Report Highlights

Japan currently only allows U.S. beef from animals aged 20 months or younger, which severely limits trade. While the Japanese market was partially re-opened in July 2006, imports of U.S. beef only reached 10,458 MT in 2006, a fraction of historic levels. 2007 U.S. beef sales to Japan are forecast at 57,000 MT, primarily due to a limited supply of age-qualified animals in the United States. However, this forecast is highly dependent on policy developments. High beef prices in general will dampen consumption. Pork imports are forecast down 2% to 1.12 million MT in 2007. Increased enforcement of the so called ‘gate price’ system of collecting import duties will continue to limit imports of frozen pork for processing. The Untied States is expected to continue doing a brisk trade in seasoned ground pork for sausages, which falls outside of the ‘gate price’ duty system.

2007 Japan Beef Market Outlook

For Policy Reasons, Imports of U.S. Beef to Stay Low in 2007

Post estimates Japan’s total beef imports in 2007 will be around 720,000 MT, up by 4% from last year. CY 2007 U.S. beef sales to Japan are forecast up at 57,000 MT.

Japan currently only allows U.S. beef from animals aged 20 months or younger. One large factor in the 2007 import estimate is the ability of the U.S. beef industry to supply cattle that qualify under USDA’s EV program, which is used to identify animals that meet the Japanese age restrictions. Currently, a minority of the cattle slaughtered in the United States qualify under this program. The Japanese policy is not based on sound science and is not consistent with international standards. If Japan were to adopt international standards in 2007, it would greatly increase the exportable supply of U.S. beef and would contribute to the United States regaining its historic market share. In May 2007, the OIE (the World Organization for Animal Health) is expected to adopt a new classification for BSE risk in the Untied States. Because the OIE is a recognized standard setting body in the WTO, this change may play a key role in normalizing the beef trade with Japan.

Moreover, Japan’s on-going 100% open box inspection policy for U.S. beef started in July 2006 and remains in place. Importers are asked by the Japanese government to open and check all boxes of U.S. beef at the point of imp ort prior to customs clearance, a costly and time consuming process. It is generally agreed that meat importers do not have the physical space or staff needed to perform 100% box inspections for the larger volumes of U.S. beef that are expected to arrive in 2007. This policy will also act as a brake on U.S. beef import in 2007 if it is not changed.

Competition from Australia to Continue

Australian beef imports (not including prepared and processed products) in 2007 will be around 564,000 MT, down by 3% from the previous year. Drought conditions and high grain prices will limit the supply of Australian grain fed beef in 2007, which will partially be replaced by U.S. beef. The number of cattle on feed in Australia is reportedly increasing but high grain prices and feeding costs will hurt competitiveness. At the same time, Japan will face competition from other Asian beef buyers.

High Prices Will Continue

At the projected level of 2007 imports, no price decline is forecast. This will hamper the overall beef recovery in consumption. Along with high domestic beef prices, average monthly CIF prices of imported beef are currently 10 – 15 % over 2003 annual average level and have contributed to overall slump in beef consumption in Japan.

U.S. Beef Gaining Back Ground In HRI and Retail

Trade reports indicate that nearly 3,500 outlets of hotels, restraints, and retailers currently carry U.S. beef and this will expand in 2007. However, major supermarkets are not yet carrying U.S. beef but this is expected to change soon. Acceptance by a national retail supermarket would be an important development because it will signal to other retailers (and Japanese policy makers) that consumer concerns over U.S. beef have faded.

Domestic Production Also Languishing

Japanese beef producers, which in 2006 met about 40% of overall demand, have been unable to capitalize on the limited supply of imported beef for a number of reasons, including an aging farm population, stricter environmental controls, limited space, and very high dependence on imported feed grains, especially on U.S. feed corn, which has become more expensive. Beef producers in Japan have been further hurt by a decline in tariffs collected from beef imports, which are used to provide domestic beef production subsidies. These factors will continue in 2007.

Triggering of Beef Safeguard in JFY 2007 Unlikely

It is anticipated that Japan will keep the same beef safeguard level that was established for JFY 2006. This means that additional duties will not be levied unless beef imports in JFY 2007 exceed an average of JFY 2002-2003 levels or 117% of the previous year imports, whichever is higher.

If the safeguard is triggered, beef tariffs will rise to 50% (from 38.5%) and the higher tariffs will stay in place for the entire fiscal year.

2006 Beef Market Situation Summary

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

High Prices Weakened Overall Beef Consumption in 2006

Total imports of U.S. beef in 2006 only reached 10,458 MT (Customs Clearance Basis: 7,321 MT). (See table 8-a). Total beef imports in 2006 were unchanged from last year at 692,000 MT. Modest decline in imports from Australia was offset by a marked reentry of U.S. beef.

Generic beef imports were steady in 2006 at 658,000 MT. Country shares were: Australia (88%), New Zealand (8%), and U.S. (2%). Prepared and Processed Beef Products: 34,000 MT, down by 20%. Counter shares were: Australia (45%), China (34%) and Brazil (12%) and New Zealand (8%)] (See table 8-a, 8-b, 8-c and 8-d).

Total beef consumption in 2006 fell 2% to 1.23 million MT, primarily due to weak consumption brought on by high prices. Household consumption data in particular showed a 4% decline in 2006 (See table 2). The ending stock also rose 18% to 104,564 MT, partly due to an abnormally warm winter (November and December), which hurt sales of hot pot dishes (See table 3).

Throughout 2006, there was high demand for Australian beef and wholesale market prices were higher (See table 5). This appears to have discouraged sales of Australian beef in the retail sector. Food service sector demand was reportedly been solid, especially for fast food chains.

Meat Livestock Australia (MLA) data (See table 7) shows that chilled beef exports to Japan in 2006 were down 6% (grass: down 11%, grain fed: down 3%) while frozen beef exports were up 8% (grass: up 9%, grain fed: up 3%).

Domestic Cattle Slaughter Slightly Fell in 2006

In 2006, total slaughter was down 1% to 1.26 million head mainly due to smaller numbers of dairy steers (down 4%) and Wagyu heifers and cows (down 4%) sent to slaughter in 2006. An increase in dairy cow slaughter (up 4%) occurred due to milk surpluses.

Reflecting weak household consumption, average wholesale market prices for medium grade carcasses other than Wagyu were relatively weaker than the previous year

Further Information

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March 2007