Japanese Vegetable Oil Industry Faced a Difficult Business Climate in 1998

Submitted by: Alberta Japan Office

One of the causes of the difficult business climate faced by the Japanese vegetable oil industry in 1998 was the fall of the yen against the dollar. Another factor was the sharp drop of the meal price in the market. In order to recuperate, the industry may need to make some basic changes to their structure.

Summary

• 1998 was the worst year on record for the Japanese vegetable oil industry since 1975.The year of 1975 was difficult due to the oil-shock that occurred in October 1973, followed by an excessive rise in the cost of raw materials in 1974, and a sudden drop of the price.
• In 1998, the combination of the high raw material costs, the weak yen rate (approx. 1$US - 140 J. Yen), and the Asian economic crisis, all made things difficult for the industry. In addition, there was a big drop in meal price, and the market price of oil remained low. Many intermediate reports from oil crushing companies in September 1998 showed negative profits.
• When looking from a global perspective, troubles facing Japanese oil crushing companies have the potential in the future to occur more frequently and for longer periods of time.

Outlook for 1998

• Vegetable oil crushing companies in Japan faced difficult times in 1997 as well as in 1998. In 1997, the price of meal was too high relative to oil, resulting in unbalanced production of meal and oil. However in 1998, the cost of meal was not high enough to generate enough profit for the companies.
• Troubles with the Asian economy contributed to the low demand for both vegetable meal and oil. An excessive supply from Brazil, and the drop in the value of meal caused the accumulation of a large supply stock.
• Thus, Japanese oil crushing companies were selling meal at a low price. Particularly, the drop of meals market price by 7,000 J. yen per MT over April through June 1998 was a big reason for their difficulties.

Table 1: Vegetable Oil Consumption

	Edible Oil
	Single oil	Margarine/	Other, for	Total		Non-edible	For export
		shortening	processing	Crude oil	Purified oil	oil
1993	1,277,381	294,883	414,632	1,986,896	1,863,885	295,365	6,515
1994	1,323,552	303,142	411,235	2,037,929	1,914,990	282,843	6,936
1995	1,286,626	306,563	479,703	2,072,892	1,949,661	249,718	6,807
1996	1,309,085	303,041	499,949	2,112,075	1,986,383	228,668	5,408
1997	1,359,020	306,832	509,967	2,175,819	2,047,418	244,879	6,936
1998(est.)	1,325,000	303,800	503,500	2,132,300	2,055,000	237,500	5,500

MT, Other processing: for mayonnaise, food processing oils and fats etc.
Source: MAFF

Supply/Demand

• Edible oil produced during January through October 1998 was 1.45 million MT, based on the Raw Material Crushing Report, issued by MAFF. This was a decrease of 0.2% in comparison to the previous year.
• Shipments from plants also decreased by 1.6% over the same time period to reach 1.44 million MT. Total supply/demand estimates for 1998 (estimated by The Soybean & Oilseed Supply/Demand Association) was 1.82 million MT, down 1.7% from the previous year.
• The estimate for total production in 1998 was 1.82 million MT, slightly down from the previous year. Both production and demand for 1998 are likely to be less than 1997 as the estimation shows.
• Olive oil imports however, showed a steady increase during January through June 1998 (quantity up by 81.0%). Despite the rise in olive oil consumption, total vegetable oil consumption was down 7.0% in 1998.
• Consumption on a per home quantity basis for all vegetable oils during January through September 1998, was down 4.1% compared to the previous year. However, sales were up 3.6% due to the increase of the average unit price by 8.5%. This can possibly be attributed to greater purchases of olive oil, (which is generally priced higher than other oils.) Sales of large size canned products for the food service industry were down due to a decrease of customers at hotels and restaurants in 1998.
• Production figures for January through October 1998 for edible processed fats and oil were (compared to the same period in 1997):

  margarine - 0.5% up
  salad dressings - 0.8% up
  fat based spreads - 3.6% up
  mayonnaise - 1.9% up
  shortening - 1.8% up
  purified and other processed fats and oils - approx. 2.0% down

Table 2: Estimated Shipments of Edible Vegetable Oil

	1994		1995		1996		1997		1998 (est.)
	Quantity MT	Ratio %	Quantity MT	Ratio %	Quantity MT	Ratio %	Quantity MT	Ratio %	Quantity MT	Ratio %
Home use	485,000	24.8	484,000	24.8	478,000	24.1	481,000	23.5	450,000	21.7
Industry use	542,000	27.1	552,000	28.3	559,000	28.2	567,000	27.7	559,000	25.5
By tank lorry & others	888,000	48.1	913,000	46.9	948,000	47.8	997,000	48.8	996,000	52.8
Total	1,915,000	100.0	1,949,000	100.0	1,985,000	100.0	2,045,000	100.0	2,005,000	100.0

* Home use/industry use: based on JAS proposal to approve.
* Includes olive oil dealt through oil manufactures
Source: Nikkan Keizai Tsushinsha

Table 3: Sales of Vegetable Oil (by type of oil and company)


	1997				1998 (est.)
	Home use	Industry use	by tank lorry & others	Total	Home use	Industry use	by tank lorry & others	Total
Nisshin Seiyu	176,000	76,000	151,000	403,000	171,000	73,000	145,000	389,000
Honen	74,500	90,000	98,500	263,000	68,500	89,000	99,500	257,000
Ajinomoto	95,100	78,500	56,000	229,600	88,000	83,000	54,000	225,000
Showa Sangyo	41,600	72,000	66,400	180,000	39,000	68,500	70,000	177,500
Yoshihara Seiyu	22,500	75,500	72,000	170,000	22,000	74,000	64,000	160,000
Nikko Seiyu	4,000	58,000	59,000	121,000	4,000	58,000	59,000	121,000
Rinol Yushi	20,200	30,300	37,500	88,000	19,500	31,000	37,500	88,000
Boso Yushi	1,200	17,000	41,800	60,000	800	19,000	48,200	68,000
Nikka Yushi	8,000	19,000	20,200	47,200	7,300	19,000	20,200	46,500
Riken Nosan	9,000	27,000	17,000	53,000	8,000	26,000	18,000	52,000
Others	28,900	23,700	377,600	432,200	21,900	18,500	380,600	421,000
Total	481,000	567,000	997,000	2,047,000	450,000	559,000	996,000	2,005,000

Unit:MT
* Includes Olive Oil
Source: Nikkan Keizai Tsushinsha

Table 4: Sales of Vegetable Oil (by company)

	1995		1996		1997		1998
	Sales q'ty MT	Share %	Sales q'ty MT	Share %	Sales q'ty MT	Share %	Sales q'ty MT	Share %
Nisshin Seiyu	392,700	20.1	394,000	19.9	403,000	19.7	389,000	19.4
Honen	253,000	13.0	256,000	12.9	263,000	12.9	257,000	12.8
Ajinomoto	230,000	11.8	227,000	11.5	229,600	11.2	225,000	11.2
Showa Sangyo	176,000	9.0	176,000	8.9	180,000	8.8	177,500	8.9
Yoshihara Seiyu	170,000	8.7	170,000	8.6	170,000	8.3	160,000	8.0
Nikko Seiyu	121,000	6.2	120,000	6.1	121,000	5.9	121,000	6.0
Rinol Yushi	82,000	4.2	84,000	4.2	88,000	4.3	88,000	4.4
Boso Yushi	54,500	2.8	57,400	2.9	60,000	2.9	68,000	3.4
Nikka Yushi	48,000	2.5	48,300	2.4	47,200	2.3	16,500	0.8
Riken Nosan	50,500	2.6	53,000	2.7	53,000	2.6	52,000	2.6
Others	371,300	19.1	394,300	19.9	430,200	21.0	421,000	21.0
Total	1,949,000	100.0	1,980,000	100.0	2,045,000	100.0	2,005,000	100.0

*Excludes industrial use
Source: Nikkan Keizai Tsuhinsha

Raw Materials

• There was a generally good harvest in fiscal 1997, and worldwide soybean, canola and other oilseed production was 287 million MT, an increase of more than 9% in comparison to the previous year (261 million MT in fiscal 1996). Worldwide production of soybeans was 156.19 million MT in fiscal 1997.
• Country specific production is as follows:

  USA: 73.55 million MT
  Brazil: 31.0 million MT
  Argentina: 18.7 million MT
  China: 14.73 million MT

• American soybean production was adversely affected by too much rain until early May, but weather improved towards the end of the year. Thus total production was revised upward, and total production for fiscal year 1997 reached 2,763 bushels, (2,703 bushels for the previous year). These two years recorded the largest harvests in history for American soybeans.

Trans-Genetically Modified Products

• The labeling issue for the trans-genetically modified (TGM) products was drafted as a report for further study to the committee of The Food Labeling Issue & Trans-Genetic Products Division, on August 27, 1998.
• Estimates put the percentages of Canadian TGM canola planted at 19.9% of total canola in 1997, 37.7% in 1998 and 57.1% in 1999.
• This draft of a report contains three descriptions for trans-genetically modified products. These are: "used", "not used" or "unknown" for the products which have a possibility of trans-genetic DNA or protein.
• Products are either mandated or have "self-clarification" for the above 3 descriptions.

Canadian Canola

The supply/demand movement of Canadian canola in fiscal 1998 was reported in the 22nd Canada / Japan Canola Council.
• According to the report, the total supply was 7.79 million MT, 9.8% up from the previous year, (this includes initial stock of 0.33 million MT, production of 7.34 million MT, and imports of 0.11 million MT.)
• Total demand of canola for crushing oil was 3.5 million MT, up 0.26 million MT from the previous year. Total exports were 3.59 million MT, an increase of 0.63 million MT from the previous year.
• Export destinations included: Japan, 1.68 million MT; Mexico, 0.54 million MT; USA, 0.22 million MT; China, 1.1 million MT (up from 0.11 million MT in the previous year.)
• As the result of these exports, the year-end stock quantity for fiscal 1998 will be the lowest on record at 0.19 million MT.

Future Trends

• The vegetable oil crushing industry in Japan is strongly influenced by global market changes in the same way as is the monetary, oil and electronic industry sectors.
• The Japanese vegetable oil crushing industry will not be independent but rather affected by changes in the worldwide market, and there will probably be more and more dependence on imports, including meal imports.
• More negotiations on future prices of raw materials may also arise in the future, thus generating a profit may become more and more difficult for domestic companies.

This information is maintained by: Gail Atkinson
Last Revised/Reviewed May 25, 1999

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