What Protects Japan’s Dairy Industry?
John
Dyck
Prices for milk and dairy products
in Japan at all levels, from farm to retail, are
much higher than U.S. prices. Retail prices of fluid
milk in Japan, for example, are more than double
U.S. prices, and butter prices are almost twice
as high as U.S. prices. Japan’s high prices
persist because of geographic factors and government
policies.
Japanese dairy farms are smaller
in area than U.S. dairy farms, and milk producers
in Japan must import grain and fodder from distant
sources. These factors translate to high costs for
Japanese producers. Japan’s location also
makes it difficult to ship fresh, fluid milk to
Japan from lower cost suppliers in Australia, New
Zealand, or the Western Hemisphere. Thus, over 40
percent of Japan’s dairy product consumption
depends on local production.
Manufacturing milk, used to produce
butter, skim milk powder, and cheese, can be replaced
cost effectively by imports of the final products.
The cheese market illustrates the potential importance
of Japan in global dairy trade. Japan is the second-largest
cheese importer in the world, behind only the United
States. Japan’s tariffs on cheese range from
22 to 40 percent, and Japan does not use tariff-rate
quotas (TRQs) to limit cheese imports.
For dairy products other than cheese,
Japan’s government uses TRQs to support the
production of manufacturing milk. Tariffs on imports
outside the quotas are so high that they effectively
eliminate trade. In addition, the government provides
a direct subsidy for each liter of manufacturing
milk produced within Japan’s production quota.
Together, the higher prices supported by the TRQs
and subsidy payments provide about $1.8 billion
in support to manufacturing milk production.
If Japan were to eliminate its
TRQs and subsidies, Japanese consumers would benefit
from lower prices for dairy products. Much of Japan’s
manufacturing milk production would be replaced
by imports of butter and milk powder, providing
new markets for producers of manufacturing milk
in lower cost regions of the world. Even if that
were to happen, however, Japan’s large consumption
of fresh, fluid milk would continue to support a
large dairy industry in Japan.
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