[This post was first published in the Fairfax NZ Sunday Star Times on 17 August 2014]
Back in 1988, Japan was our most important market for both total exports and agri-food exports. Now, some 25 years later, the share of total exports going to Japan has declined from more than 18 percent down to less than six percent. In part this is because of the phenomenal rise of China. Also, in that 25 year period our global exports have increased greatly, so a loss in percentage is not necessarily surprising. But our exports to Japan have been declining in absolute as well as percentage terms. So what went wrong?
The simple but somewhat naïve answer is that the Japanese economic boom came to an end. The Japanese economy has indeed struggled during those times, but per capita incomes have remained much higher than almost everywhere else in Asia. The exceptions are the city states of Singapore, Hong Kong and Macau. The Japanese GDP per capita is still more than five times that of the Chinese.
Perhaps more importantly, the Japanese imports of food from other countries have still been increasing. Only 39 percent of the calories consumed in Japan are grown there. Japanese food imports total more than US $60 billion each year. Less than three percent of Japanese food imports come from New Zealand.
Of course the Japanese eat a lot of rice and we don’t produce rice. However, the Japanese now only consume about half the amount of rice that they consumed 40 years ago. In any case, rice is one of the few things that Japanese do produce enough of. Much of the focus in Japan has shifted to ready-to-eat pre-packaged foods. To a large extent, we in New Zealand, with our focus on commodities and ingredients, have missed out on this Japanese food revolution.
Neither of our two biggest exports to Japan is food related. First comes aluminium and then comes timber, both processed and in the form of logs. The big food-related exports are kiwifruit, beef, cheese and casein.
For kiwifruit, Japan has been a great success story. It is the most important destination for New Zealand kiwifruit. The Zespri story, which includes in-country Japanese production to provide 12 month supply, must surely be a valuable case study of how to do things in that country.
The Morrinsville based Tatua Dairy Co-operative has had a strong Japan focus for many years, and has deeply entrenched markets for nutriceutical ingredients based on milk proteins. This has helped underpin the premiums, relative to the Fonterra payouts, which in most years Tatua has been paying its suppliers.
In relation to beef, the lead company has been the predominantly Japanese-owned ANZCO. Amongst other things, it has been a pioneer in producing feedlot beef in New Zealand for the Japanese market. A current endeavour is Firstlight Foods’ development of Wagyu-cross marbled beef. In contrast, the Japanese have never been major buyers of our lamb.
The Japanese eat considerable amount of cheese and New Zealand supplies about 25 percent of this. However, we sell at lower prices than either the US or the EU.
One industry where New Zealand has done surprisingly poorly is in frozen vegetables. Annual imports are worth about US $1.3 billion, dominated by China and the US.
The demographics of Japan are fascinating, with a rapidly aging population and a population of 127 million, now declining by about 300,000 per year. The changing nature of demand is illustrated by a recent report from Euromonitor that the market for diapers for elderly incontinent folk exceeds the diaper demands for babies.
The situation on the farms is equally fascinating, with the average age of farmers now 66, up from 59 some twenty years ago. Farms are typically small and incomes are lower than in urban Japan, despite high subsidies and tariff protection.
It is not only New Zealand that has apparently taken its eyes off the two-way relationship. Tourist numbers from Japan are less than half the numbers 15 years ago. Well under one percent of Japanese tourists now choose New Zealand as their holiday destination.
Given the demographics of Japan, it will be challenging for New Zealand to make up the lost ground of the last ten to twenty years. Clearly, the US has outflanked us for many products. Yes, we do have some success stories where our agricultural and food industries have developed integrated value chains through to sophisticated ingredients and consumer products. But some of our competitors seem to have done better.
Perhaps there are some painful lessons to be learned from our Japan experiences. These lessons need to be applied to the Asian growth economies on which we are now focusing. We would not want to make the same mistakes again. New markets must be nurtured.