07 June 2008

Butter Shortage and Journalism or lack thereof

The least-expected event of the year in Japan is the butter shortage. For a couple months now, it's been almost impossible to find butter in the stores. Japan is such a consumer culture that I assumed this was just a local phenomenon, but it isn't -- it's nationwide and several months old.

Sadly, almost all of the press reports I've seen, after reporting the basic facts, talk about how this is "one more example of the growing global food shortage." That makes for a good story... but one that doesn't actually jive with the facts. The Japanese English-language press actually has the most insightful reporting that I've found: see the Asahi Shimbun's summary.

Here are the facts that make me doubt this is "one more example of the growing global food shortage":
  • Japan's domestic dairy industry is long-established and well-organized.
  • The majority of Japan's dairy consumption is domestic -- for milk, approximately 100% (for cheese, it's mostly imported, which leads the overall figure to be 60% domestic).
  • For butter, domestic production accounts for 86% of production.
  • There is still plenty of cream in Japan. Those of you with the slightest exposure to dairy farms know that butter is made from... cream.
  • Japanese retail butter prices are high, about 2x American butter prices. Given that there's no butter shortage in the U.S. (at least not that I've heard about), this makes it seem unlikely that there's a global butter shortage.
  • Japanese butter tariffs are also very high in order to support those high domestic prices. According to WTO as referenced at this blog post, butter tariffs are 30% by value plus 1200 yen per kilogram. If you bought butter at U.S. retail prices and imported it to Japan, you would pay twice as much in duty as the butter cost you.
  • And here, I think, is the real keystone to the problem: since 2006, domestic butter production has dropped by 11%. This is expected to continue for another couple of years.
Really? What's going on with the last item? Well, two years ago there was a dairy glut in Japan. Farmers couldn't sell excess milk, and as mentioned above there's no infrastructure for a cheese industry, so the milk was being poured out. There was a calf cull (killing off some percentage of the dairy herd) in order to try and rebalance supply and demand coordinated by the government. As explained in this endearing blog post from a Japanese dairy farmer, it takes 2 years for a calf to become a productive milch cow... and coincidentally, it's about two years since the calf cull, so the results of it are hitting right now. By the way, in the long run the idea that Japan perhaps needed to cut back its dairy industry is not unreasonable: the low birthrate here means that the number of children is shrinking, and children are disproportionate consumers of dairy products.

In other words, the story as reported by the mainstream media (that this is merely one more part of the "growing global food shortage" story) makes no sense to me. What is much more clearly supported by the facts is:
  • Japan reduced their dairy supply two years ago in a way that took two years to reach the market.
  • This relatively small change disproportionately impacted butter rather than milk or cream (perhaps butter is the lowest-value-added choice for what to make from milk? Also, read the endearing blog post for a non-obvious connection between the butter shortage and the powdered skim milk glut)
  • Japan is prevented from availing itself of cheap international butter by a ludicrously high tariff, undoubtedly designed to protect those same domestic dairy farmers who had to kill all their calves two years ago.
I hate to sound like an Economist reporter, but the information I can find says that this is a clear result of government intervention in the dairy market. The tariff barriers are the fundamental cause of the shortage (Japan could easily afford to buy butter on the international market otherwise), and within those barriers they slightly underestimated the demand for dairy products.

With apologies to all those who (rightly) worry about a possible global food shortage and would like to use this as supporting evidence, this particular event seems like it needs to be marked up to domestic government actions. I'm disappointed but not surprised that it isn't perceived that way: the press likes tying this into the 'global food shortage' story because that story sells papers, and of course the Japanese bureaucrats would love to place the blame externally rather than admit it's the necessary consequence of the calf cull they organized two years ago.

This misdirection would also suit the Japanese domestic dairy industry because it avoids having anyone suggest the trivial fix: lower the tariff, and suddenly you'll have plenty of butter. The domestic industry doesn't want that in the long term because they're not efficient enough to compete with overseas producers.

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