- 1 Definition / Scope
- 2 Market Overview
- 3 Key Metrics
- 4 Market Risks
- 5 Top Market Opportunities
- 6 Market Drivers
- 7 Market Restraints
- 8 Industry Challenges
- 9 Regulatory Trends
- 10 Market Size and Forecast
- 11 Market Outlook
- 12 Technology Roadmap
- 13 Distribution Chain Analysis
- 14 Competitive Landscape
- 15 Competitive Factors
- 16 Strategic Conclusion
- 17 References
- 18 Appendix
Definition / Scope
Japanese dairy being the third largest industry has recently experienced a sustained period of strong growth and will observe the fifth largest increase in the same period. People in Japan are developing a strong appetite for dairy products such as milk cheese and butter, items which do not feature in traditional Japanese cuisine and diets, making it an ideal sector for European SME investment.
Definition/Scope Dairy product covers all types of products which play a major role in the daily diet of many consumers. Yoghurt and Curdled Milk Products, Cream Cheese and Cheese also fall in this category. Dried milk products such as milk powder are not considered here. The market for milk products could increase in the future due to a growing interest in milk alternative products such as soya milk. This development will encourage further consolidation of the dairy industry which is already under much pressure.
Japanese rarely consumed dairy products in their recent time. Because of lactose intolerance in Japanese about 95 percent of them were found to be lactase deficient. In traditional Japanese cooking you find no cheese, milk, cream sauces, or butter. Japanese rarely ate cheese in their old days, which until fairly recently was consider foul-smelling, vile stuff. But after decades of exposure to Western foods, cheese is very popular. You can find a reasonable selection of European cheeses such as Camembert and Danish blue cheese in Japanese supermarket. A cheese made in Hokkaido has won a gold medal for flavor in the soft cheese category at the Mountain Cheese Olympics in Switzerland.
Commodities Milk, cheese, cream, yoghurt and sour milk, other dairy product etc. are some of the dairy product consumed by Japanese.
Cheese In Japan Cheese continued to post strong growth in retail current value terms in 2017, increasing by 5% to reach JPY 402.6 billion. The demand for tsunami (light snacks that Japanese people nibble whilst drinking alcohol) largely contributed the soaring sales of cheese in Japan during the review period. Manufacturers of cheese in Japan have been actively developing and promoting products and the idea of eating cheese with alcohol, to respond to the home-drinking trend which emerged in Japan during the review period.
Drinking Milk Products There was a negligible decline in retail of drinking milk value terms in 2017, to reach JPY715.9 billion, mainly due to demographic changes in the country. The sales of cow milk showed negative impact with the decline in the number of children drinking milk, which is the dominant type of drinking milk product, accounting for 79% of overall retail value sales of drinking milk products in 2017. In order to build healthier bone of their children, Japanese chose cow’s milk as one of the most popular dairy products to consume regularly. Thus, children are the main consumers of cow’s milk in Japan.
Yoghurt and Sour Milk Products Yoghurt and sour milk products have many health benefits for age groups, so Japan maintained rapid growth in 2017, recording a 5% retail current value increase to reach JPY1,054.0 billion. The perception amongst the Japanese consumer toward yoghurt as a healthy dairy product was due to aggressive promotions through various media throughout the review period. During the review period, manufacturers of yoghurt put significant effort into scientific research on probiotics, which identified unique health benefits, such as improving the immune system and reducing body fat; not just traditional digestive health.
Other Dairy product Chilled and shelf-stable desserts, cream, coffee whiteners, condensed milk and fromage frais and quark are other dairy products in Japan which saw a decline of 1% in retail current value terms in 2017, to reach JPY193.4 billion. Other dairy products have also been seeing a declining presence in Japanese homes, driven by the lack of opportunities for consumers to use these products. For example, coffee whiteners long ago lost their place in Japanese households, taken over by the emergence of RTD coffee with milk at convenience stores.
|Base Year||2017||Researched through internet|
With the present number of households, number of cows and milk yield per cow, the production of dairy product is low as compared to the demand of Japan. In future overall demand is expected to increase in the future as the potential for dairy products is very high in Japan when comparing to other countries. So clearly there is a challenge in increasing the yield per cow.
The main problem in dairy production is that Japanese youth are more interested in working in the cities. It is difficult to get young people into dairy farming. Today the Japanese farmer is getting older, and has troubles finding someone to take over the farm, when he wants to retire.
Data management is main problem. Not all cows in Japan are registered, and for those who are, data is handled in some local database – and not centrally available. The data is thereby not generally used as a method to follow-up and improve values around the dairy farmer.
Participants in the dairy industry are exposed to many types of risks. These risks include:
- Risk for not getting paid for products sold called credit risk.
- Processing machinery failure (Operational risk).
- Compliance risks, for example not meeting environmental standards;
- Climatic risks including production risks due to adverse weather conditions and;
- Market risks such as commodity price and foreign exchange risks. The majority of successful dairy farmers and processors will have systems or plans in place to mitigate at least some of the effects these risks pose to their businesses.
Top Market Opportunities
There is a big market for Japanese Dairy industry. About 87% of all Japanese use milk as regular staple food households and is consumed by persons of all ages and both genders. However there is variation in consumption pattern by age and gender. As children advance from nursery school to kindergarten and to elementary school, where milk is a part of all school lunches, per capita consumption continues to increase. There is decrease pattern in drinking milk product after elementary school, (school lunches are no longer provided).
For young adults, the average daily per capita consumption is only 1.4 deciliter (dl), less than half the daily average of elementary school students. Although young working Japanese have substantial disposable incomes, they tend to follow prevailing trends to consume more “sophisticated” beverages, and milk consumption drops.
In global food market milk and dairy products have a prominent place. Consumption of milk and dairy products is increasing due to rising concerns about vegetarianism, health advantages of milk and dairy products over non-vegetarian foods and ecological balance showing increased worldwide production of milk. Major market of dairy product is Middle East dairy market. The changing socio-political environment of the Middle East has made its milk and dairy products market more attractive, demonstrating great potential for long-term growth.
In Japan, under the "Temporary Act for Compensation Price for Producers of Milk for Manufacturing Use” (deficiency payment), for the purpose of securing reproduction of raw milk in the "raw milk for processing use region" where more than half of milk produced are used for processing, such farmers producing milk for processing use are subsidized.
"Raw milk for processing use region" refers to the area where more than half of milk produced is traded with processing plants (currently only Hokkaido). “Raw milk for processing use” refers to milk used to produce 1 butter, 2 skimmed milk powder, 3 sweetened condensed whole milk, 4 sweetened condensed skimmed milk, 5 whole milk powder, 6 sweetened milk powder, 7 unsweetened condensed whole milk and 8 skimmed milk powder for animal feed.
Developing industry and increasing nation’s income is most difficult problem in Japan. Japanese government has to maintain strong control over industry so that industry can recover rapidly. Due to weak control over this, industry should find its own way to continue prosperity.
Dairy farmer in Japan are very small and many farmers have only one to three cows, averaging 2.4 cows, beside their other farming operations. Farmers cannot invest in large farm because they have weak financial resource. In order to invest in larger farm they have to cooperate with other dairy farmers. Therefore the production of milk is not efficient and the cost is very high compared with that of other countries. Also, weather have impact on the sales of milk. Summer has high demand as compared to winter. So during summer transportation of cooled milk is high when milk is transported from local to cities. There are many small dealers who distribute pasteurized milk in small bottles. With increasing demand they cannot supply as per demand which is another problem in retail system.
Domestic Policy There are three main clusters of domestic policies in Japan. Voluntary programs to limit supply and subsidize production and income, strict compulsory labeling requirements that structure commerce and trade and a more diverse collection of programs that support producers by government purchases or sales of dairy products and subsidies for the cost of environmental programs, milk for school cafeterias, and insurance.
Policy changes have also facilitated growth in world dairy trade. The Uruguay Round of multilateral trade negotiations under the General Agreement on Tariffs and Trade (GATT), 1986–1994, established binding limits on the use of agricultural export subsidies and domestic agricultural support regimes, converted all non-tariff import restrictions on agricultural products to bound tariffs, established science-based disciplines on the use of sanitary and phytosanitary (SPS) measures as trade barriers, and created the World Trade Organization (WTO) as a more effective international institution to resolve trade disputes and conduct negotiations to further liberalize world trade rules.
Market Size and Forecast
- Revenue in the Milk Products segment amounts to US$14,877m in 2018. The market is expected to grow annually by 1.6% (CAGR 2018-2021).
- From an international perspective it is shown that most revenue is generated in the United States (US$81,231 Mil in 2018).
- In relation to total population figures, per person revenues of US$ 117.86 are generated in 2018.
- The average per capita consumption stands at 44.2kg in 2018.
So as to make domestic cheese competitive and abundant, Japanese government has implemented new measures to support its cheese industry. At the same time, Japan is entering into free trade agreements with the European Union (EU) and with the 11 countries in the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). The proposed agreements would lower tariffs on imported cheese and could be enacted as early as next year.
There is threaten to U.S dairy (the fourth largest market for U.S. dairy products) to export to Japan because of these measures and agreements, representing sales of more than $290 million in 2017.
There will be certain change in the product of U.S in Japanese market due to increases in Japan’s domestic production, as well as trade agreements that create room for more imported non-U.S. cheeses, said Beth Hughes, IDFA director of international affairs. “IDFA has repeatedly stressed to the administration and Congress that trade agreements with markets in the Asia-Pacific region are critically important to the continued growth of the U.S. dairy industry, and are necessary to ensure we maintain market access when these countries enter new pacts.” 
In order to increase the production of natural cheese, Japanese government has allocated the equivalent of $141 million U.S. dollars. These allocated funds will be used to support expansion of output on Japanese dairy farms and in cheese manufacturing facilities. They also will support cheese making and marketing training courses and measures to increase Japanese cheese consumption, such as activities that incorporate cheese into Japanese food culture. IDFA will continue to work with federal officials and members of Congress to advocate for expanded opportunities for dairy in new trade agreements and more market access for dairy products abroad.
New Dairy Establishment
New dairy based company Pur Natur-Kaneka Corporation, is considering to enter into the Japan dairy products business after its affiliate food sales company, Kaneka Shokuhin Co., Ltd began to sell its product ‘Milk for Bread’ in the country. In the next five years, new dairy plant is targeted to achieve net sales of US$186.6 million. A technical partnership between Kaneka and Belgium’s Pur Natur BVBA was formed in January 2018. Pur Natur is a UK producer or distributor of premium organic dairy brand Pur Natur with a portfolio that includes flavorful milk, butter, yogurt, fresh cheese. According to Kaneka Corporation, considering attractive dairy-farming together with dairy farmers and promoting sustainable dairy-farming becomes a philosophy of business development. Also dealing with increasing dairy-farming productivity, improving the dairy-farming working environment, and supporting environmentally-friendly dairy-farming management could also help in growing dairy product.
Distribution Chain Analysis
Over the two past decades distribution channels in Japan have undergone effective change. Many of the traditional channels have been streamlined but complexities still exist. Recently, cutting edge technologies have been applied to channels that nevertheless retain significant structural inefficiency and redundancy. Channels vary significantly between consumer goods and industrial products. Distribution mechanics depend upon the product but typically, a wholesale distribution model is widely used in many industries, whereby product is purchased from a foreign company and then resold it to retail outlets for ultimate sale to consumers.
In Japan there is a cultural factor i.e. Distributers and retailers in Japan prefer to do business with those they have been formally introduced to and met with face to face. Often, this sense of duty and loyalty binds retailers and distributors. There is high risk for exporters to switch their current distributor because doing so may damage their reputation and subsequently their ability to do business.
Following the trade liberalization of dairy products, imports of various products from oversea continue to be increasing, and now the importance of the continuous supply of fresh, safe and reliable milk and dairy products is being recognized by many consumers again.
Leading position in cheese manufacturing was maintained by Megmilk Snow Brand in 2017 with a retail value share of 27%, due to its wide product variety across cheese categories. Japanese manufacturers mainly focused on promoting the use of yoghurt in cooking during the review period. This was caused due to low appearance of dairy products in Japanese cuisine. Manufacturers put extra effort into encouraging consumers to use yoghurt as an ingredient in their meals by suggesting recipes for tasty dinners with yoghurt sauce, or using yoghurt for marinating, on its websites or in stores.
Talking about other dairy product the leading position was maintained by Morinaga Milk Industry in 2017 with a retail value share of 20%, due to its strong presence in dairy desserts and condensed milk. aforementioned custard purin and milk purin was the dairy product they offered. They also introduced new packaging as innovative plastic bottle to its brand which were five times lighter than traditional glass bottles and were designed for easy use by every customer. Better grip and innovative label were also introduced.
Beside Japan, there are largest exporter of butter like New Zealand, EU & Australia. The Japanese production of butter should be increased in order to fulfil increased demand in the next ten years. Also, the demand of cheese is on continuous rising due to increased production. Countries like India, Ukraine, and Brazil are emerging as leading exporters of non fat dry milk product category. The worldwide production of whole milk powder is also expected to increase in the near future owing to increased import demand from Asia, Australia and New Zealand.
Increasing price for most of the dairy products is an important factor driving the growth of the global milk and dairy products market. Extreme volatility in prices can also hamper the industry's growth. The rising incomes and changing diet patters coupled with economic growth in mainly developing countries and other dairy importing regions will lead to increase in demand for milk and other dairy products.
There are various challenges that the dairy sector is currently facing. Favorable long term consumer trends and developing technologies provide a number of challenges and opportunities to adapt this situation. At the producer level, emerging technologies are providing farmers with the potential to obtain quantifiable information to continuously measure and monitor farm operations and react accordingly to expand their production in a profitable way.
Evolving consumer trends such as the demand for healthy and ‘clean label’ products, increased demand for ‘functional foods’ and the growth in protein consumption will drive innovation in the sector. A number of trends such as the growth of a healthy snacking culture, higher food consumption outside of the home and the growth of online and mobile shopping are changing the way food is being bought and consumed.
Dairy is at the forefront of these trends as a convenient and relatively cheap source of protein. Retailers must adapt to these trends through better use of technology and data to target customers with tailored offers and ensure that they can match supply and demand in smaller stores through better inventory management.
- CAGR: Compound Annual Growth Rate
- CPTPP: Comprehensive and Progressive Trans-Pacific Partnership
- Dl: Deciliter
- EU: European Union
- FAO: Food and Agriculture Organization
- GATT: General Agreement on Tariffs and Trade
- GDP: Gross Domestic Product
- IDFA: Identifier for Advertisers
- JPY: Japanese Yen
- Kg: Kilogram
- RTD: Ready to Drink
- SME: Small and Medium sized Enterprise
- SMP: Skimmed Milk Powder
- UK: United Kingdom
- US: United States
- USDA: United States Department of Agriculture
- WTO: World Trade Organization