Japan Livestock And Products Annual Report 2007

This article provides the cattle industry data from the USDA FAS Livestock and Products Annual 2007 report for Japan. A link to the full report is also provided. The full report includes all the tabular data which we have omitted from this article.

5 October 2007

10 minute read

Report Highlights

A significant expansion of U.S. beef sales to Japan may occur in 2008 but only if import restrictions are lifted. Specifically, Japan currently only accepts U.S. beef from animals that are 20 months or younger. The United States will continue to face difficulties supplying enough age verified beef to satisfying strong Japanese demand. Assuming no change in policy, U.S. beef exports will grow modestly in 2008 to 71,400 MT (or 50,000 MT on customs clearance basis). The total pork imports in 2008 are projected up by 1% to 1.157 million MT. U.S. and Canadian chilled pork will likely have competitive edge over domestic fresh and chilled pork, which is becoming higher priced due to increasing feed cost. There will be continued solid and steady demand for seasoned ground pork, benefiting U.S. and Canadian suppliers. Imports of finished processed products, which have a lower duty, will continue to grow in the coming years.

2008 Beef Market Outlook

Japan’s EV Program, If Continued, Will Hamper Sales U.S. Beef in 2008

Japan’s total beef consumption is forecast to rise by a slight 1% to an estimated 1.23 million MT. Japan’s total beef imports in 2008 are projected to grow a modest 1% to 735,000 MT. Total CY 2007 imports are estimated to be about 728,000 MT. There will be an increase in sales of U.S. beef over 2007 but sales will remain far below historic levels. The 2008 share of U.S. beef imports is estimated at 10% or 71,400 MT (or 50,000 MT on customs clearance basis).

Japan currently only allows U.S. beef from animals aged 20 months or younger. One large factor in the 2007 and 2008 import estimates is the ability of the U.S. beef industry to supply cattle that qualify under USDA’s EV program, which is used to identify animals that meet the Japanese age restrictions. Currently, a minority of the cattle slaughtered in the United States qualify under this program. The Japanese policy is not based on sound science and is not consistent with international standards. If Japan were to adopt international standards it would greatly increase the exportable supply of U.S. beef and would contribute to the United States regaining its historic market share.

On a more positive note, in mid-June, Japan ended its ‘verification period’ for the EV program. The stepped up inspection rate started with the current EV program in July 2006 and involved a costly ‘voluntary’ inspection by importers prior to the official quarantine inspections. Because it was expensive and caused bottlenecks, the ending of 100% box testing will result in a modest increase in U.S. beef sales in the second half of 2007.

In May 2007, the OIE (the World Organization for Animal Health) adopted classified the United States as ‘Controlled Risk’ for BSE. Under the OIE classification, U.S. beef can be safely traded without age restrictions. Because the OIE is a recognized standard setting body in the WTO, the classification may play a key role in normalizing the beef trade with Japan. However, the 2008 Japan beef market projections in this report are based on the status quo, meaning that Japan will retain the 20 month age restrictions on U.S. beef.

Demand for U.S. beef is solid in the food service sector (mainly for beef bowl (gyudon), Korean style barbecue, and steak restaurants) in 2008. Also, U.S. beef is increasingly being carried by major Japanese food retail chains and this will also help U.S. sales. Major national retail chains started marketing limited volume s of U.S. beef in early 2007. Consumer acceptance has been good but sales are limited by the available supply, and higher price, of age verified animals.

Slightly Lower Imports of Aussie Beef Projected in 2008

The shift from Australian beef to U.S. beef in 2008 is expected to be moderate. Japan’s imports of Australian beef in 2008 are projected to fall by 1% to 557,000 MT.

Historically (i.e., prior to 2001), estimates of Japanese demand for imported beef have been around 950,000 MT a year. U.S. beef could eventually reclaim its share of over 40% (or 380,000MT). However, CIF import prices for beef are now about a quarter to a third higher than 2001. This higher price level is one factor constraining beef consumption in Japan.

Slightly Lower Domestic Beef Production Forecast in 2008

Data on the number of beef calves in past years point to a slight decline in Japan’s total cattle slaughter in 2008. Reduced numbers for both F1 cross breed (Wagyu crossed with Holstein cow) and dairy breeds (Holstein steers and cows) are expected to more than offset increased Wagyu slaughter numbers. Thus, on preliminary basis, the total domestic beef production in 2008 is forecast down by 1% from a year earlier to 495,000 MT (a total slaughter of 1.2 million head).

Domestic Cattle Producers Squeezed

Average wholesale beef carcass prices are expected to weaken in 2008, particularly for the diary breeds that directly compete with U.S. grain fed beef. Cattle feeders may be squeezed in 2008 by higher feed cost, high calf prices (at the time they were purchased and put on feed) and lower prices for fed cattle. This, in turn, may also bring down the high auction prices for feeder calves that have prevailed for the last few of years. A plunge in calf prices would lead to calls for the resumption of Japan’s deficiency payments to beef calf producers, which uses the tariff revenue collected from imported beef (See supplemental table VI).

[Note: Deficiency Payment Scheme for Producers of Beef Calves: Feeder calf producers are supported by a producer subsidy program established in 1988. Subsidies vary by breed. Payments under this program have mostly been made to producers of dairy feeder calves for beef. Duties collected from beef imports (38.5%) are the main source of funding for this scheme. It is also partially funded by a producer check off.

The Japanese government’s deficiency payment scheme for feeder calves is described in Agriculture Livestock Industry Corporation (ALIC)’s web site, which is affiliated with MAFF and is the disbursing agent for this subsidy fund. According to ALIC, the amounts of the government’s subsidy payments made to calf producers have gotten smaller in recent years reflecting high average prices for calves (13.4 billion yen in CY 2003, 14.1 billion yen in CY 2004, 6.1 billion yen in CY 2005, 0.7 billion yen in CY 2006 and NIL in CY 2007 (Jan. – Jun.)]

Japan Yet to Decide on Calculation of JFY 2008 Beef Safeguard Trigger Levels

It is difficult to say if Japan will extend the current ‘exceptional measure’ formula for calculating beef safeguard levels in JFY 2007. However, this policy decision may soon be considered by MAFF as part of their budget preparation for the coming fiscal year, which begins in April 2008.

For past two fiscal years, Japan has adopted an exceptional measure applying an average imports of JFY 2002 and JFY 2003 as the base year to calculate the trigger levels. MAFF extended the same measure in JFY 2007 (See JA7010).

On customs clearance basis, JFY 2008 first quarter trigger levels (April – June 2008) are presented below using the Uruguay Round formula. This formula is based on the previous year imports multiplied by 117% for each cumulative quarter. Chilled and frozen beef are considered separately (See Table 1). The results are: 67,377 MT for chilled beef (JFY 2007 first quarter import of 57,587 MT multiplied by 117%) and 82,947MT for frozen beef (JFY 07 first quarter import of 70,895 MT multiplied by 117%). Thus, the likelihood of triggering the chilled beef safeguard is high without Japan extending its ‘exceptional’ calculation method for JFY 2008.

2007 Beef Market Situation Update and Outlook Summary

Increased U.S. Beef Supply to Raise Total Beef Consumption in 2007

Post’s CY 2007 PS&D projections for beef are revised based on most recent production, consumption and trade data (available for Jan. – Jun., 2007).

In 2007, Japan’s total beef imports are projected to reach 728,000 MT, up 5% from last year (Generic; up 4% at 693,000 MT, processed and prepared products; up 3% to 35,000 MT), chiefly owing to increased imports of U.S. beef, projected at 57,000 MT (40,000 MT on customs clearance basis). In post’s projection, U.S. beef sales will be roughly six times larger than last year level, but still only about one eighth of 2001 volumes.

Modest sales increase of U.S. beef (mainly constrained by supply and the high price) is contributing to Japan’s upward overall beef consumption in 2007, projected to rise by 4% from a year before to 1.223 million MT. The year ending stocks are also projected modestly upward at 110,000 MT (See Table 2). Until this year, the beef stocks have been running relatively low and inadequate compared to a historic averages prior to the discovery of BSE (i.e., prior to 2001). Overall market prices for beef are expected to stay high this year for imported beef due to solid demand. However, the price for domestic beef is showing signs of softening, a change that is being modestly affected by an additional imports of U.S. beef.

Since the July 2006 market reopening, U.S. grain fed beef has reportedly been contributing to resumed sales by beef bowl chains and Korean style barbecue chains. However, the limited supply and high prices for popular specific cuts such as short plate, chuck eye role and some offal items (tongue and skirt meat, though not counted in PS&D) has hampered expanded use of U.S. beef by some major food service end users.

Several major Japanese retail chains now sell U.S. beef but are also bumping up against the limited availability verified animals. The first national retailer to resume selling U.S. beef was Seiyu Ltd, which began in March 2007. Since then, Ito-Yokado, Daiei and other major chains have followed Seiyu’s lead. Although actual volume s by each chain are still reportedly limited, retail sales should contribute to extra sales of U.S. beef in the second half of the year.

Australian Beef’s Stranglehold Will Begin to Slip in 2007

CY 2007 sales of Australian beef (generic beef cuts) are projected to fall modestly by 3% to 564,000 MT (395,000 MT on customs clearance basis) with the decline partly due to a minor increase in U.S. beef imports. For the first six months of this year, Australian beef exports kept up with last year’s pace but the impact of the reentry of U.S. beef into the Japanese market should be felt more in the second half (See Table 3). Market sources indicate that the price of Australian beef remained high in the first half of the year. Furthermore, drought has reportedly sent an increased number of cattle to slaughter since last year, but number of cattle on feed is now reportedly lower. These factors point to a further declining of Australian grain fed beef destined to Japan in 2007.

For January – June, 2007, U.S. beef sales remained relatively small at 18,453 MT (12,917 MT on customs clearance basis) mainly constrained by the limited supply of cattle qualifying for the Japan’s EV program (See Table 4, 5 and 6). However, a seasonal spike of the availability of age qualified cattle for the Japanese market, which reportedly occurs in spring and summer, should help to push sales volumes of U.S. beef up during the second half.

Slightly Upward Domestic Beef Production Forecast in 2007

Based on number of calves born in past years, Japan’s total cattle slaughter is forecast to rise slightly in 2007, up 1% from last year to 1.23 million heads or 500,000 MT of domestic beef. In 2007, the slaughter of Wagyu and F1 cross breeds are expected to rise, which will likely more than offset a reduced slaughter of diary breeds. In the first half, high wholesale prices for medium grade domestic beef have started to ease, reflecting slumping consumption of domestic beef in general (See Supplemental table II). This is attributable to major retailers carrying U.S. beef this year. Thus, the price outlook for domestic beef in the second half is getting somewhat weaker.