Japan. Poultry and Products Annual. Sep 2014 Sept. 15, 2014
Post expects high market prices for beef and pork could persist in 2014, providing a competitive edge to relatively low-priced broiler meat in Japan’s increasingly flexible animal protein market. Post projects Japan’s 2014 total annual poultry consumption to remain near the 2013 record high level of 2.21 million metric tons (MT). In response to a major food safety incident, a modest number of Japan’s traditional poultry end users are cutting back on imports from China. As raw products from Thailand began to arrive in February 2014, a partial shift within Thailand’s export lineup away from prepared products towards highly portion-controlled raw broiler meat cuts has begun to emerge. Thailand and Brazil appear likely to compete for Japanese raw broiler meat market share in the years ahead, while Russia’s increasing reliance on Brazilian and possibly Thai suppliers could have significant impacts on raw broiler meat price offers in Japan in 2014 and 2015.
Broilers comprise over 90 percent of Japan’s domestic poultry production, with spent hens comprising most of the remainder. Very few other poultry species are produced commercially, with the exception of a limited production of quail for eggs.
2014 Market Situation Summary and 2014 Outlook
Japan’s April 1, 2014 consumption tax hike (from five percent to eight percent) appears to have stifled household consumption growth for relatively high-priced beef and pork and, to a lesser extent, for relatively low-priced chicken meat (broiler) for the first three months of Japan Fiscal Year (JFY) 2014. Although the overall impact of the consumption tax hike on meat and meat product consumption cannot yet be ascertained, Post expects high market prices for beef and pork may persist this year, providing a competitive edge to relatively low-priced broiler meat in Japan’s increasingly flexible animal protein market. Accordingly, Post expects food service/processing demand to remain solid in 2014.
Post projects Japan’s 2014 total annual poultry consumption to remain near the 2013 record high level 2.21 million metric tons (MT). This is particularly noteworthy in a year when a major food safety incident in China (which regularly provides 50 percent or more of Japan’s prepared poultry products) affected two major Japanese poultry consumers and remained in Japanese headlines for weeks. In response to that incident, a modest number of Japan’s traditional poultry end users are rebalancing their poultry imports away from China. However, Post sources indicate that there is limited additional production capacity in Thailand (Japan’s other major supplier of imported prepared poultry products), which may create export opportunities for non-traditional poultry exporting countries. Other Japanese poultry end users have begun, albeit on a opt for domestically produced prepared poultry products, using some semi-processed imported raw broiler cuts from Thailand (Note 1 and 2).
Note 1: In late July 2014, there was a major food safety incident in China, involving alleged misconduct at a Shanghai poultry processing facility owned by a major U.S. corporation. The plant in question allegedly used raw broiler meat and beef, which had exceeded the products’ use-by date, in the production of chicken nuggets, hamburger patties, and other products that were widely distributed to major fast food chains restaurants across China and, to a limited extent, in Japan. While several Japanese companies, including major fast retail, convenience, and fast food restaurant chains, had reportedly been sourcing limited volumes of cooked chicken products from the Chinese manufacturer (up to 6,000 MT from July 2013 – July 2014), all have dropped the company as a supplier.
Note 2: Japan lifted its Highly Pathogenic Avian Influenza (HPAI) related import ban on raw poultry meat from Thailand in December 2013. Thailand resumed commercial shipments to Japan for the first time in the past ten years in February 2014.
On the supply side, Japan’s 2014 total domestic broiler output is projected to increase slightly to 1.36 million MT (or total culling of 654 million broilers), which would exceed the record high established just the year before. In response to persistent solid market demand, relatively high market prices for domestic broiler meat may continue through 2014.
The national broiler output for the first half of 2014 reported was modestly higher than the same period of 2013. According to industry sources, large scale domestic integrators (157 of 2,242 total facilities in Japan accounted for 97 percent of total poultry culled in 2013) have been operating at or near maximum capacity this year.
Several market developments may affect Japan’s broiler trade outlook in 2014 and 2015. Japan’s imports of raw broiler meat cuts rose five percent to 217,680 MT in the first half of 2014. As imports from Brazil remained flat (192,173 MT), the increase was mainly attributed to Japan’s resumed imports of raw broiler cuts from Thailand (9,967 MT) as well as an increase from the United States (13,002 MT, up 27 percent) (see Note 2). Meanwhile, prepared product imports fell modestly first half of 2014 to 199,918 MT, with a 10 percent decline from Thailand (91,221 MT) more than offsetting a six percent increase from China (107,235 MT).
The above results seem to indicate that resumption of Thai raw broiler meat imports has triggered a partial shift within Thailand’s export lineup away from prepared products towards highly portion-controlled raw broiler meat cuts. Included among those raw products are cuts marinated with sauces and flavored with seasonings for easy preparation by food service clients and ready-to-eat food businesses. Some Japanese end users prefer to use semi-processed raw broiler cuts to appeal to consumers’ preference for freshness. Also, as Thailand resumes raw broiler meat exports to Japan, future competition with Brazil seems imminent and could intensify in 2014; a trade source notes that Brazil remains price competitive. According to trade sources, average monthly entries of Thai raw poultry meat cuts (including semi-processed raw meat) for the rest of 2014 are expected to range between 3,500 – 4,500 MT a month, which will boost Japan’s 2014 annual imports from Thailand to around 35,000 MT from nil in the previous year. On the other hand, Brazil’s lower export offer prices from the second half of 2013 through 2014 is expected to sustain Japan’s 2014 imports from Brazil at nearly same level as the previous year. For prepared products, the same sources are predicting a substantial decline in imports from China associated with the food safety incident discussed earlier (see Note 1).
In light of the above, Japan’s 2014 total broiler imports are projected to increase modestly to 880,000 MT. Raw broiler cut imports are projected up by 11 percent from the previous year to 460,000 MT, supported by solid demand from food service and ready-to-eat foods, partially replenishing stocks. Projected imports from Brazil are unchanged at 390,000 MT (85 percent share of the total raw broiler cuts market), imports from Thailand reaching 35,000 MT from nil (eight percent market share), and imports from the United States up by 10 percent to 25,000 MT (five percent market share). Prepared product imports are projected down by five percent to 420,000 MT, with imports from China, down by 10 percent to 200,000 MT (48 percent share of the total prepared products market) and imports from Thailand unchanged from the previous year at 215,000 MT (51 percent market share), partially supported by rebalancing of demand away from Chinese products.
Given the limited 2015 market growth outlook projected for beef and pork, Post projects Japan’s 2015 demand and supply situation to be similar to that of 2014. A relatively high level of consumption, roughly unchanged from 2014 at 2.21 – 2.22 million MT, could be balanced by an even higher supply of domestic production (projected unchanged from 2014 at 1.36 million MT) and a relatively high level of total broiler imports (projected at 870,000 MT: raw broiler meat marginally lower at 455,000 MT; prepared products also marginally lower at 415,000 MT). Post anticipates raw broiler meat imports making up a larger share of total poultry imports as Japan’s food service and ready-to-eat businesses expand use of semi-processed raw broiler meat from Thailand (see 2014 Market Situation and Outlook Section).
It is difficult for Post to anticipate how the one-year import bans on U.S., EU, and Oceania food products announced by Russia in August 2014 will impact trade flows in Japan. Russian increased dependence on alternate suppliers (including Brazil and Thailand) could place significant upward pressure on Brazil and Thai export contract offers for Japan in the remaining months of 2014 and into 2015. And as U.S. suppliers seek alternate buyers, especially for leg quarters (Russia’s top poultry import from the United States), it is unclear to what extent Japan may be able to expand imports from the United States, given the U.S. industry’s limited ability to supply highly portion-controlled deboned cuts (see Note 3).
Note 3: In August 2014, Japan announced a revision of its animal health protocol requirements related to Low Pathogenic Avian Influenza (LPAI) for poultry meat, eggs and their products imported from the United States. Though announced on August 22, final details related to the implementation remain unresolved as of the writing of this report. The revision will narrow Japan’s current state-based restrictions to a 10 kilometer radius around the location of the LPAI detection. Implementation of the revision is expected to greatly reduce trade disruptions caused by state-wide import bans.
2013 Demand and Supply Situation Summary
Japan’s 2013 total domestic broiler consumption was 2.209 million MT, roughly equal to the record level reached in 2012. Consumption was supported by relatively strong retail and food service demand for relatively low-priced broiler meat. Japan’s 2013 total domestic broiler output eclipsed the 2012 record high, climbing up slightly to a new record level of 1.337 million MT (or total culling of 654 million broilers) in response to higher market prices (see Note 4).
With modestly reduced imports from 2012 (raw broiler meat was down three percent at 414,000 MT and prepared products was down two percent at 440,000 MT), and a draw-down of carryover stocks, the total demand and supply came roughly into balance compared to the 2012 situation (see Note 5). The stocks carried over into 2014 were smaller than the previous year, down 21 percent to 102,000 MT.
Brazil accounted for 93 percent of Japan’s 2013 total broiler meat imports and remained the single largest supplier of raw broiler meat (portion-controlled boneless cuts, mainly legs), while China and Thailand held 50 percent and 49 percent share respectively in the supply of prepared products (highly portion-controlled cuts that are cooked). U.S. share in total raw broiler meat imports remained relatively low at six percent (or at 23,000 MT) constrained by its ability to supply portion-controlled deboned cuts for this market.
Note 4: According to the Ministry of Agriculture, Forestry and Fisheries (MAFF), 2012 market share estimates for poultry consumption are: households at 39 percent (with a large portion of supplies being domestic raw broiler meat cuts, mainly legs , wings and some breast meat); processing at six percent (domestic breast meat/imported raw broiler cuts) and 57 percent for others (mostly for food service and ready-to-eat foods with the majority of supplies being imported raw broiler cuts/imported prepared products). Reflecting general consumer preference, the market price for domestic boneless leg meat is valued roughly two and half times higher than breast meat. By marketing its low price and health attributes (low fat protein source) retail sales of breast meat have reportedly been rising, creating buying competition between traditional food service and processing users. For example, the 2013 average wholesale price for domestic boneless legs was only four percent higher than the previous year at JP 596 yen/kg, while the price for breast meat was up 32 percent at JP 252 yen/kg.
Note 5: 2012 surplus poultry stocks were balanced by reduced imports of raw broiler meat, given the unexpectedly high imports of prepared products