Customized Report Service – Organic dairy products in Japan

Production

The consumption of dairy products is on the rise in Japan, especially among consumers 35 and under who continue to adopt a more western diet. In response to the growing consumer preference for fresh dairy products, many Japanese dairy and beverage companies have increased the use of fluid milk in their production of prepared coffee beverages and other milk-based beverages. Japanese convenience store chains are expanding the range of dairy products on their shelves.

However, domestic raw milk production has been declining for more than two decades. The Japanese agricultural industry (and the dairy sector in particular) is composed of an aging labour force and is having difficulty recruiting young farmers. Even as domestic supply declines, Japanese demand for dairy products continues to rise, making the country increasingly dependent on imports. Traditionally, Japan's main suppliers of dairy products have been the United States, Australia, New Zealand and the European Union.

Cheese

While cheese may not be a staple of Japanese cuisine, demand for cheese in Japan is constant and increasing. There is a growing trend for wine and cheese in culinary experiences, particularly in Japan. A cheese plate is typically paired with wine and is a luxury experience involving high-quality, strong-tasting cheeses. In addition, cheese is increasingly recognized as a healthy, high-protein food, and is therefore increasingly being consumed as a snack. The Japanese are familiar with western foods and demand for unique artisanal cheeses has skyrocketed.

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Year	Production in tons
1998	123,729
2000	124,804
2002	124,946
2004	119,496
2006	124,186
2008	116,877
2010	127,029
2012	133,326
2014	136,223
2016	145,632
2018	157,000

Local and artisanal cheese

The number of cheese factories has increased throughout the country and the Japanese artisanal cheese scene is experiencing exponential growth, particularly in Hokkaido province, where the climate and geography are ideal for raising dairy cattle. One of the best known cheeses in Japan is Sakura (cherry blossom), a Camembert-style cheese that is matured on top of cherry blossom leaves, then garnished with pickled cherry blossoms. Sakura has been recognized both in Japan and abroad, winning gold medals at the Mountain Cheese Olympics in Switzerland.

However, the prices of raw milk - the main ingredient in cheese-making - have increased, adversely affecting the profitability of certain local cheese producers and establishments.

Butter

As is the case for other dairy products, Japanese consumers appear to be developing a preference for fresh butter. This is particularly noticeable in the convenience store chains, which are expanding their range of butter and butter products as well as new dairy products-based confectionaries on a quarterly basis.

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Year	Production (tons)
1998	88,111
2000	79,925
2002	79,598
2004	80,555
2006	78,001
2008	71,898
2010	70,119
2012	70,118
2014	61,652
2016	63,583
2018	59,000*
*: Estimate

Source: MAFF, Statistics on Milk and Dairy Products

However, in the last few years, Japan has experienced occasional butter shortages, due largely to the decline in milk production on dairy farms outside Hokkaido. These farms are generally smaller than those in northern Japan, and are therefore more vulnerable to external forces that can impact production. Because they do not have sufficient land to graze their herds, many of these farms depend on imported feed. And if the yen weakens, feed costs can skyrocket, which affects the economic viability of dairy farms and sometimes leads to closures. Raw milk from dairy farms located outside Hokkaido is primarily consumed locally as fluid milk. To offset the shortages of this milk, raw milk from the prefecture is shipped to the affected areas. The butter shortages in 2014 and 2015 were due to the fact that the milk shipped from Hokkaido was mainly used for fluid milk rather than butter production.

Since the supply of raw milk is declining, butter manufacturers are concentrating their production on the more lucrative retail table butter market, while institutional users, such as confectionary companies, are turning to imported butter to meet their ingredient needs.

Dairy products market

Organic products

Promising outlook

Organic milk and other dairy products such as organic butter and cheese are still hard to find in traditional supermarkets outside Tokyo or Osaka. Nationwide, the Japanese organic dairy products market is still limited and there are significant obstacles to its expansion, such as limited domestic supply, which can be explained by the need to obtain JAS Organic certification, which entails additional costs associated with farm accreditation, product grading and analyses.

However, the past is no guarantee of the future, and there is growing interest in organic products among young Japanese consumers. Retail sales of certified organic dairy products in Japan are less than 2.5% (2018), but the prospects for growth are numerous and promising. Since the variety of local organic food supplies is still limited, there may be opportunities for imported organic food products.

Food services

Food service enterprises, which range from family chains to trendy cafés and high-end restaurants, are a potential growth sector. There are many organic cafés and retail stores opening up in downtown Tokyo and Osaka. Several department stores and high-end food retailers are offering organic food products. This emerging trend of new cafés and retail stores may not yet be significant in terms of sales volume, but it has strong appeal to young consumers and is helping to promote the concept of "organic product" to this consumer segment.

Event

The 17th International Organic Expo 2018 (which was held from August 30 to September 1) is an international trade show specializing in organic agriculture, with a focus on promoting organic products. More than 180 exhibitors participated in the show, which received more than 14,000 visitors during this three-day period.

Supermarkets

There are currently no large supermarket chains with a focus on organic products in Japan similar to Whole Foods Market in the United States. From a marketing perspective, the lack of a large national chain specializing in organic products is considered a factor limiting expansion of the customer base. While there are small organic chains opening up in Japan, such as "Natural House," the number and scale of these chains as well as the range of products available in these stores have not yet reached a level equivalent to the American market. However, in 2016, two large supermarket chains took the first steps toward trying to build organic store models in Japan. Other chains have also shown interest in the organic products market.

AEON, the largest supermarket chain in Japan, created Bio c'Bon Japan Co., Ltd, as a joint venture with Marne & Finance Europe, and opened its first organic "Bio c'Bon" store in Tokyo in December 2016. The store sells a variety of organic foods ranging from fresh products to dried fruits and nuts, juices, dairy products, snacks, etc. Following the success of this banner, additional "Bio c'Bon" organic supermarkets are being rolled out. According to Akitery Imai, marketing director for Bio c'Bon, the goal is to open 50 stores by the end of 2020.

Life Corporation (a large national supermarket chain in Japan) has opened its first organic and natural foods store,"BIO-RAL", in downtown Osaka. The store sells a variety of natural and organic food products as well as conventional products. According to BIO-RAL, the goal is to target customers seeking to lead a healthy lifestyle.

Online retailers

Internet retail is also a growth area for organic products. Many local players in the organic products market, including those in the organic dairy products market, are focusing on online retailing to mitigate the impact of the high costs of traditional store distribution channels on profit margins, which are already affected by the higher costs of organic production.

The giants of Japanese e-commerce have recently (2014-2015) begun to offer organic dairy products. For example, the Rakuten e-commerce platform, which is one of the largest e-commerce sites in Japan and one of the largest in the world in terms of sales, is often called "the Amazon of Japan." These online platforms make it easy and convenient for Japanese consumers to buy imported dairy products such as cheese and butter.

Examples of organic products available on Rakuten

Organic mozzarella cheese

This USDA-certified organic mozzarella cheese (226 grams) sells for Can$23.56 (1,895 ¥). (The price includes the cost of home delivery in most major urban centres).

Natural butter

Butter from the city of Yokohama. This natural butter in a 200 gram format sells for Can$31.96 (2,571 ¥)*. (The price includes the cost of home delivery in most major urban centres).

Organic cheddar cheese

This United States Department of Agriculture (USDA)-certified organic cheddar cheese (226 grams) sells for Can$24.50 (1,971 ¥). (The price includes the cost of home delivery in most major urban centres).

Two other online organic food suppliers, Oisix and Radish-Boya, are rapidly expanding their business operations.

For example, Oisix (Oisix Daichi Inc.), established in 2000, had up to 110,000 subscribers and posted $200 million in sales in 2016. It recently teamed up with another organic food supplier and is accelerating its growth.

Radish Boya (Radishbo-ya Co., Ltd.), founded in 1988, works closely with a convenience store chain, a national supermarket chain and cooking schools, and is expanding its business outlets

Although these two companies focus primarily on fresh products grown in Japan, they are increasingly including imported food products and also provide a platform for imported organic food products.

Companies

Japan's main dairy processors include Meiji and Megmilk Snow Brand, which have been producing cheese since the early 1930s. Both companies produce natural cheeses such as Camembert and string cheese, as well as processed cheeses adapted to Japanese tastes.

Exports and requirements

Standards

For organic dairy products, Japan currently has a voluntary standard for organically farmed products, including organic dairy products. Any organic dairy product, whether locally produced or imported, can be declared organic. If a company or a Japanese importer chooses to have its organic dairy products certified under the JAS, these products can bear the JAS organic logo. Imported products can bear the organic logos of the foreign countries in which the products are certified organic. Canadian companies wishing to use the JAC organic logo in Japan will have to collaborate with their Japanese importer to have their organic dairy products certified according to the JAS voluntary standard.

Equivalence

Canada has signed an organic equivalence arrangement with Japan (JCOEA). This means that, as long as the terms of the arrangement are met, products certified as organic in Japan or in Canada can be sold as organic in either country.

The production and distribution of organic foods in Japan are governed by the JAS (Japan Agricultural Standards) Law. In order for food products to be labelled and sold as organic in Japan they must hold JAS Organic certification and display the JAS Organic label (opposite) on each product.

The following Canadian organic products are covered under the JCOEA and must bear the Japanese Agricultural Standards (JAS) seal to be sold in Japan. These products may also use the "Canada Organic" logo in compliance with the Organic Products Regulations.

Canadian exporters may apply the JAS logo to their plants or plant-based processed products in one of two ways:

1. Canadian exporters who have a contract with a JAS-certified importer may apply the JAS logo to their products directly for sale in either Japan or Canada. To view the list of JAS-certified importers, see Ministry of Agriculture, Forestry and Fisheries - Organic Foods.
2. Canadian exporters who do not have a contract with a JAS-certified importer may not apply the JAS logo to their products prior to export. A JAS-certified importer must import the product, and that importer must apply the JAS logo to the product prior to sale within Japan.

Canadian organic products exported to Japan under the JCOEA must be accompanied by a valid organic certificate issued by a CFIA-accredited certification body. In addition, a document including the relevant information from Article 35 of the Enforcement Regulations for the Law Concerning Standardization and Proper Labelling of Agricultural and Forest Products - PDF (111 kb) has to accompany each shipment. This document has to be completed by the CFIA-accredited certification body.

• Import Certificate (Import from Canada to Japan) (PDF)

Quotas

The quota system for dairy products is very complex, but dairy products (including organic products) are controlled by the MAFF and by the Agriculture & Livestock Industries Corporation (ALIC). According to their website, the MAFF and ALIC import a certain quantity of dairy products in accordance with the WTO (World Trade Organization) agreement and sell them on the market.

To account for the price differential between imported dairy products and domestic dairy products, ALIC buys the dairy products imported by the private sector and immediately sells them back, which allows ALIC to collect mark-ups which are paid into a fund for stability management measures in favour of producers of milk intended for processing.

In order to access Japan's quotas, exporters should contact the Japanese importers that hold an import licence issued by the Japanese government according to the principle of first come, first served.

The Canada Tariff Finder allows Canadian exporters to verify the tariffs applicable to a given product and focuses on countries with which Canada has concluded a free trade agreement, such as Japan.

Japanese imports

Quantity

Challenges

Cheese producers (PDF) in Australia, New Zealand and in European countries have established a quality image on the Japanese market with a wide variety of products. In order to compete with European and Oceanian products, artisanal cheese products and cheeses that have won competitions can attract upscale Japanese consumers.

Furthermore, under the Economic Partnership Agreement with the European Union (EU) (July 2018), Japan will eliminate customs duties on approximately 94% of all imports from the 28 countries of the economic block by 2035, which will allow Japanese consumers to enjoy less expensive European cheese products.

Retail price analysis

Butter

Cheese

Product launch analysis

In response to the growing interest of Japanese consumers for all dairy products, since 1998, an increasing number of new cheese and butter-based products have been launched on the Japanese market.

Description of above image

Date Published	Number of Variants
1998	49
1999	50
2000	42
2001	24
2002	27
2003	25
2004	40
2005	40
2006	32
2007	35
2008	42
2009	72
2010	51
2011	78
2012	54
2013	71
2014	77
2015	47
2016	58
2017	76
2018	116
Total Sample	1,106

Source: Mintel, 2019

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Company	2014	2015	2016	2017	2018	Total Sample
Aeon	11	7	10	10	17	55
Megmilk Snow Brand	1	7	7	12	26	53
Meiji	8	7	6	6	14	41
Rokko Butter	0	0	0	20	11	31
Megmilk Snow	19	6	1	0	0	26
Koiwai Dairy Products	12	2	7	3	1	25
Seven & i Holdings	7	1	6	5	5	24
Natori	1	1	3	0	17	22
Morinaga Milk Industry	5	6	4	0	2	17
Kraft Foods	0	0	6	6	2	14
Lawson	0	0	3	4	4	11
Hoko	3	2	2	1	2	10
J-Oil Mills	2	3	0	1	2	8
Bel	0	1	1	2	3	7
Rokkō Butter	0	0	0	3	3	6
Sous total	69	42	55	68	103	337
Total Sample	77	47	58	76	116	374

Source: Mintel, 2019

The average understanding of Japanese consumers concerning the extent of the benefits of products claiming to be organic is still relatively low, especially outside the main urban centres. There is some confusion in the minds of Japanese consumers in terms of differentiating between products claiming to be organic and those claiming to be made with "natural" ingredients. During the reference period (2014-2018), to capture the attention of the Japanese consumer, the industry diversified the claims on the packaging of butter and cheese products in Japan (Graph 1). However, when it comes to stressing claims concerning the benefits and origin of their ingredients, the "natural" label is heavily used (Graph 2). With the increasing popularity of organic products, especially among young consumers (34 and under), it is expected that dairy products that claim to be organic or to contain organic ingredients will occupy an increasing market share on the Japanese market.

Description of above image

Claim	Number of variants
Convenient packaging	37
Limited Edition	32
High-end products	28
Economical (low price)	23
Easy to eat	20
Low/nil/calorie reduced	19
No additives/preservatives	16
Low/no/low fat	14
Low/no/reduced transformer	14
Low/no/low cholesterol	14
Total Sample	374

Source: Mintel, 2019

*: Some products may claim multiple benefits and/or functionalities.

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Ingredient claim	Number of variants
Natural	244
Vegetable-based	106
Sugar-based	54
Soy derivative	31
Origin (geographical appellation)	30
Others	14

Source: Mintel, 2019

*: Some products may claim multiple benefits and/or functionalities.

Perceptions

Japanese consumers are concerned about the value of products in terms of price and quality. Products must meet or exceed consumer expectations. Consumers are willing to pay more for high-end products provided that the value and quality meet their expectations relative to the price.

In comparison to the U.S. market, the trend for organic and natural foods has not until quite recently generated much enthusiasm on the part of the average Japanese consumer, partly because of their strong confidence in domestic products and perception of their quality. Consequently, until quite recently, they were less inclined to pay more for foods certified as organic. However, the organic products market is evolving quickly and Japanese consumers (particularly young consumers 34 and under) are increasingly aware of the benefits related to organic foods and are therefore increasingly willing to pay more for foods certified as organic.

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Response category	Total	% of total
Higher quality	235	34%
Fresher	489	70%
Healthier/more nutritious	164	23%
Safer (food control)	278	40%
Benefits for local farmers/local economy	410	59%
Improved worker safety	78	11%
Promotes fair trade practices	75	11%
Improved traceability	65	9%
Cheaper	183	26%
Lower carbon footprint	62	9%
Better for the environment	120	17%
None of the above	50	7%
Total	700	100%

Source: GlobalData 2017 Q4 Consumer Survey - JAPAN - Question List *This survey of 700 individuals in Japan was conducted during the fourth quarter of 2017. The respondents may have associated several categories with the question asked.

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Response categories	Total	% of total
Healthy food	301	43%
Natural food	397	57%
Local product	86	12%
Fresh	110	16%
Sustainable (environment)	36	5%
Safe (food control)	251	36%
Better quality	131	19%
Fewer or no additives	312	45%
Better tasting	51	7%
Fewer or no added pesticides/ chemicals	316	45%
Better for the environment	151	22%
More expensive	175	25%
None of the above	65	9%
Total	700	100%

Source: GlobalData 2017 Q4 Consumer Survey - JAPAN - Question List *This survey of 700 individuals in Japan was conducted during the fourth quarter of 2017. The respondents may have associated several categories with the question asked.

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Response categories	Total	% of total
Organic	201	29%
Fresh product	216	31%
Natural	214	31%
Low/no meat	49	7%
Dairy-free products	26	4%
Gluten-free	51	7%
Made on-site/local source	86	12%
Made in-house	104	15%
Low fat	191	27%
Low in calories	190	27%
Low in carbohydrates	113	16%
Low in sugar	163	23%
High protein	95	14%
Balanced diet	407	58%
None of the above	69	10%
Total	700	100%

Source: GlobalData 2017 Q4 Consumer Survey - JAPAN - Question List *This survey of 700 individuals in Japan was conducted during the fourth quarter of 2017. The respondents may have associated several categories with the question asked.

Examples of organic dairy products

Margarine for Butter Lovers

Source: Mintel 2019

Company	J-Oil Mills
Brand	Rama
Importer	Not imported
Store type	Supermarket
Store address	Suginamiku, Tokyo 167-0022
Launch date	May 2019
Launch type	New packaging
Price in yen	171.00
Price in US dollars	1.54

Rama Margarine has been repackaged. This upscale margarine contains butter and milk powder from Hokkaido and is described as rich and delicious just like butter. This product, which is low in trans fats, is also suitable for the preparation of gratins, sautéed vegetables, baked potatoes and orange cake. It is sold in retail outlets in a recyclable 160-g container with a recipe suggestion and QR codes. Launched in March 2019.

Raisin & Butter

Source: Mintel 2019

Company	Koiwai Dairy Products
Brand	Koiwai
Importer	Not imported
Store name	Sain E yoshiya
Store address	Takada 171-0033
Store type	Supermarket
Launch date	May 2019
Launch type	New packaging
Price in yen	257.00
Price in US dollars	2.30

Koiwai Raisin & Butter has been repackaged. This product boasts that it has kept its original flavour since 1972 and contains butter from Koiwai and California raisins. It contains 43% milk fat and is sold in retail outlets in a 75-gram package. Launched on March 1, 2019 with an Manufacturer Suggested Retail Price (MSRP) of 259 yen.

Olive oil and butter flavoured spread

Source: Mintel 2019

Company	Unilever
Brand	Rama
Importer	Not imported
Store name	Seiyu
Store type	Supermarket
Launch date	April 2019
Launch type	New packaging
Price in yen	213.00
Price in US dollars	1.91

Rama olive oil and butter flavoured spread has been repackaged with a new design. This product includes a mixture of 30% butter flavour and fruity olive oil, and is described as having a pleasant flavour, which makes it suitable for use in roasting, cooking and baking. It is sold in retail outlets in a 140-gram package with a QR code and suggested recipe. The manufacturer is endeavouring to reduce the trans fats in its margarine blends. Launched in March 2019.

Butter flavoured spread

Source: Mintel 2019

Company	Megmilk Snow Brand
Brand	Yukijirushi Megmilk
Store type	Supermarket
Store name	Life
Launch date	October 2018
Launch type	Market relaunch
Price in yen	189.00
Price in US dollars	1.66

Yukijirushi Megmilk sweet butter-flavoured spread has been relaunched. This product is low in calories, cholesterol and trans fats, does not contain any partially hydrogenated oils and has a rich butter flavour that enhances the taste of all types of bread. This product is sold in retail outlets in a 300-gram package with a QR code.

Grated Gouda, Red Cheddar and Steppen cheeses

Source: Mintel 2019

Company	Aeon
Brand	Topvalu
Store name	Aeon
Store type	Supermarket
Launch date	January 2019
Launch type	New variety/range extension
Price in yen	213.00
Price in US dollars	1.96

Topvalu grated Gouda, Red Cheddar & Steppen cheeses have been added to the product line. This natural cheese is ready to use and can be added to salads or used to season hot dishes before serving. Steppen cheese is described as a mild cheese that melts particularly well when heated. It is sold in retail outlets in a 100-gram package.

Red Cheddar Cheese

Source: Mintel 2019

Company	Lawson
Brand	Lawson Select
Importer	New Zealand
Store name	Lawson
Store type	Convenience store
Launch date	December 2018
Launch type	New variety/range extension
Price in yen	198.00
Price in US dollars	1.75

Lawson Select Red Cheddar Cheese is now available. The product is sold in retail outlets in a 45-gram package.

For more information

International Trade Commissioners can provide Canadian industry with on-the-ground expertise regarding market potential, current conditions and local business contacts, and are an excellent point of contact for export advice.

• Overview of Trade Commissioner Services in Japan
• Find a Trade Commissioner

For additional intelligence on this and other markets, the complete library of Global Analysis reports can be found on the International agri-food market intelligence page, arranged by region.

For additional information on FoodEx 2020, please contact

Ben Berry, Deputy Director
Trade Show Strategy and Delivery
Agriculture and Agri-food Canada
ben.berry@canada.ca

Customized Report Service – Organic dairy products in Japan
Global Analysis Report

Prepared by: François Thériault, Market Analyst

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