FAS/Tokyo projects that Japan’s fluid milk production in 2022 will increase about 1 percent from 2021 on a greater number of new cows. Despite both rising feed prices, which began in late 2020 and continued through summer 2021, and stagnating prices on milk for further
processing, FAS/Tokyo anticipates that the support of compensation programs will limit the impact on dairy farm management in 2021 and 2022.
According to Livestock Statistics, which is published by Ministry of Agriculture, Forestry and Fisheries (MAFF), year on year the total number of dairy cows and heifers as of February 1 had increased by 0.3 percent, while the number of cows in milk was up 1.5 percent. MAFF has incentivized dairy farmers to increase herd size for years, and by 2017 the number of heifers being reared had increased (Figure 1). Thereafter Japan’s milk production continued to increase from 2018 through the first half of 2021, which was up one percent year on year. FAS/Tokyo projects current production levels be sustained through the end of year 2021 to net total production of 7,515,000 metric ton (MT)
According to Japan’s National Livestock Breeding Center, the registered number of dairy heifers and cows which will start milking in 2022 is up 3 percent from 2021, although the total cow population of the most productive age (2 to 4 years old) in 2022 is expected to
decrease by one percent. FAS/Tokyo projects that Japan’s fluid milk production in Cow in milk 2022 will continue to increase although at a slower rate than in 2021 on fewer cows in their prime production period.
The number of dairy farms in Japan continued to decrease in 2021, down 4 percent from 2020; many farmers having less than 100 cows exited the market as they retired without successors to continue the farm. Meanwhile, some small farms merged with others and expanded the number of farms with 300 or more cows by 10 percent from 2020. Such consolidation may also be in part a response to data which suggests greater incomes with economies of scale generated by larger farms, as well as greater market opportunities for milk production byproducts such as calves . The net result was an increase in average dairy farm size to 97.6 head per farm in 2021
Retail prices of compound feed for all animals spiked from October 2020 through the first half of 2021 . Feed prices for dairy cows in the fourth quarter (4Q) in Japanese fiscal year (JFY, April through March) 2020 climbed 5 percent from the 3Q of JFY 2020, followed by a 7 percent jump in the next quarter. However, an incremental compound feed price stabilization system helped dampen feed prices to dairy farms, by 3,300 yen ($30.281) per metric ton in the first quarter of 2021, and 9,900 yen per metric ton in the second quarter.
Stagnation among the food service and tourism industries resulted from measures taken to control the spread of COVID-19. That coupled with school closures shrank demand for dairy products and depressed fluid milk prices, especially milk for further processing. In response to those market conditions, Japan’s Milk for Further Processing Stabilization Program (the so-called Narashi program) triggered in JFY 2020 for the first time in 14 years. The resulting surplus of fresh dairy products, such as drinking milk and cream, became a surfeit of supply to the further-processed dairy segment and became products such as butter and non-fat dry milk (NFDM). This pushed the price of milk for further processing below the trigger level of the Narashi program. On milk for further processing which was traded in JFY2020 (JA2021- 0131), eligible dairy farms receive 0.75 yen ($ 0.007) per kilogram.
The national average pooled milk price, an average of the prices paid to farmers for drinking milk and for milk for further processing, rose gradually until JFY2019 . In JFY2020, although the price of milk for further processing dropped as mentioned above, the pooled price remained high initially on strong household demand for drinking milk. However, by the first four months of JFY2021, demand lost to school and restaurant closures drove the pooled milk price down year on year . Despite this current market weakness, FAS/Tokyo expects aid-related supports for dairy producers will spur continued growth of Japan’s fluid milk production in 2021.
FAS/Tokyo projects that Japan’s 2022 butter production will be down year on year, a result of both a butter surplus in 2021 and renewed demand by the food service and tourism industries for fresh product given the easing of COVID-induced social restrictions.
The 2020 butter production surplus spiked in March and April when schools closed to control spread of COVID-19. The nationwide supply of fresh milk to the school lunch program was diverted into butter production, driving up stocks, a situation that has continued through August 2021 .
As large butter stocks remain, FAS/Tokyo projects that Japan’s butter imports in 2022 will remain flat from the largely falls in 2021, and the imports will be mostly product imported through the Tariff Related Quota (TRQ) operated by ALIC as well as certain niche products
traded outside of the TRQ.
In response to high ending stocks, MAFF initially reduced the TRQ in JFY2021 nearly 50 percent to 6,400 MT from JFY2020, where it stayed through May (JA2021-0088). By September, MAFF had increased the quota to 9,500 MT in response to strong demands by
regular industry users.
MAFF provides domestic industries with support payments to fill the gap between prices for domestic and imported butter and incentivizes them to use domestic butter (JA2021 – 0110). ALIC projects that the total butter stocks will be drawn down by approximately 8,000 MT by March 2022. Through the first eight months of 2021, imports dropped 37% year on year (Table 3) and FAS/Tokyo expects imports in 2021 will decline year on year.
FAS/Tokyo projects that Japan’s 2022 butter consumption will increase slightly as food service demand begins to recover following Government of Japan’s (GOJ) COVID-19 vaccination campaign and expected easing of travel restrictions. (For official vaccination data, see number of vaccines administered so far)
According to ALIC, in JFY2019 around 30 percent of butter was supplied to confectionaries, 24 percent to households, 12 percent to bakeries, and 10 percent to the hotel, restaurant and institutional (HRI) food sector. In 2020, the impact of COVID-19 crashed supplies of butter to those market segments, which has remained so through most of 2021. Demand from tourism is almost nil: according to Japan Tourism Statistics (JNTO), in 2021 the number of foreign visitors to Japan from January through August declined 96 percent year on year, after a decline of 87 percent in 2020.
Demand declined further because of domestic travel restrictions affecting nearly all of urban Japan. States of emergency repeatedly declared by GOJ from April 2020 through September 2021 required restaurants to reduce business hours and limit the sale of alcohol, and to restrict leisure travel in general.
As might be expected, in contrast to the decline in consumption by food service and tourism industries, consumption of dairy increased in the retail segment; no doubt families restricted from travel and outside dining have increased in-home dairy consumption by 25 percent in the first half of 2021, according to Ministry of Internal Affairs and Communications (MIAC) (Supplemental Table 1-b). Nevertheless, until the food service and tourism sectors fully ramp up, FAS/Tokyo expects ending stocks in 2022 will stay flat year on year.
Domestic cheese production likely expands in 2021 and 2022 on increasing diversion of fluid milk for further processing against weak demand in the HRI segment. In the first eight months of 2021, according to MAFF cheese production was up two percent year on year, again on a diversion of fresh milk surplus, which resulted from the sharp drop in demand caused by schools and restaurants being closed in response to the COVID-19 emergency.
FAS/Tokyo projects that total cheese consumption in 2022 will rise as the HRI sector recovers from COVID-19 demand shocks. Despite the COVID-19 outbreak, year on year retail demand for cheese had risen in 2020, with household consumption up 14 percent at 4 kilogram per household (Supplemental Table 1-b). Household consumption remained strong through the first seven months of 2021, up 17 percent from 2020, which suggests greater consumer preference for cheese, including domestic cheese.
Nevertheless, Japan’s total consumption of both imported and domestic cheese in 2021 is likely to remain flat from 2020 on poor demand from the food service businesses which have been hobbled by COVID-19 restrictions.
A recovery of the food service sector will drive greater cheese imports in 2022. Nevertheless, cheese imports in the first eight months of 2021 are down year on year and likely will be through year end (Table 4), again a function of COVID-19 restrictions. In short, diversion of surplus fluid milk to cheese production has reduced the need for cheese imports in 2021.
In addition to shrunken demand, rising costs, driven by higher freight fees and strong demand for imports by competitors such as China, are squeezing margins of Japanese importers. Given the current fluid milk surplus, industry sources suggest it may take a few years for cheese imports to return to pre-COVID-19 levels.
Meanwhile, ending stocks of cheese will be up in 2021 on low foodservice demand, but recovery of that market segment in 2022 should begin to draw down excess stocks.
Non-Fat Dry Milk (NFDM)
As with butter production, Japan’s NFDM production is projected to be flat in 2022 after the spike in 2021. Ending stocks hit a historical high and likely will go higher in 2022, despite MAFF’s lowered TRQ for NFDM in JFY2020 and 2021 (JA2021-0088), and despite supports for domestic NFDM used in animal feed (JA2020-0090).
In the first eight months of 2021, strong butter production and recovering cream production generate more production of their byproduct, NFDM, up 8 percent year on year, and 21 percent from 2019.
Industry sources report strong household consumption has held demand for dairy products made of NFDM, such as yogurts (down 1 percent year on year) and ice cream (up 3 percent), in 2021. However, industry use of these products has only half-recovered. FAS/Tokyo projects that Japan’s total NFDM consumption in 2021 will finish almost flat year on year, though beginning stocks will be up on low consumption in 2021.
FAS/Tokyo projects that Japan’s NFDM imports in 2022 as well as 2021 will decrease year on year because of reduced TRQs for ALIC tenders and large stocks. The imports in the first eight months in 2021 were only half of 2020 (Table 5). Meanwhile, MAFF continues a limit on the TRQ it initiated in JFY 2020: 750 MT in JFY 2021, to be operated by ALIC as a global tender within the existing WTO quota for milk powder with a protein content of 35 percent or higher (JA2021-0088). MAFF maintains separate global quotas for skimmed milk powder for school feeding, feed production, and other uses totaling 82,237 MT (JA2021-0047).
MAFF’s support payments to replace substitute domestic products for imports, part of its COVID-19 relief program, continues until March 31, 2022. As a result, ALIC projects that stocks will decline by approximately 10,000 MT by March 2022.