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Surging imports mean lean times for Japan's beef producers

Tariffs on US meat little help as buyers switch to other foreign suppliers

TOKYO -- Japan in August raised tariffs on U.S. beef to limit surging imports. But roughly one month on, the measure does not appear to be helping domestic producers as buyers such as restaurants switch from U.S. products to imports from other countries.

Edoichi, which operates Stamina-Taro Korean barbecue restaurants across Japan, is considering buying Australian and Mexican beef to replace U.S. products hit by the tariff.

"We expect to run out of frozen beef for barbecue by October and we are seeing a risk that wholesale prices may go up from that point," an Edoichi spokesman said.

The safeguards were applied to U.S. frozen beef after the volume of imports to Japan rose 19% on the year in April to June. As a result, wholesale prices for beef brisket, a popular cut for Korean barbecue, remain high -- around 50% above year-ago levels. Wholesale brisket prices rose to about 800 yen ($7.30) per kilogram in mid-August, before easing somewhat in September as a U.S. meat processor cut prices in response to requests from Japanese trading companies.

But prices remain about 3% higher than in the latter half of June, shortly before Tokyo announced it was imposing the safeguards.

Prices are also supported by strong demand for brisket. Restaurants are consuming larger amounts and Chinese importers are also buying more, anticipating a surge in demand for the Lunar New Year season next February, during which Chinese typically consume a lot of beef in seasonal hot pot dishes. Industry insiders expect brisket prices to remain near current high levels through the rest of the year.

Consumers have not been affected much by the higher tariffs so far because meat can be frozen for a long time. Plenus, for example, purchases frozen U.S. beef for its Hotto Motto bento boxed lunch chain far in advance, and it expects to make do with its current inventory at least until the end of the year. Sources say major beef bowl restaurants are likely to have stocked up for the next several months. As restaurants deplete their supplies, however, consumers are likely to feel the pinch.

Stop and go

Although the aim of the safeguards is to protect domestic producers from sudden surges in imports, there are no visible moves by restaurants or retailers to increase purchases of domestic beef.

As wholesale prices for Japanese brisket are up to twice as high as U.S. imports, switching to domestic beef is not an option for one Tokyo supermarket chain, which is considering offering fewer sales and raising prices to keep margins up, according to the company's purchasing manager.

Importers, meanwhile, are worried the safeguards may be triggered again next year, said a buyer at a trading company.

According to this person, after the current 50% safeguard tariff expires on March 31, 2018, the levies will fall to 38.5%, significantly reducing purchase costs for frozen U.S. beef. Anticipating bargains ahead, many trading companies may hold off on purchases in February and March. As they scramble to place orders after the tariffs drop, they could set off another surge of imports, leading to another round of safeguard tariffs.

Total import volume in April-June 2018 could jump more than 17% from this year, triggering the safeguards, according to one forecast. Under the current system, once the safeguard tariffs are introduced, the process can become a "vicious circle," said Yu Oana, who is responsible for beef purchasing at Sojitz Foods.

The Japanese government may have to review a system that frequently results in higher duties on U.S. beef. President Donald Trump has taken the dim view of the U.S. trade deficit with Japan, and friction over the issue is possible.

The next U.S.-Japan Economic Dialogue, scheduled for the fall, will offer an opportunity to revisit the issue. Finance Minister Taro Aso said a review may be necessary at a news conference after the tariffs were introduced on Aug. 1.

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