Mon, Feb 18, 2008 page11

• FEATURE: Japanese food sector hit by climbing grain prices

  • AFP
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  Japanese producers of tofu, one of the country's traditional foods, are being squeezed by high global grain prices as they struggle to maintain profits while keeping down costs for consumers.

  Major corporate food producers began a fresh round of price hikes this month, charging more for everything from beer, beef and mayonnaise to miso paste made from fermented soybeans.

  A recent survey found most Japanese firms believed they could pass on less than half of the increased costs to their customers, fearing that if they hiked prices too high they would lose buyers.

  MOM-AND-POP

  Among the hardest hit foodmakers are mom-and-pop producers of tofu, the high-protein curd of soy milk that originated in China and is a staple food in Japan.

  Small shops which supply nearby households with fresh tofu have tried hard not to raise their prices, but now say they see no other way to stay afloat.

  "We have no choice but to increase the price of our tofu soon," said Tokyo tofu maker Tadashi Ohfushi, as he worked in his tiny shop in the shadow of the glitzy Ginza shopping district.

  The 77-year-old industry veteran, whose father began the family shop some 80 years ago, said he is paying about 10 percent more for his raw ingredient than he was six months ago.

  His bean wholesaler has hiked the price of domestically produced soybeans by about 10 percent in that time, while the international price of soybeans has nearly doubled in the past year.

  A bushel (27kg) of soybeans was trading at about US$12.50 last month on the Chicago Board of Trade, up from US$6.68 a year earlier. Meanwhile, Japanese soybeans, priced by weight, sold for ?7,267 (US$68) per 60kg last month, up from a low for the year of ?5,764 in July -- but barely changed from the ?7,257 a year earlier.

  "Broadly speaking, the domestic soy price remained flat," said an agricultural ministry official dealing with domestic farming and food products.

  "But wholesalers, distributors and storage firms are charging more due to rising oil prices and other costs," he said.

  Ohfushi recognized the trend and said he did not want to raise the price of his products to survive in the competitive market.

  "But I think consumers and restaurants understand our situation. Soybean prices are very volatile," he said.

  A survey last month of 8,761 companies by research group Teikoku Databank found 90 percent of agricultural companies across Japan were feeling the pinch from rising raw material costs.

  More than three-quarters of the firms said they could pass on no more than 50 percent of the increased costs to clients, both retail and wholesale.

  Many expressed worries that smaller firms would be hit hardest, as bigger companies often had the financial wherewithal to absorb some of the increased costs, the survey found.

  COMMODITY PRICES

  The skyrocketing commodity prices have been hitting particularly hard since October and the pain is set to intensify.

  Seasoning giant Kikkoman will raise the price of all of its soy sauce products by an average of 11 percent on March 16 -- its first price increase in 17 years.

  "The current increase of raw material and oil prices is beyond our corporate efforts to cut costs and is putting us in an extraordinary situation," said a statement by the company, which dates back to the 17th century.

  Fellow giant company Nissin Food, whose founder created instant noodles, has hinted at another price hike as the government-set price of imported wheat is set to rise soon. Nissin raised the price of its noodles last month, also its first hike in 17 years, by between 7 percent and 11 percent.

  "Wider use of bioethanol and biodiesel as well as massive flows of capital from investment funds are creating abnormality in the [grains] market," Nissin Food president Koki Ando recently told reporters.

  Policymakers have acknowledged the concerns, but resource-poor Japan is left with few options. The country relies on imports for 60 percent of its food, a situation reinforced by a recent scare over Chinese-made dumplings laced with pesticide.

  Farm Minister Masatoshi Wakabayashi said that consumers would have to endure the price hikes, as the corporate sector can only do so much to absorb the rising costs.

  "By gaining understanding of consumers, I want to emphasize that we as a nation must overcome the price rise of grains," he said early last month.

  SPENDING

  Chief Cabinet Secretary Nobutaka Machimura has worried that the trend could damage consumer spending, which Japan badly needs in its ongoing recovery.

  Consumption has been solid in recent years and has formed the basis of Japan's economic recovery. But policymakers are concerned that rising food prices could cut into consumers' willingness to continue to spend at a time when world markets are being rattled by the financial woes currently facing the US economy.

  "We are not seeing any sudden and rapid increase of the consumer price index. But it can surely affect consumers' propensity to spend," Machimura said.

  For now, Ohfushi can only hope that consumers understand.

  "I don't know what will happen in the future. But I think the soybean price will continue to rise," he said. "It doesn't seem normal not to raise our prices."
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