Report Highlights

A significant expansion of U.S. beef sales to Japan may occur in 2008 but only if import restrictions are lifted. Specifically, Japan currently only accepts U.S. beef from animals that are 20 months or younger. The United States will continue to face difficulties supplying enough age verified beef to satisfying strong Japanese demand. Assuming no change in policy, U.S. beef exports will grow modestly in 2008 to 71,400 MT (or 50,000 MT on customs clearance basis). The total pork imports in 2008 are projected up by 1% to 1.157 million MT. U.S. and Canadian chilled pork will likely have competitive edge over domestic fresh and chilled pork, which is becoming higher priced due to increasing feed cost. There will be continued solid and steady demand for seasoned ground pork, benefiting U.S. and Canadian suppliers. Imports of finished processed products, which have a lower duty, will continue to grow in the coming years.

2008 Pork Market Outlook

High Price Outlook to Slightly Lower Japan’s Pork Consumption in 2008

Japan’s 2008 total pork consumption if forecast to decline by 1% from last year to 2.427 million MT. This is mainly due to the impact of higher feed, and thus causing higher domestic pork prices in 2008. Given this, Japan’s 2008 total pork imports are projected to rise by 1% to 1.157 million MT (generic pork cuts; up 1% at 1.050 million MT, prepared and processed products, unchanged at 107,000 MT). The projected growth is mostly attributed to increase sales of chilled pork (See Note).

The modest sales growth of U.S. beef in the retail sector will not likely eat into sales of U.S. and Canadian chilled pork.

Historic PS&D data analysis suggests that pork is a substitute for beef. When BSEconsumption and trade disruptions began in Oct. 2001, Japan’s total beef consumption in 2006, estimated at 1.173 million MT, was 17% below 2001 levels. Conversely, Japan’s pork consumption in 2006, estimated at 2.449 million MT, was 8% above 2001 levels. If Japan were to end age restrictions on U.S. beef, pork consumption could fall.

Frozen Raw Material Pork Trade to Contract in Coming Years

Japan’s utilization of imported pork (generic cuts) as a raw material for ham, bacon and sausage manufacturing for the past 5 years (2001 – 2006) averaged at 406,000 MT (product weight basis), accounting for more than two thirds of Japan’s total pork utilization for the processing (See Supplemental Table VIII). This big market segment for imported frozen pork may contract over the next decade due to high cost of using the imported frozen cuts.

Increased enforcement of the so-called gate price mechanism of collecting duties is one reason for the increased costs. The gate price system began in 1995 as a mechanism negotiated in the Uruguay Round and strongly resembles a variable levy. If pork meat imports, priced at entry into Japan, are valued at or above the gate price, then they pay a simple tariff of 4.3 percent. If their value is lower than the gate price, the importer must pay the difference between the import value and the gate price as a duty. The 4.3 percent specific duty is then also applied. In practice, the gate price is compared with the average value of the invoice on a shipment, which is usually one or more containers. The system puts disproportionately high tariffs on lower-valued pork cuts and is subject to fraud.

Overall, reduced pork imports should further run down the year ending stocks from last year, projected down by 8% from a year before to an estimated 181,000 MT, a level considered as conventional by the industry.

Similar to 2007, import demand for seasoned ground pork (mainly made out of picnic) in 2008, is expected to be steady. In recent years, the product has increasingly been used as an alternative to imported genetic picnic cuts, which became more and more difficult to import under stepped up enforc ement of the gate price system. Seasoned ground pork is outside of the gate price system and is subject to a simple 20% ad valorem import duty.

Outsourcing of the Finished Ham and Sausage Expected to Increase

As a result of the above, the Japanese meat processing industry is increasingly outsourc ing the manufacture of finished products. Import of sausages from China have shot up 90% in 2006 over 2001 to 40,694 MT (customs clearance basis). Imported sausage now claim a 15% share of the domestic market. Again, this category trade is outside of the gate price system and has a simple 10% ad valorem import duty. (Note: Sausages are not counted in the PS&D.)

No Pork Safeguard Likely in JFY 2008

JFY 2008 first quarter pork safeguard (SG) trigger level (April – June 2008) is provisionally calculated at 266,641 MT on customs clearance basis. The safeguard trigger level is calculated as an average of JFY 2005 - 2007 first quarter imports (224,068 MT) multiplied by 119% . It is unlikely the imports for April – June 2008 will exceed the above SG trigger level as long as government’s enforcement of the gate price system stays effectively in place (See Note).

Slightly Lower Domestic Pork Production Forecast in 2008

Total domestic pork production in 2008 is projected to fall by less than 1% to 1.255 million MT primarily due to farmers’ cutting back in response to expected high feed prices in 2008. Japan’s swine industry uses nearly 6.0 million MT of formula and mixed feeds, which uses mostly imported grains and ingredients with a major ingredient being U.S. corn.

2007 Pork Market Situation Update Summary

Pork Consumption and Imports to Stay Flat in 2007

Japan’s total pork consumption in 2007 is forecast to maintain last year’s level at 2.457 million MT. There have been several food safety related issues in 2007 (including the New Hope Co. in Hokkaido) but these have not had an appreciable impact on pork consumption.

Growing U.S. Beef Sales to Counter U.S. Chilled Pork Sales

Total pork imports are projected to reach 1.15 million MT, unchanged from last year (Generic; up 1% at 1.043 million MT and processed and prepared products; down 3%to 107,000 MT). Slight increase of generic pork imports is mainly due to relatively solid sales growth during the first half for retail and some food service restaurant chains. This mainly benefits U.S. and Canadian chilled pork suppliers. [See supplemental table I) and table 11, 12, & 13].

Japan’s imports of frozen raw material pork cuts for processing in 2007, which accounts about 70% of the total pork imports, is also projected unchanged from last year. The government’s crack down on illegal imports has helped to level off monthly import level throughout the year (See Table 8). Thus, the year ending stocks in 2007 are projected 19% down to 196,000 MT.

Slight increase of Domestic Pork Production Forecast

Japan’s total domestic pork production, based on the total sow numbers (up 1% to 915,000 head) at the year beginning, is projected up by 1% to 1,260 million MT. This represents a total slaughter of 16.36 million head. Domestic hog producers have been responding to relatively firm market prices over the last several years. [See supplemental table V).]. However, a heat wave this year may trim the production level in the second half slightly. Major pork producing regions were hit hard and their hog shipments for slaughter are reportedly down. While solid wholesale market prices of domestic hog carcasses are expected though 2007, rising feed prices have begun to hurt Japanese hog producers.

Further Reading

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