Report Highlights: 

On May 21, 2014, the Ministry of Agriculture, Forestry and Fisheries (MAFF) announced its intent to carry out the emergency importation of 7,000 metric tons (MT) of butter for industrial use. This quantity is in addition to the 3,000 MT, which Japan has already committed to importing in Japanese Fiscal Year (JFY) 2014 under its current access commitment for key dairy commodity imports. Separately, MAFF also announced an increased allocation of an additional 4,178 MT of non-fat dry milk (NFDM) imports under its JFY 2014 current access commitments.

The Japanese fiscal year runs from April 1 through March 31 of the following year.

General Information: 

MAFF’s announcements of increased butter and NFDM commitments come in response to an impending supply crunch, resulting from declining fluid milk production and growing demand for processed dairy products other than butter and NFDM. U.S. exporters could realize additional export volumes to Japan in 2014 if they can compete on price with other Oceania and EU exporters. 

Since the summer of 2013, monthly fluid milk production in Hokkaido (the heart of Japanese dairy production, accounting for over 50 percent of total annual fluid milk production) has consistently been two to four percent lower than the previous year. Fluid milk production has been hampered by inclement weather (an extremely hot summer and a severely cold, snowy winter), a shortage of locally grown fodder, and a steady stream of Japanese dairy farmers exiting the industry. 

This decline in fluid milk production has in turn suppressed monthly butter and NFDM production levels, both of which are down 10 – 20 percent from the previous year. This drove March ending stocks down to levels of roughly 17,000 MT for butter and 40,000 MT for NFDM (approximately 2. 5 months and 4 months of total consumption respectively). In contrast, since early calendar year 2014, Japanese utilization of fluid milk for the production of domestically produced cream and natural cheese has been climbing to catch up with relatively solid bakery and confectionary demand for fresh cream for desserts and domestic natural cheeses for direct consumption. Increased production of cream and natural cheese has limited the availability of fluid milk for the production of butter and NFDM in Hokkaido. Industry sources report that this tight supply situation has persisted through April and May (for which official data are not yet available). 

Given the factors suppressing Hokkaido dairy production noted above, Post does not anticipate recovery of fluid milk production until the autumn of 2014 at the earliest. Earlier this calendar year, in response to an already tight supply situation, Japan announced its intent to import 3,000 MT of butter and 5,000 of NFDM under its JFY 2014 current access commitments. 

MAFF’s May 21 announcement brings Japan’s JFY 2014 total scheduled imports of butter for industrial use to 10,000 MT (current access and emergency imports combined) and total scheduled imports of NFDM (under current access) to 9,178 MT. While MAFF’s market interventions may not completely negate anticipated domestic production shortfalls of butter and NFDM in JFY 2014, these moves should narrow the demand gap and effectively suppress already high domestic prices. 

Note:As a result of Uruguay Round trade negotiations, Japan agreed to provide import access at duty rates lower than commercial import levels for 137,000 MT (milk equivalent volume) of key designated dairy commodities for each fiscal year. Japan has historically allocated access to butter and NFDM, especially when domestic supplies for each product have been short. Other commodities covered under current access commitments include whey, dairy spread, and butter oil. Current access commitments do not prevent Japan from making additional imports of key dairy commodities under emergency measures