21 Sep

Meros presents overview of agricultural opportunities in the Russian Far East

Posted by Team Meros in Market Trends, Publications

Meros presented an overview of the agricultural opportunities in the Russian Far East at a seminar on September 13 held by the Japanese Ministry of Agriculture, Forestry and Fisheries (MAFF) and hosted at Nomura Research Institute. Japanese industry players and government authorities are watching Russian Far East development closely and over 40 participants from Japanese corporations, investment firms and think tanks attended the event.

With dramatic ongoing depopulation in the region – population is projected to decline by over 30% in next 30 years – the Russian government has been implementing various measures to attract people and industry to the region and to increase economic development. These measures have included establishing fourteen Territories of Advanced Development (ToR) sites where the federal government have put particular effort into helping local governments attract foreign direct investments (FDI) through numerous schemes, as well as granting one hectare of land for free to Russian citizens who can utilize the land.

Due to the stagnating prices of oil and other energy resources, the importance of the agricultural, forestry and fishery sectors in the regional economy is rising. The share of agriculture and forestry in gross regional production of the Russian Far East increased from 3.4% in 2010 to 4.8% in 2014. Moreover, the Russian government has placed an import ban on many agricultural products from countries including the US, the EU, New Zealand and Australia as a counter measure against economic sanctions. This has all led to the new Russian policy of aiming for complete food self-sufficiency by 2020. Thus, agriculture is one of the key sectors emphasized by the Russian government in their regional development plans.

Because of the geopolitical importance of the Far East region for Japan, the Japanese government also considers Japanese involvement in regional development to be important. For this reason, the Japanese and Russian governments have agreed to have a series of agricultural vice-ministerial dialogues in 2016, and the first dialogue was held June 19, 2017. This year MAFF has also organized the Russian Far East Agriculture, Forestry and Fishery Platform to exchange information with the Japanese private sector as well as to facilitate private investments in the region. The Platform’s first meeting was in Feb 2017.

Meros sees various opportunities in the Russian Far East, in terms of import substitution as well as future export potential of certain Russian agricultural products. Oilseeds (soybean), grain, livestock and vegetable industries are already attracting various investors.

However, successful business development in the Russian Far East also faces serious challenges, including an unpredictable political climate, extremely high distribution costs, labor scarcity, difficulty in long-term financing and ongoing international sanctions against Russia. There are also complaints of lack of transparency or availability of information on Russian business partners or investment targets. Since the much of the current large-scale agricultural development in the Far East is strongly driven by Russian government policy and rely on government support like subsidies and tax exemptions, potential opportunities must be evaluated within the full context of the economic and political environment.

The Far East agricultural industries also face domestic risks such as difficulty in livestock disease control, possible wheat export taxes and competition with Chinese products, along with the most critical challenge – the small and increasingly shrinking regional market. Therefore, export market development is expected to be an unavoidable.

Some opportunities that appear particularly bright, based on the current supply and demand situation, include:

Soybeans

Soybean production in the Russian Far East was around 1.5 million mt in 2016, which accounted for more than 40% of the total production in Russia. Since Russia does not have enough soybean and other protein feed ingredient domestic production, to expand Far East soybean production was one of the ag-policy agenda. The Amur region established a “Soybean Cluster” and has expanded production and processing rapidly. Major oil mills in the Far East region include Rusagro, Amuragrostsentr and ANK holdings. Amuragrostsentr is currently planning to develop an isolated soy protein factory in the Soybean Cluster with a Chinese co-investor.

The Russian government had been providing a 50% subsidy for soybean transportation from the Far East to European Russia in order to increase soybean self-sufficiency. After Russia’s WTO accession in 2012, the export tax (20%) on soybeans was eliminated, and export opportunities become a reality. Although it is unclear if transportation subsidies from the Far East to European Russia are still in effect, non-GM soybean exports to Asian countries could expand under the current circumstances, which include favorable exchange rates.

Soybean meal production also has exceeded regional feed demand, which also indicates the potential to increase export of soybean meal or other vegetable protein products.

Livestock

Livestock is another area attracting investment, especially swine production. Current regional production supplies only 26% of the regional demand. Chicken accounts for 36% of meat production; pork is 32%; beef is 24%. Only swine production has been gradually increasing over the last five years, which will be doubled or tripled within another 2-3 years with investments from Mercy Trade, Rusagro and Skifagro. Although the region is struggling to control diseases, like African swine fever and avian flu several meat processing companies have received approval to export heat-treated products to Japan.

Vegetables

Vegetable production is another industry expected to expand. Regional vegetable production currently supplies only 46% of regional demand.

The Russian government reimburses 20% of the cost to buy and set up greenhouses, under its overall policy to increase self-sufficiency by 2020. With such government support, it is planned to expand 350 ha greenhouse area in Russia, which is 15% increase from the current greenhouse area of 2,300 ha in 2016. There are various plans on investments in Far East too, and Meros estimates these will add another 40 ha of greenhouse area within the next few years if these current plans materialize.

28 Aug

Italy’s Valpolicella has no lack of young winemakers ready to continue its exports

Posted by Team Meros in Market Trends

We never know exactly where we will find the agriculture stories that can inspire new ways of looking at food chain challenges and common problems. Food value chains are both intensely local and also deeply entwined with global trends, meaning that insights from one country are very likely relevant to many others. We’ve seen fishery cooperatives in Tanzania struggling with the same data management problems we have seen in Japan’s green tea industry and exporters everywhere carefully watching global exchange rates.

This time the insights came from the green vineyards of Italy. Meros’ Ayako Kuroki recently visited Italy’s vibrant Valpolicella wine-producing region and found some interesting trends, and possibly lessons, for issues we see here in Japan.

Italy’s Valpolicella wines are produced mainly with Corvina, Rondinella and Morinara grapes.

Italy, with a population of 60 million, has half the population of Japan but faces similar demographics, with increasing urbanization and one of the lowest fertility rates in the world. In Japan’s case there is constant discussion about the aging population of farmers, the difficulty in attracting younger people into agriculture and the difficulty of developing value-added, export-oriented agricultural industries. And yet, Valpolicella has developed a wine industry that is 80% exports and boasts of no lack of younger farmers willing to succeed the regions’ numerous wineries.

Italy was the second largest wine exporter (by volume) after Spain in 2016. Veneto province, far in the north of the country, produces the largest volume of wine grapes and is the second largest wine-producing province in the country. Veneto is anchored by its capital Venice and also known for the historic city Verona, home of Romeo and Juliet.  The Valpolicella region, north of Verona, is among the 24 DOC (Controlled Designation of Origin) wine-producing areas in Veneto; other DOC areas include Bardolino and Soave. The region is famous for its Amarone wine (DOCG), as well as Valpolicella and Valpolicella Ripasso wines (DOC).

While viticulture in the region dates back several thousand years, some of  Valpolicella’s approximately 300, mostly family-owned, wineries are relatively new. This is because many grape farmers who used to sell grapes to wineries have gradually ventured into wine production, seeing that it is a more lucrative business. Wine making or agriculture/food processing in general is an attractive business in the area, with younger people entering the industry. This is partly driven by technological advancements which have made it easier and more attractive for younger people to take up agriculture as a career. As such, families in Valpolicella normally do not face the problem of finding a successor for their wine businesses.

Zanotti, one of the family-run wineries in the region, produces Valpolicella and, Valpolicella Ripasso wines (DOC) and Amarone (DOCG).

About 80% of the wine produced in the region is exported to Europe, Asia, and Latin America and some major brands reach the Japan market as well. However as one winery explained, “We are small wineries who don’t have the capacity for far away markets like Japan; we leave that to the big companies.” The wineries of Valpolicella have the advantage of neighboring the large wine-drinking market of the EU.

Valpolicella was a glimpse of a traditional industry that has been able to build sustainable exports to neighboring markets, integrate new technologies and continue to attract a new generation of winemakers.  It will be interesting to compare this case to traditional growing areas on other developed countries who also aim to build exports and retain young farmers.

23 Jun

Meros shares green tea industry insights on NHK’s Biz Buzz Japan

Posted by Team Meros in News

Meros is back on this season’s Biz Buzz Japan on NHK World. This time Meros’ Global Markets director Lucia Vancura discusses the Japanese green tea industry and export marketing challenges with tea expert and certified tea instructor Oscar Brekell, and host Jon Kabira.

Green tea exports from Japan have doubled over the past decade to over 4000 MT, a bright spot for an industry whose domestic production has been falling.  The domestic Japanese green tea industry faces an aging and shrinking population of tea farmers, as well as Japanese consumers who have endless choices of beverages

Exports of Japanese green tea were driven initially by the growth in sushi and Japanese restaurants overseas over the past decade. The healthy image of green tea with its high anti-oxidants also boosted its popularity. Top tea export markets for Japan are the US, Taiwan and the EU-tea processing hub, Germany. Not only green tea leaves and bottled tea, but matcha (green tea powder) also has  become increasingly popular as a flavoring for desserts, from ice cream to cakes.  Now fruit-flavored green tea beverages and green tea lattes can be seen in cafes and convenience stores across the world.

Green tea and black tea both come from the leaves of the same plant (camellia sinensis), but then undergo different processing.  For Japanese green tea, the leaves are harvested three times a year, then quickly steamed, crushed and dried, retaining the green color and original fragrance.  Many other countries, including China, Vietnam and Taiwan also produce green tea, but through a slightly different process that usually includes panfiring, rather than steaming the leaves. Due to the differences in processing, as well as the different climates and cultivars, tea leaves from different areas have distinctive flavors. Japanese green teas are often described as “grassy” and “mellow”.

Japanese green tea exporters face various challenges in international markets for various reasons, including low consumer familiarity with Japanese green tea, regulatory barriers related to agrochemical registration, as well as the high price and relatively low volumes available for export. In overseas markets, although green tea itself is increasingly common, there is often no reason for a bottled tea manufacturer or a lemon-flavored green tea product to use expensive Japanese green tea as a raw material. These manufacturers need large volumes of affordable green tea leaves. Cheaper tea leaves from China, South America or elsewhere are usually substituted.

The key for Japanese green tea producers, who are typically small family farms, is understanding the needs and interests of overseas consumers. What kind of packaging is attractive – dry leaves, bottles, or ready-to-drink tea bags?  Do people buy tea at cafés or supermarkets? Inspiring people to become interested in the characteristic flavor of Japanese green tea, compared to other green teas, may be the best way to convince consumers to pay the higher prices that Japanese green tea requires.

This NHK BizBuzz episode discusses issues in the green tea industry and highlights some creative ventures in the domestic market to attract younger and new consumers. These include cold-brewed green tea packaged and served like high-end wine and flavored Japanese green tea.

The episode is broadcast on NHK World throughout June and is available online on demand until July 21st.  NHK World is available around the world on cable as well as streaming online.