USMEF Update on Conditions in Japan
While the recovery effort in Japan is proceeding, the numbers of citizens and families affected is staggering. Temporary housing for the first batch of Tohoku disaster refugees has opened, and the numbers of homeless refugees has been reduced to an estimated 157,000, but roughly another 100,000 are living in temporary housing, and relief workers are serving upwards of a quarter-million meals per day to those affected by the disaster.
According to media reports in Japan, The damage to agricultural products is over 40 billion yen, 3 percent of annual production (money-based) of the five affected prefectures.
Based on our experience following the 1995 Kobe earthquake, we have concerns that the traditionally conservative Japanese consumer will be driven to even more conservative spending in the near future by several factors:
- Proposed tax increases to help fund the recovery effort
- Fear of the repeated earthquake aftershocks, which is causing people to stay home instead of venturing out on the extensive public train network, which was shut down in the initial quake (as evidenced by a 30 percent drop in department store sales)
- Concerns about nuclear contamination
- Continued rolling brown-outs, which affect people’s willingness to both travel and purchase perishable items
After meeting with government and industry officials in Japan, USMEF is viewing the challenge in Japan as having two distinct parts: Relief and Recovery. The Relief phase – as represented by the USMEF’s Japan Relief Effort – involves donations of cash and product to help feed those immediately affected by the disaster.
The Recovery phase will utilize USMEF-Japan’s network of retail and foodservice relationships to help stimulate consumer activity, enhance business and build long-term demand for U.S. red meats.
Following is USMEF-Japan’s assessment of how the March 11 earthquake continues to affect Japan:
Food supply/consumption The overall meat supply and demand situation is stable, and the sudden shifts in food consumption which characterized the immediate aftermath of the quake have normalized. Specifically, there was a sharp drop in the purchase and consumption of perishables, including fresh meat, following the quake due to physical damage to distribution infrastructure, radiation concerns over domestic produce and disruptions to the cold chain from power outages. Consumers ramped up purchases of ready-to-eat convenience foods such as bread, instant noodles and canned foods. Chilled, frozen and processed meat consumption declined as consumers were unsure about storage integrity.
While there is anecdotal information that meat consumption has returned to complete normalcy – or may even be above seasonally normal levels because of consumer fatigue with convenience meals – the long-term impact of the Tohoku crisis on meat supply and demand is still difficult to assess. Higher end foodservice continues to suffer however, as frugality still characterizes average consumer behavior, which has driven up business at quick-serve restaurants (QSRs). This has had a pronounced impact on Wagyu consumption, which is noticeable in downward wholesale price movements. There is also lingering concern with the safety of domestic dairy products. This could impact the size of the dairy herd, and thus the supply of dairy beef, which accounts for approximately 60 percent of beef production. Although dairy production is back to normal, average dairy product consumption is still running below normal levels.
Beef/pork prices Japanese domestic pork prices dipped after the quake but are now rebounding, whereas domestic beef prices are declining due to weakened demand especially for high-end cuts. A5 Wagyu prices at the Tokyo Meat Market dipped almost 15 percent between March 14 and April 6. At the same time, domestic pork prices climbed immediately after the quake, dipped at one point nearly 21 percent before recovering in early April to only 3 percent below March 14 levels.
Demand for imported beef and pork, including those from the U.S. and other large supplying countries, have shown remarkable stability in the quake aftermath. Longer term impacts are still difficult to forecast at this point, as Japan continues to operate in a crisis and recovery mode.
Beef forecast Uncertainty characterized the March beef market, however there was a clear decline in prices of higher graded Wagyu beef as consumers shunned fine dining and higher end foodservice in general. Usually, beef demand increases in the spring and summer as demand rises due to the onset of increased catering needs and the summer barbecue season. However, as of mid-April, beef demand continues to be uncertain. In general though, demand is expected to gradually improve as infrastructure is repaired/rebuilt, more control over the nuclear crisis is asserted, and electrical output recovers. However, beef demand for high-end foodservice remains uncertain for the foreseeable future.
Pork forecast Uncertainty also has prevailed in the pork market. Immediately after the quake, prices rose as demand increased as part of a general effort to build stockpiles. Demand then softened through late March as uncertainty prevailed and the nuclear crisis appeared to worsen. A recovery is now underway. The pork wholesale price gap between the two regions, Eastern Japan (Kanto) and Western Japan (Kinki) has widened from a normal 60-70 to about 100 yen. Like beef, it is difficult to forecast the market for April and further out in the future. Overall demand will continue to be influenced by both the degree of overall uncertainty and anxiety of consumers, plus the recovery status of infrastructure, most importantly power.
Foodservice sales Among USMEF’s target restaurant accounts, all companies are proceeding with the implementation of their planned spring menu promotions in April and May, although some have scaled back marketing activities such as weekly newspaper insertions while outlets in the Tohoku region remain closed. Regarding March monthly national foodservice sales, exact figures are not yet available but are expected to be down sharply due to consumer anxiety and the impact on restaurant operations of power cuts.
While high-end foodservice has been negatively impacted by the disaster, quick-serve restaurants (QSRs), including beef bowl concept operators, were popular after the quake due to the convenience and value factor of the menus. These chains benefited as consumers stayed away from supermarkets, and as a response to fear over the lack of electricity, and disruptions in the supply of other foodstuffs.
Several local foodservice companies in Tohoku were seriously damaged by the earthquake and tsunami, and March sales decreased by 20 percent or more. The disaster influenced foodservice businesses as far away as the Kinki region (western Japan), where March sales of several business declined in excess of 10 percent.
Retail sales As of April 7, 216 retail outlets in Tohoku region remained closed due to damage. Most regional outlets are operating under variable service conditions and are experiencing power shortages. Tohoku region retailers are struggling with the promotion and sale of regional agricultural and food products due to consumer anxiety over radiation. There are lingering concerns about food product safety throughout Japan, and March retail food sales are expected to drop sharply from historical and trend levels.
Port update Port logistics related to importing most meat products from the U.S. and other supplying countries have not been seriously affected by the Tohoku quake. Ports are recovering throughout Japan, but it remains unclear as to when larger (Panamax-size) vessels can be accepted into northeast ports. Concerns remain about vessels approaching too close to Fukushima and surrounding ports.
Although shipping companies have been bypassing Tokyo/Yokohama ports, Hapag Lloyd announced on April 5 it would restart utilization of ports in the Kanto area. While CMA CGM Figaro, Leverkusen Express, Shanghai Transship and Seoul Express are still not servicing these ports, custom clearance procedures and container yard operations are normal.
Domestic transportation The main Tohoku Shinkansen train line is gradually recovering and is now partly operational. Several other train lines have reopened, while others are expected to reopen by the end of April.
The Tohoku Expressway is now open to public traffic, but due to damage to secondary road surfaces, traffic is still limited or regulated in many areas. Major delivery service companies, such as Sagawa and Yamato, are restarting deliveries to the Tohoku region including to the damaged areas. Many food companies are resuming operations at storehouses, distribution centers and sales offices in the Tohoku region. Fuel/gasoline production and distribution, a critical bottleneck in the immediate aftermath of the quake, also has recovered to a normal level.
Regarding electricity distribution, TEPCO announced that rolling power outages would no longer be required by the middle of June.
Nuclear power While efforts continue to stabilize the Daichii nuclear plant, significant aftershocks are still affecting the region. On April 7, another massive 7.3 magnitude earthquake hit the Tohoku region, causing blackouts in a wide area of the original affected area. The powerful aftershock caused several deaths and dozens of injuries, and slowed relief and recovery efforts, including the provision of emergency meals to some refugees. Another 7.1 earthquake followed on April 11.
Summary While the impact of the March 11 earthquake has been significant, it is important to remember that only 2 percent of Japan’s population resides in the region. Overall, USMEF is standing by its projections for growth in exports of U.S. beef and pork to Japan in 2011.