THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Required Report - public distribution Date: 9/8/2009 GAIN Report Number: JA9057 Japan POULTRY AND PRODUCTS ANNUAL 2009 Approved By: Stephen Wixom Prepared By: Kakuyu Obara Report Highlights: Japan's total broiler imports in 2010 are expected to decrease by 3% from last year to 680,000 MT. Reduced imports should help to run down high levels of stocks carried over from the previous year. Brazil, the single largest supplier of bulk broiler meat cuts (bone-less) to Japan, will be impacted most. Thailand and China, two dominant suppliers of cooked broiler meat products, are expected to maintain their continued presence in 2010 supported by solid demand for prepared foods. Executive Summary: Broiler consumption is projected to remain strong in 2010, however competition with other inexpensive food items will likely decrease total consumption from the previous year. Total broiler imports in 2010 are expected to decrease further, by 3% from last year to 680,000 MT. Reduced imports should help to bring down the high level of stocks carried over from the previous year. Brazil, the single largest supplier of bulk broiler meat cuts (bone- less) to Japan, will be impacted the most. Thailand and China, two dominant suppliers of cooked broiler meat products, are expected to maintain a strong presence in the market in 2010, supported by relatively solid demand for prepared foods. Commodities: Poultry, Meat, Broiler Market Overview With the impact of the economic recession still prevailing in Japan, it is difficult to predict next year?s outlook for Japan?s broiler market at the present point in time. Despite a slightly positive economic growth forecast for 2009, the high jobless rate and negative income growth is still hampering a real recovery. In the early part of 2010 post expects that Japan will utilize surplus broiler stocks that carried over to beginning stocks from the previous year. The situation will not only force domestic producers to adjust their outputs, but most likely lead to reduced broiler imports. This report is an update to (JA8061). Quantities listed in the text are made on the basis of Product Weight and no conversion rates are used (unless specified otherwise). Domestic Broiler Meat ? dressed whole, bone-in Imported Broiler Meat ? Customs Clearance Basis (boneless and bone-in combined, but the majority is boneless) Imported Prepared Broiler Products ? Customs Clearance Basis Stocks ? Product Weight (mostly boneless) ? Include small amount of spent hen stocks, no broiler specific stock data are available. Note: Outline of Japan?s Broiler Market Structure Broiler meat comprises over 90% of the Japanese poultry meat market. In general, Japanese consumers prefer leg meat (bone-less) over breast meat. Nearly half of total imports are ?prepared (or cooked) products of broiler meat?, mainly supplied by Thailand and China. The Government of Japan (GOJ) has maintained a suspension on imports of broiler meat from these two countries due to persisting outbreaks of HPAI (Highly Pathogenic Avian Influenza). Domestic broiler meat maintains the majority share of sales in the retail sector. Japan?s food service sector utilizes large quantities of imported raw bulk cuts, the bulk of which are from Brazil. Japan was once a major market for U.S. bone-in leg cuts, including those to be processed into prepared products after entry into Japan. However market share has decreased over the past two decades due to competition from other suppliers. 2010 Broiler Market Outlook Previous Year Surplus to be Reduced in 2010 Tangible improvements in the real economy are expected to take some time, particularly with the current high rates of joblessness and negative income growth that has persisted since 2009. The situation favors lower priced food items, and broiler consumption is projected to remain at 1.96 million MT, the same level as the previous year. However, surplus carryover stocks from the previous year, coupled with increased competition from other low-priced meats (pork and beef) and processed meat products (ground meat products, sausages, etc.), will likely force the market to make some adjustments in supply in early 2010. As a result, total imports in 2010 are projected to decrease from the previous year by 3% to 680,000 MT. Bulk broiler meat cuts imports are expected to decline by 5% to 360,000 MT, while prepared and processed products remain unchanged at 320,000 MT. Japanese importers are expected to import less than the previous year through the early part of 2010, though the final import figures will depend on how quickly unsold imported stocks are exhausted, and the degree to which Japan?s food service market improves. Brazil, the single largest supplier of bulk bone-less broiler cuts, will likely be affected the most by the decline in imports. Thailand and China are expected to maintain a strong presence in Japan?s prepared foods market segment, however it remains to be scene if China can regain market share that was recently lost to Thailand (JA8061). Domestic producers are also expected to start responding to weak market prices of the previous year by adjusting their outputs in 2010. Thus, total domestic broiler production is projected to decrease slightly to 1.255 million MT. 2009 Broiler Market Situation Update and Outlook A Slumping Food Service Market to Result in Surplus in 2009 Japanese consumers are expected to continue to favor lower priced broilers, as was the case in 2009, with total consumption projected to increase by 2% over 2008. However, due to a deepening economic recession and stagnant population growth, Japan?s broiler market has been affected by a slowdown in consumption since late 2008. The food service segment, where the majority of bulk imported broiler cuts are distributed, has been significantly impacted. The fast food segment has been the only exception in the entire food service sector to maintain positive sales growth until the first half of 2009. However, chicken products have started to face competition with other inexpensive substitutes such as ground meat products and sausages in 2009. Consequently, large poultry stocks from 2008 were carried over to 2009 (beginning stock was estimated up 50% at 176,000 MT) and June monthly ending stock this year was still 34% higher than the same month last year (See Table 4). As a result of the high levels of rollovers in stocks, Japan?s total broiler imports are expected to decrease by 5% to 700,000 MT (Bulk Broiler Meat Cuts: slashed by 11% to 380,000 MT, Prepared and Processed Products: up by 3% to 320,000 MT.) Even then, stock levels are not expected to decline significantly before the end of the year, and are estimated to decrease only slightly from the beginning of the year to 171,000 MT. Imports of Bulk Broiler Meat Cuts to Decrease in 2009 Trade sources relay that many Japanese importers are facing heavy financial burdens due to erroneous price speculations in 2008 in advance of a massive wave of imports of expensive Brazilian boneless leg cuts. With the present import price lower than the previous year, coupled the with strong yen, post is not certain at present to what extent Japanese importers are planning to cut back their second half purchases from Brazil (See Table 3-a.). The average import price of bulk cuts of broiler meat in 2008 was 57% higher than 2007 at USD $3.07. However, during the first half of 2009 the average CIF price has come down to USD $2.78. Opportunities for U.S. broiler meat to expand further in the Japanese market are limited by a shortage in the supply of boneless leg cuts. Thus, imports of U.S. broiler meat (mostly bone-in legs) to Japan in 2009 are projected to be lower than the previous year at 21,000 MT. Meanwhile, solid household consumption for domestic broiler meat (retail sector), combined with prices lower than the previous year, have continued through the first half of 2009 (See table 1, also, table 2-a. and 2-b.). Therefore, domestic boiler outputs through 2009 are expected to remain at relatively high levels, with the annual total projected to reach around 1.26 million MT. Various subsidy programs implemented in JFY 2008 and 2009, including the feed price subsidy scheme (JA8041), will also support the situation noted above and likely delay producers' response to weaker market prices. However, industry sources predict that sales competitions from domestic broiler meat with increased supplies of low-priced pork and beef cuts will intensify in the second half of 2009. Imports of Cooked Products Forecast to Remain Solid in 2009 Chinese exports of cooked broiler products to Japan are not expected to recover fully in 2009 from the set back suffered following a series of food safety related incidents and scandals in Japan. The scandals were not necessarily specific to broiler products, but rather other products such as dumplings and infant milk. However, Thai products have successfully filled the gap created in Japan?s ready to eat market with the imports from China down 6% to 60,529 MT. Imports from Thailand are up 12% for the same product at 85,107 MT in the first half of 2009 (See Table 5-b). This market segment is particularly price sensitive and is expected to compete with ample supplies of low priced domestic broiler breast meat, which are further processed into ready to eat food items. Table 1. Japanese Household Consumption of Livestock Products YTD Beef Pork Expend. Quantity Expend. Quantity Yen % Chg. gram % Chg. Yen % Chg. gram % Chg. 2004 20,918 -2% 7,059 -10% 23,362 7% 17,304 6% 2005 21,324 2% 7,195 2% 23,191 -1% 17,407 1% 2006 20,705 -3% 6,891 -4% 23,249 0% 17,305 -1% 2007 20,868 1% 6,869 0% 23,923 3% 17,723 2% 2008 20,885 0% 6,776 -1% 25,555 7% 18,310 3% 2008 942 (Jan/Jun 9,e) 3,293 12,581 9,104 2009 478 -5% 3,283 0% 12,383 -2% 9,226 1% (Jan/Jun 9,e) Chicken Ground Meat Expend. Quantity Expend. Quantity Yen % Chg. gram % Chg. Yen % Chg. gram % Chg. 2004 10,052 -6% 10,849 -6% 1,717 9% 1,633 3% 2005 10,749 7% 11,647 7% 1,761 3% 1,662 2% 2006 10,871 1% 11,985 3% 1,793 2% 1,669 0% 2007 11,295 4% 12,379 3% 1,835 2% 1,682 1% 2008 12,830 14% 12,661 2% 2,040 11% 1,796 7% 2008 6,191 (Jan/June) 6,245 1,043 940 2009 8 1% 6,634 6% 1,057 1% 953 1% (Jan/Jun 6,27e) Ham Sausages Expend. Quantity Expend. Quantity Yen % Chg. gram % Chg. Yen % Chg. gram % Chg. 2004 5,838 -5% 3,072 -3% 6,356 -1% 4,976 1% 2005 5,841 0% 3,047 -1% 6,357 0% 4,894 -2% 2006 5,765 -1% 2,977 -2% 6,373 0% 4,877 0% 2007 5,938 3% 3,028 2% 6,613 4% 4,932 1% 2008 5,870 -1% 2,913 -4% 7,211 9% 5,176 5% 2008 2,397 (Jan/June) 1,200 3,539 2,540 2009 2,222 -7% 1,183 -1% 3,519 -1% 2,595 2% (Jan/June) Bacon Expend. Quantity Yen % Chg. gram % Chg. 2004 2,061 1% 1,235 2% 2005 2,157 5% 1,273 3% 2006 2,263 5% 1,307 3% 2007 2,362 4% 1,366 5% 2008 2,428 3% 1,366 0% 2008 (Jan/Jun 1,222 e) 684 2009 1,199 -2% 699 2% (Jan/June) Source: Ministry of Internal Affairs and Communication Bureau Table 2-a) Monthly Average Wholesale Price of Domestic Bone-less Leg YTD Unit: Yen per Kg. Bone-less Leg 2006 2007 % chg. 2008 % chg. 2009 % chg. Jan. 619 666 8% 746 12% 659 -12% Feb. 599 651 9% 731 12% 608 -17% Mar. 558 630 13% 745 18% 571 -23% Apr. 541 629 16% 745 18% 564 -24% May 525 629 20% 749 19% 583 -22% Jun. 494 603 22% 740 23% 589 -20% Jul. 510 589 15% 738 25% 583 -21% Aug. 520 563 8% 721 28% Sep. 534 566 6% 705 25% Oct. 578 615 6% 694 13% Nov. 593 670 13% 672 0% Dec. 638 720 13% 657 -9% 1st Qtr Ave. 592 649 10% 741 14% 613 -17% 2nd Qtr Ave. 520 620 19% 745 20% 579 -22% 3rd Qtr Ave. 521 573 10% 721 26% 4th Qtr Ave. 603 668 11% 674 1% Year Ave. 559 628 12% 720 15% Source: ALIC Monthly Statistics Table 2-b) Monthly Average Wholesale Price of Domestic Breast Meat YTD Unit: Yen per Kg. Breast Meat 2006 2007 % chg. 2008 % chg. 2009 % chg. Jan. 234 230 -2% 312 36% 333 7% Feb. 233 215 -8% 308 43% 285 -7% Mar. 220 213 -3% 311 46% 251 -19% Apr. 211 209 -1% 316 51% 231 -27% May 204 211 3% 329 56% 225 -32% Jun. 192 211 10% 342 62% 214 -37% Jul. 205 218 6% 369 69% 211 -43% Aug. 215 240 12% 368 53% Sep. 217 250 15% 357 43% Oct. 228 270 18% 358 33% Nov. 229 290 27% 348 20% Dec. 234 307 31% 339 10% 1st Qtr Ave. 229 219 -4% 310 41% 290 -7% 2nd Qtr Ave. 202 210 4% 329 56% 223 -32% 3rd Qtr Ave. 212 236 11% 365 55% 4th Qtr Ave. 230 289 25% 348 21% Year Ave. 219 239 9% 338 42% Source: ALIC Monthly Statistics Table 3-a) Monthly Average Wholesale Price of Brazilian Boneless Leg (Frozen) YTD Unit: Yen per Kg. Imported: Brazilian Bone-less Leg (Frozen) 2006 2007 % Chg. 2008 % Chg. 2009 % Chg. Jan. 415 450 8% 453 1% 368 -19% Feb. 413 450 9% 453 1% 365 -19% Mar. 395 450 14% 470 4% 397 -16% Apr. 391 450 15% 518 15% 440 -15% May 388 405 4% 539 33% 440 -18% Jun. 388 435 12% 550 26% 440 -20% Jul. 388 453 17% 553 22% 432 -22% Aug. 388 453 17% 562 24% Sep. 388 453 17% 570 26% Oct. 423 450 6% 517 15% Nov. 450 444 -1% 475 7% Dec. 450 450 0% 446 -1% 1st Qtr Ave. 408 450 10% 459 2% 377 -18% 2nd Qtr Ave. 389 430 11% 536 25% 440 -18% 3rd Qtr Ave. 388 453 17% 562 24% 4th Qtr Ave. 441 448 2% 479 7% Year Ave. 406 445 10% 509 14% Source: ALIC Monthly Statistics Table 3-b) Monthly Average Wholesale Price of American Bone-in Leg (Frozen) YTD Unit: Yens per kg. Imported: U.S. Bone-in Leg (Frozen) 2006 2007 % Chg. 2008 % Chg. 2009 % Chg. Jan. 313 330 5% 445 35% 450 1% Feb. 313 330 5% 445 35% 450 1% Mar. 313 330 5% 456 38% 450 -1% Apr. 309 330 7% 480 45% 450 -6% May 307 330 7% 491 49% 450 -8% Jun. 307 332 8% 520 57% 450 -13% Jul. 307 387 26% 520 34% 450 -13% Aug. 307 445 45% 520 17% Sep. 307 445 45% 520 17% Oct. 324 443 37% 500 13% Nov. 330 442 34% 500 13% Dec. 330 445 35% 500 12% 1st Qtr Ave. 313 330 5% 449 36% 450 0% 2nd Qtr Ave. 308 331 7% 497 50% 450 -9% 3rd Qtr Ave. 307 426 39% 520 22% 4th Qtr Ave. 328 443 35% 500 13% Year Ave. 314 382 22% 491 29% Source: ALIC Monthly Statistics Table 4. Monthly Ending Poultry Stocks YTD Unit: Metric Ton 2006 2007 % chg. 2008 % chg. 2009 % chg. Jan. 134,906 129,058 -4% 121,274 -6% 173,438 43% Feb. 142,256 123,407 -13% 115,910 -6% 164,380 42% Mar. 140,687 117,390 -17% 112,518 -4% 154,195 37% Apr. 147,163 113,498 -23% 112,455 -1% 149,728 33% May 157,183 119,946 -24% 118,417 -1% 156,411 32% Jun. 162,635 117,685 -28% 114,552 -3% 153,166 34% Jul. 163,459 117,583 -28% 129,298 10% Aug. 159,694 116,662 -27% 146,668 26% Sep. 147,732 119,877 -19% 153,071 28% Oct. 137,136 122,106 -11% 170,457 40% Nov. 133,603 122,628 -8% 179,521 46% Dec. 121,605 117,077 -4% 175,559 50% Source: ALIC Monthly Statistics Note: Figures represents the poultry meat estimates. Over 70 % is imported poultry cuts. Majority is imported broiler cuts. Table 5-a) Japanese Imports of Broiler Meat YTD Unit: Metric Ton (Customs Clearance Basis) % Chg. Share % Chg. Ran 07 k Country 2006 2007 2008 - 08/ - 08 - 2008 2009 - 09/08 - - Jan/Dec Jan/Dec Jan/Dec Jan/Dec Jan/Dec Jan/June Jan/June Jan/June 0 --World-- 370,672 351,779 426,092 21% 100% 180,499 169,963 -6% 1 Brazil 337,471 323,641 396,528 23% 93% 166,673 159,022 -5% 2 United St 27,438 22,916 23,866 4% 6% 12,153 8,737 -28% ates 3 Philippines 358 3,518 2,962 -16% 1% 1,083 1,396 29% 4 Others 5,406 1,703 2,736 61% 1% 591 808 37% Source of data: Japan Customs (World Trade Atlas) Table 5-b) Japanese Imports of Prepared Broiler Products YTD Unit: Metric Ton (Customs Clearance Basis) % Chg. Share % Chg. Rank Country 2006 2007 2008 - 08/07 - 08 - 2008 2009 - 09/08 - - Jan/Dec Jan/Dec Jan/Dec Jan/Dec Jan/Dec Jan/June Jan/June Jan/June 0 --World-- 344,971 344,147 310,515 -10% 100% 141,868 146,953 4% 1 Thailand 148,274 142,528 179,639 26% 58% 76,308 85,107 12% 2 China 194,950 200,257 128,173 -36% 41% 64,582 60,529 -6% 3 Others 1,747 1,362 2,703 98% 1% 978 1,316 35% Source of data: Japan Customs (World Trade Atlas)