Japan still a key market for Australia
While the global dairy environment reflects an increasingly volatile trade environment, Japan remains a steadfast market for Australian dairy products.
And as one of the world’s largest dairy importers, exports to Japan have remained relatively steady during the past five years.
Despite a shrinking population, demand for dairy in Japan has been steadily rising.
A lot of the demand for dairy in Japan stems from the tourism industry and associated food service, and Japanese consumers continue to grow more health conscious and recognise the nutritional benefits of dairy in their diets.
The outbreak of COVID-19 in Japan caused significant disruptions to the tourism industry and the hotel, restaurant and institutional (HRI) sector.
This led to a focus on further processing of surplus milk into products such as butter and skim milk powder (SMP), increasing domestic stockpiles and reducing the need for imported product. As such, exports of SMP from Australia declined by 74 per cent during the past two years.
With the return of foreign visitors, demand for dairy is expected to rise again alongside a rebounding tourism industry, however stockpiles of SMP reportedly remain.
While this will likely induce some importing growth, inflationary pressures and high freight costs are likely to continue weighing on importing/exporting activity.
Despite the volume of cheese imported from Australia declining 31 per cent during the past five years, this Australian product still accounts for 25 per cent of Japan's total cheese imports.
About 90 per cent of Australian dairy imported into Japan is cheese, worth US$295 million in 2021-22. Increased demand for dairy has seen cheese consumption surge over the past 10 years, with natural cheese now gaining popularity among consumers.
With Australian cheese typically sitting at a premium to other key exporting regions, firm demand from Japan has continued to show support for Australian product through recognition of its high quality.
During the past five years, Australian dairy exports to Japan have decreased 37 per cent while imports from the United States and European Union have increased.
In 2015, the Japan-Australia Economic Partnership Agreement (JAEPA) entered into force, allowing Australia a reduction in tariffs and additional country-specific quotas for selected dairy products.
Since then, the US and EU have both established bilateral free-trade agreements with Japan.
In February 2019, the Japan EU Economic Partnership Agreement (Japan EU EPA) came into force and included a ‘protection’ clause for a range of Geographical Indicators.
The ratification of this agreement prevents Australian exporters from selling dairy products into the Japanese market under these protected names.
With the JAEPA scheduled to be reviewed soon (after an initial deadline of 2021), Dairy Australia and the Federal Government are working to seek market access improvement for Australian dairy in the Japanese market through this process.
Despite the competitiveness of other key exporters increasing through free-trade agreements, Australia remains an important exporter of dairy product to Japan.
While disruptions caused by the COVID-19 pandemic have weighed on Japan’s importing of some products, demand for Australian cheese remains robust through the current volatile trade environment.
Favourable outcomes from the upcoming JAEPA review will ensure that Australia can continue to rely on Japan as a mature, vital and high-value market.
For more information on the Japan market and other key export markets, access and subscribe to Dairy Australia’s market briefs here: https://www.dairyaustralia.com.au/industry-statistics/industry-reports/international-market-briefs