【Editorial】 Liberalization of dairy market threatens Japan’s cheese industry (Dec. 11, 2015)


 

Concerns are growing over the impact of market liberalization on dairy farmers. Many fear that cuts and abolishment of tariffs on cheese under the Trans-Pacific Partnership agreement could severely hamper development of domestic cheese production, which has been a major pillar of the nation’s dairy policy. Now is the time for the government and the private sector to work together to review the policy to cope with expected challenges.

Japan Dairy Association (J-Milk) believes that adverse effects of the TPP agreement cannot be avoided, although details of the agreement need to be examined thoroughly.

Tariffs on skim milk powder and butter will remain unchanged and the new low-tariff quota equivalent to 70,000 tons of raw milk, to be established for skim milk powder and butter, will be within the volume of recent emergency imports. At a glance, the agreement looks like it would have little impact on the domestic supply-demand balance of raw milk. However, the problem lies in the fact that the supply-demand balance in the dairy market has remained unstable, tightening and loosening repeatedly in the past decade. We believe it is necessary to strengthen the safety net for the supply-demand balance of raw milk as a whole.

The biggest concern is how to treat domestic cheese and whey, a byproduct of cheese production, which could be heavily hit by market liberalization under the TPP agreement. Japan’s cheese production is largely occupied by cheese for processing, such as Cheddar and Gouda, and tariffs on such products will be incrementally reduced and will be abolished in the 16th year after the agreement takes effect.

Japan will maintain its system of allowing tariff-free imports of natural cheese for processing on condition that the importer purchases a certain amount of domestically-produced cheese. However, the Japan Dairy Industry Association predicts the system will fail to function in about six years, which we believe runs counter to the nation’s policy of promoting domestic cheese production. Even more threatening is the fact that dairy market liberalization has been a major focus of trade negotiations between Japan and the European Union which has overwhelmingly competitive advantages in terms of natural cheese production.

Another concern is the effects of trade liberalization on whey, which is manufactured during cheese making. Under the TPP framework, Japan managed to keep the tariff on whey containing around 30 percent protein, which competes with skim milk powder, for as long as until the 21st year after the agreement takes effect. But whey is a strategically important item which has many different uses, and some say imports of whey products developed in Japan and manufactured overseas are likely to increase in the future. It can also be used as a low-cost ingredient for milk-based drinks, and if a large amount is shipped in the domestic market, it could also push down prices in the drinking milk market.

At a recent meeting of the Council of Food, Agriculture and Rural Area Policies’ stock breeding committee, dairy industry officials expressed concern over the possible adverse effects of market liberalization on domestic milk producers, pointing out that domestically-made products will face severe price competition with imported products.

We predict dairy manufacturers will shift their business to production of drinking milk, as well as fluid milk products such as whipping cream and yogurt which are internationally competitive and are subject to grants. All the major dairy manufacturers will start reviewing their corporate strategies, including their dairy production in the major producing region of Hokkaido, but how their review will affect domestic dairy farmers remains unclear.

Such changes in the market environment are highly likely to refuel debate on promotion of domestic cheese production, as the government and the ruling Liberal Democratic Party will discuss the issue of including grants for fluid milk product manufacturers into the overall subsidy system for producers of milk for processing in the next fiscal year.

Cheese production is essential for stabilizing domestic dairy farmers’ business. The government and the industry must start serious discussions to fundamentally review the nation’s dairy farming, including how to strengthen the safety net and measures to secure income, as well as how to allocate milk for different usages.

(Dec. 11, 2015)

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