When Mitsui Canada held a press conference in 2007 to announce it was investing more than $30 million for a 40 per cent stake in a new high-capacity canola crushing facility to be built in Yorkton, Sask., many farmers across the country took a deep breath.
Mitsui was teaming up with Louis Dreyfus Commodities, whose $20 billion in global annual sales and 12,000 worldwide employees already made it a huge player in anybody’s books. Every Canadian farmer had already heard the Dreyfus name, especially in the West, and many had done business with it.
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The Mitsui move also came while world commodity prices were soaring, and at a time when farmers were trying to forecast how the big international players like Louis Dreyfus and now Mitsui would change their business strategies and the way they source grains and oilseeds in a new era of persistently tight supplies and high prices.
Plus, the Yorkton announcement followed other high-profile Mitsui investments that year, especially in Brazil, where through a series of partnerships, Mitsui acquired extensive holdings in the entire production chain from farmland through processing and export facilities.
Ominously, it seemed, Mitsui even said in the press release that announced the Brazilian moves, “We regard this as a first step in entering the Brazilian agricultural production business.”
Besides, Canada’s entire canola sector was asking serious questions about its future. Japan in 2008 bought only 20,000 tonnes of canola oil, compared to two million tons of canola seed, and the Canola Council was struggling to divert more production to our domestic crush and biofuel industries.
On every front, in other words, the Mitsui announcement seemed to raise concerns and uncertainties. However, it might be instructive to look to Australia’s experience with Mitsui &Co., because it appears there are some other lessons to be learned there.
It’s not just that Mitsui &Co. has been in Australia since 1909, or that Mitsui is exporting to Japan everything from Australian coal and iron to meat and woodchips. No, the main reason the Australians would see the Mitsui involvement in the Yorkton canola project as desirable can be found in a fascinating report that Japan expert and Australian National University scholar Peter Drysdale crafted for Austrade (the Australian Trade Commission) in September 2009.
It turns out that while Japan was having its “lost decade” in the 1990s, and while it was gaining an increasingly geriatric image in international society, something very interesting was happening outside Japan. Since the 1980s, Japan had established a textile-manufacturing base in Asia, followed by an electronics base, and now an export base for everything from soup to nuts.
This network may have been created to be Japan-centric. It was all about imports and exports, with Japan at the hub. But that era has long passed, leaving a complex web of Japanese-owned subsidiaries in east and southeast Asia, and a world-wide production, sales, and distribution network.
Drysdale and Austrade want Australian exporters to plug into this network in order to expand exports to Japanese companies and subsidiaries, and to use these networks and personal relationships to Australia’s advantage in other sectors such as agricultural products.
The first major investments in Australia infrastructure by Japanese companies were in mining by Mitsui &Co. It bought a 49 per cent stake in the Moura coal deposit in the Bowen Basin, followed by 33 per cent of the Robe River development in 1965, and 10 per cent of Mt. Newman in 1967.
The acquisitions did not take away Australia’s control of their resources, Drysdale said, but instead opened up vast channels of trade with Japan.
In 2008, Australia supplied 22 per cent of Japan’s wheat, 40 per cent of its sugar, 89 per cent of its beef, and 37 per cent of its cheese. It is true that Australian trade minister Simon Crean isn’t completely happy with these numbers, and that he and others point to Japan’s fierce protection of its beef, dairy, wheat, sugar and rice industries as the major obstacle to free trade negotiations between Australia and Japan.
However, few would dispute that the foundation for today’s farm sales can be traced directly back to Mitsui activities in the 1960s. (As an interesting aside, such early long-term Japanese contracts for iron ore, coal and other minerals probably laid the framework for later Canadian investments in Australia’s uranium mines.)
In plain terms, Japanese corporate investment in Australia has given Australia’s farmers the inside track on agricultural sales to Japan.
Australians would also tell us that investment by major Japanese players in Saskatchewan’s food industry will mean access to important channels of information. Saskatchewan producers can eye the Japanese food market, knowing that we have potential to supply a vast future market for high-end, high-quality agricultural products in Japan.
However, while this is certainly true, we need more than the business cards of the distributors and suppliers. We need help channelling information from producers to consumers, and consumers to producers.
To understand how information flow is going to work, we can look back at the food scandals that spanned the 2000s decade. The scandals really began back in September 2001, when the Japanese were horrified to discover BSE in their own herds. However, the most instructive scandal for our purposes was certainly the frozen Chinese gyoza (dumpling) scandal where three families were seriously poisoned by methamidophos, a chemical used widely in Chinese rice fields.
The scandal was disconcerting to the Japanese not just because a high level of distrust toward Chinese agricultural products already existed, or the fact that the poisoning appeared to have been deliberate. Truly disturbing was the extent to which the Japanese had come to rely on the food products of a third country without being aware of it. A total of 580,000 items and 23 products had to be recalled which included everything from cabbage rolls to pork cutlets. And it turned out products from the Chinese supplier Tianyang Food, source of the contamination, were being eaten in school lunches in 579 schools in 34 cities and prefectures, a traditional battleground for nutrition issues.
Making things even more complex was the fact that many of these products were consignment products imported by Japanese companies, so no one knew who to blame.
In this uncertain new world where food mileage is high, where food changes hands several times within countries of origin, and where overseas Japanese affiliates are increasingly involved in production, regulations are going to become more and more difficult and also more and more important to meet.
For example, if Japan decides to at least partially adopt a HACCP “chain traceability” model, it will certainly take insiders to handle the complex documentation of things like additives.
The Australians have found all this requires close co-operation with the Japanese. Canadian observers would be wise to recognize that Australia’s success in the beef in industry in Japan, for example, has just as much to do with extensive Japanese feedlot holdings in eastern Australia as it does with BSE.
But this information flows in the opposite way too. Through strategic relationships with domestic food processors, distributors, and institutions, Japanese importers are able to communicate to producers inside knowledge about markets.
Canola oil might be a good example of how this going to work. While thus far canola marketing in Japan has emphasized cutting- edge vegetable oil science, the cultural importance of rapeseed in Japan has been largely ignored. In fact, the Japanese have a long and intriguing history with rapeseed. The slightly pungent rapa plant is valued as a sophisticated sister of broccoli, and the bright yellow flowers are a symbol of a lost Japan because rapeseed cultivation flourished before Japan began to westernize. Any real success in the canola oil market is going to have to take into account some of this cultural baggage, and some inside help is necessary.
So how could Mitsui concretely benefit Saskatchewan’s farm sector?
Again, we can learn a lot from the Australian experience. In reality, the Japanese trading company activities were just the foundation for later direct investment in Australian food and agriculture industries. There have been a number of major food investments over the past 15 years, such as Nippon Meat Packers’ investment in major feedlot holdings in eastern Australia, and Japanese acquisitions of other major signature brands in the brewing industry.
However, these activities culminated when Kirin acquired National Foods in 2007, a major producer of milk and fruit juices, for $2.7 billion. This was followed by the acquisition of Dairy Farmers, a 2,000 member co-operative and Australia’s second largest dairy producer.
These investments have taken place without a murmur from the Australians because they have brought access to Japanese supermarkets.
Cherry producer Tim Reid has recently become the Austrade poster boy, and his story is an illuminating one. With the advent of improved refrigeration technology and a massive increase of production in China, Reid’s apple exports to Japan were declining, and he was looking for new opportunities. On apple trips to Yamagata Prefecture in northern Japan, Reid could see cherry orchards alongside the apple orchards, and the bright red white-fleshed cherries attracted his attention.
What follows depends on the version of the story. According to Australian sources, Reid had the full co-operation of Yamagata officials to take branches from Satonishiki and Benishuho trees to Australia to start his orchard. The Japanese position is that he effectively smuggled cherry breeding material out of the country.
What is beyond dispute is that Reid has succeeded in getting 17 tonnes of his $50 per kilogram Japanese cherries into supermarkets in Japan. Not only can the cherries be on the shelves within 36 hours of harvest, precisely the same time frame for strawberries, permission has been given so that fumigation is not necessary. Also indisputable is the fact that Reid’s success has come by contracting directly with Japanese supermarkets. While Reid already had supermarket connections through the apple industry, his real breakthrough came through a Japanese connection in the beef industry who introduced Reid to one of the five major cherry packers in Japan.
There are a couple of lessons to be learned here. One, Canada must effectively plug into the global economy. If you want proof, just consider how the network established by trading companies in Australia decades ago is now deeper and broader than individual industries.
Second, time is short. The Chinese are growing Japanese cherries now too. The success of foreign producers will depend on how fast they can begin cooperating with Japanese supermarkets, whether in growing contracts, in creation of house brands, or in catering to Japanese consumer tastes.
One final thing. Canadian producers grossly minimize the importance of the Japan market. “The really big deal is China, so why bother with Japan?” the thinking seems to go.
Life might be easier if we could afford to think this way, but it is a bad idea, and not only because that would mean ignoring the world’s second largest economy. Indeed, Japan has huge potential for a long list of agricultural products that Canada is exceptional at producing.CG
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The Australian Example Shows The Best Way To Build MarketsIn Japan Is To Help The Japanese Build Processing Plants Here
