September 7, 2018
Beef, pork redefine Japan's changing appetite for meat
After years of stagnation, red meat consumption is making a comeback but poultry's longrun ascendancy is still in place. Restaurants increasingly drive consumption trends and imports.
By Eric J. Brooks
An eFeedLink Hot Topic
As wealthy as any western nation but with a fraction of its arable land, Japan imports 64% of its beef, 54% of its pork and 55% of its chicken consumption. While it is being overtaken by China as the world's biggest meat importer by volume, it remains the leading meat importer by value, particularly for expensive, high-quality, cuts of beef, chicken and pork.
Moreover, the Japanese are undergoing a profound shift in the quality of meat they consume, where they eat it and who they import it from. While poultry continues to define mass consumption, meat consumption's value component appears to be shifting gears.
Japan entered the 1990s a fast-growing economy with rising personal incomes and proclivity to import red meat. Just like in China today, the 1988-98 decade saw imports of beef (9.8%) and pork (8.5%) grow at nearly twice the rate of those for chicken (4.5%). But from the mid-90s onwards, flat or falling personal incomes coincided with a gradual, ongoing decline in Japan's population.
With incomes stagnant and tax burdens rising, Japanese kept their pork consumption high but increasingly substituted chicken in place of beef. Following the earlier rapid rise in red meat consumption, from 1998 through 2008, annual declines in beef import volumes (-3.8%) were more than offset by fast-growing chicken imports (5.4%) and a more gradual expansion of pork imports (2.2%).
Curiously, while the volume of chicken consumed is rising faster than that of beef and pork combined, its import growth is not nearly as aggressive. In the ten years since 2008, annual growth in red meat imports of beef (2.4%) and pork (4.5%) has exceeded that of chicken (1.7%). Moreover, new meat marketing and distribution strategies made both this trend and overall meat consumption accelerate after 2014.
In particular, a tendency for pork imports to grow the fastest has gained momentum over the last few years. From 2015 through 2018 inclusive, annual increases in beef import volumes (5.6%) kept pace with growth in chicken imports (5.7%) but pork import volumes (7.1%) grew at a faster annual rate than either one.
In the case of chicken, consumption will have increased a strong 11.8% from 2.324 million tonnes in 2015 to a USDA estimated 2.5980 million tonnes in 2018. On the other hand, boxed in by cheap Brazilian and Thai imports, broiler meat production only increased by 2.6% annual rate over this time, from 1.413 million tonnes in 2015 to a projected 1.45 million tonnes this year.
Despite competition from imports, chicken output is rising faster than domestic production of either beef or pork. It's just a case of its consumption rising even more quickly.
Unlike the previous decade however, the gap between rising consumption and domestic production is widening much faster for red meat than it is for poultry. While growing more slowly than chicken, pork's consumption is being helped more than other proteins by a tendency for younger Japanese consumers to substitute meat in place of seafood. From 20kg in 2008, Japanese per capita pork consumption increased to 22kg this year. It is part of a post-2010 trend towards higher red meat consumption, which has picked up speed in recent years.
From 2015 through 2018, pork's consumption will have risen by 8.1% from 2.568 million tonnes in 2015 to 2.777 million tonnes this year. Production only rose 2.1% over this period and has remained near constant in the 1.2 to 1.3 million tonne range since 1995. Alongside competition from cheaper imported pork, high feed costs in the early 2010s and mid-decade PEDv outbreaks coincided with a mass retirement of small-scale, elderly farmers, thereby holding back inventory growth.
The same tendency to substitute red meat in place of fish is pushing up beef consumption even more sharply than that of pork. In the three years since 2015, beef consumption will have risen 10.8% --almost as rapidly as chicken (11.8%) or a third more rapidly than that of pork (8.1%).
In chicken's case, imports are driven by the fact consumption is growing faster than production. For pork, consumption is rising amid flat, constant output. In the case of beef however, demand is rebounding towards previous highs while output continues its long-term downtrend.
There is a greater cost difference between domestic and imported than any other protein line. With imports undercutting returns, only wagyu beef can withstand their price competition but it faces stagnant consumption. Instead, growth (as we explain below) is happening in lower-cost, lower quality beef that local producers cannot compete against.
Beef cattle rearing returns are low and with the recent decline in cattle prices, falling even further. It means that in recent years, the exit of many elderly small scale wagyu beef farmers is not fully counterbalanced by expanding larger operators. Thus, Japan consumed 1.3 million tonnes of beef both this year and in 2002, but 2018 will see it only produce 470,000 tonnes of beef -12.5% less than it did back then.
Unable to compete on cost, 42% of Japanese beef come from Wagyu cattle, whose highly specialized feed inefficient diet make for a 3 year grow out time and uniquely tasting beef. Such beef makes for a highly expensive, demand inelastic, import immune traditional niche product. With a USDA estimated wholesale price of ¥Y21,000/kg (US$189.10/kg), it accounts for approximately 15% of beef consumption.
Discarded dairy cattle account for another 33% of Japanese beef production, with cross-breed F1 steers, bulls, heifers and calves making up the remainder. With an average wholesale price of ¥14,000/kg (US$126.13/kg), it is twice as costly as American or Australian beef, which sell around ¥7,000/kg (US$63.06/kg).
Due to falling incomes and tough economic times, consumption, imports fell by 37% from their 2000 peak of 1.045 million tonnes to 659,000 tonnes in 2008. Even so, domestic beef production only fell 1%. This is because locally produced wagyu beef tends to be price-inelastic and consumed on special or traditional occasions. Hence, lower cost, lower quality imports and meat processed from dairy cattle bore the brunt of Japan's lower beef demand at that time.
On the other hand, the post-2008 decade of rising beef consumption has been led stimulated by a combination of rising incomes and trade liberalization, which has seen the lowering of tariffs on Australian beef and a post-2008 re-entry of US beef into Japan's market.
At approximately 10.4kg, not only are Japanese are eating 12% more beef per capita in 2018 than they did in 2008. More importantly, the quality and location of their consumption also changed. From 60% in 1998, the proportion of beef consumed at home has fallen to 32%. 63% of beef is now consumed in restaurants.
A combination of falling personal incomes and flat population growth made beef consumption fall from its 1.563 million tonne peak in 2000 and languish at just under 1.2 million tonnes from 2004 through 2008. Over 8% of beef's 12% post-2008 consumption increase occurred happening after 2015 -and those factors behind this recent beef demand acceleration imply that an important market inflection point has been reached.
According to this year's USDA GAIN report on Japan's beef cattle sector, "The Japan Foodservice Association estimates that while overall foodservice sales increased 3% percent in 2017, Korean'style 'yakiniku' barbecue restaurants and "western'style" fast food (including hamburger restaurants) were the fasting growing market segments with sales growth of 7.8% and 6.6% respectively."
The report notes a "Rapid expansion of 'stand-up steak' restaurants, a new style of fast-casual dining in which patrons order steaks by the gram and eat them at stand-up countertops. Noting how they exclusively serve low cost imported beef, it concludes that "The proliferation of such restaurants has helped to shatter the consumer myth that quality steaks can only be eaten in expensive steakhouses."
Low cost, restaurant driven marketing does more than merely boost consumption or change where Japanese eat beef: From 2015 when these new restaurants took off through 2017, beef imports jumped 15.6% in two years, from 707,000 tonnes to 817,000 tonnes in 2017. It was Japan's highest beef consumption and beef import volume since 2003 and its population is slightly lower today.
Going forward, poultry consumption's upward march continues and Japan is no exception: Chicken meat consumption is within 200,000 tonnes of pork consumption and will overtake it by 2025 -but chicken is part of a larger story.
For the first time since the late 1990s, the years since 2015 have seen steady, consistent growth in total meat consumption and imports to levels that finally surpass their early 2000s peak. After more than ten years, consumption of these three meats has finally broken out of its 5.5 million to 6.00 million tonne plateau. It has gone from 6.01 million tonnes in 2015 to a USDA estimated 6.8 million tonnes this year.
Japan finally seems to be recovering from two decades of economic stagnation. It implies that going forward, overall meat consumption should rise by 2% to 3% annually, at a pace comparable to that of neighboring South Korea. It will be the first sustained growth in its large meat import volume in over 20 years.
With poultry and red meat consumption both expanding at comparable rates, Japan's already large meat consumption is poised to increase significantly for the first time this century. With domestic red meat output unable to keep pace with demand, red meat imports will grow more rapidly than those of poultry and surpass their previous highs.
Moreover, partly due to lifestyle changes, partly because of innovative restaurant marketing, Japan joins America in becoming another mature western market where decades of flat or falling beef consumption are giving way to a new era of gradual but steady growth.
At the same time, the country's beef and pork producers are incapable of keeping pace with this new demand growth. Hence, we will see Japan's red meat imports overtake those of poultry even as chicken achieves the greatest market share, sometime in the early 2020s.
All rights reserved. No part of the report may be reproduced without permission from eFeedLink.