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USDA GAIN: Oilseeds, Cotton, Sugar, Grain and Feed

15 April 2013

USDA GAIN: Japan Oilseeds and Products Annual 2013USDA GAIN: Japan Oilseeds and Products Annual 2013

Japan, a mature soybean market, consumed approximately 3.1 million metric tons (mmt) of soybeans and soybean products in 2012. Since 2007, Japan’s soybean imports have decreased by 35 percent, and in MY 2011/12, total soybean imports were down 5.4 percent from the previous year. For total soybean imports, the United States is the largest supplier of soybeans, primarily for food and oil, and held a 62 percent market share. However, imports of U.S. soybeans dropped 16 percent, partly due to importers’ expectations that the price would increase as a result of last year drought.
USDA GAIN Report - Oilseeds, Cotton, Sugar, Grain and Feed

Oilseed Production

Soybeans, like rice, have been a staple of Japanese food culture since ancient times. Recent research providing evidence of the health benefits of soy has further reinforced consumer demand for soy foods. The Japanese soy industry generally requires product of superior quality with high protein and sucrose content. Japanese manufactures utilize a variety of different soy species that are intended for multiple end uses. Tofu (soybean curd), is the most common end use for soy in Japan, accounting for 58 percent of total food soybean use.

Although there is a long history of soy production in Japan, in 2012, domestic production was only 23 percent of the volume of soy food consumption. Prospects for increased production through improved yields or other means remain limited by various factors including the lengthy rainy season and complicated regulations by central and local governments for adopting biotech seeds with higher yield potential. For many years, domestic soybean production consistently contributed between three to five percent of total soybean supply (for all uses), although from 1993 to 1995, this level dropped to two percent. Since 2005, this level has gradually increased, reaching a record high of seven percent in 2011, primarily due to a decline in consumption of soybeans, mainly for oil production. Japanese soybean production in 2012 was 229,100 mt, up five percent from the previous year, with yields increasing to 1.75 mt per hectare, while the overall planted area decreased by four percent to 131,100 ha. This production increase was due to favorable weather during the sowing and harvesting seasons.

Farmland dedicated to growing soybeans has often been converted from rice paddies, and in 2012, 85 percent of soybeans were planted in converted fields. Japan’s rice production has exceeded demand for many years, and as a result, the Ministry of Agriculture, Forestry and Fisheries (MAFF) has provided a diversion subsidy to encourage farmers to switch from rice to soybeans and other crops. At the same time, soybean dry field farming has gradually decreased due to local municipalities’ farmland improvement policies and changes from soybeans to high profit crops such as vegetables. In MY2011/12, the planted area of soybeans decreased four percent from MY2010/11. MAFF started an individual income support allowance for farmers in JFY2011 which pays more for non-table use rice than soybeans. The non-table use rice includes feed rice, rice for powder, and paddy rice for whole crop silage. Therefore, some soybean farmers went back to planting non-table use rice, because it is more suitable for growing in rice paddies than soybeans and they can receive a higher subsidy. Moreover, some farmers went back to planting table rice due to current high prices. For these reasons, and despite a new subsidy that MAFF is providing to support soybean farmers beginning April 1, 2013, the beginning of the Japanese fiscal year, Post expects Japanese farmers will continue to decrease the planted area of soybeans in MY2013/14.

Overall, soybean yields have grown at a sluggish pace in Japan, at around 1.64 mt/ha. However, yields vary dramatically by region. For example, in 2010, yields in Hokkaido and Saga were more than 2.0 mt/ha, but those in Kyoto, Kochi and Oita were about 1.0/ha. A number of challenges make it difficult to achieve increases in yield and quality of soybean production in Japan. For example, soybean production is affected by meteorological influences such as heavy rain and typhoons during the sowing and harvesting seasons. Additionally, soybeans are not suitable to grow in rice paddies due to poor soil drainage quality. Nevertheless, the development of new varieties to correspond to regional climate differences, as well as the spread of new cultivation technologies, has been significantly delayed. Although a number of new varieties of soybeans have been developed, there is no guarantee that end users will buy those varieties. Therefore, soybean farmers are reluctant to switch to new varieties and instead keep planting three traditional varieties which account for about 50 percent of total soybean acreage. In addition, many farmers are not interested in introducing new technology due to the financial burden and effort required to improve to more efficient and high yield soybean farming.

The ratio of lower quality soybeans, “3rd class” plus “specific end-use class”, has been relatively high for the last five years ranging from 36 percent to 51 percent of total production. Improved and more efficient production techniques could contribute to increased soybean production. Biotech soybeans are one example of a new technology that could increase yields. However, Japan has not produced GM soybeans commercially despite having approved nine biotech soybean varieties for food and feed use, five of which are also approved to grow as of February 25, 2013.

According to Post’s 2012 Japan Biotech (GAIN JA2013) report, this lack of acceptance is the result of a number of factors. One important hurdle is overly restrictive local regulations. Often, events that are approved for environmental release (i.e., commercial cultivation) by the Government of Japan may face additional approval processes required by local governments. For instance, in Hokkaido, where 29 percent of Japanese soybeans are grown, farmers must first host public meetings, at their own expense, with neighboring farmers, agricultural cooperative members, regional officials, and other stakeholders. At these meetings, they must announce their intention to plant biotech crops and explain how they will ensure that their crops do not mix with non-biotech crops. Secondly, farmers must complete a detailed application for submission to the governor's office explaining their plans for growing biotech crops. This application requires precise information on the methods that will be used to monitor the crops, as well as measures for preventing cross-pollination, testing for biotech contamination, and procedures for responding to emergencies. Finally, farmers must pay a processing fee of 314,760 yen (about $3,300) to the Hokkaido Governor's office in order to cover the costs of reviewing their application. Compounding these legal restrictions, farmers also require customers who are willing to buy their biotech crop. Such restrictions reduce the potential advantages that biotech traits can offer.

In March 2010, MAFF established the “Basic Plan for Food, Agriculture and Rural Areas”, which calls for soybean production to reach a number of targets by 2020, including: 300,000 ha in total planted area, 600,000 mt in total production, and supplying 17 percent of total domestic consumption. This proposed target for soybean volume is almost three times as much as the 2012 production of 229,100 mt. To achieve this goal, MAFF called for the following measures:

  • Converting rice paddies to large scale dry fields (two hectares or more).
  • Breeding and cultivation of high yield varieties.
  • Improvement of cultivation techniques for soybeans.
  • Product development emphasizing the characteristics of domestic varieties to create new demand.

It must be noted that Japan has never reached 600,000 mt in production before, and the last time soybean production exceeded 500,000 mt was in 1955. Given that the current planted area is one-third of the 1955 area, coupled with a declining workforce, these proposed targets will be difficult to achieve.

Rapeseed is a low yield crop and requires vast amounts of land to make commercial production feasible. Total profit from rapeseed cultivation in Japan is just one-tenth that of rice. In 1957, the total amount of land dedicated to rapeseed was 260,000 ha. During Japan’s rapid industrial growth in the 1960-1980’s, there was a major shift in labor from the agricultural sector to commercial goods, affecting rapeseed production significantly. Furthermore, liberalization of soybean imports in 1961 further accelerated the decrease in rapeseed production. Due to these factors, the amount of area dedicated to rapeseed production hit a low of 300 ha by 1999 and, though slightly higher in 2012, still amounts to just 1,610 ha. Total rapeseed production in 2012 was 1,890 mt, meeting only 0.08 percent of Japan’s annual consumption demand.

MAFF’s target volume for rapeseed production in 2020 is 10,000 mt, ten times the current level, which could be achieved through the use of high yield varieties and better integration between crushers and farmers. This is an ambitious target that, even if realized, would result in a gain of just 0.5 percent above current production levels.

Oilseed Consumption:

Soybeans and rapeseed are the primary oilseeds available in Japan. Soybeans are used as raw materials in food oil production and as soy meal in feeds. Recently, soybean consumption has decreased due to rising international prices, which in turn have led to higher prices for processed foods, negatively impacting overall sales. Japan utilized 1.96 mmt of soybeans for oil production in MY2011/12, with demand being met by imported soybeans. Overall demand for oil production has increased dramatically from the 1960’s as the Japanese diet shifted more toward Western style cuisines that depend on heavier oil use. Since 2004, soybean oil demand has continued to decline as prices have escalated internationally. Domestic soybeans are generally not been used for oil production as they are priced higher than imports and often lack favored characteristics.

Since 2009, Japanese consumption of soybeans for food use has been below one mmt. Food soybeans, which are not genetically modified, are used for tofu (soybean curd), boiled soybean, natto (fermented soybeans), miso (fermented soybean paste), and some whole bean soy sauce (marudaizushoyu). Despite declining consumption of soybean food products, soymilk consumption increased 17 percent in 2012 over the previous year, reaching a record high. Post estimates that 39,000 mt of soybeans were utilized for soymilk production in CY2012. This is still only about four percent of total food soybean consumption.

All imported rapeseed is used for oil. Rapeseed meal production is a byproduct that is used in feed and fertilizer production. In CY2012, 2.4 mmt of rapeseed was consumed in Japan, up by two percent from CY2011. A healthy image of rapeseed oil continues to sustain stable demand.

Oilseed Trade

Japan’s soybean imports in MY2011/12 were approximately 2.8 mmt, down five percent from 2.9 mmt in MY2010/11. However, due to higher global prices, the value of imports, $1.8 billion in MY2011/12, remained virtually the same.

In September 2012, soybean prices reached a record high on the Chicago futures market, and oilseed prices, including those for soybeans and rapeseed, have remained at a relatively high level. The Japanese crushing industry has not been able to adjust soybean oil prices to a more profitable level due to a lack of retail demand. Rapeseed oil products have been in a similar situation. However, earnings’ performance and demand for rapeseeds has been better than soybeans and the production of rapeseed oil has been stable.

The United States supplied 1.7 mmt of soybeans to Japan in MY2011/12 (62 percent of the import market share), down 15 percent from 2.0 mmt in MY2010/11, because the increase in U. S. soybean prices led some Japanese buyers to switch to Brazilian soybeans. Other major suppliers include Canada and China, which supply non-biotech soybeans for food use. The CIF import price of soybeans in MY2011/12 increased three percent to $636/mt from $617/mt in the previous year, setting a record high annual average. Despite high soybean prices, demand for soybeans is expected to remain stable. As a result, Post expects imports will be steady at 2.2 mmt in both 2012/13 and 2013/14. Post anticipates the United States will regain a market share at the 1.8 mmt level due to the high prices of rape seed and Brazilian soybeans.

Canada and Australia are the major rapeseed suppliers to Japan. Canada’s share of the Japanese rapeseed market was 97 percent in MY2011/12, and the average price increased by six percent to $681/mt in MY2011/12, from $642/mt in MY2010/11. At this moment, the profit of rapeseed crushing is higher than soybeans; therefore Post estimates imports will increase slightly to 2.4 mmt in MY2012/13. Post expects this trend to continue for the foreseeable future. What could change this scenario is if the price of Canadian rapeseed increased to such an extent as to make it worthwhile for crushers to go through the difficulty of switching their facilities to soybeans, thereby taking advantage of larger, more diverse supplies.

Currently, the Japanese vegetable oil crushing industry uses only imported materials. No import duties are levied on soybeans or rapeseeds.

Crushing Capacity:

There are 13 large scale crushing plants with a combined crushing capacity of approximately 90 percent of the Japanese total. The Japanese oil crushing industry has been operating at about 60 percent of full capacity since 2009.

Oilseed Meal Situation and Outlook:

Soybean meal is not just a byproduct in the Japanese crushing industry but also an important product in its own right, as is soybean oil. The soybean crushing process produces 190 kg of soybean oil and 760 kg of soybean meal from one mt of soybeans. In terms of demand and value, soybean meal may be more important than soybean oil. According to an estimate by MAFF, 87 percent of soybean meal was used for feed, with the rest being used for ingredients in soy sauce, miso (bean paste) and soy protein foods, as well as an improving agent for processed foods in 2012.

In line with decreased oil production, soybean meal production in MY2011/12 was down seven percent at 1.48 mmt from 1.64 mmt in MY2010/11. Demand for feed was 3.18 mmt in 2012, a four percent decrease from the previous year. However, imports of soybean meal were 2.25 mmt in MY2011/12, an increase of three percent from 2.18 mmt in MY2010/11. In MY2011/12, India increased the exports of soybean meal to Iran and decreased exports to Japan. Therefore, Japan increased imports from China and Brazil, but imports from the United States decreased 23 percent due to a relatively high price. It was the third consecutive year that Japan had imported more than two mmt of soybean meal. Post expects that soybean meal demand will decrease slightly in FY2012/13 based on the forecast of the number of livestock in Post’s Grain and Feed report (JA1009). If the import price of soybean meal declines to the previous level, demand for compound feed could recover. Since Japanese production does not satisfy demand of soybean meal any more, imports will continue to substitute the lack of supply.

Rapeseed meal and fish meal are used in feed and fertilizer production in Japan. The rapeseed crushing process produces 410 kg of rapeseed oil and 570 kg of rapeseed meal for every mt of rapeseed. Rapeseed meal production was up marginally in MY2011/12, to 1.30 mmt from 1.29 mmt. Demand has remained stable at around 1.3 mmt over the last five years. Post expects rapeseed meal production will increase further in MY2012/13 due to an increase of rapeseed oil production.

Ninety three percent of fish meal in Japan is produced from residue of the fish (head, guts and bone) for livestock feed. The remaining 7 percent is produced from raw fish for fish feed. Fish residue has been decreasing as consumption of seafood is declining in Japan. There is no tariff on soybean meal, rapeseed meal, or fishmeal.

Oil Situation and Outlook:

According to MAFF, the total supply of vegetable oil in CY2012 was 2.45 mmt, including 1.63 mmt from domestic production and 0.69 mmt from imports. This level of production was unchanged from the previous year, but Japanese vegetable oil production has been on a downward trend since reaching its peak production level of 1.89 mmt in 2000.

Japanese soybean oil production has decreased considerably in the last decade. Following the first detection of BSE in Japan in 2001, imports of meat bone meal ceased, and soybean meal and oil production increased to fill that demand. Soybean oil production was at its highest level in 2003 at 760,000 mt, resulting in soybean oil supply exceeding demand. This surplus led to a long-term decline in soybean crushing, with only 400,000 mt being produced in 2012. In contrast to soybeans, rapeseed oil production has remained at a record high of 1.03 mmt in 2011 and 2012, offsetting the shortage in soybean oil.

While oils from temperate products have been decreasing, oils from tropical products such as palm oil and palm kernel oil have been increasing.

Although international prices for soybean oil and rapeseed oil have been soaring, palm oil prices have been relatively low. Around 70 percent of palm oil goes to use in margarine, shortening, instant noodles, and snacks, with the remainder being used for various industrial production purposes such as soap, detergent, industrial lube, resin paint, and cosmetics. Japan imports about 30,000 mt of sunflower oil annually, primary for a small niche market.

Oil Trade:

Rapeseed oil comprises the largest share of vegetable oil supplies in the Japanese market, exceeding one million mt (including both domestic production and imports) in 2012. Tropical oil (palm oil, palm kernel oil, and coconut oil) comprised the second largest share.

Palm oil is the major vegetable oil imported by Japan, with Malaysia as the primary exporter. Unlike other oilseeds such as soybean and rapeseed, palm oil is produced from the flesh of fruit. This makes it difficult to import raw materials meeting quality specifications that are in demand for production in Japan. Japan imports palm kernel oil, coconut oil, soybean oil, olive oil, and rice oil to meet various demands. Imports of soybean oil and rapeseed oil have been very minimal. The market is protected by high tariffs on soybean and rapeseed oils. The tariff for both oils is either 10.9 yen/kg or 13.2 yen/kg depending on the acidic value.

The United States has been the major supplier of sunflower seed oil to Japan. Although, the annual average price increased 22 percent to $840/mt, Japan imported 29,000 mt in MY 2011/12, which was the same level as the previous year. The imports from the United States were down 25 percent due to the high price and imports from Argentina, France and Turkey increased to fill the gap.

April 2013

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