May 18, 2009

In a year which some countries placed export restriction of agricultural commodities, the United States remained as an important and stable supplier of soy to Japan in CY2008, according to a US Department of Agriculture attache report posted Friday (May 15) on the Foreign Agricultural Services Web site.

The Japanese oilseed industry faced a very difficult time in 2008 due to the hike in commodity prices and fleet costs as the country produces a small proportion of its edible oil, approximately 6 percent of soy and 0 percent of canola. The United States provided 2.7 million tonnes, 71 percent of soy supply. Brazil, Canada and China supplied 0.56, 0.33 and 0.09 million tonnes, respectively.

Currently, the economic downturn is preventing the food industry in general from passing on high production costs to consumers.

According to the Ministry of Agriculture (MAFF), Japan's food self sufficiency rate has been on the decline for the past five decades and rests at 40 percent on a calorie basis. Soy is no exception; Japan's self sufficiency has been between a mere 2 and 5 percent for past two decades. In 2007-08, due to the commodity price hike and export restrictions on grains in other country, media and the public officials were increasingly promoting domestic production. Imported and domestic food safety incidents, such as "tainted rice", were extensively covered by the media and gave favour to domestic production which is accepted as safer by the general public. Governmental promotion to increase domestic production from its current mandate of 45 percent by 2015 up to 50 percent on calorie base assisted the mood as such. Due to the conditions above and MAFF.s effort to divert rice production to alternate crops, soy planted area increased to 147,100 hectares in CY2008 from 81,800 hectares in 1996. However, it still supplies only 5.9 percent of what Japan needs. Considering various factors for Japanese soy production, including limited farm land, small farming units, climate, the advanced age of Japanese farmers (averaging 64), aging society and population decrease, it will challenging to meet such goals, especially in grains and oilseeds, and to maintain it in sustainable manner. There is only marginal production of canola in Japan. Soy and canola meal are extensively produced as ingredients for formulated feed (soy and canola meal) and fertilizer (canola meal) in Japan. Consumption has levelled off around 4 million tonnes and remains fairly stable though it could be affected by the number and the activity of crushing facilities. As domestic meal is produced from crushing soy, which is mostly imported, the amount of production would depends on import supply and the demands of formulated feed. The livestock population is fairly stable (with the exception of dairy cows). However considering Japan's agricultural demographics, feed consumption may slowly decline in the long term due to the aged and relatively small scale growers and competitive price of cheaper imports.

Soy oil crush in CY2008 decreased to 2.8 million tonnes from approximately 3mmt in CY2007 and down from roughly 4 million tonnes (mt) in CY2002. MAFF surveys oil crushing capacity every other year. Due to shrinking profitability, the number of crushers has been declining gradually over the years as companies consolidate. For example, there were 117 crushing factories in CY1990. Both annual crushing capacity and actual production of oil decreased to 8.8 and 5.9 mt in CY2007, compared with 8.9 and 6.0 mt in CY2005. Canola oil production has been stable over 10 years. This would be the mixed results of high commodity and crude oil prices, consumption reduction due to consumers. At the same time, consumers in general seem to prefer canola oil over soy oil because of its health benefits. Consumption: Soy and canola are the two major oilseeds consumed in Japan. In 2008, total soy consumption decreased 6 percent from 2007, to 3.95 mt. About 71 percent (2.80 mt) of total demand for soy was for oil use, 26 percent (1.04 mt) was for food use, and the remaining 3 percent (114,000 mt) was for feed use. Food soy are used for tofu (soy curd), miso (fermented soy paste), natto (fermented whole beans), boiled soy, soy sauce, and processed food. Recent economic instability, high commodity prices during 2007-08 and the more recent, global financial crisis, have affected all sectors in Japan. The financial crisis threw has caused anxiety among consumers and made them very conservative on spending. The add-on effects are evident, particularly among tofu and natto producers. A significant proportion of tofu and natto manufactures are family-operated or relatively small scale companies. Many of them were hesitant to reflect their higher production costs during the spike in commodity prices (note: they also pay a premium for identity-preserved beans). The global fanatical crisis is hitting them even harder. In the case of canola, all canola seed is crushed for oil and meal consumption. Eighty-seven percent of soy meal is also used as feed. In CY2008, the financial situation hit small scale livestock farmers hard. Approximately two thirds of Japanese farmers are over 60 years old, and many of them are relatively small scale producers. This may indicate that Japanese meal consumption for feed will decrease slowly but significantly in the long term, unless the Government of Japan (GOJ) succeeds in the revitalization Japanese farming society. Soymeal demands decreased in the later half of CY2008, substituted by relatively cheaper canola meal. Canola meal is used extensively as feed but also as fertilizer. Therefore, its consumption depends also on the activity of domestic agriculture, similarly but also competing with soy meal.

Japan's soy imports in CY2008 were approximately 3.6 mt, down from 3.9 mt in CY2007. The value of imports, however, increased to US$2,359 million in CY2008 from 1,664 million USD in CY2007. The United States supplied 2.7 mt of soy in 2008, a significant drop from 3.3 mt in 2007, but still enough to capture 71 percent of the import market. Though the amount supplied dropped in 2008, the value of the trade with the US increased to 1,711 million US in 2008 from US$1,300 million in 2007. Other major suppliers are Brazil and Canada. Canada's supply is almost 100 percent non-biotech soy for food consumption. Total imports of soy for CY2009 are forecast around 3.9 mt, a reversal of the downward soy import trend. The CIF import price of soy in CY2008 jumped to US$636/mt from US$400/mt in CY2007 and US$317/mt in CY2006. The unit price peaked at US$701/mt in September of 2008, but has moderated to US$461/mt as of February 2009. The GOJ has implemented mandatory labelling for selected foods derived from biotechnology. As the Japanese food industry, except oil and a some soy sauce, remains entrenched in its policy of using only non-biotech ingredients while the US biotech crop expands they are facing increasingly difficulty sourcing non-biotech soy. As non-biotech soy are becoming less lucrative and for US growers, industry has been looking for alternative supplies, including current exporting countries such as Canada, Brazil and other new comers such as Ukraine.

However, the amount and potential of growth in emerging exporters to Japan seem limited due to complex factors such as soy quality, productivity, geographic location and competition with other importers. Canada increased its dominant position as a rapeseed supplier to Japan, providing 88 percent in CY2008. Canada and Australia are the only suppliers and Post expects little change for 2009. The price trend for rapeseeds was similar to that of soy. The average price increased to US$675/mt in CY2008 from US$446 in CY2007 and US$313 in CY2006. Japan's soy meal import in CY2008 was on par with CY2007, 1.7 mt, however the value increased to US$860 million from US$550 million due to higher commodity prices. In the early 2000s, soymeal imports from China almost doubled to a level of 500,000 to 600,000 tonnes because of China's increased crushing capacity, along with shorter transportation time, lower prices, and the ability to purchase smaller lots, which allow for direct shipments to local ports in Japan.

Japan has been India, supplying 902,711 MT, 443 million USD in CY2008. Chinese exports in CY2008 were 289,423 MT (152 million USD), almost a half of CY2007. The US took a share of 453,246 MT (244 million USD), the second largest supplier. Imports of soy and canola oils have traditionally been very small as Japan meets most of its demand with domestic crushing. However due to the decreasing trend of domestic crushing capacity, the demand for soy oil imports may change in the future.

Soy ending stocks in CY2008 decreased to 179,000 mt from 250,000 mt in 2007, partially due to the release of stocks under tight market conditions. For JFY2009, MAFF decided to double stocks of non-biotech soy. The amount non-biotech soy in stock for JFY2009 is still 7,200 mt, worth 17-days consumption of non-biotech (i.e. 'food') soy. MAFF plans to make all soy stocks, 31,000 mt as non-biotech by JFY2009. The budget for CFY2009 is 291 million yen.