Japan’s Meat Producers Hit Hard by Rising Feed Prices

Japan’s Meat Producers Hit Hard by Rising Feed Prices

The perception, ingrained in Japanese consumers, that domestically produced products are preferred to anything imported, is being tested by high grain prices, giving USMEF a greater opportunity to win converts to U.S. beef and pork.

Since Japan relies on imports from the United States for almost all of its feed grains, Japanese producers are being hard hit by high grain prices and consumers there are feeling the pinch in rising meat prices.  Corn prices in Japan averaged around $8.25 per bushel in the first half of 2008 compared to the average U.S. cash corn price of $5.40 per bushel. Japan is the largest market for U.S. corn exports, with September 2007 to April 2008 exports totaling 10.87 million metric tons, about the same as the same period in the previous marketing year.  These conditions are creating new opportunities for USMEF to reach consumers with the message of the quality and affordability of U.S. beef and pork.

The price of U.S. corn has increased by more than 60 percent over the past eight years for Japanese cattle feeders, with most of that increase coming in the last two. Feed prices for hogs have increased 18 percent in the last year alone.

The most recent Ministry of Agriculture National Retail Price Survey reported record highs for all domestic meat items since the survey began in 2003:

• Domestic beef (chilled loin)        708 yen/100g ($29.94/pound; up 1.6 percent from a year earlier)
• Domestic pork                           255 yen/100g ($10.78/pound; up 4.5 percent from a year earlier)
• Domestic chicken                      133 yen/100g ($5.62/pound; up 12.7 percent from a year earlier)

High prices have caused a decline in beef consumption, especially Wagyu beef, which is positioned and priced at the top end of the market. When the beef supply was down due to the BSE turmoil, the cost of Wagyu feeder cattle soared to $5,700 per head, but the current discrepancy between increasing production costs and sliding demand has forced Wagyu feeder cattle lower than pre-BSE levels of $3,000 per head. The government’s contingency assistance program has had no positive results so far.

Australian beef prices also have climbed due to drought and high feed costs. Increased Australian beef exports to Russia and other markets also have added pressure to Australian beef prices in Japan, which increased by 2 percent in just the last week. High grain prices also have resulted in less fed cattle for the market, further affecting the price and quality of the product available in Japan.

Although the “gate price” system tends to neutralize much of the benefits of a strong yen, U.S. pork exports continue to gain ground as U.S. chilled pork wins acceptance in supermarkets. While price is one factor, USMEF has implemented a variety of consumer and trade education programs that continue to win new converts to U.S. red meat

Japanese consumers have also become wary of imported food products particularly from China due to a series of high-profile cases of tainted imported foods. USMEF is seizing the opportunity by educating consumers about the taste and quality of U.S. beef and pork through promotions designed to persuade value-conscious consumers to try U.S. meat and then become repeat purchasers.

These promotions aim to capitalize on the above factors which are creating opportunities for high quality U.S. pork and beef to increase their share in this competitive market. As Japanese consumers are increasingly pinched by higher food and energy costs, they are looking for high quality products at reasonable prices. Once they taste them, they find U.S. pork and beef fit the bill. USMEF has conducted many promotions as component parts of its overarching strategy to reestablish trust in U.S. beef and the U.S. industry at both trade and consumer levels by demonstrating the steps the U.S. industry has undertaken to ensure the safety and quality of U.S. beef exported to Japan. Both its beef and pork promotions — whether at Tokyo supermarkets, the Yokohama Port Festival, the Hakata Dontaku Festival in Fukuoka City or at chef seminars at the Imperial Hotel Osaka — emphasize the safety, nutritional value and taste of both products.

The Japanese feed price system

Feed prices in Japan are mainly set by Zen-noh (the National Federation of Agricultural Cooperative Associations), and they have steadily increased since late 2006. Recently Zen-noh announced it would increase the feed price for July-September 2008 by an additional 1,500 yen per metric ton, and this is on the heels of 3,900 yen per metric ton and 4,500 yen per metric ton increases in the prior two quarters. The cumulative price increase since the third quarter of FY2006 totals 21,000 yen per metric ton ($1 = 108 yen).

In the past, the Japanese government maintained a stabilization/compensation system that was funded by farmers and feed manufacturers. When prices were below the Zen-noh set prices (which producers must pay), the difference was kept in the fund to compensate for when the prices were higher than the Zen-noh set prices. Prices now, however, are consistently over the Zen-noh set prices and the fund has been completely depleted. As an emergency measure, the government decided to secure 45 billion yen ($425 million) from the general fund to support an emergency compound feed price stabilization system. This fund is now used in lieu of the normal stabilization system.

The new fund reduces producer costs, but the increases in the Zen-noh prices have resulted in higher domestic meat prices.

Japan’s Meat Producers Hit Hard by Rising Feed Prices

The perception, ingrained in Japanese consumers, that domestically produced products are preferred to anything imported, is being tested by high grain prices, giving USMEF a greater opportunity to win converts to U.S. beef and pork.

Since Japan relies on imports from the United States for almost all of its feed grains, Japanese producers are being hard hit by high grain prices and consumers there are feeling the pinch in rising meat prices.  Corn prices in Japan averaged around $8.25 per bushel in the first half of 2008 compared to the average U.S. cash corn price of $5.40 per bushel. Japan is the largest market for U.S. corn exports, with September 2007 to April 2008 exports totaling 10.87 million metric tons, about the same as the same period in the previous marketing year.  These conditions are creating new opportunities for USMEF to reach consumers with the message of the quality and affordability of U.S. beef and pork.

The price of U.S. corn has increased by more than 60 percent over the past eight years for Japanese cattle feeders, with most of that increase coming in the last two. Feed prices for hogs have increased 18 percent in the last year alone.

The most recent Ministry of Agriculture National Retail Price Survey reported record highs for all domestic meat items since the survey began in 2003:

• Domestic beef (chilled loin)        708 yen/100g ($29.94/pound; up 1.6 percent from a year earlier)
• Domestic pork                           255 yen/100g ($10.78/pound; up 4.5 percent from a year earlier)
• Domestic chicken                      133 yen/100g ($5.62/pound; up 12.7 percent from a year earlier)

High prices have caused a decline in beef consumption, especially Wagyu beef, which is positioned and priced at the top end of the market. When the beef supply was down due to the BSE turmoil, the cost of Wagyu feeder cattle soared to $5,700 per head, but the current discrepancy between increasing production costs and sliding demand has forced Wagyu feeder cattle lower than pre-BSE levels of $3,000 per head. The government’s contingency assistance program has had no positive results so far.

Australian beef prices also have climbed due to drought and high feed costs. Increased Australian beef exports to Russia and other markets also have added pressure to Australian beef prices in Japan, which increased by 2 percent in just the last week. High grain prices also have resulted in less fed cattle for the market, further affecting the price and quality of the product available in Japan.

Although the “gate price” system tends to neutralize much of the benefits of a strong yen, U.S. pork exports continue to gain ground as U.S. chilled pork wins acceptance in supermarkets. While price is one factor, USMEF has implemented a variety of consumer and trade education programs that continue to win new converts to U.S. red meat

Japanese consumers have also become wary of imported food products particularly from China due to a series of high-profile cases of tainted imported foods. USMEF is seizing the opportunity by educating consumers about the taste and quality of U.S. beef and pork through promotions designed to persuade value-conscious consumers to try U.S. meat and then become repeat purchasers.

These promotions aim to capitalize on the above factors which are creating opportunities for high quality U.S. pork and beef to increase their share in this competitive market. As Japanese consumers are increasingly pinched by higher food and energy costs, they are looking for high quality products at reasonable prices. Once they taste them, they find U.S. pork and beef fit the bill. USMEF has conducted many promotions as component parts of its overarching strategy to reestablish trust in U.S. beef and the U.S. industry at both trade and consumer levels by demonstrating the steps the U.S. industry has undertaken to ensure the safety and quality of U.S. beef exported to Japan. Both its beef and pork promotions — whether at Tokyo supermarkets, the Yokohama Port Festival, the Hakata Dontaku Festival in Fukuoka City or at chef seminars at the Imperial Hotel Osaka — emphasize the safety, nutritional value and taste of both products.

The Japanese feed price system

Feed prices in Japan are mainly set by Zen-noh (the National Federation of Agricultural Cooperative Associations), and they have steadily increased since late 2006. Recently Zen-noh announced it would increase the feed price for July-September 2008 by an additional 1,500 yen per metric ton, and this is on the heels of 3,900 yen per metric ton and 4,500 yen per metric ton increases in the prior two quarters. The cumulative price increase since the third quarter of FY2006 totals 21,000 yen per metric ton ($1 = 108 yen).

In the past, the Japanese government maintained a stabilization/compensation system that was funded by farmers and feed manufacturers. When prices were below the Zen-noh set prices (which producers must pay), the difference was kept in the fund to compensate for when the prices were higher than the Zen-noh set prices. Prices now, however, are consistently over the Zen-noh set prices and the fund has been completely depleted. As an emergency measure, the government decided to secure 45 billion yen ($425 million) from the general fund to support an emergency compound feed price stabilization system. This fund is now used in lieu of the normal stabilization system.

The new fund reduces producer costs, but the increases in the Zen-noh prices have resulted in higher domestic meat prices.