Reason Why Japan Imports Large Quantities of Dairy Products Even Though It Is Not Obligated to Do So

Just as the butter shortage has been resolved, demand is down sharply due to the new Corona

Japanese dairy farmers are in a tight spot.

Even if they want to milk their cows, they are being asked to cut back on raw milk production, telling them not to milk their cows. Yet, Japan is importing large quantities of dairy products.

What is going on? We interviewed Associate Professor Yoshiharu Shimizuike of Hokkaido University Graduate School, who specializes in agricultural economics and is an expert on raw milk distribution.

One factor that is putting dairy farmers in a difficult situation is the excess stock of dairy products; from 2008 to 2015, there was a serious shortage of butter in Japan, and the dairy industry has been making efforts to increase raw milk production. Just as that effort began to pay off and raw milk production began to increase around 2020, the spread of the new corona infection caused a drop in demand from tourism and the food service industry, and commercial dairy product inventories skyrocketed.

When the supply of raw milk becomes excessive, it is adjusted by processing it into skimmed milk powder or butter, which can be preserved. There is now a huge glut of skimmed milk powder, and last year inventories reached an all-time high. This is forcing dairy farmers to reduce milk production.

In January, J Milk, an industry organization made up of dairy manufacturers and others, announced its forecast that the inventory of skimmed milk powder at the end of FY2023 will reach a record high. It also said that national milk production in FY2023 is expected to decline for the second consecutive year.

Some dairy farmers in Hokkaido are discarding raw milk after being asked by agricultural cooperatives to cooperate in curbing production.”

The government is pushing for production curbs. Between March and September of this year, dairy farmers will receive a subsidy of 150,000 yen per cow when they kill dairy cows for meat or other purposes.

For dairy farmers, it is barren to reduce the number of cows, and shipping dairy cows that can still be squeezed to slaughterhouses is also a problem from the animal welfare point of view. Besides, if we cull the cows, milk production will not recover for three years.”

Imported feed, which accounts for about 40% of production costs, has skyrocketed in price.

From 2022, against the backdrop of the situation in Ukraine and the weak yen, the price of formula feed, which is largely imported, and the cost of fuel will also soar. Dairy farmers are facing a crisis due to the double whammy of curbing milk production.

The largest proportion of the costs incurred by dairy farmers is purchased feed, which accounts for 30-40% of the total. It accounts for 30 to 40% of the total cost, so if the price of feed rises sharply, income will naturally decrease sharply.

The main ingredient of compound feed is corn, most of which is imported from the U.S., but the international market price has skyrocketed since the Russian invasion. The price has remained high due to the weak yen and other factors.

Comparing the average price of imported grain feed in 2021 with the price as of last October, the price had risen by about 30%. Feed costs as a percentage of production costs may be 40% in Hokkaido and over 50% in the prefectures.

In response to the global rise in feed prices, the price of raw milk for drinking was raised by 10 yen per kilogram for the first time in more than a decade last November. The price of raw milk for processing for dairy products is lower than that for drinking, but it is set to increase by 10 yen from April this year.

The price increase of ¥10 per kilogram is far from enough to compensate for the cost increase. On average, the price will have to go up 20 to 30 yen to make up for the higher costs.

Milk prices are determined through negotiations between designated milk producers’ organizations, which consist of agricultural cooperatives and other organizations, and dairy manufacturers. Dairy farmers have no choice but to accept the raw milk price.

Eighty percent of the raw milk produced in Hokkaido is for processing into dairy products. There is concern that demand may drop as the milk price increase is passed on to the retail price of dairy products.

If sales are sluggish, the inventory of dairy products will naturally increase. A 10-yen price increase was probably the maximum we could raise the price.

Furthermore, the rising price of grain feed has also affected the price of calves. Male calves born to dairy cows are a valuable source of additional income for dairy farmers, but the price of calves has dropped to the point of collapse.

Male calves are basically sold as beef cattle. But now, because feed is so expensive, fattening farmers are holding off on buying calves. There are no buyers, so the price has plummeted.

Japan imports about the same amount of dairy products as Hokkaido produces.

According to industry newspapers, farmers are leaving farming in Hokkaido at an accelerating pace due to deteriorating business conditions and uncertainty about the future.

Every year, 2 to 3 percent of dairy farmers leave their farms, and this year, about 5 percent of farmers in Hokkaido will probably leave their farms.

There are some people in the field who are calling for the government’s support to help their business survive. ……

I expect the government to do that. I would like the government to buy up the excess inventory of dairy products. In Europe, there is a system where the government buys up the excess stock in the country. Japan has no such safety net.

On the contrary, while the dairy industry is suffering from excess inventory, the government is importing large quantities of dairy products on a “current access” basis.

Current Access is a low-tariff import quota for dairy products that the government has established since 1995 based on the GATT Uruguay Round agricultural negotiation agreement. Using this international trade quota, the country imports 137,000 tons (raw milk equivalent) of dairy products every year.

Some people have pointed out that “dairy farmers will not have to cut back on production if they stop importing the entire quota. It is true that Japan is not obligated to import the entire quota, but I guess the government thinks it has a legal obligation to provide import opportunities.”

Japan has current access and imports butter, skimmed milk powder, whey, and other products from the EU and the US, mainly from New Zealand and Australia.

There are manufacturers in Japan that want to use imported butter and skimmed milk powder, which is cheaper than domestically produced butter and skimmed milk powder. As long as private traders are demanding imported dairy products, the government can’t just block private trade by saying, ‘Dairy farmers are having a hard time right now, so we won’t engage in state trade. Even as a matter of government policy, I don’t think there is any choice but to restrict trade.”

However, domestic dairy farmers will not be saved if they are forced to curtail their own production while large quantities of dairy products are imported from overseas. If this situation continues, there will be a wave of business closures. Is there a way forward for Japanese dairy farming?

I believe there is.

Japan currently imports about 4 million tons of dairy products, which, when converted to raw milk, is about the same as Hokkaido’s production. Most of them are cheese. On the other hand, domestically produced cheese, in terms of raw milk, accounts for only about 400,000 tons, or about 10% of demand. The domestic surplus of raw milk is about 400,000 tons, so if 10% of imported cheese were replaced with domestic cheese, the gap between raw milk supply and demand could be closed.

However, in order to compete with cheap imports, it is necessary to lower the price of raw milk to be used for domestic cheese and to have a system to compensate for the lower price. On top of that, a method of replacing imported cheese with domestically produced cheese would be effective.

As a countermeasure in the event that costs rise as they did this time, for example, a system of accumulation should be established. We have that system for livestock farming, where cattle and pigs are raised to produce meat. How about creating a fund for dairy farming as well, with producers and the government contributing money to it, and supplementing it from the fund when the situation is as it is now? There seems to be some talk within the ruling party, so I would like to see them move forward with this.

We hope that the government will quickly come up with measures that will allow dairy farmers to produce raw milk with peace of mind.

Yoshiharu Shimizuike, Associate Professor, Graduate School of Agriculture, Hokkaido University, was born in Hiroshima Prefecture in 1979. After working as a part-time researcher at Snow Brand Milk Products Dairy Research Institute, an associate professor at Nayoro City University Faculty of Health and Welfare, and a lecturer at the Graduate School of Agricultural Science, Hokkaido University, he has been in his current position since 2021. His publications include “Enlarged Edition: Raw Milk Distribution and Dairy Industry” (Dairyman, Inc.).