The structure and its change of soybean food industry in Japan

Economics 535 First Market Report The structure and its change of soybean food industry in Japan Keita Fukunaga 1. Market Overview Japan has been the biggest customer market for the US for more than 50 years since the Second World War. The biggest usage of soybeans in Japan is for producing edible oil (see table 1). The ratio of the soybeans used for oil accounts for about 75% in the total usage of soybeans in Japan in these years. 20% of the soybeans are used for soybean food production including the traditional soybean foods such as tofu, miso, and natto. The rest 5% is used for producing feed. Table 1 Supply origins and demand of soybeans, Japan, 1000 MT Year 1965 1975 1985 1990 1995 1996 1997 1998 1999 2000 Supply Domestic 240 133 238 272 99 119 148 145 158 US 1465 3041 4345 3456 4065 3931 3891 3735 3867 3608 China 376 - - 284 195 158 166 135 144 139 Brazil - - 22 857 362 379 559 524 585 751 Canada 7 8-44 53 75 90 98 163 239 Paraguay - - - - 131 300 300 231 81 73 Other 6 293 565 84 60 102 141 126 207 TotalIm port 1847 3334 4910 4681 4813 4870 5057 4751 4884 4829 TotalS upply (exclude inventory) 2087 3467 5148 4953 4912 4989 5205 4896 5042 Demand Oil 1389 2620 3928 3630 3712 3679 3781 3616 3751 Food 624 836 921 994 974 1038 1019 1046 1017 Feed - 30 70 95 110 110 110 105 105 TotalD em and (exclude inventory) 2013 3486 4919 4719 4796 4827 4910 4767 4873 Source) Industry Statistics, Ministry of Economy, Trade, and Industry of Japan In table 1, we can also see that the demand for soybeans for oil and food usages has been stable for this decade. To confirm this fact, see the table 2 for soybean food consumption by product. In the table 2, the amount of consumption of each traditional soybean food is shown. For example, one Japanese individual consumer eats about 10kg ( 20 lb) of tofu in 1999. 1

Let s say one pack of tofu weights 300g ( 0.7 lb). Then the average consumer purchases and consumes about 30 packs annually. This shows that tofu has been a very popular product among Japanese consumers and that Japanese consumers have consumed tofu quite frequently. As stated, we see that the consumption of traditional soybean foods is quite stable for these decades. Only natto continuously increased in these thirty years, while other products have stayed in the same levels and some have even decreased. Natto consumption has increased, as more people come to believe that natto is very good for their health than before. Another reason is that natto industry has been successful to expand its market to the west part of Japan, where natto was originally not very popular. Natto was not popular among the people in that area because many people in the area did not like the smell of natto (natto has unique smell originated from the production process of fermentation). Recently, some companies succeeded to produce natto with less smell by improving the production technology, and the less-smell natto has been successfully accepted by those consumers who didn t like natto because of the smell. In the table 2, we can also observe that miso and soysauce in particular have declined for these decades. Table 2 Annual soybean food consumption, by product, kilogram per person Year Tofu M iso Soysauce N atto Fried Tofu D ried Tofu 1965 8.91 7.92 11.89 0.6 1.56 0.14 1970 9.56 7.43 12.03 1.11 1.81 0.13 1975 9.54 6.38 11.07 1.09 1.75 0.11 1980 9.52 6.05 11.09 1.31 1.75 0.12 1985 9.73 5.44 10.1 1.31 1.78 0.12 1990 9.98 4.92 9.72 1.56 1.83 0.11 1995 9.89 4.56 9.1 1.58 1.7 011. 1999 9.79 4.42 8.3 1.81 1.67 0.1 Source) Shimizu, 2002. Original source: Food Demand-Supply Statistics, Ministry of Agriculture, Forestry and Fishery (MAFF) Some people argue that as the demand of Japanese people (young people in particular) for rice has decreased for these years, the demand for soybean foods which are typically served with cooked rice also has declined. Particularly, the main usage of miso 2

has been to make miso soup which is generally served with cooked rice in the breakfast. Some argue that nowadays many young people prefer bread to rice for the breakfast. If this is true, the decline in the demand for rice could cause the decline in the demand for miso. In table 3, we can first observe that the total consumption of food soybean is stable, staying around 1 million metric tons. Tofu is the biggest consumer of food soybeans consuming almost 500,000 metric tons of soybeans, while miso is the second and natto is the third biggest respectively. Each soybean food consumption is stable, except for natto use. Table 3 Food soybean consumption, by product, unit: 1000 MT Total M iso Soysauce Tofu & Fried Tofu Natto Dried Tofu Soy M ilk Other 1990 992 179 6 485 99 31 4 166 1989 1,010 177 11 490 104 31 4 187 1990 994 172 24 494 107 31 3 203 1991 1,013 171 22 494 108 31 3 137 1992 1,037 176 25 494 108 31 3 159 1993 965 173 23 492 109 31 3 152 1994 978 165 22 493 109 30 3 207 1995 974 162 27 493 110 30 3 182 1996 1,038 167 27 492 115 30 3 205 1997 1,019 165 26 494 122 30 3 176 1998 1,046 162 26 495 128 30 4 205 1999 1,017 163 30 492 127 29 6 180 2000 1,010 163 30 492 122 29 7 167 2001(Est.) 1,020 163 30 493 124 30 7 173 Source) MAFF According to the data in The Report of National Consumption Facts by Ministry of Public Management, Home Affairs, Posts and Telecommunications, the sales share of the supermarkets in total tofu sales was only 6.6% in 1969, and that increased to 71.5% in 1994 (Takahashi 2000). Similarly, the sales share of the supermarkets in total natto sales was only 13.8% in 1964, and that increased to 75.9% in 1999 (Simizu, ibid.). Takahashi (ibid.) points out that the impact of the dominance of supermarkets was more significant in natto marketing than in tofu marketing, because of the different product characteristics. We will discuss this in detail in the section 3. 3

2. The Structures of Soybean Food Industries In this section, we will describe the industrial structures of major soybean food industries in Japan. See the table 4 for the total number of soybean food manufactures. According to the table, the total number of tofu manufactures is outstandingly large compared to the other two industries. This is because small and local type of manufactures still stay in the market in tofu industry as we will observe later. The table 5 shows the concentration rate for natto and miso industries. It is shown that the concentration in these two industries has increased for a couple of decades dramatically. The data also show that the concentration is higher in natto industry than in miso industry. Although I was not able to obtain the data of CR for tofu industry, it is known that tofu industry is less concentrated than these two soybean food industries. Table 4 The number of soybean food manufactures 1965 1974 1983 1985 1995 1997 1999 Tofu - 34129-25429 - 16804 - Natto 1196 - - - - - 720 Miso - - 1701-1355 - - Source) Tofu and natto: Ministry of Health, Labor, and Welfare, Miso: Miso Online Table 5 Concentration rate for natto and miso industries 1971 1987 1999 2000 Natto CR1-10.8 23.8- CR5-30.6 57.2- CR10-46 72.9- Miso CR1 4.5 - - 15.8 CR4 15.5 - - 33.3 CR10 30.1 - - 49.4 Source) Miso: Ooya 2002, Natto: Shimizu, ibid. 4

Soybean Stable Supply Association (SSSA) 1 conducted a survey research of the characteristics of traditional soybean food manufactures in 2000. The results are summarized in the following paragraphs. 64 tofu makers, 15 miso makers, and 33 natto makers responded to the survey. There are two tofu industry organizations in Japan. Small/medium tofu makers belong to National Tofu and Fried Tofu Manufacturers Cooperative (noted as group 1 in the following tables), and large tofu makers belong to Japan Tofu Association (noted as group 2 in the following tables). See the table 6 for the average number of employees of the respondents in each soybean food industry. Group 1 in tofu industry has about 15 employees on average, and group 2 has 62 employees. In the table 6, the tofu makers with 15 employees may be categorized in medium-sized makers. Group 2 will be categorized as large makers. Tofu Miso Natto Total Table 6 Average number of employees (unit: person) Full-time employee Part-time employee Total Group 1 14.9 8.9 21.1 Group 2 62.4 69.7 132.7 Total 25.3 26.2 45.4 80.8 25.1 104.3 23.9 11.9 34.7 32.3 21.5 50.1 Source) The report of the survey research on the food soybean use, SSSA, 2001 We can observe an indirect evidence that in tofu industry, the market is less concentrated than in other soybean food markets, because the manufacturers in other industries employ more employees than in tofu industry on average. See the table 7 for the number of tofu manufactures sorted by the number of employees. Local and small manufactures with less than 3 employees account for about 60% of the total number of manufactures, while the sales share is 8%. 1 Soybean Stable Supply Association is an extra-departmental organization of MAFF. Its main task is to research and report the trend of soybean industries in Japan. 5

Table 7 The number of tofu makers and the sales by size of firm, year 1998 Number of makers Sales N um ber of em ploeesnumber of makersshare Sales(1 m illion yen) share less than 3 4,345 59 30,508 8 4 to 9 2,114 29 63,267 16 10 to 19 413 6 43,467 11 20 to 29 241 3 58,581 15 30 to 49 96 1 45,237 11 50 to 99 86 1 72,268 18 100 to 199 23 0 47,973 12 200 to 299 8 0 N.A. } 300 to 499 2 0 N.A. 8 Total 7,328 100 394,519 100 Source) MAFF, 2000. Original data: Industry Statistics, Ministry of Economy, Trade, and Industry of Japan, 1998 Local and small tofu manufactures are in most cases also retailers. These small tofu manufactures daily sell all of the tofu they make each day (usually in the early morning) to neighborhood consumers. While such mom and pop shops were the majority in the market until 1960 s, they began to fall off when supermarkets appeared and rapidly became the main player in the food retail market (Kiyono, ibid.). The table 8 shows the tendency that large tofu makers focus on the wholesale rather than retail, compared to medium tofu makers. Large makers mainly focus on the trade with supermarkets, and they don t retail their products for themselves as much as medium and small makers. While about 85% of the small and medium maker respondents in the survey mainly trade in the wholesale market and it is difficult see this, small and local (mom and pop) tofu makers are generally more oriented to retail sales in the neighborhood areas than larger tofu makers (group 2). Tofu Miso N atto Total Table 8 Main activities description (unit: %) Production and R etail Production and W holesale Group 1 14.3 85.7 Group 2 7.1 92.9 Total 12.7 87.3 0 100 0 100 7.7 92.3 Source) SSSA, ibid. 6

There were no respondents who described their activities as retailers in miso and natto industries. This can be interpreted as an evidence that the makers trade with supermarkets more often in these industries than in tofu industry. In the table 9, it is obvious that supermarkets are main customers for the overall makers in any soybean food industry. In tofu industry, larger makers trade with larger supermarkets (they typically have the branches all around the country) more frequently than small/medium makers. Small and medium makers usually trade with local supermarkets and institutional buyers. Institutional makers may include OEM production for other makers. Among all the types of makers, direct sales is rare. Miso makers mainly trade with large supermarkets. The data show that the dependency of miso makers on large supermarkets are outstandingly bigger than other two industries. Natto makers also mainly deal with supermarkets, but the customer supermarkets are local small/medium supermarkets. Table 9 Customer buyers of soybean products (unit: %) Tofu G roup 1 G roup 2 Total Miso N atto Total Large superm arkets 6.8 33.9 21.8 43.9 16.3 27.1 Localsm all/m edium superm arkets 37.1 36.4 36.7 6.6 38.5 28.7 C onsum ers'c oop 1.4 5.4 3.6 11 17 74. C onvenience stores 0.1 3.4 1.4 0.2 1.6 11. In stitutionalbuyers 31.6 5.3 17.1 23.4 1.8 16.8 Retailers other than superm arkets 18.5 12.3 15.1 2.5 7.6 10.7 Direct sales (retail) 0.9 0.9 0.9 0.3 0.6 07. O thers 3.6 3.4 3.5 12 16.6 75. Total 100 100 100 100 100 100 Source) SSSA, ibid. 3. Change Factors As we have observed above, there is a common trend in the soybean food industries. As supermarkets have become dominant in the retail markets, the supermarkets have become the major customer buyers for the makers. This has been a driving force in the structural change in the soybean food industries. Since supermarkets prefer uniform-quality and standardized products, the makers have needed to adopt the technologies to allow them to supply uniform and standardized 7

soybean food products to the customer supermarkets. Larger makers have had the advantage to do so because these technologies are usually expensive to adopt. Small makers could not afford to invest in them. Then, the large makers which could introduce new technologies have been able to grow rapidly by intensively trading with supermarkets, as the supermarkets have expanded their dominance in the retail market. Although, the dominance of the supermarket has been a common driving force among the food industries, the degree of concentration differs from industry to industry as we have observed above. Hence, there must be other change factors unique to the individual industries. The degree of concentration of tofu industry has been relatively lower compared to other food industries. This is said to be because tofu makers are not able to expand their marketing areas since tofu is so perishable and soft that it has been difficult for manufacturers to ship the product to market very far from their plants, or store the products for a long period (Kiyono 1992, Takahashi, ibid.). Then, as described in the previous chapters, local and small tofu manufactures can remain in the market. These small manufactures daily produce the small number of tofu and sell all the tofu to neighborhood customers within a day while the tofu is still fresh. Technology has played important roles in tofu industry, but the impact has been relatively small. When long-life tofu was invented and introduced to the market by some large makers, the large makers could succeeded to expand the marketing area to some extent. But since the taste and texture of the long-life tofu was slightly different from the traditional types of tofu, the majority of consumers didn t want to shift to the new products and continued to consume the traditional types of tofu. Therefore, the impact of the new technology of long-life tofu on the industrial structure has been limited in tofu industry. Miso and natto industries are relatively highly concentrated. This can be partly explained by the attributes of miso and natto. Compared to tofu, miso and natto are easy to deal with for firms because they keep good for a longer time than tofu. In addition, as production and packaging technology has been improved, larger firms have been able to take the advantage of the technology and to succeed to expand its marketing areas. New plastic containers allow the products to travel far and to keep good 8

for a longer period than before. Large miso and natto makers have been able to become larger by adopting the new technologies and keeping tight relation with supermarkets. Simizu (ibid.) points out, in addition, that expansion of the natto market to the west part of Japan is another background of the structural change in natto industry. In this point, technology played an important role. The market owes the expansion to the new technology used to reduce the smell of natto. Large natto makers have begun to built their dedicated plants close to the new market area emerging in the western Japan. This helps the large makers to supply the products to the market quickly and efficiently, increasing the sales and market share. As a result, since larger natto makers become much larger, the concentration in the natto market has increased. 4. Conclusion The change in the retail market has induced the change in soybean food industries. Specifically, the emergence and dominance of supermarkets in the retail market motivated large soybean food makers to invest in new technologies to produce uniform and standardized products. Large makers with new technologies and close relation with supermarkets, as a result, could increase their sales through the rapid growth of supermarkets. The product attributes also affect the industry structures. Since tofu is more difficult to travel far away from the plant because of the softness and the short-life of the freshness, there remain many local and small manufactures in the industry which focus only on the neighborhood markets. Finally, the emergence of the new market affects the structure of industry. Large natto makers have increased the sales by entering into the new market. They have built the dedicated production plant close to the market and succeeded to increase the sales amount and the market share. Concentration in the natto market thus has increased. 9

References Seiki Kiyono, (1992), The Tofu Food Chain and the Structural Change, Bulletin of the Department of Food Economics, 20: 20-39 (In Japanese) Miso Health Promotion Committee, Homepage Miso Online, http://www.miso.or.jp/miso-e/index.html (In English) Yuuji Ooya, (2000), The Japanese Soybean Demand Structure of the Miso Manufactures, The Investigation of the Distribution System the Demand Factors of Japanese Soybean and Wheat and -The Second Report, 38-61 (In Japanese) Yuuji Ooya, (2002), An Important Factor of the Structural Changes of Miso-Processing Industry, Bulletin of the Department of Food Economics, 30: 56-75 (In Japanese) Aki Shimizu, (2002), The Structural Change of the Food System of Nattou (Fermented-soybeans), and Correspondence of Nattou Manufactures, Journal of Food System Research, 8: 13-24 (In Japanese) Soybean Stable Supply Association, (2001), The report of the survey research on the food soybean use, The Daizu, February/March: 1-15 (In Japanese) Masao Takahashi, (2000), The Tofu Food System and the Perspective of Tofu Produced from Japanese Soybeans, The Investigation of the Distribution System and the Demand Factors of Japanese Soybean and Wheat -The First Report, 34-52 (In Japanese) 10