Focus on Japan

by Meyer Sosland
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Japan, a crowded group of islands on the western edge of the Pacific Ocean, is one of the world’s most successful economies. Manufacturing, in particular of vehicles and electrical goods, has made it the third-largest economy in the world after the United States (U.S.) and China

In contrast, Japan’s small farm sector has traditionally been highly protected and subsidized. Recently, the government began reforming its subsidy system, but the changes haven’t been entirely welcomed by flour millers who already face problems caused by an aging population and a low birthrate.

Japan’s agriculture also faces a potential problem with its climate. According to the Intergovernmental Panel on Climate Change, rice yields could eventually fall by up to 40% in irrigated lowland areas of central and southern Japan as atmospheric carbon dioxide levels rise.

Japan is an importer of grain on a massive scale. According to the International Grains Council (IGC), its total grain imports are expected to reach 24.4 million tonnes in 2007-08, compared with 25 million the previous year, making it the world’s biggest grain importing country. Maize accounts for 16 million tonnes of that total, with wheat imports for 2007-08 put at 5.5 million tonnes, a figure that ranks third behind Egypt and Brazil. Despite its dependency on imports for its raw materials, Japan is actually a significant wheat flour exporter. According to the IGC, Japan sent 400,000 tonnes of wheat flour abroad in 2006-07.

Japan’s wheat production is so small that it falls off the IGC’s scale. According to the U.S. Department of Agriculture (USDA) office in Tokyo, production was 836,500 tonnes in 2006, compared with 874,700 tonnes in 2005. The output declined despite a 2.2% increase in planted area to 213,500 hectares.

In April 2007, the Japanese Ministry of Agriculture, Forestry and Fisheries (MAFF) implemented a major change in its farm subsidy scheme, moving from commodity specific supports to direct payments targeting larger-scale farmers. According to the USDA, the new scheme consists of two support programs. Farmers who meet a set of criteria, such as cultivating a certain amount of acreage, will receive a direct payment. The standard amount for wheat is 40,400 yen per 10 acres, which the USDA put at approximately $1,363 per acre with the exchange rate of 120 yen to a dollar.

There is also an income discrepancy payment, which is paid in when farmers’ income for a particular year falls below a three-year average, taken from the previous five years with the highest and the lowest removed. "While MAFF’s goal is to encourage the upward trend in wheat production through the use of this direct payment, an expansion of domestic wheat production will ultimately depend on end-users’ evaluation and acceptance of the value (i.e. balance between quality and price) of domestic wheat, which Japanese flour millers currently consider as much inferior to imported wheat," the USDA attaché said in a report on the Japanese grain sector.

While there has been a move to a more market driven wheat system, MAFF still controls producer and resale prices of domestic and imported wheat. "MAFF buys imported wheat at international prices and sells it to domestic flour millers at higher prices," the attaché explained, pointing out that MAFF sells imported wheat at twice the purchase price. "On the other hand, MAFF buys domestic wheat at a high price and sells it to domestic flour millers at a significantly lower price, lower than imported wheat so that the lower quality domestic wheat will be accepted," the report said.

Under the new system, MAFF can revise the resale price two or three times a year based on market fluctuations. "Imported wheat under state trading will continue to be sold to Japanese flour millers at roughly twice the import price, but in a fluctuating manner," the report said. "An exception to that rule is under consideration for instances when the price of any particular wheat soars. MAFF is considering devising a policy that would mitigate the burden on importers, such as reducing their mark-up."

The USDA’s report welcomed the change, but with reservations, saying "the level of government intervention in wheat imports is still high."

One of Japan’s biggest flour millers, Nisshin Flour Milling, part of the Nisshin Seifun Group, pointed out in its report to shareholders for the year ended March 31, 2007 that the government’s rule changes had led to an increase in government prices for imported wheat of an average of 1.3%, for the first time in 24 years.

"In response, the company revised its prices for commercial wheat flour in May and will continue to reflect wheat price revisions, which are scheduled to take place twice a year for the foreseeable future," said Nisshin, which posted net sales of 154,722 million yen in its flour milling division.

Among difficulties identified by Nisshin are lower demand in the domestic flour market and a move in demand to lower-priced products. The same complaint came from the nation’s oldest milling company, Nippon Flour Mills, which was founded in 1896. For the year ended March 31, 2007, Nippon reported overall sales of 239.57 billion yen. Sales in its flour milling division were 87,431 million yen, a decrease of 0.4%.

According to Nippon, Japan’s per capita consumption of wheat per year averages 32 kilograms, of which bread comprises just over 40%, noodles over 30%, snacks just over 10% and household and other uses just over 10%.

"Amid sluggish domestic demand for wheat flour in recent years, the flour milling industry faced an increasingly adverse business environment characterized by customer preference for low-priced products," Nippon said in its year-end financial statement.

"In February 2006, the Japanese government’s selling price of raw wheat was reduced for the first time in two years, and in March 2006, wheat flour sales prices were reduced," it said. "In this situation, the Group strengthened quality control to ensure food safety and reliability, and engaged in development of new products and vigorous marketing activities including holding of technical and management seminars and promotion of proposal-driven marketing in order to meet customer needs and diversifying preferences concerning food.

"Regarding sales of wheat flour, although there was little growth in shipments of wheat flour for bread within Japan, shipments of wheat flour for noodles increased slightly," it said. "As a result, the total volume of shipments was virtually unchanged from the same period of the previous year."

Japan is a major importer of maize for animal feed, although, according to the USDA attaché, in the long term "the downward trend in livestock population appears irreversible, and feed demand in Japan is expected to decline slowly but surely." Total demand for feed maize, which forms 48% to 50% of compound feed, is roughly 11.9 million tonnes, with 5.3 million going to the poultry sector.

USDA put Japan’s self-sufficiency for feed grains at just 25% in 2005, compared with 61% for food grains.

According to another USDA report, focusing on the demand for genetically modified products, Japan is the world’s largest importer of foods and feeds that have been produced using modern biotechnology. To date, Japan has approved 77 biotech events for food, 50 for feed, 55 for planting and 14 for food additives.

Chris Lyddon is World Grain’s European editor. He may be contacted at: