Japanese grain and milling industry

17 February 202011 min reading

Japan has one of the lowest food self-sufficiency rates among major world economies. The Asian nation’s food self-sufficiency rate on a caloric intake basis was 37 percent in 2018. Japan is the second-largest agricultural product importer in the world. A small agricultural sector is highly subsidized and protected, with crop yields among the highest in the world. While self-sufficient in rice production, it imports about 60% of its food on a caloric basis. Only 20% of Japan’s land is suitable for cultivation and it has the fastest-aging agricultural labor force. There has been a growing concern about farming as the current farmers are aging with a difficult time finding successors.

Japan is the third-largest economy in the world after the United States and China. It was the world's second-largest from 1968 until 2009, when it was overtaken by China. It is also the world's fourth-largest exporter and fourth-largest importer. Japan has a well-educated, industrious workforce and its large, affluent population makes it one of the world's largest consumer markets. Per capita income of $43,118 underpins its strength as a consumer market. Manufacturing has been the most remarkable, and internationally renowned feature of Japan's economic growth. Today, Japan is a world leader in the manufacture of automobiles, machine tools, optical and precision equipment, machinery, and chemicals.

Japan has few natural resources and its agricultural sector remains relatively protected, although a long-overdue domestic reform process was started in anticipation of recent trade deals, such as the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) and Japan-European Union Economic Partnership Agreement (JEEPA). The Japanese agricultural sector accounts for about 1.4% of the total country's GDP. Only 12% of Japan's land is suitable for cultivation. Japan is highly dependent upon the import of natural resources. It is the world’s largest net buyer of food products in the world.

Due to the lack of arable land, a system of terraces is used to farm in small areas. This results in one of the world's highest levels of crop yields per unit area. Rice accounts for almost all of Japan's cereal production. Japan is the second-largest agricultural product importer in the world. A small agricultural sector is highly subsidized and protected, with crop yields among the highest in the world. While self-sufficient in rice production, Japan imports about 60% of its food on a caloric basis. Only 20% of Japan’s land is suitable for cultivation. Topography greatly limits Japan's agriculture, which can produce only 40% of its food needs. Around 85% of the territory is occupied by mountains and most of the remaining arable land is dedicated to growing rice. Other agricultural produce of Japan are vegetables, fish, poultry, fruit, dairy products, pork, beef, flowers, potatoes, sugar cane, tea, legumes, wheat, and barley.

In the Asian country, there has been a growing concern about farming as the current farmers are aging with a difficult time finding successors. Japan has the fastest-aging agricultural labor force. In almost a decade, the number of Japanese agricultural producers has fallen from 2,2 million to 1,7 million and the average age is 67 years. Only 7% of Japan's active population is employed in the countryside, and most farmers work only part-time. Almost 10 percent of agricultural land has been abandoned. Certain agricultural operations, especially in unpopular areas, are struggling due to a lack of labor and it is becoming increasingly difficult to pass on farms to the next generation. The decline of family farming and the rural economy is considered one of the most pressing political challenges of contemporary Japanese society.

Japan has one of the lowest food self-sufficiency rates among major world economies. The nation’s food self-sufficiency rate on a caloric intake basis was 37 percent in 2018, the lowest level in 25 years. This underscores the government’s challenge in reaching its goal of 45 percent by 2025. The food self-sufficiency rate refers to the ratio of domestically consumed food supplied by producers in the country. The government reduced the target rate based on the caloric intake to 45 percent from the initial target of 50 percent amid criticism that the earlier goal was not achievable. It also moved the target date back to 2025 from 2020. The government is looking for ways to reach its goal but has also concluded free trade agreements with trans-Pacific economies and the European Union. The pacts have opened its market wider to imports.

The United States is Japan’s top supplier of agricultural products, with a 25% market share in 2018. In recent years, however, competition has increased from alternate suppliers such as China, Australia, Thailand, Canada, and Brazil. With the recent implementation of the CPTPP agreement and the EU-Japan Economic Partnership Agreement, competition is expected to further increase.

SELF-SUFFICIENT IN RICE Rice is by far the most important crop in Japan. It is the primary staple food of the Japanese diet and of such fundamental importance to the Japanese culture. The cultivation of rice has shaped the politics, economy and culture of the country. Rice accounts for one-quarter of the daily calorific intake per person in Japan. Unlike other crops, Japan is self-sufficient in rice and hence, it is considered symbol of independence. According to The United States Department of Agriculture’s (USDA) GAIN report released in September 2019, total rice production is expected to increase to 7.8 million metric tons (MT) in the 2019/20 season. MY2018/19 consumption is expected to decrease to 8.5 million MT due to an anticipated reduction in table rice consumption and feed use. A combination of population decline and a downward trend in per capita consumption is reducing overall table rice consumption. The Ministry of Agriculture, Forestry and Fisheries (MAFF) estimates that the pace of consumption decrease for table rice has accelerated in recent years, which is partly attributable to a year-on-year increase in the market prices of table rice since 2016.

Feed consumption is also expected to decrease in MY2018/19 due to decreased domestic feed rice production and decreased government sales of Minimum Access (MA) rice and reserves for feed. Processing continues to drive demand for MA rice and reserves. Due to continued declines in domestic feed rice production and sales of MA rice for feed, USDA forecasts MY2019/20 feed consumption to decrease further.

Seeking convenience, Japanese consumers are eating more ready to eat rice in lieu of preparing rice at home. Production of sterilized packaged cooked rice has been steadily increasing and increased 5.7 percent to 170,000 MT (product volumes) from 2017 to 2018. Overall, production of processed rice products increased 4.6 percent to 390,000 MT in 2018, up 20 percent from 2013. However, the tread of increased consumption of packaged rice is not expected to overturn overall table rice consumption declines. Demand for rice for processing has been stable as increases in exports of sake and rice crackers offset decline in domestic consumption of these products. Accordingly, USDA forecasts MY2019/20 rice consumption to decrease to 8.4 million MT as demand for table rice and feed is anticipated to weaken.

Through MAFF’s promotion efforts, Japanese commercial rice exports continue to grow year over-year. With the projected increase in the commercial rice exports, total exports are forecast to increase to 65,000 MT in MY2018/19 and to 70,000 MT in MY2019/20.

WHEAT IMPORTER Japan is one of the largest wheat importing countries in the world. The United States, Canada, and Australia are suppliers to the Japanese wheat import market. Japan’s imports of U.S. wheat were valued at $793 million in 2018. Japan is the United States’ largest export market for wheat, based on value. Two countries signed the U.S.-Japan Trade Agreement on October 7, 2019. In this agreement, Japan will provide a duty-free CSQ for wheat that grows from 120,000 metric tons to 150,000 metric tons over six years. Japan will reduce its markup on imported U.S. wheat by 45 percent over eight years, matching the same levels for CP-TPP suppliers. For processed wheat products such as biscuits, cookies, crackers and other bread products, which face import tariffs as high as 26 percent, Japan will eliminate existing tariffs in five years. For uncooked spaghetti and macaroni, Japan will reduce the existing 30 yen/kg tariff by 60 percent over eight years.

Improved from last year’s poor crop, MY2019/20 wheat production is estimated to increase to 960,000 MT. Although MAFF statistics are not yet released, better or normal yields have been reported in all regions except the Kanto region. A normal or better yield is expected in Hokkaido, where 60 percent of Japanese wheat is produced. A bumper crop was reported in Kyushu, Tokai, and Chubu due to consistently favorable weather conditions and limited rain during harvest. Demand for domestic wheat remains strong, however, expansion of production is constrained as wheat is produced as a rotational crop, or a conversion crop for rice paddies.

And food, seed and industrial (FSI) consumption of wheat is expected to stay flat at 5.8 million MT for MY2018/19 and MY2019/20. Emerging factors may put downward pressure on food wheat consumption over the long term. Manufacturers in the Japanese market are introducing new products to reflect a growing interest in low carbohydrate foods. Although still niche, low carbohydrate pasta, instant noodles, frozen udon, cake mix, and cookies have been introduced. Although still small, demand for rice flour has been gradually increasing since the establishment of the Rice Flour Standards by Use and Use Indications by MAFF in March 2017.

MY2018/19 total wheat and wheat products imports decreased to 5.7 million MT. However, USDA forecasts MY2019/20 wheat and wheat products imports to recover to 5.85 million MT with a projected increase in food wheat and wheat products imports. Under the CPTPP and Japan-EU Economic Partnership Agreement (EPA), which entered into force on December 31, 2018, and February 1, 2019, respectively, Japan lowered a mark-up on state traded wheat and wheat products imported from CPTPP and the EU member states. However, due to its price competitiveness, U.S. wheat maintained a 47 percent share in the Japanese food wheat import market between January and July 2019.

CORN PRODUCTION While feed corn production is limited, Japan produced 4.5 million MT of whole crop silage corn on 94,600 ha in 2018. In July 2019, the first outbreak of fall armyworm (FAW) was confirmed in southwestern Japan and initial reports from MAFF indicate silage corn is expected to bear the brunt of the outbreak. However, damage to the overall silage corn crop is expected to be limited.

Due to price competitiveness, corn for feed demand remained strong and consumption is expected to rise 3.4 percent, to 12.3 million MT in MY2018/19, at the expense of sorghum, rice, wheat, and distiller’s dried grains with solubles. Reflecting bullish feed demand, MY2018/19 is expected to increase 2 percent, to 16 million MT, MY2019/20 imports are forecast to increase slightly to 16.05 MMT to meet a projected increase for cornstarch demand. US supply accounts for more than 90 percent of Japan's maize needs. Japan's largest grain import from the US is maize, with about 15 million tonnes of US maize imported in 2018.

FLOUR MILLING INDUSTRY Japanese flour milling industry is dominated by four big milling companies that have a market share of around 80%. There are nearly 100 companies in the sector, operating about 120 mills, with an annual capacity of over 8 million tonnes. Japanese wheat flour mills hold 2.3 months of food wheat stocks, of which the Japanese government extends financial support for storage costs for 1.8 months as a contingency. Reflecting solid demand, annual wheat flour production has been stable at approximately 4.7 million MT. Wheat flour is used by food manufacturers to make bread, noodles, pasta, cake, couscous, and other wheat products. Noodles and bread are the most favorite wheat products for Japanese consumers.

Japan is the third-largest packaged food market in the world after the United States and China. However, this mature sector is seeing marginal growth, a trend that is expected to continue over the coming years. Spreads and breakfast cereals are expected to see the most significant sales growth in the packaged food sector. Packaged food sales were valued at US$174.4 billion in 2017, and are anticipated to reach US$192.8 billion by 2022.

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