Rabobank report: Japan Earthquake - Magnitude of Impact

Although the full impact of the Japan earthquake and tsunami remains unknown, the effect on Japan’s food and agriculture industry could be dire and felt far beyond Japan’s borders, say Rabobank analysts.

The combined effects of food-safety concerns and supply shortages are likely to limit exports and cause imports to rise. The overall impact on the global food commodity market may be moderate, but imports from the US, Australia and China are expected to rise as Japan grapples with the magnitude of this disaster and the recovery efforts. A Rabobank report entitled ‘Japan earthquake- Magnitude of Impacts on Food and Agriculture’ estimates the potential impact on six major sectors of Japan’s agricultural industry, based on the current food supply in the areas affected by the earthquake, tsunami and nuclear radiation.

Jean-Yves Chow, Senior Industry Analyst North East Asia, is the lead author of the report at Rabobank’s Food and Agri Research department: “While the situation is still evolving, the domino effect of the disaster will likely result in more imports from trade partners, such as the US, Australia and China. The radiation issues at the Fukushima plant have heightened food safety concerns at a time when Japanese food self-sufficiency is already low. Japan may need to revise its food security strategy to manage the country’s risk.”

Key points
• Temporary contraction in demand with prioritization to staple and long-shelf- life product
• Imports from trade partners such as the US, Australia and China likely to rise as Japanese consumers worry about food safety
• Imports of seafood, meat, fruit and vegetables in particular likely to grow
• Safeguard tariff system for beef and pork imports may require adjustment
• Sectors with little direct damage experiencing temporary production problems due to regular power shortages
• Need for new food security strategy to improve domestic and international confidence in Japanese food products
• Overall impact on global trade likely to be moderate

Rabobank analysis of impact per sector

Rice
The earthquake had no immediate impact on rice production but concerns about soil contamination, either through salinity or radiation, will affect the next planting in April and May. High year-end stocks means the availability of rice is not immediately threatened so there is no immediate need for imports in response to the natural disaster.

Grains
Japan is heavily dependent on imported wheat. Most processing mills are outside the damage zone but power shortages are temporarily impacting processing production. Japan estimates that some 15 percent of its compound feed industry capacity was damaged. Bottlenecks in feed capacity will likely defer demand for corn and potential damage to domestic livestock could even decrease demand.

Meat
A significant part of Japan’s pork, poultry and beef industries are located in the impacted region. Primary production damage could translate into a loss of total meat output of between 70,000 tonnes and 350,000 tonnes in the worst case scenario. Power shortages following the earthquake have damaged large volumes of meat in cold storage. Increased reliance on imports may trigger safeguard tariff increases for beef or pork. The poultry sector is also having to cope with a bird flu outbreak.

Dairy
The damaged area accounts for 15% of Japan’s dairy production, but the largest dairy producing region in Hokkaido has not reported any food-safety issues. Since Japan is one of the world’s largest cheese importers, attention will be focused mainly on trade flows for this product

Fruits and Vegetables
There are reports that the earthquake and the tsunami destroyed some vegetable farms and orchards in the northeastern part of Japan. Excessive radioactive matter found in locally produced vegetables
and fruits could harm local consumer confidence, at least in the short term. Consequentlyvegetable and fruit imports are expected to increase, in the coming months,.

Seafood
The seafood producing industry in Japan is reported to be experiencing wide-spread damage. The earthquake and tsunami destroyed many fishing ports and vessels, and washed away both aquaculture and wild seedbeds for key product such as scallops and oysters. Contamination of seawater is causing consumers to a shift away from fresh local seafood to canned or imported products. Import bans in certain countries are impacting not only the home industry but are forcing Japanese seafood restaurants around the world to source product elsewhere.

Full Report (PDF)
http://img.scoop.co.nz/media/pdfs/1104/Rabobank_Japan_Earthquake_April_2011.pdf

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