of U.S. agricultural products are either duty free or receive preferential tariff access
forecasted GDP growth for 2021
largest market for U.S. agricultural products at $11.7 billion
Euromonitor reports that the Japanese economy will improve in 2021. Assuming the vaccination program is successful and the Coronavirus (COVID-19) pandemic remains contained, domestic demand should return in 2021, driving the economy. The export sector should also increase as global demand returns. The delayed 2020 Olympic Games might still be held in the summer of 2021. Growth of real gross domestic product (GDP) will be 3% in 2022 and will gradually reach around 0.6% annually in 2024-2027.
Real GDP is forecast to increase by 2.8% in 2021 after a fall of 5.8% in 2020.
At real prices, private final consumption is estimated to have fallen by 6.5% in 2020; limited by COVID-19 and the increase in consumption tax from 8% to 10%. Private final consumption is forecast to grow by 2.8% in real terms in 2021, due to the impact of fiscal measures, the recovery of the economy and dissipation of the effects of the sales tax hike in 2019.
Unemployment was 2.8% in 2020 and increased to 3.1% in 2020. Many businesses are struggling to weather the pandemic.
The pace of growth is expected to bounce back somewhat in 2021, but remain subdued for some years.
Population ageing poses other problems. The rate of household savings is falling because retirees spend more of the wealth accumulated in the past. That trend will boost domestic consumption (long thought to be too low) but also make it difficult to sustain aggregate investment. Japan’s workforce is presently contracting by almost 1% per year. Deaths now outnumber births at an average rate of 1,000 a day.
Population began to fall around 2009 and in 2018 stood at 126 million – about 800,000 less than in 2000. The median age is 48.2 years – significantly higher than for other large economies in the region. The steady ageing of Japanese society is a significant drag on economic performance. In 2019, the number of those over 65 years amounted to 35.9 million. At that time, this age group made up 28.5% of total population and the share will rise to 31% by 2030. The government forecasts that 40% of the population will be of retirement age by 2050.
Japan and Australia have a trade deal which lowers tariffs on imports of key products. Japan also has a pact with India and has on-going free-trade talks with Canada. Japan is also negotiating an agreement with China and South Korea and the U.S. Japan Trade Agreement (USJTA) a trade deal with the U.S. has recently been ratified which offers opportunities for duty free access for 100’s of U.S. food products and protects Japan from U.S. trade tariffs.
Tokyo and the European Union (EU) have concluded a free trade agreement which took effect early in 2019. The EU has agreed to a gradual phase out of all tariffs on cars imported from Japan. In turn, Europe’s farmers face far lower tariffs when exporting to Japan. Japan is a member of the new 11-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which was formally created in March 2018. The decision could provide an especially important boost to non-U.S. food exporters.
In 2020 U.S. exports of consumer ready foods totaled US$6.3 billion, a decrease of only 1% over the same period in 2019. Japan is the 3rd largest market for U.S. consumer food products after Canada and Mexico. Japan is also the 3rd largest U.S. export market for processed foods, totaling US$2.5 billion in 2020, down 7% from the previous year. Top processed foods exported to Japan in 2020 included:
Processed Vegetables & Pulses
Food Preparations & Ingredients
Processed/Prepared Dairy Products
Canned, Dried & Frozen Fruit
USDA’s Agricultural Trade Office or ATO in Osaka hereinafter referred to as “Post” reports that Japan is now the fourth largest market for U.S. exporters of food and agricultural products. The United States is the largest foreign supplier of food and agricultural products to an import reliant Japan (22% of import market share)—the fourth largest market for U.S. agricultural products in 2020 ($11.7 billion). On January 1, 2020, the U.S.-Japan Trade Agreement (USJTA) entered into force, providing preferential tariff access for many U.S. agricultural products. Japan’s food industries are well-developed and innovative in all sectors, including, retail, food service, food processing, and distribution.
Advantages and Challenges for U.S. Food Exporters in Japan
The Japanese market offers a number of benefits to U.S. exporters, but it is not without difficulties.
According to Euromonitor, retail sales in the packaged food market in Japan had been estimated at US$198.1 billion in 2020. That represents growth of 5.9% and US$11 billion since 2016. Japan is the 3rd largest package food market in the world after the U.S. and China. By the year 2025, the retail sales in the packaged food market in Japan is expected to reach US$204.5 billion, growth of 3.6% or US$7 billion. High growth categories in the forecast include:
Sweet Biscuits, Snack Bars & Fruit Snacks
Ice Cream & Frozen Desserts
Post reports that in 2019, the total value of all retail food and beverage (F&B) sales in Japan fell 1.3% US$483.2 billion. The top category is supermarkets followed by convenience stores. Drug stores and department stores hold a small, but growing, share of F&B sales. Preferential tariff access now exists for many U.S. retail products following the entry into force of the USJTA. Following requests for people to stay home during the COVID-19 pandemic, retail sales at supermarkets have surged, up 20% to 30% for major chains.
Supermarkets represent the bulk of the retail food market, at 70.3%. Since 2000, the number of convenience stores has increased from 35,461 to 56,502 stores, resulting in significant growth in F&B sales. However, in 2019 sales dropped 5.1% as the sector relinquished market share to drug stores and department stores. Drugstores are increasing F&B offerings, especially in rural areas where no supermarkets are located. Department stores generally carry premium food items and sales of ready to-eat meals (REM) or take-home food items represent a very strong area of growth.
General Merchandise Stores (GMS) offer products such as apparel, shoes, sporting goods, bedding, kitchenware, etc., in addition to F&B products. The GMS sector’s largest retailers are national chains, AEON Co., Ltd. and Seven & I, which operates Ito-Yokado. Regional GMS in western Japan include Uny, Izumi, Okuwa, and Izumiya.
In recent years, internet F&B sales have experienced double-digit annual growth, however official 2019 sales totals are not currently available as research and publication of statistics has been disrupted during the COVID-19 pandemic. The Nomura Research Institute (NRI) estimates that the total retail ecommerce market (including non-F&B) will grow more than 50% between 2018 and 2025.
Post reports there are recent trends of burgeoning growth for private brands, healthy foods, ecofriendly or energy saving foods (typically as frozen foods), market consolidation for greater efficiency, and new retail ideas to meet new demands. Energy efficient foods (frozen foods - bento dashi), ready meals and desserts have all seen a strong market growth. Healthy or functional foods continue to be important.
Food Service Sector
record sales in 2019
Post reports that following eight consecutive years of growth, Japan’s hotel, restaurant and institutional (HRI) foodservice industry achieved record sales of US$305.7 billion in 2019. However, since February 2020, food service sales at restaurants and hotels have dropped significantly as schools and offices have closed, tourism has halted, and public outings have been reduced because of the COVID-19 pandemic. During the national state of emergency, HRI sales hit unprecedented lows, down 40% year-over-year in April; though, sales have since recovered somewhat, down 15% year over-year in July 2020. HRI industry stakeholders are pursuing new business models and expanding takeout and delivery services.
The Japanese HRI industry, broadly defined, has six major segments: Restaurants being the largest with nearly 44% of the market. The “Prepared Meals Sold at Retail Stores” segment includes ready to eat meal/home meal replacement (HMR) type products sold at Obento (lunch box) shops, convenience stores, supermarkets, and department stores. Sales in this market segment have increased by over 1% in the last three years and now account for 21.8% of the HRI market. Other sectors include Drinking Establishments (15%), Institutional Food Service (10.1%), Hotels (8.6%), and Transportation (0.8%).
During the Covid 19 pandemic outset, the Japanese government has offered subsidies and preferential loan policies to the industries; though, many restaurants have closed due to a decrease in the number of customers and inbound tourists. According to Teikoku Data Bank, a total of 398 restaurant operators went bankrupt in the first half of 2020, a record pace. Dinner restaurants and hotel food service has been significantly damaged. During the national state of emergency, pub dining monthly sales were down 91.4% and 90% year on-year in April and May, respectively. Domestic tourism from metropolitan areas to rural areas has also been constrained, which has a greatly impacted on the hotel and transportation industries. Fast food outlets and quick service shops that focus on take-out and delivery services have performed relatively well, though monthly sales are still down for that subsector. Business has grown significantly for Demae-kan (a food delivery operator established in 1999) and Uber Eats.
According to Fuji-Keizai report, once recent positive trend is in meat consumption. From 2016 to 2020 meats (animal protein) subsectors were up 170% for steak restaurants, 145% for tonkatsu (pork cutlet) restaurants, 123% for hamburger businesses, and 113% for Chicken (fried and grilled) outlets. Chicken menus have become especially popular since the COVID-19 pandemic began. The report indicated fried chicken sales are on track to be up 20% in 2020 from 2019. KFC Japan sales were up 27.3% in July year-on-year, a record increase. Izakaya chain Watami newly opened a delivery only shop focusing on fried chicken called “Kara-age no Tensai (fried chicken genius),” and an institutional foodservice company called Arcland’s also opened fried chicken shops under the “Karayama (Mt. fried chicken)” brand.
frozen food consumption in 2020
of food and beverage products manufactured in 2020
Post reports that in 2020, Japan’s food processing industry manufactured US$218.3 billion of food and beverage products, down 1.1% from $220.8 billion in 2019. The COVID-19 pandemic limited dining out and led to increases in home cooking. With that, large drops in the production values of soft drinks, juices, water, and alcoholic beverages were nearly offset by growth in wheat flour, dairy, health foods, and convenience or ready-to-eat foods. The pandemic further contributed to the decade-long upward trend in frozen food consumption, which has jumped from US$5.6 billion in 2010 to US$6.6 billion in 2020. The United States is Japan’s number one agricultural trading partner and has a reputation for being a reliable supplier of safe and high-quality foods.
The Japanese food processing industry produces a wide variety of foods: traditional Japanese, Western, and health-oriented foods for infants and the elderly. Food processors focus on maintaining market share among traditional product lines while developing creative and innovative food products to attract consumers.
Japan’s food manufacturers produce a wide variety of products, from traditional foods to health-oriented foods for infants and the elderly. The largest food processing companies developed from traditional breweries that expanded their portfolios to include foods, distilled spirits, beverages, etc. Several other market leaders emerged from the dairy industry.
Frozen foods consumption has doubled over the past two decades and continues to grow due to convenience and improvements in product quality and safety. In recent decades, at-home cooking gradually declined and convenience and packaging—especially single serving sizes— became critical factors in product development. However, since the beginning of the COVID-19 pandemic, consumers have increasingly sought foods and beverages to prepare at home that are as delicious as restaurant gourmet, entertaining, easy-to-prepare, and healthy.
Post advises that market entry may take a considerable amount of time, especially for ingredient suppliers. Manufactures frequently search for specific ingredients but may be unwilling to disclose new product development plans and may be reluctant to discuss product-sourcing needs. The challenge for U.S. ingredient suppliers, therefore, is to build a relationship with potential manufacturer partners so that when new product needs arise, that relationship can be leveraged. To capitalize on those opportunities, it is important to secure product and in-country representation. Therefore, building a relationship with a local importer is a critical early step.
The United States is Japan’s number one agricultural trading partner and known as a reliable exporter that provides safe and high-quality foods. On January 1, 2020, the USJTA went into force, and with it nearly 90% of U.S. agricultural products now have preferential tariff access in Japan. However, many other suppliers have their own free trade agreements with Japan that similarly reduce or eliminate food and agricultural tariffs, including the European Union, Canada, Australia, Chile, and Mexico.
The United States is the leading pork supplier to Japan followed by the EU and Canada. Japanese consumers strongly associate beef with the United States, for which the import market is shared with Australia. U.S. wheat accounts for roughly half of annual imports, with Canada and Australia making up the other half. Soybean imports are primarily from the United States on a value basis at approximately 70%, with Canada being the main competitor for food-grade soybeans. The EU, New Zealand, and Australia mainly supply cheeses, while the U.S. market share is just 10%. The United States’ main competition in vegetables and fruit is regional, with China primarily suppling on proximity, price competitiveness, and varietal preferences. Thailand dominates the poultry meat market, ahead of Brazil and China; together comprising 98% of imports. The United States is the top supplier of corn, followed by Brazil.
Best Product Prospects:
Post reports that Japanese food manufacturers seek quality ingredients and conveniently prepared semi-processed foods that can reduce costs. Specifically, indications are that there is good potential in the market for beef and products, pork and products, wheat and wheat products, fresh and processed fruit, tree nuts and peanuts, processed vegetables, whisky, wine, beer and cheese.
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