Voluntary Report - public distribution

**Date:** 11/2/2006

**GAIN Report Number:** JA6060

JA6060

**Japan**

**Grain and Feed**

**MAFF Needs to Reduce Stocks of Imported Rice, Board of Audit Says**

**2006**

**Approved by:**

![](media/image1.wmf)Deanna Ayala

U.S. Embassy Tokyo

**Prepared by:**

Hisao Fukuda

**Report Highlights:**

The Board of Audit, Japan's equivalent of the GAO, reports that the
inflating inventory of imported rice has become a financial burden \-- 2
mmt costing roughly \$144 million annually \-- and urges the Ministry of
Agriculture, Forestry and Fisheries (MAFF) to take action to reduce it.
In response, in July MAFF started to release old import stocks to the
feed sector, given its mandate to keep imported rice out of the
food/table market. MAFF expects to release about 25,000 mt per month
through June 2007. U.S. rice makes up 63.5% of MAFF\'s stocks.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Tokyo \[JA1\]

\[JA\]

# Inventory Costing 17 billion Yen Annually

The Board of Audit, Japan's equivalent of the GAO, reports that the
inflating inventory of imported rice, also referred to as Minimum Access
rice or MA rice, has become a financial burden to the Government of
Japan. The inventory has expanded by some 1.6 million metric tons (MT)
over the last ten years and reached the record level of 2 million MT at
the end of March this year, about 64 percent of which is U.S. medium
grain rice. MA rice is kept in the most modern refrigerated warehouses
and costs the Japanese government 17 billion yen (144 million dollars)
annually. The Board of Audit is urging the Ministry of Agriculture,
Forestry and Fisheries (MAFF) to take expeditious action to shrink the
inventory, thus reducing its storage cost. In response, MAFF has begun
releasing some of the old MA rice (some of the inventory goes all the
way back to rice imported in 2000.) whose quality had deteriorated to
the feed sector. This is the first time MA rice has been used for animal
feed.

![](media/image2.wmf)

![](media/image3.wmf)

Source: MAFF

# MAFF's Dilemma 

About 280,000-300,000 MT of rice is used in Japan's feed sector
annually. Because this year's domestic crop size is expected to be 4 to
5% lower than a normal year and there is little inventory of old
domestic rice, MAFF's plan for this year is to supply all of 300,000 MT
using old MA rice. Sales started in July with 25,000 MT released per
month. Use of MA rice in the feed sector may be a quick fix but when
domestic rice production returns to a normal year level, there will be
unsold domestic rice that needs to find its way to the feed sector. MAFF
will face the dilemma of balancing between domestic and MA rice stocks.
In addition, the price of feed rice is very low: about 120 dollars/MT.
Considering the import cost of MA rice at about 530 dollars/MT, MAFF
loses over 400 dollars for every ton of MA rice it sells to feed
manufacturers: 120 million dollars for 300,000 MT. The cost of storage
is, of course, additional.

# Feed Utilization by Ingredient

  ---------- ------------ ----------- -------- --------- --------- --------- --------- -------- --------- ------------ ------------- ------------
                                                                   Wheat                        Other     Grain        Other          

             Corn         Sorghum     Wheat    Barley    Rice      Flour     Rye       Oats     Grains    Total        Ingredients   Total

  Layer Feed                                                                                                                          

  MT         3,646,520    104,250     150      79        70,030    1,426     2         0        3,161     3,825,618    2,676,332     6,501,950

  \%         56.1%        1.6%        0.0%     0.0%      1.1%      0.0%      0.0%      0.0%     0.0%      58.8%        41.2%         100.0%

  Broiler                                                                                                                             
  Feed                                                                                                                               

  MT         1,547,339    660,709     3,691    1,429     84,753    3,538     100       0        5,825     2,307,384    1,304,970     3,612,354

  \%         42.8%        18.3%       0.1%     0.0%      2.3%      0.1%      0.0%      0.0%     0.2%      63.9%        36.1%         100.0%

  Poultry                                                                                                                             
  Total                                                                                                                              

  MT         5,193,859    764,959     3,841    1,508     154,783   4,964     102       0        8,986     6,133,002    3,981,302     10,114,304

  \%         51.4%        7.6%        0.0%     0.0%      1.5%      0.0%      0.0%      0.0%     0.1%      60.6%        39.4%         100.0%

  Dairy                                                                                                                               
  Cattle                                                                                                                             

  MT         1,364,326    35,984      12,056   64,648    33,468    25,322    73,875    7,389    11,827    1,628,895    1,634,458     3,263,353

  \%         41.8%        1.1%        0.4%     2.0%      1.0%      0.8%      2.3%      0.2%     0.4%      49.9%        50.1%         100.0%

  Beef                                                                                                                                
  Cattle                                                                                                                             

  MT         1,615,794    89,973      33,213   635,747   11,290    41,576    43,950    4,721    10,805    2,487,069    1,558,797     4,045,866

  \%         39.9%        2.2%        0.8%     15.7%     0.3%      1.0%      1.1%      0.1%     0.3%      61.5%        38.5%         100.0%

  Cattle                                                                                                                              
  Feed Total                                                                                                                         

  MT         2,980,120    125,957     45,269   700,395   44,758    66,898    117,825   12,110   22,632    4,115,964    3,193,255     7,309,219

  \%         40.8%        1.7%        0.6%     9.6%      0.6%      0.9%      1.6%      0.2%     0.3%      56.3%        43.7%         100.0%

  Swine Feed                                                                                                                          

  MT         3,258,831    497,017     36,557   56,340    85,864    53,323    137,966   19       67,706    4,193,623    1,727,367     5,920,990

  \%         55.0%        8.4%        0.6%     1.0%      1.5%      0.9%      2.3%      0.0%     1.1%      70.8%        29.2%         100.0%

  Feed,                                                                                                                               
  other                                                                                                                              

  MT         36,087       3,554       45       222       501       769       22        735      256       42,191       39,574        81,765

  \%         44.1%        4.3%        0.1%     0.3%      0.6%      0.9%      0.0%      0.9%     0.3%      51.6%        48.4%         100.0%

  Compound                                                                                                                            
  Feed Total                                                                                                                         

  MT         11,468,897   1,391,487   85,712   758,465   285,906   125,954   255,915   12,864   99,580    14,484,780   8,941,498     23,426,278

  \%         49.0%        5.9%        0.4%     3.2%      1.2%      0.5%      1.1%      0.1%     0.4%      61.8%        38.2%         100.0%

  Mixed Feed                                                                                                                          

  MT         384,451      4,262       4,594    12,456    26        1,428     3,527     2,245    8,710     421,699      121,380       543,079

  \%         70.8%        0.8%        0.8%     2.3%      0.0%      0.3%      0.6%      0.4%     1.6%      77.6%        22.4%         100.0%

  Feed Total                                                                                                                          

  MT         11,853,348   1,395,749   90,306   770,921   285,932   127,382   259,442   15,109   108,290   14,906,479   9,062,878     23,969,357

  \%         49.5%        5.8%        0.4%     3.2%      1.2%      0.5%      1.1%      0.1%     0.5%      62.2%        37.8%         100.0%
  ---------- ------------ ----------- -------- --------- --------- --------- --------- -------- --------- ------------ ------------- ------------

Source: Feed Supply Stabilization Organization

# The Root of the Problem 

One may wonder why the MA rice inventory has accumulated to this level.
Firstly, Japan is bound by its WTO commitments to import 682,000 mt of
rice per year. The reason why MAFF does not simply release that imported
rice to the market is because it is bound by a Cabinet Resolution
adopted by the Hosokawa Cabinet on December 17, 1993 that reads:
"Imported rice is not to disrupt the supply and demand of domestically
grown rice." A Cabinet Resolution is the Japanese government's highest
policy decision. As a result, MAFF only allows a very limited amount of
imported rice onto the table rice market. The rest is either: 1) sold to
food/beverage manufacturers as an ingredient so that its identity is
lost; 2) re-exported under food aid programs; 3) now going into the feed
market; and 4) kept in air-conditioned warehouses at a huge cost to
taxpayers. While this practice may seem to contradict the spirit of the
WTO agreement it is not contradicting any written rules.

# Results of Japan's Minimum Access Rice Tenders (1995-2005)

(in actual tonnage)

  --------------- ---------- ---------- ----------- ---------- ---------- ----------
                  U.S.       Thailand   Australia   China      Others     Total

  ***JFY2005***                                                            

  SBS             18,216     1,145      1,570       78,803     266        100,000

  *Share*         *18.2%*    *1.1%*     *1.6%*      *78.8%*    *0.3%*     *100.0%*

  OMA             298,000    134,700    78,400      19,500     40,500     571,100

  *Share*         *52.2%*    *23.6%*    *13.7%*     *3.4%*     *7.1%*     *100.0%*

  Total           316,216    135,845    79,970      98,303     40,766     671,100

  Share           *47.1%*    *20.2%*    *11.9%*     *14.6%*    *6.1%*     *100.0%*

                  U.S.       Thailand   Australia   China      Others     Total

  ***JFY 2004***                                                           

  SBS             23,413     1,211      4,658       63,877     829        93,988

  *Share*         *24.9%*    *1.3%*     *5.0%*      *68.0%*    *0.9%*     *100.0%*

  OMA             298,500    163,300    13,000      24,000     85,944     584,744

  *Share*         *51.0%*    *27.9%*    *2.2%*      *4.1%*     *14.7%*    *100.0%*

  Total           321,913    164,511    17,658      87,877     86,773     678,732

  Share           *47.4%*    *24.2%*    *2.6%*      *12.9%*    *12.8%*    *100.0%*

  ***JFY 2003***                                                           

  SBS             18,216     1,145      1,570       78,803     266        100,000

  *Share*         *18.2%*    *1.1%*     *1.6%*      *78.8%*    *0.3%*     *100.0%*

  OMA             298,000    134,700    78,400      19,500     40,500     571,100

  *Share*         *52.2%*    *23.6%*    *13.7%*     *3.4%*     *7.1%*     *100.0%*

  Total           316,216    135,845    79,970      98,303     40,766     671,100

  Share           *47.1%*    *20.2%*    *11.9%*     *14.6%*    *6.1%*     *100.0%*

  ***JFY 2002***                                                           

  SBS             20,122     1,327      4,077       24,247     294        50,067

  *Share*         *40.2%*    *2.7%*     *8.1%*      *48.4%*    *0.6%*     *100.0%*

  OMA             301,676    134,808    82,500      75,690     34,800     629,474

  *Share*         *47.9%*    *21.4%*    *13.1%*     *12.0%*    *5.5%*     *100.0%*

  Total           321,798    136,135    86,577      99,937     35,094     679,541

  *Share*         *47.4%*    *20.0%*    *12.7%*     *14.7%*    *5.2%*     *100.0%*

  ***JFY 2001***                                                           

  SBS             25,173     421        8,529       65,702     175        100,000

  *Share*         *25.2%*    *0.4%*     *8.5%*      *65.7%*    *0.2%*     *100.0%*

  OMA             298,877    129,376    91,500      55,516     4,700      579,969

  *Share*         *51.5%*    *22.3%*    *15.8%*     *9.6%*     *0.8%*     *100.0%*

  Total           324,050    129,797    100,029     121,218    4,875      679,969

  *Share*         *47.7%*    *19.1%*    *14.7%*     *17.8%*    *0.7%*     *100.0%*

  ***JFY 2000***                                                           

  SBS             46,273     4,960      14,269      53,264     1,234      120,000

  *Share*         *38.6%*    *4.1%*     *11.9%*     *44.4%*    *1.0%*     *100.0%*

  OMA             284,000    144,370    94,000      35,000     15,669     573,039

  *Share*         *49.6%*    *25.2%*    *16.4%*     *6.1%*     *2.7%*     *100.0%*

  Total           330,273    149,330    108,269     88,264     16,903     693,039

  *Share*         *47.7%*    *21.5%*    *15.6%*     *12.7%*    *2.4%*     *100.0%*

  ***JFY 1999***                                                           

  SBS             36,826     3,753      14,587      62,611     2,223      120,000

  *Share*         *30.7%*    *3.1%*     *12.2%*     *52.2%*    *1.9%*     *100.0%*

  OMA             276,000    138,200    90,000      13,900     15,000     533,100

  *Share*         *51.8%*    *25.9%*    *16.9%*     *2.6%*     *2.8%*     *100.0%*

  Total           312,826    141,953    104,587     76,511     17,223     653,100

  *Share*         *47.9%*    *21.7%*    *16.0%*     *11.7%*    *2.6%*     *100.0%*

  ***JFY 1998***                                                           

  SBS             36,498     5,297      14,538      61,965     1,702      120,000

  *Share*         *30.4%*    *4.4%*     *12.1%*     *51.6%*    *1.4%*     *100.0%*

  OMA             265,400    130,000    87,000      10,000     20,000     512,400

  *Share*         *51.8%*    *25.4%*    *17.0%*     *2.0%*     *3.9%*     *100.0%*

  Total           301,898    135,297    101,538     71,965     21,702     632,400

  *Share*         *47.7%*    *21.4%*    *16.1%*     *11.4%*    *3.4%*     *100.0%*

  ***JFY 1997***                                                           

  SBS             34,657     911        3,159       13,882     2,532      55,141

  *Share*         *62.9%*    *1.7%*     *5.7%*      *25.2%*    *4.6%*     *100.0%*

  OMA             237,900    133,900    82,400      30,000     5,000      489,200

  *Share*         *48.6%*    *27.4%*    *16.8%*     *6.1%*     *1.0%*     *100.0%*

  Total           272,557    134,811    85,559      43,882     7,532      544,341

  *Share*         *50.1%*    *24.8%*    *15.7%*     *8.1%*     *1.4%*     *100.0%*

  ***JFY 1996***                                                           

  SBS             14,134     360        1,173       5,113      1,220      22,000

  *Share*         *64.2%*    *1.6%*     *5.3%*      *23.2%*    *5.5%*     *100.0%*

  OMA             201,000    127,650    80,000      35,000     0          443,650

  *Share*         *45.3%*    *28.8%*    *18.0%*     *7.9%*     *0.0%*     *100.0%*

  Total           215,134    128,010    81,173      40,113     1,220      465,650

  *Share*         *46.2%*    *27.5%*    *17.4%*     *8.6%*     *0.3%*     *100.0%*

  ***JFY 1995***                                                           

  SBS             5,715      246        1,935       2,390      408        10,694

  *Share*         *53.4%*    *2.3%*     *18.1%*     *22.3%*    *3.8%*     *100.0%*

  OMA             188,000    95,100     85,000      30,000     0          398,100

  *Share*         *47.2%*    *23.9%*    *21.4%*     *7.5%*     *0.0%*     *100.0%*

  Total           193,715    95,346     86,935      32,390     408        408,794

  *Share*         *47.4%*    *23.3%*    *21.3%*     *7.9%*     *0.1%*     *100.0%*
  --------------- ---------- ---------- ----------- ---------- ---------- ----------

Source: MAFF