Promar consultants Chisa Ogura and Shinichi Kawae recently completed field research in Rwanda, for the Ministry of Agriculture, Forestry and Fisheries of Japan (MAFF). Rwanda is a country that is heavily dependent on its ecotourism; in fact, it is the country’s main means of acquiring foreign currency. In 2010, Rwanda earned 207 million USD from tourism-related activities; this is significantly more than the accumulated amount of the country’s two largest exporting products, coffee and tea, which had an export value of 69 million USD in the same year.

Rwanda has three main tourist attractions: Volcanoes National Park where one can capture a glimpse of wild gorillas in their natural habitat; Nyungwe Forest National Park home to chimpanzees and other species of monkeys; and the Akagera National Park. In all three parks, the number of tourists allowed per day is restricted to protect the natural habitat of the wild animals.

Gorillas are by far the most popular wild animal among tourists. They are also the most protected. To minimise the interference humans may have on the gorillas’ natural habitat, guards and rangers allow in a mere 30 tourists per day. In 2007, it cost each visitor 250 USD to join the gorilla tour. In 2011, however, entry fee has significantly increased to 500 USD, and it is expected to further increase in the future.

Ecotourism not only attracts substantial foreign currency, it also has a large influence on the nearby areas in terms of job creation and, ultimately, shapes local society.

As Japan continues to take halting steps towards joining the Trans-Pacific Partnership (TPP), Promar is initiating a series of reports covering the challenges and opportunities Japan’s participation creates. In this first note, we highlight five agricultural products (dairy, sugar, rice, pork, beef) that we believe are Japan’s most sensitive and that will therefore cause the most problems for negotiators on all sides. Subsequent notes will go into greater detail on each of these products, along with others and will also look additional issues that could affect TPP negotiations.

Special Report Japan the TPP and Agriculture

Promar consultant Shinichi Kawae recently completed field research in Indonesia, where Promar is assessing pesticide residue levels on the country’s coffee crop. Indonesia is the third largest exporter of coffee beans to Japan behind Brazil and Colombia. However, since the Ministry of Health, Labour and Welfare of Japan (MHLW) detected Carbaryl in excess of Japan’s MRL for the chemical, Japan has banned Indonesian coffee bean imports from entering the country.

Although the Indonesian Ministry of Agriculture (MOA) and The Association of Indonesian Coffee Exporters (AICE or AEKI in Indonesian) have since prohibited the use of Carbaryl, news of that restriction has failed to spread to all growers. Unless and until the MOA and AICE can educate the entire industry, excess Carbaryl residue will continue to be an issue.

One problem for the MOA and AICE is that approximately 96% of coffee beans are harvested on small-scale farms in Indonesia. On these farms, pesticides are often used to kill a certain breed of ants which don’t damage the coffee but do bite growers’ hands as they pick the crop. To control the ants, farmers spray pesticides containing Carbaryl before the harvest.

The Ministry of Agriculture (MOA) has notified the state governments on prohibiting the use of Carbaryl on coffee plants. However, due to the poor communication between the government officials, many agriculture advisors and local farmers are not aware of this new regulation. An AICE office located in Lampung (one of the main coffee harvesting regions) has established training centres and they advise local farmers not to use products with Carbaryl. Education programs only address one side of the problem as there is presently no alternative for controlling the ants.

The Japanese industry association is pressuring the Indonesian government to resolve this issue. Currently, since Carbaryl is still used and sold in coffee harvesting sites, there is a need to continuously evaluate the agrichemical residue.

Photo: Coffee Production Site in Indonesia

Promar Consultant Ayako Kuroki recently concluded field research in Dalian to assess trends in China’s capelin processing and consumption. The city is China’s third largest port, with thriving industries for fruits, vegetables, fisheries and seafood processing. Dalian has also become an export oriented seafood processing hub for Japan. This metropolis can be characterized by its vibrant downtown core lined with skyscrapers, shopping malls, and various scenic spots overlooking the ocean.

Fish is still mainly considered a luxury in China. Accordingly, capelin is primarily imported for the purpose of processing and re-export to Japan, as domestic consumption is generally limited to local Japanese restaurants. However, the expansion of the middle and upper classes has stimulated local demand for seafood products, such as capelin. Starting this year, major foreign food retailers are planning to respond to this demand by offering a wider selection of relatively inexpensive seafood products.

China’s elite are ready for capelin, but the average consumer is still unfamiliar with the idea of eating this fish. Another factor hindering capelin’s popularity is that, unlike Japanese households, the average Chinese home is not equipped with a basic grill. Consequently, local industry players have discussed promoting frying capelin as a possible method to increase home consumption.

Picture:
Komochi shishamo (literally meaning child-bearing capelin) is a popular dish in Japanese restaurants in China.

As the Trans-Pacific Partnership (TPP) negotiations press ahead, led by the US, Australia, and New Zealand, preparations are accelerating for the long-considered China-Japan-South Korea Free Trade Agreement (CJK FTA). China, Japan and Korea have been studying the potential for an FTA since the idea was first tabled at a trilateral summit 1999, but progress has been held back by a number of issues, including regional trade imbalances and agriculture. At a summit in May of this year, however, the three countries agreed that preparations for the CJK FTA need to move faster; this new-found sense of urgency likely comes from the pace of TPP negotiations—and the expanding number of countries joining negotiations—and the fact that neither China nor Japan are involved in the TPP. A situation where a TPP would be in effect, but not a CJK FTA, would be one where Chinese and especially Japanese exporters find themselves at a disadvantage in the Asian region.

The collaborative feasibility studies carried out by government officials and researchers from each of the three countries have noted that agriculture remains a major constraint on CJK FTA completion. China’s tariffs on agriculture imports are the lowest of the three, a legacy of the tough conditions it agreed to as part of its ascension to the WTO. Japan’s tariffs are slightly higher than China’s, but nowhere near South Korean levels, which are among the highest in the world. Non-tariff barriers, such as SPS restrictions, are generally high in the region, as well.

Yet, considering the low volume of agricultural goods that are traded between the three countries, one would expect barriers in this sector to be a side issue compared to negotiations over access for manufactured goods. Japan’s share of China and South Korea’s trade in agricultural goods has fallen from 39.9% and 60.5%, respectively, in 2000 to 17.2% and 32.9% in 2009. Its imports from China, for the most part, are comprised of meat and processed seafood, the latter of which is set to decline as production moves to Vietnam and Thailand over safety concerns and rising labor costs in China. From South Korea, Japan mainly imports alcohol and kimchi, the Korean fermented cabbage dish which has gained popularity in Japan over the years; neither of these two products threaten Japanese domestic producers.

The decline in intra-regional trade in agricultural goods, coupled with lower tariffs and the TPP’s role as a motivating factor, means that agriculture is less of an impediment to a CJK FTA than it once was.

China’s so-called Second Tier Cities (STC) have been an increasingly hot topic for exporters interested in China’s mainland market beyond the three megacities: Beijing, Shanghai, and Guangzhou. This is not surprising, considering the fierce domestic and international competition and market saturation that is going on the China’s Big Three. For a foreign food company, however, determining which other Chinese cities to target can seem a daunting task, especially considering there are over 200 cities with populations exceeding 1.0 million people. And, while the overall market is growing at 10% per year, some of China’s Second Tier Cities are expanding their import consumption at 20-40% annually. Although more than 50 Second Tier Cities-related reports have been published by various organizations, including USDA, there has yet to be a report which focuses specifically on assessing the best Chinese Second Tier markets for future imported food products.
Recognizing that there was a need to examine China’s top Second Tier Cities, specifically regarding their future potential for imported food product, Promar has been developing a multi-client report that ranks China’s top 25 Second Tier Cities based on their propensity to increase purchases of foreign food products. To evaluate the STCs,  specific criteria and a system of weighing the values associated with these criteria was developed, based on our own extensive experience in China and the Chinese food industry. This report, which will be released shortly, will be called 2011: China’s Best City Opportunities for Foreign Food Markets.
Our ranking model has shown that China’s Second Tier Cities are very attractive markets and, for some criteria being evaluated, they have even more potential than the Big Three. For example:

• China’s top 25 Second Tier Cities collectively have seen food imports increasing, over the last 5 years, at 31% annually versus only 23% for the Big Three

• One Second Tier City actually score higher than one of the Big Three in overall potential

• 9 of China’s Second Tier Cities have much higher growth potential than the Big Three

• 14 of China’s Second Tier Cities are much wealthier than the Big Three, which can indicate strong potential for high value food products

• Virtually all Second Tier Cities are less competitive than the Big Three

For more information on Promar’s Second Tier Cities 2011 report or any inquiries you may have on researching the Chinese market please email inquiry@promarconsulting.com

Promar consultant Ayako Kuroki recently completed a field study on the effects of the recent drought on wheat and corn production in France. While France is known for its cheese and wine, it is also the largest grain producing country in the EU, annually producing 35 million tons of wheat, 10-15 million tons of corn, and approximately 10 million tons of barley. This spring, however, France was hit with the country’s worst drought since 1976 and there were concerns that the drought would impact grain production (especially wheat) and the dairy industry. Fortunately, rain in June and July has helped crops to recover.
The harvesting season for wheat in France is from July to August. Because this spring’s drought was followed by rainfall that exceeded the precipitation average of past years, harvesting has had to be temporarily postponed. While there are also concerns that the excessive amount of rain could cause the spread of fungus that is damaging to crops, the overall crop quality is forecasted to be very good this year. French wheat production though, is estimated to drop 6-10% compared to the previous year. Considering that the wheat harvesting area in France has increased since last year, it becomes clear that the influence of the drought on wheat has not been negligible. In contrast, corn benefited from the heavy rainfall and is forecasted to have a rich harvest in autumn.

Agricultural unions traditionally play a significant role in France. They control 70% of grain distribution and sales, and yet are also very aggressive in promoting agricultural exports. An example of this dual interest could be seen when Promar visited Pau, a city in southwestern France that is known as a major corn producing region. Euralis, the agricultural union for the region, not only produces more than 800,000 tons of corn annually, they are also known for their foie gras which is sold in China and other emerging markets.

Picture: Weeds growing in a wheat field due to the delay of the harvest, southern France, Aug 2011

Promar consultants Shinichi Kawae and Lucia Vancura together with research partners from Norinchukin Research Institute, recently completed an 8-month project on the cassava industries in Mozambique and Tanzania, as part of a larger project on important African crops sponsored by the Japanese Ministry of Agriculture Forestry and Fisheries (MAFF).

The project aimed to understand how further development of the cassava industries can help increase food security in the target countries, as well as understand what potential exists to produce value-added cassava products, such as high quality cassava flour (HQCF), cassava chips or cassava for animal feed products.

One of the motivations for this study was that fact that although Africa produces 50% of the world’s cassava and cassava is the main staple in many areas of Africa, the information available in Japanese on the role of cassava in African economies is limited. Promar’s study provides recommendations in Japanese and English on cassava’s potential for helping increase food security and generate income through value-added cassava processing.

Traditionally cassava in Mozambique and Tanzania has been seen as a “poor man’s” food, a staple planted by rural villagers and then harvested little by little as needed. Cassava has already long been playing an important role in food security as it can grow in poor soil, can be left “stored” in the ground for up to 3 or 4 years and less vulnerable to weather and pests as maize or other crops.

But as people’s income’s rise, can cassava compete with maize, or imported wheat? Can adequate cassava supply, processing facilities and transport infrastructure be created to fulfill the new demand for high quality cassava flour in urban areas?  These are some of the many questions facing the cassava industries in Tanzania and Mozambique.

Promar’s study discusses issues facing the entire cassava value-chain.  It looks at issues related to cassava production, including new variety development, seedling multiplication and cassava plant diseases; infrastructure issues including roads, transport and electricity; and challenges facing the value-added cassava industries, most importantly the unstable and insufficient supply for cassava processing.

Picture: A Mozambican worker at a cooperative frying fermented cassava flakes (rale) for commercial sale at supermarkets

Promar senior consultant Lucia Vancura and research analyst Shinichi Kawae completed field research on coffee production in Tanzania and Ethiopia in late 2010 as part of a project for the Japanese Ministry of Agriculture, Forestry and Fisheries. The project looked closely at the coffee industries in both countries in order to identify the issues facing the industries as well as understand their potential role in poverty alleviation and food security. Promar’s conclusions suggest ways that countries or investors can support these coffee industries to increase incomes of producers and expand market opportunities.

For both Tanzania and Ethiopia, Japan has long been a major export market, but in recent years, exports to Japan from both countries have dropped, affecting their overall coffee industries. Coffee producers are already vulnerable to coffee price fluctuations, climate change and problems in the coffee marketing systems which make coffee production a difficult path out of poverty.

In Tanzania, the volume and quality of coffee production has decreased in the Kilimanjaro Region, the traditional production area for the high quality coffee prized by Japanese buyers. There are several reasons for the decrease. Many farmers have abandoned production as a result of falling coffee prices, and decreasing bean size due to aging coffee trees has also affected quality and production volume. Furthermore, the Tanzanian government is now emphasizing production expansion in the southern part of the country and support for the Kilimanjaro Region is no longer a focus. As a result there is less of the high quality “Kilimanjaro” coffee available to meet Japanese demand.

Ethiopian is also a major coffee exporter to Japan, but export volumes dropped from 30,000 tons in 2008 to almost zero in 2009, due to the detection of pesticide residues on beans sent to Japan. The residue exceeded Japanese tolerance levels despite the fact that almost no pesticides are used in Ethiopian coffee production. The Ethiopian government maintained that the cause of contamination was the jute bags used for transporting coffee. These bags were often re-used repeatedly, including for the transportation of other crops, which may have resulted in contamination. The Ethiopian government took action by incinerating all jute bags in the country, at considerable expense, and decreeing that only new jute bags stamped with the current year can be used. However, insufficient supply of new jute bags still remains one of several critical problems to be addressed in today’s Ethiopian coffee trade.

Promar Consulting’s report on the coffee industries in Ethiopia and Tanzania explores the current situations in coffee production, processing, policy and trade in more detail and discusses how critical issues in the two countries’ coffee industries could be addressed by international donors or private investors. The aim is to facilitate smoother trade and more market opportunities for small scale, impoverished coffee farmers, with the goal of raising household incomes and providing greater security for the lives of those involved in the coffee trade.

Above are coffee beans packed for transport in jute bags stamped with the current year’s date. (Ethiopia, Nov 2010)

The following is the second in a series of brief updates Promar is providing to clients on the impact of the tsunami, earthquake, and nuclear crisis on Japan’s agriculture sector and food demand.  For questions and other inquiries, please contact Chisa Ogura at info@promarconsulting.com. Download here as PDFImpact of Japan’s Disasters: Volume2

MAFF AND TRANSPORT MINISTRY RELEASE LATEST DAMAGE ASSESSMENTS
Japan’s Ministry of Agriculture, Forestry, and Fisheries (MAFF) released its latest damage assessment on April 18th for prefectures directly affected by the earthquake, tsunami, and nuclear crisis, as well as for surrounding areas. These figures value the damage to agriculture in the region at 729 billion JPY ($8.8 billion) and damage to fisheries at 603 billion JPY ($7.3 billion). According to MAFF, roughly 23,600 ha of mainly-paddy farmland was flooded with seawater, rendering it temporarily infertile. Miyagi prefecture, which along with the other northern prefecture of Iwate, bore the brunt of the damage from the tsunami and 11% of its farmland was exposed to seawater.

At the same time, the Ministry of Land, Infrastructure, Transport, and Tourism also revealed an assessment of its own, estimating that the value of damaged roads, embankments, ports, and sewers at 1.2 trillion JPY ($14.5 billion), with 13,602 individual cases of damage.

RICE PRODUCTION TO FALL SHORT OF ANNUAL TARGET BUT MAFF POINTS TO SUFFICIENT RESERVES
MAFF also recently revealed that the country would not meet its rice production target of 7.95 million tons this year, while noting that it holds around 1 million tons in reserves, reducing or eliminating the need for imports to fill the supply gap. Initially, it was believed that the target could be met by sowing land that was otherwise slated to remain unplanted under the government scheme to reduce rice acreage. But this has proven more difficult than first expected, according to MAFF.

Looking ahead, while MAFF reports that it has developed a plan to return flooded land to production by subsidizing 90% of the costs, it is difficult to know at present how long this will take as the scale of flooding is unprecedented. Back in 1999, when parts of Kumamoto were flooded with seawater by a severe typhoon, six months were needed to remove the salt from 780 ha of land, according to an April 5th report from local language press. Considering that the flooded area this time is some 30 times larger, it could take years to bring the farmland back into production.

FISHERIES RECOVERY BEGINS, TRADED SEAFOOD VOLUMES BACK TO PRE-QUAKE LEVEL AT TSUKIJI
In the fisheries sector, which has arguably suffered the greatest damage to production capacity, there are signs that a gradual recovery is underway. Seafood markets in Miyako City in Iwate and Shiogama City in Miyagi prefecture, two of the hardest hit cities, resumed operations in mid-April by conducting trading in unaffected sections of the market. The fisheries cooperatives, for their part, have begun collecting and repairing damaged fishing vessels, while program for “boat-sharing” has been implemented in Iwate prefecture so that functioning boats are put to full use.

The seafood trade, too, is returning to normal, with volumes back at pre-quake levels at Tsukiji, Tokyo’s central wholesale market. Trade in fresh mackerel, for example, which saw a rapid drop in supply and resultant spike in price in the days following the quake, is now being traded at seasonal averages.

Still, the sector is not without problems. After high levels of radiation were found in several samples of konago fish (sandlance) caught off the coast of Ibaraki prefecture on April 4th, the main fisheries cooperatives there were forced to halt operations as rumors spread that other species were also unsafe. Some boats have since resumed fishing, but the prices offered for seafood caught in the waters around Ibaraki and neighboring-prefecture Chiba have both seen dramatic falls.

RADIATION CONCERNS LEAD TO BANS IN JAPAN AND ABROAD
Concerns about radiation levels are affecting more than just seafood. The situation in Fukushima has led to a domestic ban on shipments of vegetables and milk not only from that prefecture, but also from the surrounding prefectures of Tochigi, Ibaraki, and Chiba. Internationally, as of the end of March more than 50 countries have restricted to a certain degree imports from Japan. China, one of Japan’s largest markets for agriculture and food exports, has completely banned imports from 12 prefectures, including Tokyo.

Despite the domestic ban, shortages in Tokyo of water, milk, and several other key food products have eased to some extent in the past few weeks. Food manufacturers have resumed production following the cessation of planned rolling blackouts and retailers have increased imports of food and beverages, particularly water. TEPCO has announced that “in principle” there will be no more planned blackouts unless an emergency (natural disaster, trouble in the facilities) occurs. Previously, the government asked heavy users to reduce energy usage by 25% compared to summer 2010, but this figure is likely to be reduced as TEPCO is making efforts to rehabilitate other affected energy plants.

Still, a lack of packaging products is inhibiting a full recovery for the sector.

PRELIMINARY TRADE NUMBERS FOR MARCH SHOW MEAT AND PRODUCE IMPORTS UP YOY
The Ministry of Finance has released preliminary data for March that showed increased imports of meat, vegetables, and fruits compared to the same month last year. In volume terms, meat imports were up 9.6% over 2010, while fruits and vegetables were up 11.2% and 24.7%, respectively. All three were substantially above the monthly average for the past five years.

There were, however, significant declines in other product categories. The largest drop among these was seen in grains, imports of which were down 16.6% from March 2010 and were 10% below the average monthly total for the preceding five years. Soybean imports were 9.1% lower than last March and substantially lower than the five-year average, although March bean imports have been shrinking over the past three years. Finally, seafood volumes fell 5.7% from March last year and were nearly 8% off the average.

Considering the timing of the earthquake and shipping time for Japan’s major suppliers, it is hard to read much into the March figures. Grain shipments were affected by infrastructure problems, leading shipments to be diverted to other countries and causing Japan’s imports to fall for the month. The fall in soybeans can likely to be attributed to this factor, as well. The earthquake and tsunami probably contributed to at least part of the decline in seafood volumes, but not all of it, in Promar’s view.

We do believe, however, that the rise in fruits and vegetable imports was a clear result of the earthquake and tsunami. Reports out of China say that frozen vegetable companies, for one, ramped up production by as much as 30% to keep pace with the extra demand from Japan, while sources in Hong Kong cited increased exports of fruits and vegetables to Japan from Shandong and Hainan provinces as a cause of the upturn in local produce prices.