Japan's Oil Seed Sector

American Soybeans vs. Canadian Rapeseed (Canola)

By Wen S. Chern and Suresh Persaud

Japan is the single largest importer of American soybeans and other agricultural commodities. In 1996, Japan imported 4 million metric tons (mt) of soybeans from the United States, accounting for 17.6 percent of total American soybean exports. Similarly, soybeans are Ohio's leading agricultural export-commodity, with an export value exceeding 556 million dollars, and contributing about 34.5 percent of the state's total agricultural export value in 1996.

Japan's markets for oil seeds and their derivative oils and meals have been undergoing dramatic changes. Most recently, Canadian rapeseed (canola) has emerged as a strong competitor against American soybeans. Rapeseed has gained market share at the expense of soybeans for a variety of different reasons, which include the development of improved Canadian rapeseed varieties, Japan's liberalization of its meat imports, and the availability of low-priced soybean meal on world markets, particularly from China. In this article, we describe and evaluate the evolving trends affecting Japan's oil seed sector, particularly the growing competition between American soybeans and Canadian rapeseed.

Japanese Oil Seed Market and the Changing Import Trends

Soybeans and rapeseed are the two most important oil seeds consumed in Japan. More than 90 percent of Japan's soybean consumption is provided by imports, most of which are from the United States. Almost 100 percent of Japan's rapeseed consumption is supplied by imports from Canada. Therefore, American soybeans and Canadian rapeseed are the two dominant products in the Japanese oil seed market.

The main use of soybeans and rapeseeds is for crushing into oil and meal (Figure 1). However, a substantial portion of soybean imports has been used directly as food in such products as tofu, miso, and soy sauce while almost all domestically produced soybeans have been used directly as food. Therefore, American soybean and Canadian rapeseed imports compete almost exclusively in the domestic oil and meal markets in Japan.

Since most of Japan's domestic consumption of soybeans and rapeseed were supplied by imports, the historical import trends follow closely the changing patterns of their consumption, especially in recent years. As shown in Figure 2, imports of both soybeans and rapeseed exhibited phenomenal increases from 1970 to the mid-1980s, caused in large part by declining domestic production and rising demand. Prior to 1970, Japan's rapeseed imports were almost negligible, and oil seed imports consisted primarily of soybeans. From 1970 to 1980, soybean imports increased from 3.24 million mt to 4.4 million mt. This increase of 1.16 million mt was far more than the increase in rapeseed imports of 0.7 million mt (from 0.335 million mt in 1970 to 1.058 million mt in 1980). However, from 1980 to 1990, the increase in soybean imports was only 0.28 million mt as compared to an increase of 0.857 million mt for rapeseed. Since 1990, soybean imports have fluctuated greatly, but overall were relatively flat, unlike rapeseed imports, which exhibited milder fluctuations and showed moderate growth. It should be noted that the import prices of rapeseed and soybeans have moved together since 1977. Thus, it is not likely that changes in the prices of rapeseed relative to soybeans explain the increase in rapeseed's market share at the expense of soybeans.

The competition between soybeans and rapeseed is more vividly reflected in the consumption trends of soybean and rapeseed oils. As shown in Figure 3, for a long period of time, soybean oil had enjoyed the dominant position as the leading edible oil in Japan. However, rapeseed oil took over that position in 1987. The market share of soybean oil decreased from 31.95 percent in 1964 to 26.9 percent in 1994, while the share of rapeseed oil increased from 10.6 percent to 33.8 percent. Again, relative prices have not been a major factor because the wholesale prices of soybean and rapeseed oils have been almost identical and have always moved together very closely.

The key to explaining the increased competitiveness of rapeseed against soybeans involves an understanding of the intrinsic attributes of these two oil seeds, as well as their respective meals and oils. This is the topic of the following section.

Figure 1. Japan's Oilseed Market

Characteristics of Soybeans and Rapeseed, and Their Respective Meals and Oils

Before 1970, rapeseed oil contained high levels of erucic acid and rapeseed meal had high amounts of glucosinolates, which were shown to be harmful to animals and possibly to humans as well. In the 1970s, Canada developed and introduced new rapeseed varieties low in both erucic acid and glucosinolates, referred to as double-low varieties. In 1979, Canada adopted the name "canola" for all of the double-low rapeseed varieties. By 1981, Canada's production of rapeseed high in glucosinolates was virtually zero, allowing the meal to be used more widely for livestock production. In 1985, the U.S. Food and Drug Administration granted canola oil GRAS (generally recognized as safe) status.

Figure 2. Japan's Imports of Soybeans and Rapeseed, 1972-1996

The major differences between soybeans and rapeseed/canola and their derivatives can be summarized as follows:

• Soybeans have a much higher meal/oil ratio than rapeseed/canola. The average meal content for soybeans and rapeseed is 79 percent and 57 percent, respectively. The oil content has ranged between 16 and 22 percent for soybeans, and 38 to 50 percent for rapeseed.
• Rapeseed meal has a lower protein content, lower levels of metabolizable energy, and more than twice as much crude fibers as soybean meal (13 percent fiber for rapeseed meal versus 6 percent for soybean meal). Crude fiber is largely indigestible and livestock, particularly pigs and chickens, cannot tolerate high levels of fiber. Therefore, soybean meal has been considered as a higher quality livestock feed than rapeseed meal.
• From a health standpoint, canola oil is superior to soybean oil, since the former contains a higher proportion of monounsaturated fat and lower percentages of polyunsaturated fat and saturated fat.

Because rapeseed contains roughly twice as much oil as soybeans, it tends to compete more in the market for vegetable oil. However, livestock production and the demand for livestock meal tends to drive Japan's import demand for soybeans. Thus, the changes in Japan's market conditions caused by the liberalization of its meat imports favors rapeseed over soybeans, as discussed in the following section.

Figure 3. Consumption of Soybean Oil and Rapeseed (Canola) Oil in Japan, 1960-1995

Impacts of Trade Liberalization

When Japanese oilseed processors decide the relative quantities of rapeseed and soybeans to import, their decision is based on the domestic demand for meal relative to the demand for oil. The 1970s and early 1980s was a period of rapid expansion of livestock production in Japan, and during this interval domestic demand for meal increased more rapidly than demand for vegetable oil. Thus, Japan's soybean imports increased more rapidly than rapeseed imports during this period.

In a market environment characterized by rapid growth in livestock production, and relatively modest growth in demand for vegetable oil, rapeseed can become more competitive against soybeans by genetic improvements that raise the quality of the rapeseed meal. To some extent, this was achieved through the development of canola, although even those improvements were not sufficient to overcome the advantages of soybeans during a period of rapidly expanding production of livestock.

In June 1988, Japan signed the Beef Market Access Agreement (BMAA) with Australia and the United States. Under this agreement, quotas were raised by sixty thousand metric tons each year from April 1988 to April 1991 when import tariff replaced the quota restriction. Since 1988, Japan's meat production began first to stagnate and then actually fall, while meat imports rapidly increased, as shown in Figure 4. The result was declining demand for livestock meal combined with continuing growth in demand for vegetable oil. These conditions induced Japan's oilseed processors to lower their imports of soybeans in favor of rapeseed, since rapeseed contains approximately twice as much oil, while soybeans contain more meal.

An additional characteristic of the Japanese market that increases the substitutability between rapeseed and soybean imports is the use of rapeseed and soybean oil blends that are not labeled or differentiated with respect to the ratio of soybean oil to rapeseed oil. The absence of labeling allows oilseed processors the flexibility to adjust the ratio of soybean oil to rapeseed oil, in accordance with changing market conditions. As discussed previously, meat trade liberalization induces oilseed processors to switch away from soybeans in favor of rapeseed imports and crush. This change in the composition of oilseed crush involves upwardly adjusting the percentage of rapeseed oil in the blended vegetable oil that consumers purchase. Thus, declining growth in Japan's meat production may partially explain rapeseed oil consumption overtaking soybean oil.

In addition, the ability to import soybean meal at relatively low prices can also facilitate the change in the composition of oilseed crush in favor of rapeseed. In recent years, Japan has imported increasingly large quantities of low-priced Chinese soybean meal because of its low transportation costs relative to North and South American soybean exporters. Japan's large imports of low-priced Chinese soybean meal induced oilseed processors to reduce soybean crushing, thus increasing Japan's demand for alternative sources of vegetable oil. This has encouraged imports of rapeseed because it has higher oil content. This trend, however, may be a short-lived phenomenon since meat consumption is growing rapidly in China.

Figure 4. Japanese Domestic Production and Imports of Meat, 1972-1994

Impacts of Health Concerns

Japanese are health conscious consumers. These concerns have caused switches from animal fats (hog grease, beef tallow, and butter) to vegetable oils during the last two to three decades. Furthermore, the consumption of fish oil which contains rich Omega 3 fatty acid good for human health was increasing until the mid-1980s and has remained fairly constant perhaps due to the supply availability constraint. For olive oil, the most publicized oil with respect to its health benefits, the consumption has doubled from 1990 to 1994 but the quantity remained relatively small (4,324 mt in 1994). It is surprising that the health risk concerns about fat and cholesterol have not shown much impact beyond the substitution between animal fats and vegetable oils. In particular, the substitutions between soybean oil and rapeseed oil have not reflected consumer preferences on these oils; rather they have been manipulated by oil processors in Japan. When we visited the Japan Oil and Fat Importers and Exporters Association and the Ajinomoto Co., Inc., a leading oil manufacturer in Japan in 1995 and 1996, we were told that the increasing market shares of rapeseed oil were not due to the increasing concerns about fat and cholesterol. This is, of course, understandable because as noted earlier, soybean oil and rapeseed oil have been blended together as cooking oil sold to consumers in Japan. Unlike olive, safflower, sunflower, and corn oils, consumers cannot distinguish soybean oil from rapeseed oil in Japan.

But Canadian rapeseed exporters have been trying to change that. They have aggressively promoted rapeseed on the basis of its health benefit in Japan. So far, oil processors have been reluctant to separate rapeseed oil from the blended cooking oil.

Implications

Is the United States losing the oilseed war with Canada in the Japanese market? Of course, not entirely. With respect to the impact of trade liberalization, decreasing domestic meat production has reduced the import of soybeans but increased the import of rapeseed. However, the United States has also benefited from the increase in meat exports, particularly beef and poultry to Japan. These increases, in turn, expand the domestic demand for soybean meal in the United States. Thus, the net impact of Japan's trade liberalization on U.S. agriculture is unclear but certainly less than the indicated loss of soybean exports.

There are indications that Japan's meat imports, particularly beef, can only go so far as their market for domestically produced high quality beef may be fairly insulated. Therefore, the domestic meat production in Japan may not continue to decline. If this is the case, the competition between American soybeans and Canadian rapeseed may be eased as Japanese oil processors do not have to cut back further the production of meals in oil seed crushing.

In the future, however, the most important factor may be the health-related issue. If Japanese oil processors separate rapeseed oil from the currently blended cooking oil and promote it as canola oil, it may present a big threat to soybean oil. On the other hand, soybeans have other comparative advantages over rapeseed. Soybeans are used in many ways as food, not oil, in Japan. This is the area that rapeseed has no competitive market power. It is important for American soybean exporters to maintain and even expand this market segment in Japan.

Japan is a very dynamic market for oil seeds, particularly American soybeans and Canadian rapeseed. So far, trade liberalization in Japan has benefited Canadian rapeseed at the expense of American soybeans. However, soybeans have contributed to many more aspects of Japanese diets and thus will have more opportunities to maintain and even expand market share in Japan. But in this highly competitive market, market expansion requires strategy and creativity.

Ohio's Challenge, the magazine of agricultural economics, in conjunction with the Ohio Agricultural Research and Development Center and Ohio State University Extension, is distributed throughout agricultural industry to growers, agribusiness leaders, legislators, education facilities, and mass media. Published fall, winter/spring, and summer by the Department of Agricultural, Environmental and Development Economics, College of Food, Agricultural, and Environmental Sciences, The Ohio State University, Copyright © 1998, The Ohio State University.

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