Focus on Japan

by Chris Lyddon
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Japan has been a big news story in 2011 for the worst of reasons. Its grain industry survived the recent disaster less affected than might have been feared, but the earthquake which struck on March 11, the tsunami which followed it and the attention paid to the problems of Japan’s nuclear industry combined to give the sector huge challenges to tackle.

According to the International Grains Council (IGC), Japan will import 24.1 million tonnes of grain in 2010-11, down from 25.5 million in 2009-10. It is the world’s biggest importer of grain. The IGC put wheat imports at 5.2 million tonnes, down from 5.5 million, while maize imports were 16.1 million tonnes, down from 16.5 million.

Domestic production is small. U.S. Wheat Associates’ Tokyo office puts Japan’s total crop of wheat at less than 600,000 tonnes, with winter wheat making up the majority.

“Due to limited domestic wheat supplies, nearly 90 percent of Japan’s wheat demand must be met by imports,” the U.S. Department of Agriculture attaché explained in an annual report on the grains sector. The Ministry of Agriculture, Forestry and Fisheries (MAFF) plays the vital role. “Most of the imported wheat comes through the state trading system administered by MAFF. The government entity purchases different types/brands of wheat mainly from the U.S., Canada and Australia.”

The IGC has estimated Japan’s 2010-11 wheat flour exports will stay flat at 270,000 tonnes.

Japan, according to the IGC, will produce 7.7 million tonnes of rice in 2010-11, unchanged from the year before. It will also import 600,000 tonnes, down from 700,000.

Rice consumption falling

Rice is slowly losing its role in the Japanese diet. According to the attaché, consumption of rice in Japan peaked in 1962 when it was 118.3 kilograms per capita. It went below 60 kilograms in 2008 and was estimated by MAFF at 58 kilograms in 2010.

“MAFF forecasts the aggregate rice demand for 2010-11 to be 8,108,000 tonnes,” the attaché said in a report published a few days before the earthquake. That means that a 2010 harvest of 8,483,000 tonnes will add around 375,000 tonnes to stocks.

“In order to reduce surplus rice supply, MAFF has been pushing rice into the feed sector where the utilization ratio of rice in compound and mixed feed increased from 0.1% (or 13,464 tonnes) in 2003 to 2.3% (or 557,571 tonnes) in 2007,” it said. “However, in 2008 the feed use of rice declined to 468,000 tonnes and to 256,020 tonnes in 2009. It appears that feed rice, competing with conventional feed grains, has to be discounted heavily to attract feed millers, but this incentive is beginning to expire.”

Wheat consumption steady

As consumers shifted from rice, wheat consumption had been rising until the 1980s, but since then it has been steady at 31-32 kilograms a person, according to the attaché. The attaché report quoted MAFF estimates that put total demand for wheat for food at 5.69 million tonnes in 2010-11, based on the April-March fiscal year. Putting feed demand at 300,000 to 350,000 tonnes, it came up with total wheat demand of around 6 million tonnes.

Wataru Utsunomiya, director of the Tokyo office of U.S. Wheat Associates, told World Grain the breakdown of consumption is bread 41%, all type of noodles 32%, confectionary 12% with a balance of miscellaneous products.

“Pasta is the only segment to show potential growth,” he said. “Domestic production plus import minus export is about 275,000 tonnes in 2010, up 3.6% from the previous year. About 120,000 tonnes are import, about 55 % from Italy.”

98 milling companies

Utsunomiya said that Japan has 98 milling companies which process about 5 million tonnes of flour. The big four milling companies dominate the market with close to 80% market share. Roughly, and including affiliates, Utsunomiya put the market share of each of the big companies, including affiliates, at 38% for Nisshin, 22% for Nippun, 10% for Showa and 8% for Nitto-Fuji.

He noted that the impact of the disaster on the flour millers has been much less than on the compound feed manufacturers, since most of Japan’s major mills are located on Tokyo Bay or in the west, well away from the center of the earthquake.

There are some small mills near the affected coastal area, but they are located in the mountain area or inland.

“Kashia mill owned by Showa is the only sea board flour milling complex seriously damaged,” he said. “But (it has) more or less returned to normal operation.”

However there has been damage to the distribution system and wholesalers and users in northeast Japan. The main damage was to port facilities, although some vessels are able to be unloaded now. There are concerns about possible power shortages.

Power outages did cause operating problems in areas not directly affected by the earthquake or the flooding which followed. As a result of the breakdown at the Fukushima Daiichi nuclear power plant, electrical supplies were rationed by a program of rolling blackouts. However, major industrial plants, including the large flour mills were able to fall back on their own electricity supplies.

Power outages also affected transport in a country which relies heavily on electrified railway lines to move people, causing severe difficulties for commuters in some areas. However, the major food companies said they had few production interruptions caused by staff failing to report for work as a result of transport problems.

Outside the directly affected area in the northeast, delivery of wheat to flour mills proceeded without interruption. Shortages of gasoline did affect deliveries of flour and products by truck.

Feed compounders affected by disaster

The effect of the earthquake on Japanese feed compounders was considerably worse than that on the flour milling industry. The Tokyo office of the U.S. Grains Council (USGC) reported that feed millers from outside the area had stepped in to make up demand.

“With the flow of compound feed from outside areas, combined with feed produced in some of the mills in the Tohoku area which were capable of working, livestock farms in the Tohoku area could get roughly half of its normal demand during the month since the earthquake,” said Hiroko Sakashita, USGC associate director in Japan.

USGC quoted a livestock expert as saying that some animals might grow more slowly as a result of limited rations.

“We have not heard devastating reports in regards to animal losses at large cattle, swine and chicken farms,” Sakashita said. “The livestock population in the whole country was not significantly impacted. Therefore there will be no significant reductions in feed demand.”

Some livestock operations were forced to evacuate the area near the Fukushima nuclear power plant.

“The animal population within a 20-kilometer (13-mile) radius of the power plant was not significant to the total Tohoku area,” she said.

USGC also expressed concern about the effects of power outages and increased transport costs on feed millers.

“Ports are recovering, but it is not clear when a Panamax-size vessel will be accepted into the affected area,” it said.

Despite the enormity of the earthquake and tsunami that hit Japan on March 11, the government has said that trade volumes will not be affected.

“The quake has not caused major damage to wheat-importing and flour-milling operations in Japan,” Shirara Shiokawa, grain trade director at the MAFF told the Bloomberg news agency in a telephone interview. “We don’t see any negative impact of the disaster on demand for the grain.”

Small start in ethanol

Japan has made a start on increasing production of biodiesel and ethanol. With little domestic feedstock available, output has been limited.

Brazil Japan Ethanol (BJE), a joint venture formed between Petrobras and Japan Alcohol Trading, started its first unit to produce E3, fuel made with 3% gasoline-ethanol blend, in Japan on March 2, 2009.

Japan Airlines has tested biofuels, including taking part in tests of oil from jatropha, according to recent reports.