August 31, 2005

USDA: Dairy policies in Japan

Border measures-tariffs and tariff-rate quotas (TRQs)-provide high levels of support to Japan's producers of milk for manufacturing purposes and keep consumer prices for dairy products in Japan high by world standards.

Since drinking milk is not easily traded, Japan's drinking milk market is largely autonomous from the world market. High farm costs of milk production and relatively high costs for processing and distributing drinking milk keep consumer prices of drinking milk high.

Production quotas, designed to limit supplies and keep market prices stable, guide the volume of milk produced.

A direct, fixed payment per kilogram of milk is provided from the Government budget to farmers for their quota production of manufacturing milk. A fund sharing farm and Government contributions pays farmers a portion of the difference between the current annual price and a historical average price when manufacturing milk prices fall.

Japan's government controls trade within the largest TRQ and imposes extremely high tariffs on imports outside the TRQs reserved for private traders.

Recent changes in labeling have triggered significantly reduced demand for milk reconstituted from powder and increased demand for fluid milk.

If Japan's policies were liberalized, prices and production in Japan would fall, but sizable milk production would remain.

For the full USDA report, click here.