When protecting farmers hurts consumers — and farmers

October 27th, 2014 by Philip Brasor & Masako Tsubuku

Sign in dairy case telling shoppers they are limited to only one package of butter per person

Sign in dairy case telling shoppers they are limited to only one package of butter per person

Butter isn’t as essential in Japanese cuisine as it is in certain other countries’ national styles of cooking, but it does have its place, most commonly in white sauces and baking, and anyone here who uses it regularly has had to pay premium prices for it. Lately, they’ve been paying even more.

In a recent Asahi Shimbun feature a housewife shopping in Minato Ward, Tokyo, is tempted to pick up a package of “luxury brand” butter because all the regular butter is sold out, but in the end she leaves the store without it because she just can’t see spending that much money. The article doesn’t say what that price is, but regular butter right now is said to cost “¥400 or more” for 200 grams, and the luxury butter is “twice as expensive.”

The implication is that ¥400 is already too much to pay, but in any case wherever you go, regular butter tends to be sold out, and many supermarkets now limit customers to only one package per trip. More significantly, businesses such as ramen restaurants and bakeries, which rely on butter as an essential ingredient, are also suffering from the price increase. That’s because there is an acute butter shortage.

And the reason there’s a butter shortage is that there’s a milk shortage and butter is the least prioritized of dairy products. Most milk that’s produced in Japan is sold as milk, and only when there is milk left over after being channeled into by-products like cheese and yogurt does butter get made. Unlike most other dairy products, butter can be frozen and stored for a long period of time.

But why is there a shortage of milk, especially since milk is fiercely protected by the government, making it one of the most contentious items on the table for the Trans-Pacific Partnership negotiations? Japanese dairy farmers insist that if the market is opened to imports of milk products they will be underpriced out of existence, but as it stands the dairy industy in Japan is dying anyway due to attrition. According to the National Federation of Agricultural Cooperative Associations (JA), Hokkaido, which contains the bulk of Japan’s dairy farmers, is seeing a shortage of labor in the dairy field, but more importantly the price of feed has gone up greatly in the last year due to the drop in value of the yen. Three-quarters of livestock feed in Japan is imported. One Hokkaido dairy farmer told the Asahi that production has dropped 10 percent since spring and he doesn’t expect it to return to “normal” since he’s already reduced the number of cows on his farm.

Dairy prices are basically controlled by the three large food manufacturers, Meiji, Snow Brand (Yukijirushi), and Morinaga, all of which have enjoyed healthy profits due to the natural price increase brought about by their own control of shipments starting last winter. The ostensible explanation for the shortage was the unusually hot summers of 2012 and 2013. In hot weather, cows are less likely to become pregnant and thus milk production decreases. But a longer view shows that milk production has been steadily declining for almost 20 years. Total milk production in 2014 is expected to be 7.32 million tons, which is 15 percent less than the amount produced in the industry’s peak year of 1996.

Technically, all the butter sold in Japan is supposed to be domestically produced, but even during so-called normal years there is never enough for demand, so food companies make up the difference by buying foreign butter, which comes with a heavy tariff. But during particularly bad years the agricultural ministry will implement “emergency imports” of butter to meet demand, and such stopgap purchases have become more frequent as the number of dairy farms decrease and production drops.

There were emergency imports in 2008, 2011 and 2012. This year, however, there have already been two emergency imports —  7,000 tons in May and 3,000 tons in September. It’s the first time there has been more than one emergency import order in a given year. For purposes of reference, 10,000 tons of butter typically fulfills demand in Japan for 1.5 months.

Consequently, the situation will continue as it is, and will probably worsen, especially for consumers, unless real structural change is implemented, and not necessarily through TPP. What’s needed is internal structural change. Recently, a joint program began in Hokkaido to transfer dairy production technology from New Zealand. Twenty years ago Japan and New Zealand produced roughly about the same amount of milk, about 8.6 million tons each. In 2013 Japan’s output was 7.45 million tons, while New Zealand’s was 20 million.

The difference, as pointed out in a different Asahi article, is that New Zealand did away with subsidies and government support, forcing dairy farmers to rationalize production methods, while Japan’s dairy industry continues to fall under the sway of the agricultural ministry, whose main priority is maintaining influence, and JA, whose importance with regard to dairy farmers is tied to the fact that JA is their exclusive source for feed. The New Zealand protocol doesn’t use feed or factory methods.

It stresses pastures, short grass that is more nutritious than grain, and “seasonal reproduction,” meaning planned pregnancies that make it easier for farmers to plan their years. One reason young people don’t want to go into dairy farming is because the Japan method is time-intensive: year round and round-the-clock. With the New Zealand  method, work stops at dusk, and in the winter both farmers and cows get to take a break.

The irony is that despite all the work Japanese dairy farmers perform, they produce less than half of the milk New Zealand  dairy farmers do, and New Zealand’s population is smaller than Japan’s. Granted, milk products don’t have the traditional traction in the Japanese diet that they do in New Zealand’s, but that is because domestic dairy products or, at least, the kind sold by the three big food companies, aren’t appealing. T

These companies, JA and the agricultural ministry, in order to protect their own interests, have kept high quality imported cheese and butter outside the reach of average consumers, and as a result the domestic dairy industry is now suffering. Farmers are quitting because they think there is no future. They assume tariffs will fall and put them out of business. It doesn’t have to happen that way, but bureaucratic and corporate myopia seems to guarantee that it will.

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3 Responses

  1. New Zealand’s dairy operation is controlled by a single corporation, the Fonterra monopoly that isn’t much of a model. They have been involved in several serious food safety scandals, for example in China and at least 8 other countries, where their baby milk substitute was found to be contaminated with botulism. Also scandals with its milk powder last year in Sri Lanka has exposed the diary giant for what it really is. Of course they deny everything or hire PR companies to mend the record.

    Fonterra controls 95% of the milk market in New Zealand, so I fail to see how that is any better than – well, just about anything else. See Kiwiblog.co.nz for more debate.

  2. Thanks a lot. As always well researched article. And I would say spot on in the consequences. I seriously start to wonder why ordinary people (voters) keep accepting the conditions here. Now with winter approaching, the difference in standard of living between here and say Europe become starker again. Granted food and diet are very cultural items and not exactly comparable.
    But every human being likes a warm house and there are 4 seasons here, how come insulation is not anything taken serious here and double or triple paned windows the standard? Instead it’s still warm feet, but cold ears when sitting around the kotatsu.

  3. @Martin F
    You seem to be implying that Fonterra is a bumbling state protected monopoly which I think is a misrepresentation.
    Fonterra is a cooperative which pays out pretty well for NZ dairy farmers. 95% is not technically a monopoly. It is possible to sell milk to other processors but in most cases why would they bother?. Fonterra has made some mistakes but they’re not as serious as you make out. The 2008 Sanlu scandal was not their doing but they should have picked up on it. (See here: http://www.dairyreporter.com/Regulation-Safety/Fonterra-never-checked-Sanlu-s-products-in-China-melamine-scare-Study)
    The botulism scare was embarrassing but in the end it was just that, a scare. Something went wrong with the testing process. (See here: http://www.reuters.com/article/2013/08/28/us-newzealand-milk-contamination-idUSBRE97R04E20130828)
    I’m not a dairy farmer and if I were ideally I’d be selling my milk to a small cheesemaker next door not Fonterra but it felt like you had an axe to grind so I felt I should speak up.

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