""

Required Report - public distribution

**Date:** 7/2/2003

**GAIN Report Number:** JA3042

JA3042

**Japan**

**Dairy and Products**

**Annual**

**2003**

**Approved by:**

![](media/image1.wmf)Richard Battaglia

#### U. S. Embassy

**Prepared by:**

Kakuyu Obara

**Report Highlights:**

Japan\'s 2003 fluid milk production is expected to decline to a slight
drop in cows in milk. Production in Hokkaido is expected to increase
modestly. The ongoing NFDM surplus will likely continue into 2004 due to
weak ingredient demand. Japan\'s butter supply situation is expected to
remain tight in 2003, and imports under the current access are
anticipated. Cheese consumption is expected to slow in 2003 due to soft
demand and high import prices.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Annual Report

Tokyo \[JA1\]

\[JA\]

Table of Contents

[Fluid Milk Section 3](#fluid-milk-section)

[2003 Fluid Milk Production Expected to Decline
3](#fluid-milk-production-expected-to-decline)

[NFDM and Butter Section 3](#nfdm-and-butter-section)

[NFDM Surplus and Butter Deficit Expected to Continue through 2003 and
in 2004
3](#nfdm-surplus-and-butter-deficit-expected-to-continue-through-2003-and-in-2004)

[Cheese Section 4](#cheese-section)

[Fluid Milk PS&D Table 5](#fluid-milk-psd-table)

[Non Fat Dry Milk PS&D Table 6](#non-fat-dry-milk-psd-table)

[Butter PS&D Table 7](#butter-psd-table)

[Cheese PS&D Table 8](#cheese-psd-table)

[Japanese Dairy Cow Inventory 9](#japanese-dairy-cow-inventory)

[Japanese Dairy Herd Inventory 9](#japanese-dairy-herd-inventory)

[Number of Dairy Calves Born 9](#number-of-dairy-calves-born)

# Fluid Milk Section

## 2003 Fluid Milk Production Expected to Decline

Japan's annual 2003 milk output is projected slightly lower at 8.36
million MT due to a small decline in cows in milk (964,200 head as of
February 2003). Sluggish cow replacements are slowing down the rate of
decline in the number of cows in milk (See the table concerning Japanese
dairy cow inventory). Increased government subsidies for manufacturing
milk (JFY 2002) and higher raw milk prices for drinking milk (JFY 2002)
are also leading dairy farmers to retain productive cows.

Output in Hokkaido, where more than 40% of Japan's fluid milk is
produced, is forecast to increase modestly in 2003. However, the
increase will be offset by anticipated declines in production in other
regions of Japan. Market sources predict that raw milk supplies in
regions affected by adverse weather may not be sufficient to meet strong
demand for drinking milk during this year (2003). Fluid milk from
Hokkaido is expected to be diverted to fill these gaps, which could trim
the supplies intended for manufacturing use in 2003.

Solid demand for fluid milk (for drinking) is expected to continue this
year and be sustained into 2004, at about 5 million MT annually.
Consumption of drink milk products made of 100% raw milk or of higher
raw milk content, are expected to remain relatively firm in 2003,
dampening demand for NFDM used to manufacture reconstituted drink milk
products. Raw milk utilized for manufacturing uses in 2003 and 2004 are
projected to ease to 3.27 million MT and 3.26 million MT respectively.

Despite the continued downward trend in the number of Japanese dairy
farms (down 4% to 29,000 farms), many Hokkaido dairy farms are expanding
in size. *Hokuren*, a regional farm cooperative in Hokkaido, reported
that about 5% of the regions 8,000 dairy farms are capable of shipping
more than 1,000 MT of raw milk annually. The average dairy farm size in
Hokkaido is about 100 head per farm, which is roughly two times the
national average.

# NFDM and Butter Section

## NFDM Surplus and Butter Deficit Expected to Continue through 2003 and in 2004

During 2003, Japan will continue to experience a NFDM surplus on the one
hand, and a butter shortage on the other hand. Growing stocks of NFDM
made from subsidized fluid milk, owing to weak ingredient demand, is
particularly troublesome for Japan's agriculture ministry (MAFF). Stocks
of domestically produced NFDM are estimated at about 80,000 MT as of
March 2003.

A smaller manufacturing fluid milk quota (down to 2.1 million MT) and
subsidy payment (down to 10.7 yen per kilo), will likely help to trim
NFDM output in 2003, which is projected down by 3% to 170,000 MT.
However, weak ingredient demand for NFDM will continue to weigh on the
market, leading to large year-end stocks again in 2003.

Due to the projected drop in NFDM production in 2003, Japan's butter
production is also forecast to drop modestly, projected down by 7% to
77,000 MT, short of Japan's annual butter demand of about 88,000 MT.
Like last year, Japan will probably have to fill the entire JFY 2003
current access quota with imported butter (Butter equivalent of about
9,000 -- 10,000 MT) to make up the shortfall. Japan's total butter
imports for 2003 could reach 16,000 MT (9,000 MT this year plus 5,820 MT
of butter imported before March, which is part of the JFY 2002 current
access).

Most of the 5,820 MT of butter purchased under the JFY 2002 current
access was supplied by EU countries. The ability to supply white colored
butter (which is preferred in Japan) coupled with surplus supplies,
allowed the EU to make advances in the Japanese market. Major EU
suppliers included the Netherlands, Belgium, and Germany. Average bid
prices were about 303 yen per kilo, up 12% from the last tender held in
October 2002.

Despite the strong Euro, EU will likely continue to fill a substantial
portion of the current access in 2003. Oceania suppliers appear to be at
disadvantage due to their strong currencies against Japanese yen,
limited supplies due to drought, and lack of products with preferred
quality attributes specified by Japanese end users. Japan is expected to
continue using the current access to import butter to balance demand and
the supply in 2004.

# Cheese Section

Japan's Cheese Consumption Expected to Slow down in 2003 due to Soft
Demand and High Import Prices

Japan\'s cheese imports are forecast to fall by 4% to 196,000 MT in
2003, due primarily to weaker demand. Also impacting import numbers this
year is an expected sharp drop in imports of high fat cream cheese from
Australia. EU suppliers will likely be hindered by the strong Euro,
impacting exports of natural cheese to Japan. Higher overall cheese
prices are reportedly limiting sales volumes at the retail and the food
service sectors.

Despite these factors, trade sources predict that established brand
products are expected to do relatively well in 2003. Despite a favorable
exchange rate, imports of U.S. cheese are expected to be limited by
lesser brand recognition, a slow down in pizza sales, and the overall
slow down in food service sales in 2003. The U.S. Dairy Export Council
(USDEC) is making efforts to introduce a new type cup cream cheese, into
the market.

Post projects Japanese cheese imports to rebound in 2004 to about
200,000 MT, assuming favorable currency exchange rates and an improved
domestic economic situation. Japan\'s imports of U.S. cheese are
forecast below the 4,000 MT level (3,700 -- 3,900 MT) in both 2003 and
2004.

# Fluid Milk PS&D Table

  ------------------- ----------- ---------- ---------- ---------- ------------ ----------
  **PSD Table**                                                                 

  **Country**         **Japan**                                                 

  **Commodity**       **Dairy,                                     (1000        
                      Milk,                                        HEAD)(1000   
                      Fluid**                                      MT)          

                      2002        Revised    2003       Estimate   2004         Forecast

                      USDA        Post       USDA       Post       USDA         Post
                      Official    Estimate   Official   Estimate   Official     Estimate
                      \[Old\]     \[New\]    \[Old\]    \[New\]    \[Old\]      \[New\]

  **Market Year                   01/2002               01/2003                 01/2004
  Begin**                                                                       

  Cows In Milk        966         966        965        964        0            962

  Cows Milk           8350        8385       8350       8360       0            8350
  Production                                                                    

  Other Milk          0           0          0          0          0            0
  Production                                                                    

  TOTAL Production    8350        8385       8350       8360       0            8350

  Intra EC Imports    0           0          0          0          0            0

  Other Imports       0           0          0          0          0            0

  TOTAL Imports       0           0          0          0          0            0

  TOTAL SUPPLY        8350        8385       8350       8360       0            8350

  Intra EC Exports    0           0          0          0          0            0

  Other Exports       0           0          0          0          0            0

  TOTAL Exports       0           0          0          0          0            0

  Fluid Use Dom.      4900        5002       4930       5000       0            5000
  Consum.                                                                       

  Factory Use Consum. 3360        3293       3330       3270       0            3260

  Feed Use Dom.       90          90         90         90         0            90
  Consum.                                                                       

  TOTAL Dom.          8350        8385       8350       8360       0            8350
  Consumption                                                                   

  TOTAL DISTRIBUTION  8350        8385       8350       8360       0            8350

  Calendar Yr. Imp.   0           0          0          0          0            0
  from U.S.                                                                     

  Calendar Yr. Exp.   0           0          0          0          0            0
  to U.S.                                                                       
  ------------------- ----------- ---------- ---------- ---------- ------------ ----------

# Non Fat Dry Milk PS&D Table

  ------------------- ----------- ---------- ---------- ---------- ---------- ----------
  **PSD Table**                                                               

  **Country**         **Japan**                                               

  **Commodity**       **Dairy,                                     (1000 MT)  
                      Milk,                                                   
                      Nonfat                                                  
                      Dry**                                                   

                      2002        Revised    2003       Estimate   2004       Forecast

                      USDA        Post       USDA       Post       USDA       Post
                      Official    Estimate   Official   Estimate   Official   Estimate
                      \[Old\]     \[New\]    \[Old\]    \[New\]    \[Old\]    \[New\]

  **Market Year                   01/2002               01/2003               01/2004
  Begin**                                                                     

  Beginning Stocks    66          66         76         70         76         65

  Production          180         183        172        170        0          165

  Intra EC Imports    0           0          0          0          0          0

  Other Imports       30          44         29         40         0          40

  TOTAL Imports       30          44         29         40         0          40

  TOTAL SUPPLY        276         293        277        280        76         270

  Intra EC Exports    0           0          0          0          0          0

  Other Exports       0           0          0          0          0          0

  TOTAL Exports       0           0          0          0          0          0

  Human Dom.          173         186        175        180        0          175
  Consumption                                                                 

  Other Use, Losses   27          37         26         35         0          35

  Total Dom.          200         223        201        215        0          210
  Consumption                                                                 

  TOTAL Use           200         223        201        215        0          210

  Ending Stocks       76          70         76         65         0          60

  TOTAL DISTRIBUTION  276         293        277        280        0          270

  Calendar Yr. Imp.   0           0          0          0          0          0
  from U.S.                                                                   

  Calendar Yr. Exp.   0           0          0          0          0          0
  to U.S.                                                                     
  ------------------- ----------- ---------- ---------- ---------- ---------- ----------

# Butter PS&D Table

  ------------------- ----------- ---------- ---------- ---------- ---------- ----------
  **PSD Table**                                                               

  **Country**         **Japan**                                               

  **Commodity**       **Dairy,                                     (1000 MT)  
                      Butter**                                                

                      2002        Revised    2003       Estimate   2004       Forecast

                      USDA        Post       USDA       Post       USDA       Post
                      Official    Estimate   Official   Estimate   Official   Estimate
                      \[Old\]     \[New\]    \[Old\]    \[New\]    \[Old\]    \[New\]

  **Market Year                   01/2002               01/2003               01/2004
  Begin**                                                                     

  Beginning Stocks    21          21         24         20         24         25

  Production          88          83         83         77         0          75

  Intra EC Imports    0           0          0          0          0          0

  Other Imports       4           4          6          16         0          10

  TOTAL Imports       4           4          6          16         0          10

  TOTAL SUPPLY        113         108        113        113        24         110

  Intra EC Exports    0           0          0          0          0          0

  Other Exports       0           0          0          0          0          0

  TOTAL Exports       0           0          0          0          0          0

  Domestic            89          88         89         88         0          88
  Consumption                                                                 

  TOTAL Use           89          88         89         88         0          88

  Ending Stocks       24          20         24         25         0          22

  TOTAL DISTRIBUTION  113         108        113        113        0          110

  Calendar Yr. Imp.   0           0          0          0          0          0
  from U.S.                                                                   

  Calendar Yr. Exp.   0           0          0          0          0          0
  to U.S.                                                                     
  ------------------- ----------- ---------- ---------- ---------- ---------- ----------

# Cheese PS&D Table

  ------------------- ----------- ---------- ---------- ---------- ---------- ----------
  **PSD Table**                                                               

  **Country**         **Japan**                                               

  **Commodity**       **Dairy,                                     (1000 MT)  
                      Cheese**                                                

                      2002        Revised    2003       Estimate   2004       Forecast

                      USDA        Post       USDA       Post       USDA       Post
                      Official    Estimate   Official   Estimate   Official   Estimate
                      \[Old\]     \[New\]    \[Old\]    \[New\]    \[Old\]    \[New\]

  **Market Year                   01/2002               01/2003               01/2004
  Begin**                                                                     

  Beginning Stocks    15          15         15         15         15         15

  Production          34          36         34         35         0          35

  Intra EC Imports    0           0          0          0          0          0

  Other Imports       212         204        216        196        0          200

  TOTAL Imports       212         204        216        196        0          200

  TOTAL SUPPLY        261         255        265        246        15         250

  Intra EC Exports    0           0          0          0          0          0

  Other Exports       0           0          0          0          0          0

  TOTAL Exports       0           0          0          0          0          0

  Human Dom.          246         240        250        231        0          235
  Consumption                                                                 

  Other Use, Losses   0           0          0          0          0          0

  Total Dom.          246         240        250        231        0          235
  Consumption                                                                 

  TOTAL Use           246         240        250        231        0          235

  Ending Stocks       15          15         15         15         0          15

  TOTAL DISTRIBUTION  261         255        265        246        0          250

  Calendar Yr. Imp.   4           4          4          4          0          4
  from U.S.                                                                   

  Calendar Yr. Exp.   0           0          0          0          0          0
  to U.S.                                                                     
  ------------------- ----------- ---------- ---------- ---------- ---------- ----------

# Japanese Dairy Cow Inventory

+-----------------------+-----+-----+-----+-----+-----+-----+-----+
| ## Japanese           | ##  |     |     |     |     |     |     |
|  Dairy Herd Inventory |     |     |     |     |     |     |     |
+-----------------------+-----+-----+-----+-----+-----+-----+-----+
|                       |     |     |     |     | Un  |     |     |
|                       |     |     |     |     | it: |     |     |
|                       |     |     |     |     | 1,  |     |     |
|                       |     |     |     |     | 000 |     |     |
|                       |     |     |     |     | He  |     |     |
|                       |     |     |     |     | ads |     |     |
|                       |     |     |     |     | /Fa |     |     |
|                       |     |     |     |     | rms |     |     |
+-----------------------+-----+-----+-----+-----+-----+-----+-----+
|                       | 2,  | 2,  | \%  | 2,  | \%  | 2,  | \%  |
|                       | 000 | 001 | C   | 002 | C   | 003 | C   |
|                       |     |     | hg. |     | hg. |     | hg. |
+-----------------------+-----+-----+-----+-----+-----+-----+-----+
| Inventory As of:      | Fe  | Fe  |     | Fe  |     | Fe  |     |
|                       | bru | bru |     | bru |     | bru |     |
|                       | ary | ary |     | ary |     | ary |     |
+-----------------------+-----+-----+-----+-----+-----+-----+-----+
| Total Dairy Cow       | 1,  | 1,  | -2% | 1,  | 0%  | 1,  | -0% |
|                       | 764 | 725 |     | 726 |     | 719 |     |
+-----------------------+-----+-----+-----+-----+-----+-----+-----+
| Milking               | 992 | 971 | -2% | 966 | -1% | 964 | -0% |
+-----------------------+-----+-----+-----+-----+-----+-----+-----+
| Dry                   | 158 | 153 | -3% | 160 | 5%  | 156 | -3% |
+-----------------------+-----+-----+-----+-----+-----+-----+-----+
| Heifer                | 615 | 601 | -2% | 599 | -0% | 598 | -0% |
+-----------------------+-----+-----+-----+-----+-----+-----+-----+
| Total Dairy Farm      | 33, | 32, | -4% | 31, | -4% | 29, | -5% |
|                       | 600 | 200 |     | 000 |     | 500 |     |
+-----------------------+-----+-----+-----+-----+-----+-----+-----+
| Cow Raised per Farm   | 53  | 54  |     | 56  |     | 65  |     |
| (head)                |     |     |     |     |     |     |     |
+-----------------------+-----+-----+-----+-----+-----+-----+-----+
|                       |     |     |     |     |     |     |     |
+-----------------------+-----+-----+-----+-----+-----+-----+-----+
|                       | 2,  | 2,  | \%  | 2,  | \%  | 2,  | \%  |
|                       | 000 | 001 | C   | 002 | C   | 003 | C   |
|                       |     |     | hg. |     | hg. |     | hg. |
+-----------------------+-----+-----+-----+-----+-----+-----+-----+
| Inventory As of:      | Aug | Aug |     | Aug |     | Aug |     |
|                       | ust | ust |     | ust |     | ust |     |
+-----------------------+-----+-----+-----+-----+-----+-----+-----+
| Total Dairy Cow       | 1,  | 1,  | -2% | 1,  | 1%  | #   | #   |
|                       | 753 | 719 |     | 733 |     | N/A | N/A |
+-----------------------+-----+-----+-----+-----+-----+-----+-----+
| Milking               | 977 | 955 | -2% | 964 | 1%  | #   | #   |
|                       |     |     |     |     |     | N/A | N/A |
+-----------------------+-----+-----+-----+-----+-----+-----+-----+
| Dry                   | 171 | 167 | -2% | 165 | -1% | #   | #   |
|                       |     |     |     |     |     | N/A | N/A |
+-----------------------+-----+-----+-----+-----+-----+-----+-----+
| Heifer                | 605 | 598 | -1% | 604 | 1%  | #   | #   |
|                       |     |     |     |     |     | N/A | N/A |
+-----------------------+-----+-----+-----+-----+-----+-----+-----+
| Source: Ministry of   |     |     |     |     |     |     |     |
| Agriculture, Forestry |     |     |     |     |     |     |     |
| and Fisheries         |     |     |     |     |     |     |     |
+-----------------------+-----+-----+-----+-----+-----+-----+-----+
|                       |     |     |     |     |     |     |     |
+-----------------------+-----+-----+-----+-----+-----+-----+-----+
|                       |     |     |     |     |     |     |     |
+-----------------------+-----+-----+-----+-----+-----+-----+-----+
| ## Number             | ##  |     |     |     |     |     |     |
|  of Dairy Calves Born |     |     |     |     |     |     |     |
+-----------------------+-----+-----+-----+-----+-----+-----+-----+
|                       |     | Un  |     |     |     |     |     |
|                       |     | it: |     |     |     |     |     |
|                       |     | 1,  |     |     |     |     |     |
|                       |     | 000 |     |     |     |     |     |
|                       |     | He  |     |     |     |     |     |
|                       |     | ads |     |     |     |     |     |
+-----------------------+-----+-----+-----+-----+-----+-----+-----+
|                       | 2   | 2   | 200 | 2   | 200 | Sh  |     |
|                       | 000 | 001 | 1/2 | 002 | 2/2 | are |     |
|                       |     |     | 002 |     | 003 |     |     |
+-----------------------+-----+-----+-----+-----+-----+-----+-----+
|                       | Feb | Feb | Aug | Feb | Aug |     |     |
|                       | . - | . - | . - | . - | . - |     |     |
|                       | J   | J   | J   | J   | J   |     |     |
|                       | ul. | ul. | an. | ul. | an. |     |     |
+-----------------------+-----+-----+-----+-----+-----+-----+-----+
| Dairy Cow             | 142 | 146 | 156 | 149 | 161 | 33% |     |
+-----------------------+-----+-----+-----+-----+-----+-----+-----+
| Dairy Steer           | 160 | 164 | 177 | 166 | 182 | 37% |     |
+-----------------------+-----+-----+-----+-----+-----+-----+-----+
| F1 Cross (Wagyu and   | 170 | 145 | 160 | 145 | 149 | 30% |     |
| Holstein)             |     |     |     |     |     |     |     |
+-----------------------+-----+-----+-----+-----+-----+-----+-----+
| Total Calves Born     | 472 | 455 | 493 | 460 | 492 | 1   |     |
|                       |     |     |     |     |     | 00% |     |
+-----------------------+-----+-----+-----+-----+-----+-----+-----+
| Note: Dairy Steers    |     |     |     |     |     |     |     |
| and F1 Cross (Steer   |     |     |     |     |     |     |     |
| and Cow) are raised   |     |     |     |     |     |     |     |
| as beef cattle.       |     |     |     |     |     |     |     |
+-----------------------+-----+-----+-----+-----+-----+-----+-----+

Source: MAFF, Livestock Inventory Statistics