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Politics

Outdated trade controls leave the country short

TOKYO -- The Japanese government decided last month to import butter by the end of October to address the continuing problem of rising butter prices caused by a domestic shortage of the dairy product. But the nation's out-of-date trade controls are making it difficult to find a solution.

     The butter shortage was caused by raw milk, butter's basic ingredient, becoming scarce as the number of dairy farmers dwindles in the country. Raw milk is mostly shipped as milk, while some is processed into fresh cream and cheese. Leftover milk is used for making butter and skim milk powder.

Dropping production

Domestic butter production in fiscal 2014 dropped to 61,000 tons from 81,000 tons in fiscal 2009, a sharp contrast to annual domestic butter consumption being stable at 70,000 to 80,000 tons for the past few years.

     Also, domestic raw milk production has decreased by 12% over the past decade to 7.33 million tons in fiscal 2014. The reduction is attributed to the rising exodus of people from dairy farming due to aging. In 2014, the number of dairy farmers in Japan was 18,600, down 40% from a decade ago.

     But increasing the number of new dairy farmers is not easy. Cowsheds built during Japan's high-growth period and the following bubble years have become decrepit. Renewing the sheds and introducing advanced milking technology would cost roughly 100 million ($797,070) to 300 million yen.

     Since last autumn, supermarkets have been introducing restrictions of butter sales per person, informing customers that they don't know when they will next have the product in stock.

     In a bid to quell consumer concern, the government in November 2014 asked dairy product companies to increase the production of household butter. But the shortage of raw milk continue and more household butter mean less for industry.

     Nationwide, since April, pastry shops have been informed of butter restrictions by trading houses and diary companies and told that only 70% of last year's amount can be delivered this year.

Patisserie Almond in Tokyo's Setagaya Ward

     According to J-milk (Japan Dairy Association), domestic butter production is expected to be about 65,000 tons in fiscal 2015, down 21% from the recent peak reached in fiscal 2009.

Maintaining trade controls

Kosuke Yoneda, manager of Patisserie Almond in Tokyo's Setagaya Ward, says, "I don't want to use shortening as a substitute for butter because it alters the taste. So I am not making cakes often."

     If domestically produced butter is scarce, the government has no choice but to depend on imports. But Japan has designated butter as a state trading item, restricting imports of the product. And in the Uruguay Round trade negotiations in 1993, it agreed to import a minimum amount of butter in exchange for maintaining trade controls.

     Back then, Japan had an excess of domestically produced butter and unlike today, it was reducing raw milk production. But more than 20 years later, the supply-demand balance of butter has significantly changed.

     Butter imports are subjected to a tariff of roughly 30% in addition to a specific tax of a little under 1,000 yen per kilogram.

     Though a lower tariff makes it easier for private companies to import butter based on a supply-demand situation, the government maintains the existing framework to protect domestic dairy farming. But despite such a trade restriction, dairy farming continues to go downhill in Japan.

     When data on the production and stock of butter for fiscal 2014 became available in May, the government decided to import an additional 10,000 tons, surpassing the minimum import amount.

Selling imported butter

It will start by selling 8,000 tons of imported butter to eliminate an expected 7,100 tons of shortage in fiscal 2015, which ends march next year. If that is not enough, the government will release the remaining 2,000 tons.

     The butter shortage pushed up the price of domestically produced industry-use butter by nearly 10% to more than 1,250 yen per kilogram, excluding tax, over the year. 

     In fiscal 2014, the government also additionally imported 10,000 tons, but that didn't stop rising wholesale butter prices.

     Even if the government releases all imported butter by March 2016, "The supply-demand balance seems to be unchanged from the end of last fiscal year," said an official of a Japanese trading house.

     Prices of imported butter are also high. The butter for which the government previously called for bids, all 1,680 tons of it, is scheduled to be imported to Japan from New Zealand and the Netherlands by the end of July. A bid-cover ratio for the imported butter jumped fivefold.

     The scarcity of domestic butter is increasing demand for imports. The average price of butter the government sells to dairy product companies and trading houses is 1,460 yen per kilogram, excluding tax, 20% higher than the successful bid price of imported butter in October 2014.

     An owner of a pastry shop in Tokyo's Ota Ward said, "We have just passed on a higher consumption tax to consumers. So we can't raise prices even though butter is expensive."

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