The Japan-Swiss EPA means nothing to cheese lovers

May 23rd, 2010 by Philip Brasor & Masako Tsubuku

A bit rich: Cheese Okoku in Kita Senju

A bit rich: Cheese Okoku in Kita Senju

A common topic of conversation among my foreign friends is cheese, more specifically, where one can buy it at justifiable prices. Cheese is notoriously expensive in Japan owing to a number of factors both cultural and bureaucratic. The agricultural ministry is very protective of Japanese dairy farmers and slaps a fairly high tariff on any milk-based products from abroad. The duty on cheese is about 30 percent, but that’s 30 percent of the total cost of importing the cheese, meaning 30 percent of not only the wholesale price, but also 30 percent of the transportation cost and the insurance. And soft cheeses, at least, have to be shipped by air, so costs mount even more, and by the time the cheese is in your local store it has passed through the grubby hands of middlemen and can cost three or four times what it cost in its home country. Theoretically, if you buy it in bulk or over the Internet you can save some money, but Japanese, I’m always told, don’t eat cheese that much. If that’s true, then why is Japan the second biggest cheese importer in the world?

It’s no secret that the big national food companies that deal in dairy foods like Meiji, Yuki-jirushi (Snow Brand) and Morinaga directly benefit from the cheese tariff and most likely lobbied to have it put in place. But the bulk of their sales in this realm is processed cheese (natural cheese imported for the purpose of making processed cheese is tariff-free), which Japanese consumers prefer. In fact, 90 percent of the so-called natural cheese sold in Japan is imported from abroad. This would seem to indicate that Japan produces very little non-processed cheese. If it’s true that Japanese consumers in general don’t like “real” cheese, meaning the harder, smellier kind, what exactly is there to protect?

The price of cheese from Switzerland should have at least come down a little bit because Japan concluded an Economic Partnership Agreement (EPA) with the country that went into effect last September. This means that Swiss can buy cars and electrical appliances from Japan without any import duties and Japanese can buy luxury watches and chocolate and Nestle’s instant coffee with the same benefits. Cheese, too, since it’s a major Swiss export, mainly emmenthal (the one with the holes) and gruyere. However, we have not noticed any appreciable change in the price of cheese from Switzerland in the past nine months. At the very least, the price should have come down in relation to the Swiss franc, which, like most currencies, has lost much of its value against the yen in the past year. I know there’s a lead time when it comes to price changes pegged to foreign currency fluctuations, but I’ve seen absolutely no change in the past few years in the cheese cases of my local stores.

Last week we bought a tiny block of Swiss emmenthal (¥480 for 100 grams) and an even tinier block of Swiss gruyere (¥1,100 for 100 grams) at Cheese Oukoku (Cheese Kingdom), a chain operation that you usually find in the basements of department stores. Their salespeople like to show off their knowledge of all things cheesy by advising customers on how to enjoy certain types, how it’s made, the aging process, etc., but when we asked one of them about the Swiss issue he professed to know nothing, and said he had never even heard of the EPA. What about the drop in the franc and the euro? we asked. Shouldn’t that make a difference?  “The price of cheese hasn’t gone down,” he said. That much we knew just by standing there and looking.

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5 Responses

  1. Amen!
    So what can we do to “moo-ve” these cows to give us real cheese at affordable prices? Any constructive ideas?

  2. Well, firstly tariff reductions are usually implemented over a given time period (1-10 years). Secondly, it could be that the costs of applying for the exemptions from the normal tariffs are higher than the actual benefit. Thirdly, as you mentioned, it could be that the EPA is of no use in this case because there is no incentive in Japan to pass on the lower price to the customers (why should they? there are no substitutes).

    Again, most experts argue that EPA have more to do with politics than with economics…

  3. Thank you for the interesting article. Let me provide some additional information:
    1. JSFTEPA (Japan-Switzerland Free Trade and Economic Partnership Agreement) does not cover all cheese, but only 12 selected types of Swiss cheese. To know which types, please consult the following weblink:
    http://www.seco.admin.ch/themen/00513/02655/02731/02970/index.html?lang=en&download=NHzLpZeg7t,lnp6I0NTU042l2Z6ln1ad1IZn4Z2qZpnO2Yuq2Z6gpJCEfHt_gGym162epYbg2c_JjKbNoKSn6A–
    Or go to: http://www.seco.admin.ch/themen/00513/02655/02731/02970/index.html?lang=en
    And then:
    Annex I, Appendix 1, Schedule of Japan
    And there at the end: “Attachment 1: Natural cheeses”

    2. That means that certain imported Swiss cheese cannot benefit of the tariff exemption (please consult also HS 0406.90 of the Japanese tariff schedule).

    3. Another element is the usually small quantity sold in single items (100g not 500g or even 1kg as you can find in Switzerland). This increases the price automatically due to additional handling required.

    4. As you indicated the shelf-price depends not only on the total import price including tariff but also the exchange rate and the distribution channel. The tariff in percentage of the final shelf price may be no more than 10 %. And of course distributors may not expect a strong price sensitivity/elasticity of the consumer for a 10% price decrease as it is a luxury food item in Japan.

    Summary: Yes the EPA does bring direct tangible economic benefits. However, these benefits are not necessarily distributed to the consumer as it depends on the competition intensity and price sensitivity of the product.

  4. One amendment: there are not 12 but 13 cheeses covered.

  5. Second addition regarding the preferential tariff treatment:
    1. There remains a quota for cheese imported under JSFTEPA.
    The quota starts with 600 metric tons to be increased over the next 10 years to 1’000 metric tons. Cheese imported beyond this quota pays the usual MFN-tariff of 29.8 per cent.

    2. The cheese imported within this quoata benefits of a tariff reduction. The tariff reduction is made in six equal annual instalments from 29.8 per cent to 14.9 per cent. So the tariff will be halved over the next 6 years but not eliminated.

    Summary: The immediate effect of tariff reduction is very low for the first year, increasing over the next 6 years (always within the quota).

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