export

EU Agricultural Mission to Japan highlights interest in consumer demographics, organic markets and retail innovation

Posted by Lucia Vancura in Market Trends, News

This week Meros’ Managing Director Chisa Ogura presented on Japanese consumer food trends to delegates of the High Level EU Agricultural Mission to Japan led by EU Agriculture Commissioner Phil Hogan. There were over 70 delegates, including agricultural industry reps, SMEs and farmers from throughout the EU, all looking to understand how the new EU-Japan EPA can benefit food and agricultural trade between the EU and Japan.

It was a full house and we got great questions from the delegates on organic trends (especially in wine and beef), the impact of demographic changes and the notoriously fast turnover in new retail products.

Japanese consumers now spend more on bread than rice, more on meat than seafood and more on wine than sake, with cheese and yogurt consumption growing rapidly. This brings many potential opportunities for EU food and agriculture to develop new business in Japan.

Nevertheless, to successfully build a business in Japan, careful understanding of the characteristics of the Japan market is of course critical. For example, one area of interest to delegates was the fact that while countries like Denmark (227€ annual per capita spending), Germany (116€ per capita) and France (101€ per cap) have booming organic markets, consumer interest in organic products has been slow to catch on in Japan (only 8€ per capita).

The price premium for organic is relatively small in Japan, compared to some of its Asian neighbors, where organic products can command an extremely high price premium. Japanese consumers also tend to be convinced that domestic conventionally grown agricultural products are already safe and healthy and are less willing to pay a premium for organic certified products. In addition, organic agriculture is difficult in wet and humid Japan and this has resulted in fewer Japanese companies producing, promoting and educating on organic practices. While EU organic products are welcome in Japan, more of the burden for promotion and consumer education will fall on the EU side.

Other consumer trends that Meros highlighted included the Japanese consumer expectation for constant relaunches and limited editions of retail food and beverage products, which contrasts with many EU exporters’ focus on classic and authenticity, rather than innovation. Not only is this seasonal packaging an issue, but urban Japanese consumers tend to bring their groceries home by hand or in a bicycle basket, to a kitchen with extremely limited storage space. Responsiveness to these Japanese consumer lifestyle realities can greatly improve EU exporters’ marketing and promotion strategies.

07 Dec

From the Field: The US-China Trade War Rumbles On and China’s Traders Aren’t Panicking

Posted by Team Meros in Market Trends

When Meros first visited China in July to discuss the brewing trade war and its potential impact on US agricultural exports, Chinese ag traders were optimistic.

This may blow over in a few months, they assured us. But by September and October when we returned and discussed dairy, grains and soybeans, the mood was decidedly more resigned.

As of this first week in December 2018, where are we?

The trade situation changes weekly and certainly impacts different US agricultural products differently, but there were several common themes among our talks with Chinese ag trade experts.

There is both optimism and pessimism about the future of US agriculture trade: When talking to a range of people, from Beijing policy makers to Shanghai importers, it is the policymakers and academics who are far more pessimistic than traders and industry players. Policymakers see the conflict through the lens of government-to-government conflict and this tension is likely to continue, even as one tariff is replaced by some other barrier.

Chinese traders are looking for other suppliers of agricultural and food products and there is no guarantee they will return to US supply even after the trade war abates. While some Chinese buyers and their US suppliers initially tried to share the tariff burden or freeze prices at pre-tariff levels in the hope that the tariffs would soon be dropped, this is increasingly unsustainable as the war drags on.

The chance to diversify suppliers and develop new trade relationships is considered a good opportunity for China. Both policy makers or traders saw a good chance for China to focus on both its own domestic agriculture industries and supply chain infrastructures. It is also a chance to deepen relationships with new suppliers around the world and support them in strengthening logistics, an area that the US would normally have an advantage.

Trade is flexible. If direct routes to the China market are stopped, products tend to find a way to be rerouted, processed or exchanged through third-countries. Reports of US soybeans heading to Argentina for storage until the trade war abates or products routed through Vietnam are already initial indications of global trade doing what it always does – readjusting.

It is a chance for Chinese companies to expand into new and growing markets, including Vietnam or Indonesia, where US agricultural commodities and ingredients are more easily available. “See you in Vietnam!” joked one Chinese feed trader, as she described their new operations in Hanoi where they expect to be able to continue their US feed grain imports.

The interest by China central government to strengthen global grain, oil seed and food supply options and build up trade logistics is clear from the effort put into its One Belt One Road initiative, an ambitious policy of trade development from China through central Asia as far as Europe, using a variety of investments and incentives.

While Chinese traders and importers scrambled to adjust their suppliers for many products, there was no sense of impending doom. Overwhelmingly, it was disappointment at how unpredictable agricultural trade with the US has become. Whether this confidence is well placed or overly optimistic will become clearer in the next months.

Meros Consulting is a Tokyo-based strategic business advisory. We work with companies and governments globally to advising on trade dynamics and support business development in the food and agriculture industries.

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.