Securing space in the Japanese market: U.S. processors face tough competition from other countries – Japanese cheese market
Tom Suber
This is the second of two articles featuring results of the National Dairy Board’s (NDB) study of dairy market opportunities in the Pacific Rim Part I examined the Japanese market for frozen desserts; Part II focuses on the Japanese cheese market. Market research was funded by NDB in cooperation with the state of Washington Dairy Products Commission and the Western U.S. Agricultural Trade Association In 1983, Congress signed a mandate promoting domestic and international consumption of U.S. dairy products. In 1990, the National Dairy Board (NDB) embarked on an in-depth study of the dairy market in the Pacific Rim to determine how to increase the sale of U.S.-origin dairy products through generic promotion.
In pinpointing the role of the United States in the Japanese cheese market, NDB discovered that, though Japan is the United States’ biggest cheese customer, 1989 sales totaled only $6.5 million, and the United States holds an insignificant market share there.
Part of the problem is tough competition from other countries that have been promoting their products internationally for years. Australia and New Zealand in particular have developed contacts with major Japanese butter manufacturers to supply imported product when domestic production does not meet demand, the only time import licenses are granted.
Such relationships paid off in exports of natural cheese intended primarily for reprocessing. Japan permits duty-free import of natural cheese for reprocessing at a 2 to 1 ratio with domestic cheese. If the imported cheese exceeds double the amount of domestic cheese, a 35percent tariff applies. As a result, success in this market segment requires a partnership with a domestic processed cheese supplier who needs to dilute costs with imported product. Thus, Japanese dairy contacts developed by Australia and New Zealand have led to their current 63-percent share of the 30,000 metric tons of natural cheese imported for reprocessing.
Meanwhile, European suppliers, aided significantly by substantial export subsidies, have concentrated on marketing their products in the face of the 35-percent tariff by seeking the profitable, high-price natural cheese market niches. They supplied 60 percent of the 81,000 tons imported in 1989.
American suppliers do dominate one market segment, albeit the second smallest; the United States holds a 90-percent share of Japan’s 517-ton grated/powdered natural cheese import market. Cheese opportunities The total cheese market in Japan is 197,000 metric tons. This figure is essentially unchanged since 1988, but includes an average annual growth rate of 5.8 percent since 1984.
In 1989, cheese imports accounted for 57 percent of the total Japanese cheese import market by volume, slightly down from 1988, due to a production surge by domestic manufacturers. Yet, annual import volume growth has averaged a remarkable 7 percent since 1984. Most of those imports are natural cheeses. Only 395 tons, or 0.4 percent of the cheese import total, is classified as processed. However, the “other” import category may contain processed cheese, and much of the imported natural cheese is reprocessed domestically. Difficult marketing hurdles U.S. cheeses face difficult, though not insurmountable, price hurdles in Japan. In addition to ocean freight, the 35-pcreent valorization tariff and customs clearance, the multilayered distribution system can elevate costs even more before the product reaches the retail shelf.
Packaging is another consideration. Cheese packaging in Japan is typified by strong graphics showing the product, and an overall high-quality appearance. The type of resealable packages now being introduced in the United States would go over well with consumers in Japan for the same reason they are popular in this country. Convenience factors have become more important as more women join the work force. Key points to remember The Japanese dairy products market is sophisticated and fast-changing. Competitors from Europe, Australia and New Zealand have a head start. However, markets like cheese and premium ice cream provide opportunities for U.S. exporters to satisfy some of the increased demand from Japanese consumers. U.S. product quality, marketing capabilities, product differentiation, and prices at the premium levels can be competitive. But just as in the United States, the market dictates the product.
Therefore, NDB suggests that U.S. companies keep the following points in mind as they seek expansion into the Japanese market. * Consider unexplored market niches. It is often difficult to identify the difference between Japanese taste fads and fundamental attitude shifts. Reduced-fat or lowfat products are gaining some strength in Japan but not with the same force as in the United States. Few preconceptions exist about how dairy products should be served. Therefore, the Japanese are open to new product introductions such as cream cheese, Camembert cheese and yogurt, which are common in the U.S. market. * Pay attention to packaging. Reliance on eye-appeal and impressions of high quality are so ingrained in the Japanese consumer that these factors constitute more of the buying decision than is reflected in consumer surveys. Convenience is a strong asset. * Adhere to product standards. Port-side dumpsters in Japan frequently fill with products discarded due to a failure to meet Ministry of Health and Welfare (MHW) standards. Rather than gambling on how Japanese standards might apply to a product, exporters can submit their products for testing to the Export Service Center, Oregon Department of Agriculture, 503/229-6557. * Review distributor/importer needs carefully. The process of choosing a partner in Japan must be carefully considered, as Borden’s recently publicized problems with Meiji Milk would confirm. U.S. processors must determine whether their needs are repackaging, merchandising, retail promotion, foodservice contacts or regional or national distribution. As exporters, take your time building a long-term relationship with the right partners. By Tom Suber Suber is director of export marketing at NDB. NDB will make existing and future research data available upon request.
COPYRIGHT 1991 Business News Publishing Co.
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