VZCZCXRO3531
RR RUEHFK RUEHKSO RUEHNAG RUEHRN
DE RUEHKO #1201/01 1230138
ZNR UUUUU ZZH
R 020138Z MAY 08
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC 3930
INFO RUEHRN/USMISSION UN ROME
RUCNDT/USMISSION USUN NEW YORK 9636
RUEHRC/USDA FAS WASHDC 8577
RUEATRS/TREASURY DEPT WASHDC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHBS/USEU BRUSSELS
RUEHFR/AMEMBASSY PARIS 6075
RUEHLO/AMEMBASSY LONDON 2027
RUEHRO/AMEMBASSY ROME 2081
RUEHOT/AMEMBASSY OTTAWA 9640
RUEHRL/AMEMBASSY BERLIN 1390
RUEHMO/AMEMBASSY MOSCOW 2261
RUEHBJ/AMEMBASSY BEIJING 3125
RUEHUL/AMEMBASSY SEOUL 9142
RUEHIN/AIT TAIPEI 7008
RUEHML/AMEMBASSY MANILA 1197
RUEHOK/AMCONSUL OSAKA KOBE 1266
RUEHFK/AMCONSUL FUKUOKA 7587
RUEHKSO/AMCONSUL SAPPORO 8182
RUEHNAG/AMCONSUL NAGOYA 5952

UNCLAS SECTION 01 OF 03 TOKYO 001201 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EEB/TPP/ABT/ATP - SPECK 
STATE PASS USTR FOR CUTLER, BEEMAN 
TREASURY FOR IA/AUSTIN AND MCCOY 
 
E.O. 12958:  N/A 
TAGS: EAGR ETRD ECON PGOV PREL JA
SUBJECT:  Impact on Japan of Rising Food/Agricultural Commodity 
Prices 
 
REF:  State 39410 
 
¶1.  (SBU)  Summary:  The run up in commodity prices and fear of 
proliferation of export restrictions by long-standing suppliers has 
led to the reemergence of food security as a national political 
issue in Japan. The GOJ has seen the situation as underscoring the 
urgency of boosting its food self-sufficiency rate.  A particular 
concern among Japanese on this front vis a vis the U.S. comes from 
memories of President Nixon's decision in 1973 to halt soybean 
exports to Japan due to U.S. domestic economic situations, while 
apparently glossing over subsequent U.S. policy developments in the 
following decades.  While Japanese consumers are able to outbid 
other countries for traded food commodities, physical stocks of 
wheat and feed grains are tight and there is very little cushion 
against disruptions in trade.  End summary. 
 
Demand and Supply of Foodstuffs 
------------------------------- 
 
¶2.  (SBU)  The value of Japan's agricultural output has been in 
decline since the mid-1980s.  Japan's farm population is rapidly 
aging, with more than 70% of farmers over 60 years of age.  The 
average farm size is only about four acres, and south of Hokkaido 
the size is substantially smaller.  Advanced fertilizers and farm 
machinery and fiscal help through a vast array of price supports are 
essential to maintaining agriculture in Japan today.  Japanese 
policy makers are concerned because Japan imports over 60 percent of 
its food on a calorie basis.  The major reasons for such a low rate 
of self-sufficiency are a shortage of arable land and increasing 
consumption of meat, which is either imported or produced locally 
with imported feed. 
 
¶3.  (SBU)  The most important commodity in the Japanese diet is 
rice, in which Japan is largely self-sufficient.  Rice imports face 
prohibitive tariffs and international trade has only a marginal 
impact in the overall supply and demand picture. Consequently, 
unlike many other countries, Japan is not experiencing a crisis in 
supplies of its staple food.  In addition, Japan has stocks of 2.3 
MMT including 1.5 MMT of imported rice (mostly U.S. origin).  This 
amount roughly equals 3.3 months supply. In fact, to deal with a 
chronic rice surplus, the GOJ increasingly has been diverting rice 
stocks to the feed sector. 
 
¶4.  (SBU)  In the recent past, Japan held emergency stocks of wheat 
equivalent to 2.6 months' worth of demand.  Due to the shortened 
time necessary to obtain alternative supplies in case of an 
emergency, stocks were reduced to 2.3 months' supply at the end of 
JFY 2005, and cut further to 1.8 months' worth in 2006.  Although 
the actual stock figures are not disclosed, 1.8 months' worth of 
stocks translates to around 900,000 metric tons.  The United States 
is Japan's largest supplier and provided about half the wheat Japan 
imported in 2007. 
 
¶5.  (SBU)  Japan, however, has almost no domestic feed grain 
production.  The GOJ holds emergency stocks of three essential feed 
grains: corn, sorghum, and barley.  The breakdown for 2007 is 
536,000 MT for corn, 64,000 MT for sorghum and 350,000 MT for 
barley.  MAFF instructs the private sector to hold a similar level 
of stocks.  In addition, approximately 650,000 MT of surplus rice is 
used for feed annually.  Combined with these privately held stocks, 
the entire feed grain stocks are equivalent of about one month to 
six week's worth of demand. 
 
¶6.  (SBU)  Japan is the largest export market for U.S. corn, valued 
at $2.6 billion, or 15 MMT, in CY2007.  In recent months, Japan's 
normally high dependence on U.S. corn grew to nearly 100% and, put 
 
TOKYO 00001201  002 OF 003 
 
 
starkly, most cattle, pork, and poultry would quickly starve without 
constant supplies of U.S. corn.  Feed use accounts for about 70% of 
corn consumption and, on average, half of the calories consumed by 
Japanese livestock come from U.S. corn.  There is a separate market 
for food-use corn, accounting for about 30% of consumption.  Other 
corn suppliers, such as China and Argentina, have put in place 
export restrictions or taxes on corn and, in any case, would not be 
able to supply sufficient quantities to replace imports from the 
United States.  Government and private stocks combined provide only 
a four to six week buffer.  As corn markets have tightened, anxiety 
has increased within the government and the feed industry about the 
availability of U.S. corn in the coming crop year. 
 
Domestic Politics 
----------------- 
 
¶7.  (SBU)  Many in Japan, including some government officials, are 
quick to blame biofuels, for example, for the increase in global 
food prices.  In April, MAFF Minister Wakabayashi was questioned in 
the Diet about the role U.S. biofuels policy has played in 
increasing food prices.  As a result, Japan has proposed that food 
security be included as an agenda item at the G8 Summit, which will 
be held in Japan this July. 
 
Economy 
------- 
 
¶8.  (SBU)  Japan remains the world's second largest national economy 
and boasts some of the world's wealthiest consumers.  This economic 
muscle allows Japan to outbid other importing countries for 
available supplies.  Similarly, in recent months, the yen has 
appreciated relative to the dollar, helping to mitigate some of the 
dollar price increases for agricultural imports.  For Japan's 
economy as a whole, no significant macroeconomic impact is expected 
from the run up in agricultural commodity prices. 
 
¶9.  (SBU)  Initially, retailers and manufacturers bore most of the 
increase in input costs.  More recently, these costs are being 
transmitted to consumers.  For example, since May 2007, flour prices 
have edged up twice - after having been stable for 24 years.  This 
comes as a 15 year period of deflation, when almost all prices were 
stable or falling, is ending.  So even though they are financially 
able to pay more, consumers are still making the mental shift from a 
buyer's to a seller's market.  This situation is further stimulating 
increased media coverage and political attention on food prices and 
food security. 
 
Environmental Impact 
-------------------- 
 
¶10.  (U)  There has not been a significant impact on Japan's 
environment resulting from the run up in international commodity 
prices. 
 
Government Response 
------------------- 
 
¶11.  (SBU)  Japan's policy response to tight supplies has been to 
focus on the (unrealistic) goal of increasing self-sufficiency.  The 
Food Self-sufficiency Improvement Council of the Ministry of 
Agriculture, Forestry and Fisheries (MAFF), which was established in 
2005, set forth six objectives for 2007-08: 1) conduct strategic 
public relations programs on the importance of raising food 
self-sufficiency; 2) promote rice consumption; 3) improve 
self-sufficiency in feed; 4) reduce oil/fat intake; 5) expand 
vegetable production; 6) conduct a "food education" campaign (e.g., 
 
TOKYO 00001201  003 OF 003 
 
 
"Grow locally, consume locally"). 
 
Impact on Post Programs 
----------------------- 
 
¶12.  (U)  Post programs have been unaffected by the increase in food 
prices to date. 
 
Policy Proposals 
---------------- 
 
¶13.  (SBU)  Despite public statements from the U.S. Department of 
Agriculture that the United States will remain a reliable supplier, 
the recent grain price situation has exacerbated concerns over food 
security in Japan.  In early 2008, FAS/Japan developed a 
multi-faceted strategy to counter the fallacy that food 
self-sufficiency equals food security.  Our message is that, in 
fact, imports are part of the solution not part of the problem and 
as Japan's number one supplier we can be relied upon to supply high 
quality products.  In addition, Japan needs to view biotechnology as 
part of the solution to its own food security and that of the rest 
of the world. 
 
¶14.  (SBU) Given Japan's high and increasing dependence on food 
imports, the USG should endeavor to change the paradigm in Japan to 
seeing expanded trade with its democratic ally as a solution rather 
than a threat.  This situation presents an especially clear area of 
opportunity in 2008 as many other exporters (e.g., Argentina, China, 
the EU, India, Russia, Viet Nam, etc.) have put in place food export 
taxes or export restrictions.  Our assurances of U.S. commitment to 
Japan's food security would reinforce Japanese confidence both as a 
trading partner and as a strategic ally and potentially provide an 
opening to engage Japan more meaningfully on the need for structural 
reforms of its agricultural economy. 
 
List of Relevant Reports/Cables 
------------------------------- 
 
See GAIN Report Number JA8021 (4/21/2008)