Declining dairy industry in Japan fails to keep pace with butter demand despite aging population.
In an effort to head off a butter shortage again this Christmas, the Japanese government recently announced plans to import an additional 10,000 metric tons (MT), or 22 million pounds, of butter by October. And that could bode well for U.S. dairy producers and exporters.
“Last year in Japan, butter was difficult, if not impossible, to find on store shelves during the holidays,” says Sara Dorland, analyst with the Daily Dairy Report and managing partner at Ceres Dairy Risk Management, Seattle.
Last November, Japanese supermarkets that still had butter were limiting shoppers to one package each. And when butter arrived from overseas, stores were advertising the fact with signs that proclaimed: “We have butter!”
This year, Japan’s Agriculture, Forestry and Fisheries Ministry intends to act early enough to avoid similar shortfalls this holiday season.
“At the root of the problem is a wider dairy deficit that has dairy farmers prioritizing their milk sales, most of which are being used for drinking milk,” says Dorland. “Milking herds have also been cut over recent decades as demand for dairy products has dropped due to an aging Japanese population.”
Dairy never has been a staple of the traditional Japanese diet, which is made up primarily of rice, vegetbles, and fish, but demand for butter in Japan is particularly high at the end of each year, when the country’s citizens celebrate Christmas by eating sponge cake filled with whipped cream.
“The nation’s dairy farmers—along with the general population—are also aging,” says Dorland. “And they have been forced to cut production amid falling demand.”
Three decades ago, 82,000 households ran dairy farms, according to Japan’s Agriculture, Forestry and Fisheries Ministry. These “farms” milked 2.11 million cows. Last year, only 19,000 households had a combined 1.4 million milk cows.
In late May, the Japan Dairy Association issued a report detailing its concerns that the country would face a butter shortage of 7,100 metric tons in 2015, despite current plans to import 2,800 metric tons of butter. Japan’s milk shortfall is also expected to spur additional skim milk powder imports by year end. Initial estimates put the skim milk powder deficit near 5,000 metric tons, notes Dorland.
“The news from Japan could have mixed reviews in the United States. For those already producing nonfat dry milk and butter, the potential for increased exports is likely welcome news,” says Dorland. “However, for buyers of butter, this development could cause concern about domestic butter availability in the second half of 2015 if exports to Japan increase.”
U.S. manufacturers could be competitive on skim milk powder sales into Japan, but U.S. butter continues to carry a hefty premium to butter from other regions. In early June, Dorland calculated that U.S. butter was priced 46 cents above German product and nearly 80 cents per pound above New Zealand butter, based on an 80-percent butterfat equivalent.
“U.S. butter prices that are less competitive than international alternatives could be good news for domestic users, but the news out of Japan could also redirect butterfat away from the United States and to Japan, thereby limiting butterfat available for import,” says Dorland.
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