THE JAPANESE SUGAR MARKET
OVERVIEW SUGAR POLICIES
Prepared by Messrs. Takamasa Akiyama and Michael Corbin, The World Bank Group for the Sugar and Beverages Group, Commodities and Trade Division, FAO. Tables have been left out due to space limitation.
Japan produces two types of sugar - beet sugar and cane sugar. Beet sugar production is centered in Hokkaido while cane sugar production is located in Okinawa and the islands of Kagoshima. Domestically produced sugar meets about one quarter of domestic demand and the rest is imported. Although not significant in terms of exports or production, Japan is a highly visible country in the world sugar market because of its traditionally high demand for imported sugar.
Production. Japanese sugar production increased sharply in the 1970s, stagnated during the 1980s and declined in the 1990s (see Figure 1). In 1996, Japan produced 1 282 000 metric tonnes of cane sugar (see Table 2). This marked a decrease of approximately 20 percent from both 1995 and 1994 figures, which were slightly over 1.6 million tonnes respectively, and represents the lowest figure during the nineties. Specifically, Okinawa produced sugar decreased by 25 percent from 1995 to 1996 as compared to a 3.7 percent increase from 1994 to 1995. Since 1989, Okinawas production has decreased by 7.6 percent p.a. Kagoshima produced sugar declined 13.3 percent from 1995 to 1996 following a 2.6 percent drop from 1994 to 1995. Since 1989, Kagoshima production has dropped 5.9 percent p.a.
Kagoshima accounted for 41 percent of all cane sugar production, while Okinawa cane comprised 59 percent. The share for Okinawa produced cane comprised about 60 percent in recent years; this figure is significantly lower than the 66.3 percent share it held in 1989.
In terms of Japans total sugar production, Hokkaidos production has constituted between 75 and 80 percent. Hokkaido beet production has also decreased in recent years. It decreased 1.45 percent p.a. from 1989 to 1996. In 1996, Hokkaido recorded its lowest beet production over the period, down by about 25 percent in comparison with the most recent high established in 1991.
As Table 3 shows, Japanese production represents only a minor portion of total world production.
While Japanese production has steadily declined over the last eight years (-7.72 percent p.a.), total world production has increased at the rate of 3.29 percent p.a. during the corresponding period. In the short term, world production rose 7.1 percent from 1994 to 1995 and 2.1 percent from 1995 to 1996.
Two countries, Brazil and India, constitute nearly half of the worlds cane sugar production. Total production between these two countries grew at an aggregate rate of 2.9 percent between 1995 and 1996 and 8.5 percent between 1994 and 1995. Over the longer term, 1989-96 period, they grew at 3.62 and 4.18 percent p.a., respectively. In contrast, aggregate growth among the bottom three producing countries has been erratic - up 18.0 percent from 1994 to 1995 and down 7.0 percent from 1995 to 1996. From 1989 to 1996 Thailand, China and Pakistan grew 6.98, 2.16 and 2.22 percent p.a., respectively.
Table 4 depicts the five leading producers of beet sugar along with figures for the world and Japan. The Table indicates that growth has been declining or sluggish for every country, including Japan. Japans production decreased at a 1.54 percent p.a. rate from 1989 to 1996. Declines were also recorded for the world (-2.71 percent p.a.), Germany (-1.37 percent p.a.) and Ukraine (-5.60 percent p.a.). Although the remaining three countries in the Table show increases, their growth has been sluggish at less than one percent p.a.
Imports. Japans total sugar imports have followed a gradual yet fluctuating decline since 1991 (see Table 5). Total imports for Japan from 1991 through 1996 declined 2.1 percent p.a. For the period 1995/96 imports decreased 5 percent year by year.
Both Tables 5 and 6 demonstrate the change in partner countries exporting to Japan. In 1991, South Africa and Cuba accounted for an aggregate 38.8 percent of Japanese sugar imports. By 1996, they accounted for only 16.1 percent of total Japanese imports. The trade with these two countries has been replaced by increased shares from other Asian countries, particularly Australia and Thailand. This shift has increased the dominance of these two countries already held in 1991. In 1996, Australia and Thailand represented an aggregate 79.2 percent of all Japanese sugar imports. Fiji and the Philippines export small amounts of sugar to Japan; this amount varies indirectly with Australian and Thai supplies during a given year. Australian and Thai sugar imports have slowly increased by approximately two percent during the period, while Cuban imports decreased by over 17 percent p.a.
Japan was the worlds third leading importer of sugar in 1995 (see Table 7). In 1994 and 1995 it accounted for 6.1 percent of total world imports. This marks a slight decline from the 6.5 percent it held in 1993. Japanese imports from 1989 to 1995 decreased at a slower annual rate than those for the world (-2.06 percent p.a.). The quickest rate of growth over the period (7.61 percent p.a.) was in China and ranks a close second behind the Russian Federation in terms of total imports.
Consumption. Figure 3 and Table 8 present consumption figures for sugar and sugar substitutes in Japan over a twenty year period. The first column shows that sugar consumption has steadily declined over the twenty year period. It is evident from Figure 2 that very high world sugar prices in 1980 caused a sharp decline in sugar consumption in Japan and the subsequent decline in world prices was not able to recover the demand. Also, demand for sugar substitutes has increased significantly since 1980. The lowest per capita consumption of sugar in the twenty years was recorded in 1995. These declining consumption levels correspond with similarly declining levels of both imports and domestic production.
In contrast, the demand for sugar substitutes has steadily increased over the period of discussion - rising 6.93 percent p.a. from 1975 to 1995 and 1.55 percent p.a. from 1985-95. The data in the third column show that aggregate demand for sugar and sugar substitutes has virtually remained constant over the twenty year period increasing by 0.35 percent p.a. and decreasing by 0.46 percent p.a. over the last ten years. Also, demand for sugar and sugar substitutes was higher in 1995 than in 1975, although not at the peaks attained during the late eighties and early nineties.
Likewise, per capita consumption of sugar and sugar substitutes has remained virtually the same as the level in 1975 (declining only 0.19 percent p.a.). Despite this fact, it is at its lowest level during the twenty year period and has been decreasing at a faster rate over the most recent decade (-0.79 percent p.a.).
Prices. Figure 4, Tables 9 and 10 show wholesale and retail sugar prices for Japan. Average annual wholesale prices have consistently declined since 1988 - from 186 ¥/kg to 153 ¥/kg. This represents a 2.32 percent p.a. decrease. Average annual retail prices, on the other hand, have decreased at a lower rate (1.42 percent p.a.) from 254 ¥/kg in 1988 to 220 ¥/kg in 1996.
Though both wholesale and retail prices have been declining over the last decade, the ratio of retail to wholesale prices has slowly been increasing. This indicates that Japanese consumers of retail sugar are not capturing the full effects of the decrease in retail prices, relative to wholesale prices. The cause probably is increased domestic marketing costs.
After liberalizing the import of sugar in 1963, Japanese domestic prices fluctuated widely with international prices. To protect domestic producers and consumers from wide price fluctuations, a policy measure aimed at stabilizing sugar prices was introduced in 1965. Under this measure, a government agency would buy and sell imported and domestically produced sugar to keep domestic wholesale prices in a range between the low limit and high limit prices and to provide subsidies to domestic sugar producers.
This policy, which is still in effect, hinges on several administered prices which are determined annually by the government. The low and high limit prices define the price range the government considers appropriate within which to stabilize sugar prices. The domestic producer target price indicates whether adjustments on imported sugar price are necessary and also indicates the price at which producers should aim to produce. Producer prices of beets and cane are determined by the parity method. Under this method, cost of living in rural areas and farm input prices are taken into account.
The main focus of the policy is the establishment of minimum producer prices for beets and cane. Also the agency keeps the price of sugar it sells between the low and high limit through purchases and sales. Subsidies to domestic producers are financed by an adjustment charge on imported sugar and funds from the government. The adjustment charge collected by the agency is the difference between the target and import prices adjusted by a factor. The amount charged is according to the following formula:
Four situations of government intervention are possible, depending on the levels of the average sugar import price compared with the low and high limit and target prices (see Figure 5). These situations are: (i) the average import price is below the low limit price, (ii) the average import price is above the low limit price but below the target price, (iii) the average import price is below the high limit price, but above the target price and (iv) the average import price is above the high limit price.
In situation (i), the difference between the average import price and the low limit price will be collected and will be contributed to the sugar price stabilization fund. In addition, the adjustment charge will be imposed. Hence, the agency sale price will be the low limit price plus the adjustment levy, i.e.
Agency sale price = i.e., low limit price + adjustment levy.
In situation (ii), only the adjustment charge will be imposed and the domestic price will be the average import price plus the adjustment. In this case, the agency sale price will be higher than that under situation (i).
Agency sale price = average import price + adjustment levy.
There is no intervention by the government when the import price falls between the target price and the high limit price. Hence,
Agency sale price = import price
In situation (iv), the sugar price stabilization fund will be used to reduce the domestic price to the high limit price. Hence,
Agency sale price = high limit price
Prices paid to domestic producers are considerably higher than the agency sale price. The difference is adjusted by two elements: The adjustment charge fund for the difference between the agency sale price and the target price and the government pays the difference between the producer price and the target price.
As a result of government intervention, prices paid to domestic producers are considerably higher than import prices. This government protection is much higher for cane sugar producers in the prefectures of Kagoshima and Okinawa than for beet sugar producers in Hokkaido (see Table 11). This is probably because the cane producers are much more dependent on income from sugar than are the beet producers. Income from sugar constituted about 19 percent and 28 percent of the total income from agriculture in Okinawa and the southwestern islands of Kagoshima, respectively, in 1994 while the corresponding figure for Hokkaido is only about 5 percent. As Table 11 shows, domestic producer prices of cane and beet have been kept constant or have been reduced at nominal prices in recent years to reduce the differences between sugar prices that correspond to the beet and cane producer prices and international sugar prices and to encourage domestic producers to increase productivity.
The government intervention system described above is affected by the Uruguay Round Agreement, under which sum of the adjustment charge and the contribution to the stabilization fund was bound at 82.4 ¥/kg in 1995 is to decline to 71.8 ¥/kg by 2000. The figure in 2000 is 15 percent lower than the base rate of 84.5 ¥/kg. This change is likely to reduce domestic producer prices and domestic sale prices slightly.
Japans sugar consumption is projected to decline by 1.2 percent p.a. for the period 1995-2010. Although income elasticity is positive (about 0.3 percent), declining population beyond 2005 and taste change work to depress the demand.
Japanese sugar imports are projected as the difference between the demand and domestic production. This is projected to decline at the rate of 1.2 percent p.a.