Japan runs short of butter as dairy farms dwindle, farmer protections keep imports low

When Japanese pose for pictures, instead of saying "Cheese!" some say "Butter!" These days, butter is more likely cause for frowning, since it is rationing that comes to mind.

As the Christmas Eve cake rush approaches, grocery stores are limiting customers to a maximum of two packages of butter each. Last week the government announced its latest plan for "emergency imports" to ease shortages of the spread.

The butter shortfall stems from several factors including stressed out dairy cows, aging farmers, rising costs and trade and price restrictions.

The official reason for short supplies of milk used to make butter is lower output due to unusually hot weather last summer in the northern island of Hokkaido, Japan's dairy basket. Fresh milk sells for more per ton than butter, so dairy producers are said to be giving butter short shrift and butter sections are often bare on shelves crammed with various margarines and other spreads.

But the worsening shortages are also a symptom of industry protections that limit farm imports and of deeply entrenched resistance to a market-opening overhaul. Prime Minister Shinzo Abe will be struggling to deliver on reform promises even if his party wins a stronger mandate for his "Abenomics" policies in an election Sunday.

Apart from overworked cows and difficulties growing enough forage to feed them, dairying is among many Japanese agricultural industries in decline. Farmers are retiring without heirs willing to take over their farms and prices for feed and fuel have surged, cutting into profits.

Japan had 417,600 dairy farms in 1963. As of February, it had 18,600 despite heavy government subsidies.

Japanese farmers, like those in the U.S. and many other countries, traditionally have been protected from foreign competition, both to ensure a degree of food self-sufficiency for this resource-scarce island nation and for political reasons.

Despite Abe's vows to modernize farming and "drill deep" through the country's bedrock of bureaucracy and vested interests, his government has made little headway apart from tinkering with land reforms.

Tariffs on imports of farm produce average 23 percent. Overall, the government pays a subsidy to dairy farmers of 12.8 yen (11 cents) per kilogram for butter and 15.41 yen (13 cents) per kilogram for cheese.

Dairy farmers like Shinjiro Ishibashi, who is raising about 300 head of cattle on his farm in Chiba, east of Tokyo, count on the support. Japan's farm lobby remains a stronghold for the ruling Liberal Democratic Party, which while talking up sweeping reforms is also reassuring farmers it will continue to look after their interests.

"Mr. Abe says he will preserve our 'beautiful Japan,' and I expect him to do it," said Ishibashi, alluding to Abe's constant praise for Japan's traditional farming lifestyle.

Japan's farm protection policies are one reason the 12 nations negotiating a U.S.-led trans-Pacific trade pact have been unable to reach an agreement. Negotiators meeting in Washington this week look likely to end another year without a consensus.

Among the countries negotiating the trade pact, Japan has the second largest food market after the U.S. and foreign dairy and other farmers are eager for more access.

But "sacred territory" issues such as pickup trucks for the Americans and beef, pork, dairy, sugar and rice in Japan have frustrated efforts to reach an overarching agreement.

A Japanese government study estimated that opening farm markets under the trade pact could reduce domestic farm output by about 2.7 trillion yen ($22.5 billion), or over 40 percent of total farm, fisheries and forestry production.

But a report by the U.S. Department of Agriculture questioned that figure, saying it does not take into account issues such as supply constraints in other countries. The USDA report estimated that market liberalization for dairy products could boost Japan's butter imports by about half, to about 6 billion yen (over $50 million).

Japan's Agriculture and Livestock Industries Corp., or ALIC, which is overseen by the farm ministry, buys and sells products through an open and online bidding process, to help ensure stability of prices and supplies, in effect subsidizing loss-making farmers and manufacturers.

The system, meant to ensure stable supplies, appears to be failing to do that, at least for butter.

Japan's raw milk output in the fiscal year ended in March was 7.45 million tons, down from an industry peak of just over 8.6 million tons in 1997. Butter consumption per person has held steady, at about 2 kilograms (4.4 lbs) for about a decade, while milk consumption has been falling.

Apart from the emergency imports, four major local dairy companies were ordered to increase output of butter for home use by 30 percent in early December, reducing drinking milk and cream production, the farm ministry said.

It said it would do everything possible, beginning next year, to stabilize supplies.

A victory for Abe in Sunday's election could give him at least two more years, and possibly more, to tackle such issues, said Uri Dadesh, an associate with the Carnegie Endowment for International Peace.

"Whether he will do the structural reforms is a different matter," he said in a conference call with reporters. "Let's remember that this is a man who already has a massive majority of the parliament on his side."