“The EU Japanese economic partnership agreement is a very welcome development for those of us who believe in free trade, particularly after Brexit and the protectionist trend we see currently in the US,” said Justin Sherrard, global strategist, animal protein at Rabobank.
Japan is already an established market for EU pork products, with the usual suspects like Germany, the Netherlands, Spain and Denmark having seen a steady increase in exports to that market in the past few years.
The Economic Partnership Agreement between the EU and Japan was agreed in principle on 6 July 2017. EU and Japanese officials still need to agree the final details of the deal.
“Japan is Europe’s second biggest trade partner for pig products after China and Hong Kong. So the deal is not going to open up the Japanese market in a radical new way, but it will expand the trade; the tariff reductions under the deal will be the big opportunity, allowing Europe to out compete other exporters,” he told us.
Japan imposes a complex import regime for pork called the gate price mechanism, which effectively sets a minimum price for pork imports, designed to support the competitive position of local producers. While Japan will most likely retain this mechanism under the new agreement, EU exporters will benefit from a reduction in the tariff boundaries applied.
Depending on the product mix exported to Japan, European traders could benefit from a 5% to 10% decrease in duties under the arrangement, said Sherrard.
“That is not going to happen overnight, of course. The agreement still has to ratified and implemented. It will take a few years for the cut in tariffs to be phased in, but they will result in a strengthening of the trade flow from the EU to Japan.”
EU production is growing ahead of local consumption of pork products, so expansion in exports is critical for the future of the industry. The EU pig sector has made productivity gains year on year due to the slight improvements achieved in feed conversion ratio (FCR) and the number of weaned piglets per sow.
Japan has a growing dependency on pork imports given that its domestic pig production is in decline.
“There has been slow and steady growth in terms of EU pig meat exports to Japan. The pace is sustainable, and it is a more consistent and reliable trade partner for the EU swine sector than other countries.
“The Russian market is gone and probably gone forever. The big jump in Chinese export volume is exciting but the forecast is that the trade volume to China is coming down as average EU pork prices are higher than the equivalent in the Americas,” he added.
Relationship building is critical
However, to capitalize on the opportunities to expand trade with Japan that the deal offers, the EU pork industry will need to work at building relationships, he stressed.
“The Japanese like to do business with people that they know and trust.”
He explained that European traders will need to work with partners in Japan to ensure their product range meets the Japanese specifications under the gate price mechanism: "A trader couldn't expect to export 100% pork loins, for example."
Another area of potential benefit for the EU pork industry under the deal with Japan is the recognition of Geographical Indication (GI) products. This would allow high-value processed pork products, such as cured hams, to retain their GI protection status in Japan, said the analyst.