in April 2008 and is reportedly considering a 20% hike later this year in response to the rising cost of importing wheat from December 2007 through July 2008. Japan imports almost 90% of its wheat.

The 30% jump in April was the largest price increase issued by MAFF in 34 years and sent shockwaves through the Japanese flour milling community.

"The Japanese Flour Milling Industry is facing a big challenge right now," said Mr. Akihisa Sasaki, president of Nisshin Flour Milling Inc., and a member of the Japanese Flour Millers Association. "Such a big change is a first-time experience for most Japanese millers. There will be a significant change in the flour milling industry for the coming two or three years."

He estimated that the impact of the 30% increase in April to the Japanese milling industry was about $741 million (80 billion yen).

With milling companies and bakeries having little choice but to pass on some of the costs to consumers, representatives of the flour milling industry are concerned that the people of Japan may respond by choosing rice products over wheat flour products. That would be noteworthy in that rice consumption in Japan has been slowly declining during the past 40 years, while consumption of flour-based products has been basically steady during that same time period. According to MAFF, from 1965 to 2005, wheat flour consumption in Japan stayed remarkably consistent, at just over 30 kilograms (kg) per person, while rice consumption during that period fell from 110 kg to about 60 kg per person.

In 1997, there were 129 flour milling companies with a combined total of 165 flour mills. A decade later, in 2007, the number of companies and mills had dropped to 97 and 121, respectively.

The Japanese milling industry is dominated by four major companies that together produce about 75% of the nation’s flour. As of 2006, Nisshin Flour Milling led the way with a 38% market share, followed by Nippon Flour Milling at 22%, Showa Sangyo at 8% and Nitto Fuji Flour Milling with 7%.

Unlike some countries, where overall milling capacity has remained steady or even grown despite industry consolidation, Japan’s daily milling capacity has fallen during the past decade, from 33,000 tonnes in 1997 to 29,000 in 2007.

Annual wheat flour production has hovered between 4.6 million and 4.7 million tonnes during that period, with output falling slightly each of the past three years.

According to the Japanese Millers Association, capacity utilization in Japanese mills in 2005 was 71%, higher than the 67% capacity utilization in 2000 and significantly higher than 1995 when mills were operating at an average capacity of 63%.

A trend that began in the 1990s has continued into the 21st century, as bread flour usage among Japanese consumers has increased at the expense of noodle flour. In 1997, production of wheat flour for bread stood at just under 1.9 million tonnes, while production of wheat flour for noodle was about 1.7 million tonnes. The gap widened over the next 10 years, with mills producing more than 2 million tonnes of flour for bread in 2006 and under 1.6 million tonnes of flour for noodles that year.

Flour milling in Japan has followed a pattern typical of other mature milling industries, with small country mills situated close to customers and domestic wheat growing areas giving way to large port mills as Japan became more dependent on imported wheat.

Between 50% and 60% of Japan’s wheat is imported from the United States (U.S.) most years. In 2006-07, for example, Japan imported 5.74 million tonnes of wheat, with nearly 3.2 million being brought in from the U.S. The rest of the imports have traditionally come from Canada and Australia.

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