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Japan: Poultry and Products Annual Report 2011

11 November 2011, at 12:00am

Recovery of domestic broiler meat production from the previous year's decline is overshadowing Japan's 2012 import outlook. Total imports are expected to decline, impacting mostly high-priced imports from Brazil, according to the USDA Foreign Agricultural Service.

Highlights

Recovery of domestic broiler meat production from the previous year’s decline is overshadowing Japan's 2012 import outlook. Total imports are expected to decline, impacting mostly high-priced imports from Brazil. American broiler meat appears to be gaining renewed recognition in the market due to increased capacity to supply specified sizes of 'bone-less' cuts. Therefore, 2012 Japanese imports from the United States are projected to sustain their relatively high-level from the previous year.

Broiler Meat Production

This report updates JA 0026 (voluntary report released on 1 September 2010).

Revisions were made to the previous production, supply and demand (PS&D) forecast based on the latest government and industry statistics. Beginning last year, the Ministry of Agriculture, Forestry and Fisheries ceased its publication of broiler specific monthly production data; therefore Post has used supplemental data (number of chicks placed on feed and feed production for broilers, monthly poultry production data to estimate the domestic broiler production).

Slow economic growth has led consumers to opt for low-priced protein sources and this has helped sustain relatively high-levels of chicken consumption for the past several years. The massive outbreaks of Highly Pathogenic Avian Influenza (HPAI) in early 2011 and the huge earthquake that devastated the Tohoku and Kanto regions are the two primary events that have affected Japan’s 2011 broiler market outlook (See 2011 Situation Summary and Updates).

Quantities listed in the text are made on the basis of Product Weight and no conversion rates are used (unless specified otherwise).

  • Domestic Broiler Meat – dressed whole, bone-in
  • Imported Broiler Meat – Customs Clearance Basis (boneless and bone-in combined with the majority of the broiler meat imports being boneless cuts)
  • Imported Prepared Broiler Products – Customs Clearance Basis
  • Stocks – Product Weight (mostly boneless) – Includes a small amount of spent hen stocks (no broiler specific stock data is available).

Structure of Japanese Broiler Market

Broilers comprise over 90 per cent of the Japanese poultry meat market. In general, boneless leg meat is preferred to breast meat in this market. Nearly half of total imports are ‘prepared (or cooked) products of broiler meat’, mainly supplied by Thailand and China. However, since 2004, imports of broiler meat from the above two countries have been on continuous suspension due to sporadic, but persisting HPAI outbreaks in the region. The food service sector utilises large quantities of imported boneless meat cuts, mainly from Brazil. Japan was once a major market for US bone-in leg cuts, however, this specific trade segment has shrunk over the past two decades due to increased competition. The US poultry industry is very competitive in the international market and historically has focused on export markets that take bone-in cuts. The lack of the US industry’s capability to produce and export deboned cuts, coupled with prohibitive labour costs, has also been a major constraint for US broiler meat in this market.

2012 Broiler Market Outlook (New)

Domestic output recovery to curb imports

Japanese 2012 domestic broiler meat production is expected to resume normal levels, recovering from its unexpected drop in the previous year, and is projected up by three per cent, reaching 1.27 million metric tons (MT). This projected recovery is partly due to the resumption of broiler hatchery and production operations in the Miyazaki prefecture in the Kyushu region (previously affected by HPAI) and Iwate prefecture in the Tohoku region, Japan’s second- and third-largest broiler-producing prefectures.

Increased availability of fresh domestic broiler meat in 2012 (priced lower than the previous year) and higher stocks will likely reduce total imports for the year. This should encourage Japanese households to look for domestic fresh branded chicken, especially in retail, at the expense of imports. In light of this preliminary assessment, Post projects Japan’s 2012 total broiler imports to slip by four per cent to 805,000MT (broiler meat; down six per cent to 425,000MT; prepared products down three per cent to 380,000MT). Assuming Japanese food-service and processing demands for imported broiler meat and prepared products hold the same, Japan’s 2012 total consumption is expected to be marginally higher from the previous year, estimated at 2.065 million MT. This would leave year-ending stocks relatively high compared to average years, which are estimated at 119,000MT, unchanged from the previous year. Further consumption growth in 2012 should lower accumulated stocks.

Ease of quarantine requirements (related to low pathogenic avian influenza; LPAI) to help smooth importation of US broiler meat

For the 2012 import outlook, Post projects imports from Brazil lower from the previous year, down five per cent to 375,000MT, negatively affected by its high export price offer and Japan’s domestic broiler production recovery. Post has left imports from the United States unchanged from the previous year at 45,000MT (assuming solid demand for price competitive US cuts, high Brazilian export offer prices and a strong JP Yen for the year). If the United States can boost exports of boneless cuts to Japan, imports could exceed this projection by gaining additional share from Brazil. The US Poultry and Egg Export Council (USPEEC) has actively promoted US poultry meat (broiler and turkey) by targeting retail markets. Increased US supplies of boneless-cuts will further expand the scope of their Japanese promotion.

In September 2011, there was notable progress made in terms of Japan’s animal quarantine requirements for poultry meat and egg products imported from the United States. The Animal and Plant Health Inspection Service (APHIS) and the Food Safety Inspection Service (FSIS) successfully negotiated the easing of Japan’s export certification requirements related to Low Pathogenic Avian Influenza (LPAI). Starting on 12 September, the newly negotiated certificate statement allows US suppliers to ship products through avian influenza-restricted states without an official sealing requirement. For more information, click here.

The market environment, coupled with a strong yen, appears to favour relatively low-priced US broiler meat in this market. However, for further penetration and expansion, US suppliers may need to increase their capability to produce and supply increased volume of boneless cuts to satisfy Japan’s market needs.

In 2012, Japan will continue to remain the major market for Chinese and Thailand-prepared (cooked) broiler products in high performing sectors such as fast foods, convenience foods and ready-to-eat meals. However, in the retail sector, the demand for cooked products may slow in 2012 as consumers resume purchases of fresh domestic chicken which were in short supply and highly-priced in the previous year. According to market research conducted by Agriculture and Livestock Industry Cooperation, high-feed prices, increased labour costs and relatively strong demand, generated from both overseas and domestic markets, have reportedly been contributing to increased export offer prices from China and Thailand in 2011. If Chinese and Thai export prices continue to rise in 2012, it could overshadow the import outlook for this product category, and the number may come out weaker than projected.

2011 Broiler Market Situation Summary and Outlook (Revised)

At this time, the 2011 HPAI outbreaks and March earthquake have changed Japan’s annual broiler demand and supply outlook that was made in the 2010 annual report (See note). Japan’s broiler PS&D numbers were revised in this report based on the 2011 first half statistics recently publicized. In addition, the impacts of the above two events on the domestic production consumption and trade have been assessed and incorporated into Post’s revision of PS&D numbers.

Note: Massive HPAI outbreaks in early 2011 severely affected the nation’s second largest broiler producing state of Miyazaki, causing a large number of birds to be culled, and reducing broiler meat shipments from the prefecture. In addition, the broiler industry in Tohoku and Kanto regions were temporarily incapacitated by the March earthquake and tsunami, also contributing to reduced shipments. This is especially true for the Iwate prefecture in the Tohoku region, the nation’s third largest broiler producing state, which was badly affected by the earthquake and tsunami. Some of the production and processing facilities in this prefecture, including parental stock operations and hatcheries owned by relatively large-scale integrators, were reportedly demolished and washed away by the tsunami. Miyazaki and Iwate combined for roughly 32 per cent of the total broiler raised in the nation. By this summer, most infrastructures, including hatcheries and feed manufacturing, both required for the resumption of broiler production in the affected regions of Tohoku and Kanto have reportedly been restored. This will help the recovery of monthly domestic outputs during the second half of 2011 and will improve the sales environment for branded fresh chicken meat.

Temporary supply deficit of domestic broiler meat to lead unforeseen import growth in 2011

During the first half of 2011, domestic broiler meat production dipped – an estimated eight per cent drop from the same period of the last year – due to the combined effects of the 2011 HPAI outbreaks, the March earthquake and increasing feed costs since last year. The situation has made supply temporarily short and created unforeseen sales opportunities for imported broiler meat and prepared products, despite high international prices, to fill the demand and supply gap. Consumption of prepared foods has reportedly continued to be strong. As a result, first half imports are robust, showing double digit growth: broiler meat, up 16 per cent at 230,416MT and prepared products, up 23 per cent at 197,502MT.

Trade sources forecast tight second half imports due to the recovery for monthly outputs of domestic broiler meat, lower market prices of domestic broiler meat, and the recovery in consumption of fresh chicken meat in the retail sector. Many Japanese importers, confronted by the high price offers made by Brazilian suppliers, have reportedly held off in advancing their fourth quarter contracts (renewed on a quarterly basis). Weakened wholesale prices and accumulating stocks of imported cuts appear to be major concerns shared by Japanese importers, many of which are forced to operate below their break-even levels. Imports of prepared products are also expected to slow their pace during the second half of 2011 as consumers partially return to fresh domestic broiler meat for home cooking and away from take-out meals.

On an annual basis, Japan’s 2011 total broiler imports, after factoring tight second half imports, are still projected to reach a 10-year record high, up by seven per cent to 840,000MT (broiler meat up seven per cent to 450,000MT; prepared products up six per cent to 390,000MT). The imports from Brazil are projected up only by five per cent to 395,000MT. Importers may significantly curtail products from Brazil to avoid losses due to price squeezes and are closely monitoring the accumulating stock situation. Strong demand seems to exist for American broiler meat and Post is projecting Japan’s 2011 annual imports to exceed the 45,000MT level, up over 30 per cent from the previous year.

Meanwhile, the reported recovery taking place for Japanese hatchery operations is providing a better outlook for second half domestic broiler outputs, which is now expected to reverse the large decline suffered earlier in the year. Therefore, Japanese 2011 domestic broiler production is expected to fall by only four per cent to 1.235 million MT. Based on the above, Post believes Japan’s 2011 total broiler consumption could contract slightly, down by only one per cent to 2.065 million MT, with the decline mainly due to unexpectedly lethargic household consumption of chicken meat which prevailed during the first half of 2011.

Summary of the First Half-Year Results

After the March earthquake, Japanese consumers temporarily refrained from eating out. However, the situation did not seem boost household consumption of chicken. Consumers avoided perishable food items, including fresh meat and chicken, and instead, chose ready-to-eat meals and convenience foods to take back home and eat.

Given substantially reduced domestic broiler meat production in the first half of 2011, average household consumption of chicken meat also dipped seven per cent in quantity and two per cent in expenditure. This situation created a temporary supply deficit, affecting distribution of fresh/chilled meat for the retail sector in particular. Factors contributing to the decline in first-half household consumption were the virtual disappearance of domestic branded fresh chickens (fed specially-designed mixed-formula feeds with various promotional attributes); HPAI’s negative image; high wholesale prices of domestic chicken and a partial demand shift from domestic fresh meat to imports. All of the above factors created increased sales opportunities for imported broiler meat and prepared products for ready-to-eat meals sold at the retail sector during the first half.

Therefore, first half imports were stronger than anticipated. By country, Brazil, despite escalated export price offers (average CIF, up 39 per cent at US$3,370 per MT), achieved double digit growth, up 13 per cent and accounting for 89 per cent of Japan’s total first half broiler meat import total. Following last year’s trend, the United States continued to make inroads into this market, with imports up 28 per cent at 21,018MT for the period, despite sharp export offer increases (average CIF, up 33 per cent at US$2,469 per MT). According to a trade source, although not yet large in volume, Japanese importers are now able to buy boneless leg meat with specified sizes from some US suppliers. This has also contributed to first-half import growth from the United States. In addition, the strong JP Yen appears to justify profitable export operations by US producers who use a sophisticated Japanese-made deboning machine, which virtually negates high labour cost disadvantages.

For prepared products, China, with its competitive offer (average CIF, up eight per cent at US$4,335 per MT), appears to have increased its share in first half imports (up 31 per cent at 100,999MT) compared to Thailand (up 12 per cent at 94,542MT) as Thai suppliers raised their offers (average CIF, up 14 per cent at US$4,971 per MT) for the period.

2010 Brief Market Summary (Supplemental Information)

Unexpectedly strong consumption re-boosted imports in 2010

Due to surplus, 2008 frozen stocks, mainly created by excessive imports relative to demand, were carried over to 2009. This surplus forced Japanese importers to make steep cuts to imports in 2009. The following year, despite slow economic growth, an unforeseen demand hike occurred for broiler meat and products. This unprecedented rate of increase in total consumption for the year was estimated up five per cent to a total of 2.074 million MT. In response, importers boosted their procurements from Brazil again in 2010. Therefore, 2010 imports became much higher than the projections made in the Post’s previous annual report, with total imports surging 22 per cent at 788,000MT (broiler meat: up 27 per cent at 420,000MT; prepared (cooked) products, up 17 per cent at 368,000MT).

Also contributing to the 2010 import surge was a strong JP Yen against other major currencies, radical stock depletion that took place in 2009, and a relatively strong demand for chicken and prepared products that was generated by the food-service and prepared meal (lunch boxes and take out foods/meals) sectors.

One notable change in the 2010 market trend was the increased popularity and sales of domestic breast meat, occurring in the retail sector as the product began to appeal to low-price seeking households. Prior to this, breast meat was an unpopular retail item and had been mainly utilised for prepared foods and processing.

Further Reading

- You can view the full report by clicking here.

November 2011