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A farm belonging to Fukunaga Industry in Kagoshima (Photo by Ken Kobayashi)
The Big Story

Japan fights to remain the king of wagyu beef

Australia and New Zealand tweak traditional methods as tastes change

WATARU SUZUKI, Nikkei staff writer | Japan

KAGOSHIMA, Japan/MELBOURNE-- Some customers at Sydney's Sutcliffe Meats were appalled in late August when they saw the price of the exquisitely marbled steaks displayed under the glass counter: 400 Australian dollars ($283) per kilogram, double what other local butcher shops were charging for their highest-quality beef. But Stephen Kelly, the shop's owner, knew that Kagoshima wagyu -- beef from the black cattle raised in Japan's Kagoshima Prefecture -- had hardcore fans.

"They sold out quickly," Kelly said. "Now we are looking to do more."

Dubbed the "Rolls-Royce of beef," wagyu is enjoying a surge in popularity. Japanese beef producers are seeing a dramatic rise in wagyu exports, which has pushed prices to near-record levels. Foreign tourists are traveling to Japan to enjoy its melt-in-your-mouth tenderness. Owners of high-end restaurants, hotels and butcher shops are flocking to Japan's far-flung regions to secure supplies of the meat.

This booming international demand for wagyu, which simply means "Japanese beef," comes after a long lean period. Exports to Australia kicked off in May for the first time since 2001, when many countries banned imports of wagyu after the discovery of mad cow disease, a brain infection that is believed to be transferable to humans.

Vic’s Meat shop in Sydney: Wagyu is catching on in Australia, where it can sell for as much as AU$400 per kilogram. (Photo by Stuart Hope)

But improved safety standards and years of negotiations between Japan and foreign governments are bearing fruit. Wagyu is now the rising star of Japan's agricultural export drive, a push by Prime Minister Shinzo Abe to counter the shrinking consumer market at home. Wagyu is also the perfect emblem of what Japan touts as its core strength: superior quality.

Australia, one of the world's biggest beef producers, is no easy market to crack. But Japanese officials have grown increasingly optimistic in the wake of surging sales to Taiwan, which began allowing wagyu imports again more than a year ago. Taiwan accounted for around a fifth of Japan's total beef exports during the first half of 2018, which surged 37% from a year earlier to 10.8 billion yen ($94.9 million).

One big market that remains closed is China, where the appetite for beef is growing rapidly. Japanese officials say they are in negotiations with China to lift the ban. "The issue is definitely on the table," said a government official involved in the talks.

If the current pace of the wagyu expansion continues, Japan's beef exports this year will surpass 20 billion yen -- nearly double what they were in 2015. Japan's target of reaching 25 billion yen by 2020 is a key part of the country's broader ambition to achieve 1 trillion yen in agricultural, forestry and fishery product and food exports.

"At first, we did not believe the growth was sustainable" says a salesperson at one meat exporter. "But the market is stabilizing, with more mature players coming in."

But beneath the newfound optimism lies a harsh reality: Japan's wagyu industry is in crisis.

Aging farmers, declining stocks

For five decades, Nari Muranaka has been breeding wagyu cows outside her house in Shibushi, a 90-minute drive from Kagoshima's airport. At her farm's peak, she raised nearly 50 cows in small, handcrafted wooden pens, but now only six remain. No one is willing to succeed her, so the 80-year-old Muranaka is planning to sell the rest of her livestock within a few years and shut the farm down.

"I don't think my body can handle it for much longer," she said, facing the corner of her tatami-floored room decorated with trophies and medals celebrating the quality of her cows. They are reflections of the decades of careful attention -- making a special feed from grass by hand, cleaning the stalls, and carefully choosing which calves she will raise and which will be sold off -- that have contributed to the high quality of her wagyu.

Nari Muranaka is an award-winning wagyu farmer but says she is ready to retire from the business. (Photo by Ken Kobayashi)

"You need to be there for them 365 days a year," she said. "It was all I did for my entire life. But it is becoming harder for me to do it on my own."

The area where Muranaka lives, on the southern island of Kyushu, is one of Japan's largest wagyu breeding hubs. But more than half of the region's farmers are 70 or older, and 80% of them do not have a successor. The decline in the wagyu population has caused the price of calves to increase tenfold from 1965 to 2016, to 750,860 yen per head. Even though current prices allow farmers to earn a decent living, the younger generation has turned its back on a life that requires them to be grounded in the countryside.

Calves are grown for about nine months and then auctioned off to farmers across the country, who raise them in feedlots for another 20 months or so. The surging prices of the calves have made life increasingly difficult for these farmers. And while exports are growing, the domestic market still represents the majority of their sales -- and there is little room left to expand sales at home.

A fish-eating people, Japanese historically used cows mainly to carry goods. But the introduction of more efficient tractors and trucks in the 1960s helped accelerate a rise in production for consumption. After Japan's liberalization of beef imports in 1991, farmers began to focus on high-end products to survive competition with cheap meat from the U.S. and Australia. Japan identified four breeds as wagyu and began a quest for the perfect marbling -- the intramuscular fat that gives wagyu its silky, melt-in-your-mouth texture and a key metric in determining the price.

But an industry designed to defend against foreign competition meant that few resources went toward boosting exports. That is haunting Japanese distributors now, as many prefectures lack processing facilities that meet international standards. Anthony Puharich, CEO of Australian meat company Vic's Meat, said he was unable to import the famous Matsuzaka beef because of such constraints.

"Since the liberalization of imports in the 1990s, it was all about protecting the domestic farmers," one Japanese government official admitted. "There was never a long-term export strategy."

But while Japan's wagyu industry grapples with an aging population, cattle producers in other countries are beginning to put their own stamp on the business.

"A high-end eating experience"

On a chilly morning in July, black wagyu cattle were roaming around a spacious grass field in Alexandra, about a three-hour drive from the Australian city of Melbourne. The landscape, surrounded by vast hills and trees, makes for a stark contrast with the small pens in Japan that leave the cows with hardly any room to move. It is one of five farms owned by David Blackmore, who has been filling the stomachs of wealthy Asians with wagyu during Japan's absence from the market.

After being raised on a barley-based diet in a Japanese-style feedlot, the cows will be shipped to Sydney for processing, then sold to some of the world's top restaurants. The whole process takes more than two and a half years.

To prevent competition with foreign producers, Japan does not export live wagyu, semen or embryos to overseas markets. But during the 1970s, some were sent to the U.S. for research purposes.

Blackmore first encountered wagyu in 1988 at a farm in Texas and was stunned by its meat quality. Around the same time, an Australian government agency issued a report that outlined how raising its meat "grade" -- a measure of quality -- by one notch would add $200 million to the local beef industry.

David Blackmore owns five wagyu farms in Australia, with a total of 3,800 head of cattle. (Photo by Wataru Suzuki)

"I knew that crossing one wagyu [with another breed] can increase the meat grade by three," Blackmore recalled in an interview at his home. "I thought, this is the future." In 1993, he imported several wagyu embryos from the U.S., launching what has become one of the largest wagyu operations outside Japan. Blackmore's wagyu business now spans 3,800 cattle across five farms that total 8,000 acres.

Blackmore's top-graded wagyu sells for as much as AU$125 per steak at Rockpool, a restaurant in Melbourne's casino district.

An increasing number of Australian farmers are looking to mimic his success by mixing their herds with wagyu DNA, and some of the country's leading businesspeople are also beginning to get in on the act.

In 2016, Blackmore completed one of his biggest transactions: a sale of more than 1,000 cattle to Gina Rinehart, the mining magnate and Australia's richest businessperson, according to U.S. magazine Forbes. She is said to be looking to serve wealthy clients in China -- a market that still bans imports from Japan.

Peter Gilmour, president of the Australian Wagyu Association, says his country has a number of advantages over Japan.

"Land in Japan is more expensive, farms tend to be quite small and they have quite intense staffing levels" due to the intensive care that their wagyu requires, he said. "Also, most feedstuff have to be imported from Australia and the U.S. That is another added cost."

Once unaffordable for most Asians, beef is increasingly in demand as the region grows wealthier. China's beef and veal imports surged from just 23,000 tons in 2009 to a projected 1.02 million tons this year, according to the U.S. Department of Agriculture. Still, per capita consumption is only 4.1 kg, less than a sixth of the U.S. Hong Kong has also more than doubled imports, while new consumers such as Thailand and Malaysia are emerging.

Around 24,000 tons of wagyu were produced in Australia in 2016, according to the Australian Wagyu Association, with 85-90% going to the export market. That is about 10 times Japanese wagyu exports in the same year, although the association's definition of wagyu is much looser, counting crossbred beef containing a combination of wagyu and other breeds, such as Angus or Holstein.

Perhaps worse for Japan, the wagyu trend is spreading to other countries. Brownrigg Agriculture, a major vegetable and meat producer in New Zealand, imported wagyu genetics from the U.S. and Australia and now raises some 3,000 crossbred wagyu in the northern port city of Napier.

Carcasses are prepared for a meat auction in Kobe, Hyogo Prefecture. (Photo by Ken Kobayashi)

Wagyu "has a neat fit as a high-end eating experience," said Brent Oliver, Brownrigg's general manager of livestock. "Alternative proteins, like lab-grown meat, have the potential to take away some market share from commodity beef. But wagyu is an eating experience."

Some of Brownrigg's cattle is supplied to S Foods, a Japanese meatpacker that entered New Zealand in 2015. It raises them using Japanese methods and ships most of the meat to China.

Healthier appetites

Another customer is First Light, a beef producer that combines wagyu's marbling quality with organic growing techniques to cater to health-conscious consumers. Its crossbred wagyu is raised outdoors and fed grass for around two years, instead of a traditional grain-based diet, and sold to supermarkets in the U.S. and Europe.

"As consumers went from grain- to grass-fed meat, they did not like what they found: inconsistent, strong flavored, tough, dry, chewy," said Jason Ross, First Light's co-founder. "So we used wagyu as an enabler of super high-quality grass-fed beef."

"We used wagyu as an enabler of super high-quality grass-fed beef"

Jason Ross, co-founder of beef producer First Light

He adds that as obesity spreads across Asia, he is "looking closely" at selling the grass-fed beef as a healthier option in the region. The company plans to process about 10,000 cattle this year, and aims to double it by 2021. It is partly funded by the New Zealand government, which wants to upgrade the country's beef and dairy industry using wagyu genetics.

Further boosting the foreign wagyu industry's optimism is scientific development. Advances in genetic analysis are making it possible to predict the quality of a cow while it is still a newborn -- judgments that traditional farmers like Muranaka made using their skill and instincts.

Equipped with genetic data, farmers who once had to wait years to see how their cows would turn out can cherry-pick the ones with most potential. That may help close the gap between overseas producers using decades-old wagyu genetics and Japan, which has improved marbling quality by waiting for cattle to mature, then keeping the mother of the ones that turned out best.

A wagyu calf auction in Kagoshima. (Photo by Ken Kobayashi)

Most Japanese wagyu traders dismiss foreign wagyu producers as copycats, and even the overseas farmers admit that Japanese wagyu is superior in quality. But while Japanese wagyu is at risk of becoming a luxury that only the superrich can afford, ambitious foreign producers see more potential in raising top-quality wagyu at a lower cost.

Some Japanese players remain optimistic. Fukunaga Industry, a meat distributor based in Fukuoka, started a new wagyu brand five years ago with more than 700 wagyu cows near Muranaka's house. "I saw so much room to improve the quality of the meat here," said Shinji Fukunaga, its CEO.

A handful of employees work from five in the morning tending to long rows of small pens, feeding the cows a custom-made meal or replacing the soft wooden chips that serve as their bed. It takes more than a year and a half before one is sold at an auction.

This uniquely Japanese style has created fans all over the world. But the question is: for how long? Foreign producers think they can close the quality gap.

"There is a big focus on achieving similar eating quality of what Japanese farmers are capable of doing," said Gilmour of the Australian Wagyu Association. "That is where you see the excitement."

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