Japan. Grain and Feed Annual Mar 2013 April 15, 2013
Report Highlights: With little commercial production of feed grains domestically, Japan’s feed industry relies almost entirely on imported grains. Corn is the most important commodity by far, traditionally taking up 50 percent of feed ingredients. For decades, the United States has provided over 90 percent of import supplies of corn to Japan. The sharp rise in U.S. corn price this season, largely a result of last summer’s drought, has led Japan to: 1) shift the supply source increasingly to South American and East European countries; 2) decrease the ratio of corn used in feed and increase that of non-conventional grains such as rice, wheat, and sorghum; and 3) enact subsidies to absorb surges in the overall price of feed.
OVERALL MARKET SITUATION
With very little commercial production of feed grains domestically, Japan’s feed industry relies almost entirely on imported grains. Therefore, the rise in international feed grain prices directly affects the cost of feed manufacturing. Corn is the most important crop, which ordinarily makes up about half of all feed ingredients. To cope with the sharp rise in U.S. corn prices since the summer of 2012, Japan has made the following adjustments:
1. Shift the supply source increasingly to South American and East European countries;
2. Decrease the ratio of corn used in compound feed, and increase that of non-conventional grains such as rice, wheat, and sorghum;
3. Enact subsidies to absorb surges in the overall price of compound feed.
Ordinarily, Japan imports over 90 percent of its corn supply from the United States. However, since September 2012, imports from Brazil have been rising sharply and in December surpassed imports from the United States. Imports from Argentina and the Ukraine are also notable.
Japan has a feed price stabilization program, whereby the combination of a subsidy by the Ministry of Agriculture, Forestry and Fisheries (MAFF) and an industry fund help absorb sudden surges in the compound feed price. It is activated when the import cost of ingredients in a particular quarter exceeds the average import cost of ingredients in the previous year. As the following graph shows, during the most recent quarter (October-December 2012), compound feed prices increased by 4,750 yen per metric ton, from 58,500 yen to 63,250 yen. The subsidy entirely absorbed this increase.
As a result of these adjustments, Japan’s feed production continues to be highly stable, with an annual output of approximately 24 million metric tons.
Production Up 1.4 Percent
As a result of a slight increase in planted area and a favourable yield due to an absence of inclement weather conditions throughout the growing season, overall rice production volume increased 1.4 percent over the previous year. Post expects that the bullish 2012 wholesale price, explained in the following price section, should encourage increased planting in 2013. However, given the average yield of the past five years, total production volume is forecast downward at 8,484,000 metric tons (MT), which converts to 7,720,000 MT on a milled basis.
Overall Consumption Remains Sluggish and Chronic Surplus Continues
Per capita consumption of rice in Japan has been steadily declining since its peak in 1962, and finally went below the 60 KG mark in 2008. MAFF forecasts the aggregate table rice demand for 2012/13 to be nearly 8 million metric tons (MMT). The 2012 harvest of 8.5 MMT is expected to add approximately 0.5 MMT to stocks. In order to reduce the surplus rice supply, MAFF has been pushing rice into the feed sector where the utilization ratio of rice in compound and mixed feed increased from 0.1 percent (or 13,464 MT) in 2003 to 2.3 percent (or 557,571 MT) in 2007. The feed use of rice declined to 468,000 MT in 2008 and to 256,020 MT in 2009. It appeared that incentive to use feed rice, as opposed to conventional feed grains, had diminished. However, as coarse grain prices started to surge once again, feed millers returned to rice in 2010/2011 and rice utilization in feed recovered to 401,463 MT and 652,573 MT in 2011/2012. For table rice, the four-decade downward trend in consumption is not expected to be reversed, given the demographic situation, where Japan’s population started declining in 2006, earlier than previously forecast. It is aging rapidly, and one out of four Japanese will be older than 65 by 2015. In addition, bread consumption has taken dietary share from rice as a main source of carbohydrate as Japanese tastes have increasingly shifted to more Western diets.
As a result of a reduction in rice consumption, as well as a decline in retail price over the years, household expenditures on rice have been cut by more than half during the last two decades.
Wholesale Price of 2012 Crop Starts above 2011 Level; Retail Price Rebounds
Following the Great East Japan Earthquake of March 2011, there was some consumer hoarding of rice for emergency household stocks. Then, the radiation scare caused by the Fukushima Daiichi Nuclear Power Plant failure and subsequent detection of radionuclides above the regulatory limit in rice harvested near the nuclear power plant drove up the wholesale price. The price for the 2011 crop stayed above 15,000 yen per 60 kilograms throughout 2012. As the farmers and farmers’ cooperatives are reportedly hesitant to release the new crop in the hope of sustaining this strong price, the wholesale price for the 2012 crop started even higher than the 2011 level. Given the larger overall volume of production in 2012, Post’s trade sources see this situation as artificial, in that there is an abundant supply of rice given the 2012 harvest size. As mentioned in the previous section, the chronic over-supply situation continues, and market forces are expected to put downward pressure on both the wholesale and retail prices.
Japan Expected to Meet Import Commitment in 2012
As of February 27, 2012, four Simultaneous Buy and Sell (SBS) tenders and eleven Ordinary Minimum Access (OMA) tenders had been held for the current Japan Fiscal Year 2012 (April 2012-March 2013). Every year, Japan is expected to fulfil its WTO commitment of importing 682,000 MT (milled rice basis). Due to the tight supply of domestic rice, even though speculative in nature, Japanese importers/wholesalers have been participating in SBS tenders more actively since 2011.
While SBS rice goes to retailers and foodservice users and is consumed as table rice, OMA rice does not enter the table rice market. Including the OMA rice taken out for the government reserve, Post estimates that, on an annual basis, between 200,000 and 300,000 metric tons are turned into rice flour and used by food processors, mainly in the confectionery sector; between 300,000 and 400,000 tons are consumed by feed millers; and between 100,000 and 200,000 tons are re-exported under food aid programs.
MAFF holds emergency stocks of rice, the level of which is targeted at 1 million MT. However, this does not include stocks of the OMA rice. Stocks of domestic rice have been reduced over the years, and since 2004 have been below the targeted level, subsequent to a poor crop in 2003. However, the Great East Japan Earthquake of 2011 triggered an effort to renew government stocks of rice, leading to an increase in stock levels in 2012. MAFF has been selling OMA rice aggressively into the feed sector for the last several years, running down the stock level from its 2006 peak. As mentioned in the previous section, Post estimates 300,000 to 400,000 metric tons of OMA rice are now going into the feed sector.
Minimum Access Commitment Continues into 2013
As a result of the Government of Japan’s (GOJ) tariffication of rice in JFY 2000, the Minimum Access commitment was reduced from the non-tariffied rate of 8.0 percent to 7.2 percent of total domestic consumption, from 758,000 MT to 682,000 MT (milled basis).
Production in 2012 Up 15 Percent
Despite a slight decline in the total planted area, wheat production in 2012 increased 15 percent over 2011 thanks to favourable weather conditions, particularly in the major growing region of Hokkaido, which resulted in the highest yield since 2008. Since wheat is an alternative crop to rice in some areas, Post forecast planted areas for wheat will decrease slightly in 2013 as planted areas for rice are expected to expand. Given an average yield of the past five years, production volume is forecast to decline by 13 percent.
Food Wheat Consumption Stays Flat While Feed Use Expands
Consumption levels of food wheat have been flat in the last three decades at around 32 kilograms per capita. The Ministry of Agriculture, Forestry and Fisheries (MAFF) estimates the total food wheat demand to be 5.61 million metric tons for the 2012/13 Japan fiscal year (April 2012-March 2013). Combined with the wheat equivalent of wheat product imports of 200,000 to 300,000 metric tons, Japan’s aggregate food wheat demand is estimated to be 5.8 to 5.9 million metric tons. As corn prices have soared (see Overall Market Situation), wheat utilization has been expanding dramatically since 2012 and is now reaching the 800,000 MT level. As for MY2014, as the demand for corn is expected to recover (see the following CORN section), wheat consumption in the feed sector is forecast to decline.
Wheat Imports by MAFF as a State Trading Enterprise
MAFF operates as a State Trading Enterprise (STE) and conducts three types of imports: 1) direct purchase of food wheat; 2) SBS imports of food wheat; and 3) SBS imports of feed wheat.
1)Direct Purchase of Food Wheat
MAFF purchases different types of wheat, mainly from the United States, Canada and Australia, to best meet the needs of Japanese users.
MAFF controls both producer and resale prices of domestic wheat, and the resale price of imported wheat. MAFF buys imported wheat at international prices and sells it to domestic flour millers at a markup. The markup ratio fluctuated between 1.3 and 2.0 over the last two years due to volatile international wheat prices. MAFF reportedly intends to maintain this rate around 2 to 1, which means MAFF sells imported wheat at twice the purchase price. On the other hand, MAFF buys domestic wheat at a high price and sells it to domestic flour millers at a significantly lower price. Revenues from transactions for imported wheat are used to help cover the cost difference between the purchase and resale of domestic wheat. This is referred to as the “Cost Pool System”.
Until 2007, in an effort to ensure stable consumer prices, as mandated by the Food Law, the resale price at which Japanese millers bought wheat from MAFF was set once a year for each type and country and fixed at that price throughout the year. MAFF's purchase price (CIF price), however, has always fluctuated with international prices. Therefore, MAFF assumed the risk for changes in currency exchange rates and increases in import prices.
The new system, which started in JFY 2007, allows MAFF to revise the resale price twice a year (in April and October) based on fluctuations in the market, resulting in a resale price that better reflects the market (FOB) price.
2) SBS Imports of Food Wheat
MAFF has conducted a Simultaneous-Buy-Sell (SBS) system for food quality wheat and barley since April 2007. The idea behind the SBS system is to allow for greater flexibility of imports and transparency in a portion of food quality wheat. However, MAFF still remains a “middle man” in the transaction.
MAFF holds SBS tenders under the following two categories.
Category I: Prime Hard and Durum
Category II: Any brand except:
U.S. Western White (WW)
U.S. Hard Red Winter (HRW)
U.S. Dark Northern Spring (DNS)
Australia Standard White (ASW)
Canada Western Red Spring (CWRS)
During the most recent complete Japanese fiscal year (JFY2011), a total of about 345,000 MT of wheat (Category I and II combined) was imported. Due to relatively expensive freight rates for containers, wheat imported by containers (Category II) was small in volume. To date this fiscal year, MAFF has held fourteen tenders and approximately 260,000 MT has been imported, and by the end of the fiscal year, imports of 300,000 MT are expected. According to trade sources, the decline in imports this fiscal year is primarily due to a smaller supply of Prime Hard from Australia.
3) SBS Imports of Feed Wheat Imports
MAFF also imports wheat and barley for feed use under the SBS system. In JFY 2012, MAFF has so far conducted forty-two SBS tenders, through which 713,050 MT of imported wheat was contracted. Imports of feed wheat have dramatically increased in the last several years as high corn prices lead feed mills to seek substitutes.
MAFF allows flour millers to import wheat outside of MAFF’s control as long as they export an equivalent amount of wheat flour. Flour millers that successfully find export markets can import this so-called "free wheat" at global market prices.
Feed Wheat Imports Elevate Total Wheat Imports in 2012
Total imports of wheat, including wheat products, in 2011/12 increased by 8 percent to 6.35 million MT. The increase is primarily owing to a sharp increase in feed wheat imports. As corn prices soared (see Overall Market Situation), wheat utilization dramatically increased in 2012. This trend in feed wheat imports is expected continue into 2013. In MY2013, given the increase in domestic wheat production and a stagnant food wheat demand, total imports are expected to decrease. Although movements in corn prices are expected to continue to dictate imports of feed wheat, in the long term, overall wheat imports are forecast to decline slowly but steadily as Japan’s demographics change.
In the past, Japan held emergency stocks of wheat at a level equivalent to 2.6 months’ worth of the amount of food wheat imported annually. However, due to the shortened time necessary to obtain alternative supplies in case of an emergency, the stocks have been reduced to 2.3 months’ worth. For JFY2012 the government set the targeted amount of stocks at 930,000 metric tons.
Corn production is negligible in Japan.
Prolonged Price Volatility Leads to Adjustment in Utilization
Corn is the largest ingredient used in compound and mixed feed. The ingredient ratio is adjusted from year to year, depending on the price of various grains. The corn utilization ratio of about 50 percent, pre-2008 price surge, was lowered to 48 percent in 2009, then to 47 percent in 2010, and with the recent price re-surge, the Japanese feed industry has been forced to once again adjust the ratio down to the 43 percent range. Given the total feed production in Japan is approximated at 24 million metric tons, a decline of 7 percent in utilization translates to a 1.68 million ton reduction in corn demand.
Japan’s Feed Industry Has Overcome the Great East Japan Earthquake Devastation
The Great East Japan Earthquake and tsunami of March 11, 2011 destroyed five major ports and adjacent feed mills on the Northeastern Pacific coast, the combined production capacity of which amounted to 30 percent of Japan’s total feed production. Japan’s feed industry gathered its strength and overcame this unprecedented crisis by increasing the production in Western Japan and Hokkaido and transporting feed to unaffected northwestern ports by vessel and ground transportation. The affected ports are now open, and feed mills are back in operation. On a side note, the post-disaster experience and response to expand capacities in the unaffected regions may accelerate rationalization/consolidation of the feed manufacturing industry in Japan.
The figures are reported as of February each year. According to MAFF, damage caused by the Great East Japan Earthquake to the cattle and swine population was negligible. However, approximately 4.5 million birds (broilers and layers combined) died, primarily from starvation. This is a fraction of Japan’s overall broiler/layer population, and the industry has reportedly recovered. Over the last decade, the dairy cattle population has declined by a notable 20 percent. (Refer to Japan Dairy Products Annual of October 2012.)
The CIF price of U.S. corn during MY2012 jumped nearly 50 percent over MY2010, and the price for the 2012 new crop that is currently being marketed jumped even higher. The recent re-surge in corn prices has resulted in a significant price increase in compound feed.
The higher price of corn and the consequent reduction in corn utilization in feed led to a significant decline in feed corn imports. Ordinarily, Japan imports over 90 percent of its corn supply from the United States. However, since September 2012, imports from Brazil have been rising sharply and in December surpassed imports from the United States. Imports from Argentina and the Ukraine have also notably increased.
The general trend in recent years is that increases in food corn imports have been compensating for declines in feed corn imports. The driving force in the food corn demand comes from the beverage sector, particularly for high fructose corn syrup (HFCS) used in low alcoholic drinks like happoshu (light beer) and other alcoholic beverages, in addition to a continued strong demand for soft drinks. However, due to general public restraint on holding receptions and parties in the aftermath of the Great East Japan Earthquake, sources indicate that shipments of beer and related beverages declined 3.7 percent in 2011. Consumption of alcohol and soft drinks remained stagnant in FY2012, contributing to a decrease in MY2012 food corn imports.
As the utilization of corn in feed is expected to be reduced, imports of feed corn are forecast to decrease by about 200,000 MT in MY2013. However, expected recovery in beverage consumption is expected to push up food corn imports, which could more than compensate for the decline in feed corn imports. Therefore, a slight increase in overall corn imports is expected. As for MY2014, if drought does not repeat in the United States, and if U.S. corn prices stabilize, the utilization ratio of corn in feed and feed corn imports should recover to the pre-drought level, leading to an increase in overall imports. Imports from the United States are also expected to return to the pre-drought level, as the Japanese trade reportedly prefers the quality of U.S. corn to Brazilian corn.
Japan holds emergency stocks of essential feed grains, i.e. corn, sorghum, and rice. The stock level since 2005 had been set at approximately 950,000 MT in total. The breakdown is 600,000 MT of corn and sorghum combined (roughly 90 percent corn) and 350,000 MT of rice (all out of OMA rice stocks). The level of corn/sorghum/rice stocks was lowered in 2011 to 750,000 MT (i.e. reduction in corn stocks by 200,000 MT). The stocks were utilized during the post-Great East Japan Earthquake emergency response when all the major Northeastern ports were shut down. MAFF reports 350,000 MT of grain stocks were released to feed mills in the unaffected regions by the end of April 2011. Given this experience, the Government of Japan currently aims to rebuild its corn/sorghum stocks to the level of 800,000 MT.
DDGS Imports Leap to a Record High Level
One of the positive side-effects of the ethanol boom in the United States is the increasing availability of a high value byproduct, Distiller’s Dried Grains with Solubles (DDGS). Japan’s imports of DDGS from the United Sates have been increasing significantly and surged further in MY2012 as corn prices jumped. The majority of these DDGS are currently used in dairy cattle feed.
Acceptance of Biotechnology
Although there are no official statistics, virtually all of the feed corn and a majority of the food corn Japan imports from the United States and South America are produced through biotechnology. Japan also imports roughly three million metric tons of soybeans, two-thirds of which are derived using biotechnology. Japan remains the world’s largest per capita importer of biotech food and feed. Japan has approved over 160 events for food use. New events are generally reviewed and approved within a predictable time frame through a science-based and transparent review process. However, as an increasing number of new events are expected to be introduced to the market, the pace of review and approval could become a major concern.
Overall, as a country that thrives on new technology, Japanese academia, experts and trade people at large accept new agriculture-related innovations including biotechnology. Consumers in general, however, remain averse to the term which in Japanese has a connotation of “genetically manipulated.” When asked, a majority of consumers state that they would rather not purchase biotech-derived food. However, at the point of purchase, their behavior tends to differ from what they say when prompted. The sheer volume of biotech food corn Japan imports is one of the objective indicators that show the level of acceptance of the technology. (Please refer to Japan Agricultural Biotechnology Annual: JA2013, dated 6/7/12, for details.)
Like corn, production of sorghum is negligible in Japan.
As sorghum is a substitute for corn, its utilization ratio in the production of compound and mixed feeds fluctuates, depending on its relative price to corn and other ingredients, between 5 and 7 percent, or between 1.1 and 1.7 MMT in volume. As described in the WHEAT section, use of wheat in feed expanded significantly the past couple of years, cutting into the share of corn and sorghum in feed to a notable extent. As the price competitiveness relative to corn improved slightly, demand for sorghum in MY2013 is expected to increase. In MY2014, if drought does not repeat in the United States, and if corn prices stabilize, demand for sorghum is expected to return to previous levels.
Just as with corn, CIF prices for sorghum have been steadily rising. The U.S. price, in particular, increased more significantly than other suppliers in MY2012 over MY2011.
Since sorghum is mainly a substitute crop, potential growth in Japan’s sorghum imports largely depends on its price relative to corn and other feed ingredients. Imports are classified as being either for feed or food. However, despite this technicality, much of the sorghum imported under the food HS code eventually ends up in the feed sector. Therefore, the volume of sorghum used in feed, accurately represents the demand for sorghum in Japan: approximately 1.4 MMT in 2012. As the price competitiveness relative to corn improved slightly, sorghum imports in MY2013 are expected to increase. Assuming that drought does not repeat in the United States and that corn prices stabilize, sorghum imports are expected to return to previous levels.
Following the policy of GOJ’s 2003 policy of reducing the overall feed grain stocks, sorghum stocks have shrunk significantly. Post estimates the current government and commercial stocks to be 80,000 MT or less.
Japan’s barley production in 2012 remained near the 2011 level. The yield was still below average for two-row barley and naked barley due to unfavorable weather conditions, particularly rain during planting time and low temperatures in January and February. Overall production remains 20 percent lower in volume than its peak in 2008 despite a 6 percent acreage increase. For 2013, Post forecast that crop areas will remain at the 2012 level. With the average yield of the past five years, production volume is expected to increase by 7 percent over 2012.
Aggregate consumption of barley (feed and food) is estimated to be 1.5 million MT. Roughly 80 percent of barley is consumed in the feed sector, specially compound and mixed feed for the cattle industry (beef and dairy). It is particularly important in feeding beef cattle, because it contributes to the production of high quality beef with the white marbling that Japanese consumers favor. The largest non-feed uses are for the production of shochu, a traditional distilled liquor, and beer. Other uses include miso (soybean paste) and barley tea. There is little indication that either feed or food demand will increase in the near future. In the long term, some decline in feed demand is expected as Japan’s cattle population, dairy in particular, shrinks.
As in the case with other feed grains, world barley prices jumped in 2011, and generally remained at the 2011 level in 2012. The price of U.S. barley, however, rose even further in 2012.
Along with rice and wheat, barley imports are controlled by MAFF as a “Staple Food”. MAFF has been hesitant to remove barley from the state trading system entirely, because it is a strategic alternative crop under the rice crop diversion program. Since 2009, imports from the United States have dropped significantly with the resurgence of Australia as the leading supplier due to its price competitiveness and proximity to Japan’s major barley importing port in Kyushu. As overall barley consumption, as well as Japan’s domestic barley production, is expected to stay flat, imports in MY2013 and MY2014 are forecast to remain at the 2012 level.
Barley Imports by MAFF as a State Trading Enterprise
MAFF operates as a State Trading Enterprise (STE) and conducts two types of barley imports: 1) SBS imports of feed barley; and 2) SBS imports of food barley.
1) SBS Imports of Feed Barley
MAFF introduced the SBS system for barley for feed in JFY 1999, with approximately 360,000 MT contracted under three tenders. The allocation amount has been greatly raised since then, and for the Japanese fiscal year 2012, was set at 1.28 million MT. Bidding is held almost biweekly, to allow for more commercially viable trade. So far this Japanese fiscal year, which ends in March 2013, forty-two tenders have been held, as summarized below.
2) SBS Imports of Food Barley
As noted in the WHEAT section, MAFF an SBS system for food quality wheat and barley in 2007.
Plans for Food Barley SBS Tenders:
Nearly 200,000 MT of food barley was imported in JFY 2011: roughly 80 percent from Australia for shochu, a distilled liquor, and beer; and 20 percent from Canada for beer and barley tea. Imports from the United States are used for beer. To date this fiscal year, MAFF has held fourteen tenders, and approximately 224,000 MT have been imported.
As with wheat, there are two categories for barley. Category I is for vessel trade. Although most barley is imported by vessel, there is also Category II for container units. Category II provides a means for new varieties to enter the market.
Japan used to hold 350,000 MT of emergency barley stocks, but since 2006 they have been replaced by rice stocks. Since practically all the feed barley Japan needs can be imported through the SBS tenders with an ample allocation (1.28 million MT), MAFF explains that government-held emergency stocks are no longer necessary.
Production of rye is minimal in Japan.
Rye is almost exclusively used for feed in Japan. The main uses of rye are for cattle feed and swine feed. Like sorghum, most rye users consider it mainly as a substitute for corn. Since there is practically no domestic production, annual rye consumption and imports are directly linked with domestic cattle and swine production and prices of corn and other feed grains. The utilization of rye in feed declined from about 74,000 MT in 2011 to 24,000 MT in 2012. As import prices of rye are reportedly declining in 2013, demand is expected to recover. However, this recovery is contingent upon prices of other feed grains, particularly sorghum.
U.S. rye is significantly less price competitive than that of Germany or Canada, the two major suppliers for Japan. The price of German rye soared in 2008 due to strong demand in the EU caused by poor Russian and Ukrainian crops, but it returned to the pre-surge level in 2009, stayed relatively flat in 2010, and soared again in 2011/12 due to reduced crop size in the EU, especially Poland.
Before 2007, Germany had dominated rye exports to the Japanese market because of its price competitiveness. In the peak year of 2007, total imports of rye hit 405,000 MT, out of which 400,000 MT came from Germany. Imports from Germany declined dramatically in 2008, due to the price situation as explained above. Although the price situation improved in 2009, imports did not fully recover as sorghum became more attractive. In 2010, as the rye/sorghum price ratio moved in favor of rye, imports of rye recovered to the 100,000 MT mark, but halved in 2012 as the price spiked again. In 2013, imports are expected to recover to the 2011 level as the price situation is reportedly improving.
Unlike corn, sorghum and barley, Japan does not hold strategic emergency stocks of rye. Commercial stocks are estimated to be minimal.