Report Highlights

Following Japan’s latest reopening of the beef market on July 27, initial sales of U.S. beef are slow. 2006 Japanese imports of U.S. beef are forecasts to be 14,000 MT. Total beef imports in 2007 are expected to grow modestly and the United States will reclaim modest market share from Australia. 2007 Japanese imports of U.S. beef are forecast to be 114,000 MT. The beef safeguard could be triggered in JFY 2007. On pork, the Japanese market for processing cuts will continue to change in 2007, hurting EU suppliers. Total pork imports are expected to fall modestly with the reduction of frozen raw pork partially offset by increased imports of seasoned ground pork, which is an increasingly popular alternative for sausage making.

Raw Material Frozen Pork Trade Continues to Undergo Adjustments in 2007

As detailed in JA 6009, Japan has been cracking down on illegal pork imports that use false invoices to avoid paying duties under the complex “Pork Differential Duty” system. The business environment surrounding the raw material frozen pork trade has changed since the government began also holding end users responsible for ensuring that the proper duties are being paid. This is forcing the meat trade to adjust the way they import inexpensive raw material frozen cuts, which in effect lowered mo nthly imports, increased seasoned ground pork imports substantially (mainly for sausages making), and raised the price of ham and sausage products. As a result, abnormally high ending stocks over the past few years are dissipating. Japan’s raw material pork market will continue to undergo the same adjustments in 2007, which will further lower frozen pork imports and ending stocks.

Return of U.S. Beef to Have Limited Impacts on Japan’s Pork Market in 2007

Meanwhile, Japan’s pork market in 2007 will likely see few changes due to the return of U.S. beef. At the projected level of U.S. beef imports, overall market prices of beef compared to pork are expected to stay relatively high. When and if total beef distribution grows (for example, if the 20 month and under restriction is lifted for U.S. beef) and prices for beef drop, will there be a noticeable substitution effect.

In light of the above, total pork consumption in 2007 is projected down by 2% to 2.501 million MT. Total imports are projected modestly lower by 2% to 1.228 million MT (Generic pork; down 4% at 1.057 million MT, Prepared and processed products; up 14% at 171,000 MT). The projected decline in generic pork imports in 2007 is mainly due to a continued decline in imports of frozen raw material cuts used by processed products manufacturers.

Pork importers are forced to mix cuts based on value in order to minimize the differential duties they pay under Japan’s complicated Pork Differential Duty System (which is also called the ‘gate pric e’ system). Compared to the United States and Canada, who have the ability to supply high value chilled pork and seasoned ground pork (HS 1602.40.090 – ad valorem of 20% - an alternative to picnic cuts) EU countries will be more disadvantaged because of their specialization in the supply of raw material frozen cuts. Building on last year’s trend, Japan’s imports of seasoned ground pork from the United States and Canada are expected to trend up in 2007 as well. (See 2006 Summary Update and Outlook Section).

A modest increase in chilled pork imports is likely in 2007, which should benefit the United States and Canada. Imported chilled pork is a popular alternative to domestic fresh/chilled pork, especially in terms of price. The forecast for domestic pork production in 2007 is slightly lower, 1.235 million MT, to accommodate additional imported chilled pork. As overall beef prices are forecast to stay relatively high in 2007, only a minor consumption shift at the retail level is expected from fresh/chilled pork to chilled beef. Ending stocks are expected to continue lowering in 2007, projected down 15% to 222,000 MT.

[Note: According to MAFF (the latest data is of 2004), pork consumption by sectors are estimated; household (40%), processing utilization (29%) and others including food service and catering (31%). Generally speaking, domestic pork satisfies household demand and is only supplemented by imported chilled pork. Approximately two thirds of the processing demand is met by imported pork, mostly frozen. Both imported and domestic pork are extensively used in the food service and catering.]

2006 Situation Summary Update and Outlook

Revised swine and pork PS&D figures for CY 2005 and 2006 are constructed based on preliminary production, trade and stock data available to date.

Raw Material Pork Imports Bound to Drop in 2006

Illegal pork imports are now said to be diminishing as illustrated clearly in monthly imports of frozen pork for January – June 2006, which dropped 27% over the same period last year to 382,000 MT (On customs clearance basis 267,467 MT - See table 12-c). Imports of raw material frozen pork is expected continue trending down through 2006.

Based on Jan. – June import data, total pork imports in 2006 are projected down by 7% over last year to 1.25 million MT [Generic pork; 1.10 million MT, down 12% with U.S. (projected share 31%), Denmark (25%) and Canada (18%) and etc., Prepared and processed pork; 150,000 MT, up 67% with U.S. (Projected share 65%), Canada (24%) and China (10%)]. (See table 12-a, 12-b, 12-c, and 12-d).

Japan’s abnormally large stocks are projected to decline by 13% to 260,000 MT by the end of 2006 (See table 11). Total pork consumption, on the other hand, is projected up by 1% to 2.53 million MT, with a large increase in the imports of prepared and processed products more then offsetting a slight decline in generic pork consumption.

Some Good Growth of Chilled Pork and Seasoned Ground Pork Forecast in 2006

U.S. and Canadian chilled pork are performing better than expected, helped by solid retail and food service demand. U.S. and Canada are also expected to enjoy greater demand for seasoned ground pork as processed pork manufacturers increasingly use the product for sausage making instead of using imported picnic (generic raw material for sausage). Due to greater tariff enforcement, it has become increasingly difficult for the meat trade to make an efficient combination of cuts to include very cheap picnic meat to meet the gate price. As such, Japan’s processed and prepared products imports (mostly seasoned ground pork) jumped 50% for the half of 2006.

Changing Circumstances on Raw Material Pork Trade to Affect EU Most in 2006

Denmark and other EU Countries, due to their exclusive reliance on generic frozen raw material trade with Japan, are hard hit by changing circumstances surrounding Japan’s complex pork import regime. They are expected to lose their high shares in frozen generic pork trade in 2006. [Note: Large majority of Japan’s pork imports from Denmark and EU are said to be frozen cuts like belly (single rib belly) for bacon and loin (MM loin) for loin role ham.]

Japanese meat traders are now in the process of revising their strategy to avoid unnecessary risks associated with raw material frozen pork trade under the differential pork duty system. In the meantime, some are reportedly trying to diversify sources of their supply to new EU members, such as Poland. Japan completed an animal health protocol with Poland this year allowing pork imports and at least one Japanese importer plans to bring pork from a U.S.- owned packer in Poland. Polish cuts will likely cater to both the processing and food service sectors. Struck by increased raw material cost, domestic ham and sausage manufacturers raised prices 5 – 10% in 2006 with apparently no decline in sales.

Sausage Imports to Grow in 2006 Catering to Value Segment Market in 2006

Japanese meat traders are also increasingly importing sausages made abroad to taking advantage of a relatively low 10% tariff. These imported sausages are used in fast foods, catering, and a brisk business in ‘bento’ lunch boxes. For Jan. – Jun. 2006, Japan’s sausage imports rose 18% to 18,513 MT, with continued growth expected. China is by far the biggest supplier with a 63% share of total imports. (Note: Sausage imports are not included in PS&D table.)

No Pork Safeguard Likely

The import safeguard for pork is not expected to be triggered anytime soon. Because of large imports over the past several years, the trigger level will be kept sufficiently high to accommodate forecast imports. [Note: The calculation of the safeguard trigger levels takes the average imports of three proceeding years multiplied by 1.19 (119%) on a quarterly cumulative basis for any given Japanese fiscal year.]

Slightly Downward Domestic Hog Slaughter Projected in 2006

Reflecting slightly smaller sow figures, a slight decline in domestic hog slaughtered is forecast in 2006. Market demand for domestic pork is fair, while the wholesale prices for the first 6 months this year are modestly lower compared to last year. The situation is expected to stay relatively unchanged though 2006.

List of Articles in this series

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September 2006