If it was any other country, Japan’s economy would be in tatters and its trading partners would be scrambling for the exits.
Instead, despite 10 years of recession, despite having the largest public debt on the
planet, and despite having its factories working at only 70 per cent capacity, Japan stolidly continues buying $3 billion of Canadian ag products a year.
If anything, our long-term outlook for ag and food exports to Japan shows a steady upward climb, and there is no danger of Japan losing its rank as Canada’s number two ag market any time soon.
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Nor is Japan in danger of losing its reputation for being demanding — some would say obsessed, others might say finicky — with quality requirements and traceability. Or of losing its focus on price.
Clearly, the country with 128 million mouths to feed on a tiny land base needs food imports, but it is determined only to import the very best, and Canada is happy to oblige by sending its highest-quality food-grade soybeans, canola for crushing and both fresh and frozen pork.
In those commodity sectors, little has changed due to Japan’s depressing economic numbers. The effects, it seems, are subtle at most, and not all are negative.
The ripple effect
Battered and bruised at home, the pork export business to Japan is doing surprisingly well. Advances in processing, packaging and shipping have allowed Canada’s pork industry to shift away from frozen pork cuts that are sold for further processing and into chilled, value-added products.
“This move to chilled products allows us to brand our products at the grocery store and in the home,” says Jacques Pomerleau, executive director of Canada Pork International. The move to chilled products happened over the last five years and is a trend the pork industry plans to continue. It couldn’t have come at a better time, as the economic slowdown means more Japanese are eating at home where pork is a preferred protein source.
Providing chilled cuts to restaurants and grocery stores has two main market benefits over frozen pork. The first is branding, as already mentioned. The second is shelf-life limitations. “Frozen pork can be bought and stored much longer than chilled products,” Pomerleau says. That’s good news for the industry, as it creates more constant demand and curtails a “buy cheap and hold” strategy.
Yet while the pork industry’s future is looking good in Japan, Pomerleau says there are always challenges in providing for such a particular client.
Dealing with the Japanese means being transparent in production and processing. “If you’ve got a problem, you better tell them because they’ll find out about it,” Pomerleau stresses. “Their specifications are very, very picky. It can take up to two years to get processing right.”
Pomerleau isn’t over-stating facts when he says that Japan’s high standards have influenced the entire pork industry in Canada, even those sectors not producing for the country specifically. “The reason we have a industry-wide quality assurance program for our producers and why our plants are HACCP certified is because of Japan’s market demands,” he says.
“Being in this market takes a certain level of dedication,” Pomerleau says, referring to the effort necessary for meeting all the product quality and processing requirements. “It’s not a one-off market. You have to be in it for the long term.”
Canola outlook
Japan is a big market for Canadian canola. Usually sold in the form of seed for further processing in Japan, canola exports to the country range from 1.9 to 2.1 million tonnes, year in and year out. “It really doesn’t change much,” says Dave Hickling, vice-president, canola utilization for the Canola Council of Canada.
While it’s true Japan’s economy has suffered recently, the level of demand for canola has stayed relatively constant. That’s not surprising, Hickling says, as Japan has long been a very loyal customer. Independent of pricing, Japan tends to purchase within a very narrow range of tonnage. While in most other canola markets, there’s usually much more change year over year, Hickling says, “If Japan’s purchasing moves by five per cent that’s a lot for them.”
The lack of volatility is a good thing for the most part, adding stability to market demands. But in no way does this steady purchasing breed complacency within the canola industry. Hickling says that two million tonnes is a significant portion of Canada’s canola crop (roughly 17 per cent of total production), often making Japan the number one importer of Canadian canola seed for crushing.
Canada’s canola industry owes its success in part to the Japanese market. “Japan was there right at the beginning and really helped grow the market,” Hickling says. That long-term support hasn’t been lost on the industry.
Hickling and the canola industry as a whole strive to maintain a healthy relationship with Japan, a unique feature to this trade partnership. The Canola Council hosts Japanese buyers and processors each summer to tour the fields and then travels to Japan each November to have a dialogue that covers issues ranging from production and transport conditions to trade irritants. Tight communication tends to head off potential trade problems long before they have a chance to pick up momentum, Hickling says. “It is a risk-management tool, for sure.”
The value of compromise
When you mention Japan and food, most people instantly think rice, sushi and soy. Canada can’t help with the first two, but our soybeans are noted for being top-notch.
Thompsons Limited, based at Blenheim, Ont., contracts, processes and exports food-grade soybeans to Japan. The level of exports and quality standards of soy to Japan haven’t changed significantly in recent years, but the pressure is on to continue supplies at a competitive price.
“Japanese consumers are choosing cheaper items in stores, which puts pressure on grocery stores which puts pressure on wholesalers and trading houses, who then pressure their suppliers,” says Sue Robert, head of sales and marketing for Thompsons’ Japanese markets. “We’re starting to feel pressure on prices to remain competitive.”
That pressure can translate to reduced premiums offered to growers, an unenviable position to be in when contract demands are so high. Genetically modified varieties are non-fliers, as are certain chemicals, Robert says. “Growers must keep detailed records and provide them when they deliver the beans,” she says. It can be a lot of extra work with no guarantees of meeting the quality specs required to receive the maximum premium. Robert adds that they do their best to get at least some premium to contracted growers who don’t make the maximum quality because of weather problems.
It’s still a fine balance between ensuring supply to an exacting customer and over-contracting when demand is variable. As a risk-management tool, Robert says they prefer to have buyer support before contracting all their needs. “We also purchase open-market soybeans throughout the year as opportunities arise,” she says.
Robert says that in addition to several meetings with clients each year, Thompsons also makes a point of attending and hosting grower meetings. “It’s important to be up front with our growers about what we’re hearing from our clients. They’re good about understanding where we’re coming from,” she says, referring to the decrease in premiums for 2010 contracts.
Even in times of economic slowdown, Robert racks up the frequent-flier miles. She’s in Japan at least twice a year and typically hosts customers one to three times throughout the growing season. “I probably meet with each customer three to four times a year,” she says. That’s no small feat considering the miles between Ontario and Japan. It’s all part of determining the customer’s wants and ensuring growers are producing the right stuff.
It would seem that no matter the economic climate, Japan is still a high-value market, one that’s well worth the extra time, effort and cost to provide exactly what they need. Robert says that Thompsons even considered its Japanese customers when they built new offices not long ago.
“The Japanese prefer to be comfortable when conducting business. We have a room with couches and chairs that, depending on who is visiting, is the more typical location to sit and talk, instead of the boardroom,” Robert says. “It’s all about making our customers feel welcome and comfortable.” CG
