Increased competition for Australian agricultural exports in Japan

New free trade agreements (FTAs) are reducing Australia’s tariff rate advantage for some agricultural products in Japan (ABARES 2022).

It’s now more important than ever for Australian exporters to boost their competitiveness. They can do this by maintaining reliable supply, ensuring food safety and quality, and cultivating established business links.

New agreements such as the Australia-India Comprehensive Economic Cooperation Agreement and the Australia-United Kingdom Free Trade Agreement will support Australian agricultural trade growth.

However, future growth will also require finding new ways to strengthen relationships with established markets such as Japan.

Implications for Australian exporters

Australia’s tariff rate advantage in Japan is diminishing as tariff schedules in agreements are drawn down. However, this does not necessarily imply that Australia’s agricultural trade with Japan will fall.

A range of factors influence trading decisions beyond tariff rates. These include:

• the strength of industry links
• demonstrating the benefits of Australia’s agricultural produce, food safety and quality
• continuing to evolve with consumer trends.

Japan’s recent free trade agreements

In January 2015, the Japan–Australia Economic Partnership Agreement (JAEPA) came into force. This was the first time Japan committed to a substantive trade agreement with a major agricultural exporting country. The agreement provided Australian exporters with a competitive advantage over other agricultural exporters by eliminating or reducing tariff rates and improving quota access.

Since JAEPA, Japan has expanded its free trade network to include other major agricultural exporting countries (Figure 1).

Japan’s notable trade agreements since JAEPA include:

• 2018: Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)
• 2019: Japan–European Union Economic Partnership Agreement (Japan-EU EPA)
• 2019: Japan–United States Trade Agreement (JUSTA)
• 2020: The United Kingdom–Japan Comprehensive Economic Partnership Agreement (CEPA)
• 2021: Regional Comprehensive Economic Partnership (RCEP)

Figure 1: Trade agreements signed by Japan

Commodity-level analysis

JAEPA provided Australian exporters with a competitive advantage for three of Australia’s largest agricultural exports to Japan: beef, cheese, and wine. However, Australia’s tariff and quota rate advantages for these products are diminishing due to Japan’s new FTAs.

Beef

On signing in 2015, the tariff for Australian beef exports to Japan fell from 38.5% to 32.5%. Tariff rates have continued to decrease in later years (Figure 2).

Japan’s recent FTAs with the US and CPTPP members include lower tariff rates for beef than JAEPA. Australian exporters have equal access under the CPTPP. However, Australia no longer has a tariff advantage over its major competitors.

On 24 March 2022, the US and Japan reached an agreement to amend the beef safeguard under JUSTA. The new measures increased the competitiveness of US beef by reducing the risk of higher tariffs.

Australia’s share of the Japanese beef market by volume has reduced from 51.3% in 2018 to 40.1% in 2021. This is due to increased competition from the US, Canada, New Zealand and Mexico, and herd rebuilding by Australian farmers.

Australian beef remains highly sought after in Japan, particularly in the retail sector. The easing of the COVID-19 pandemic will support demand for beef. However, the Japanese beef market is likely to be characterised by greater competition in coming years.

Figure 2: Japan beef tariff rates by selected trade agreement (2015 to 2036)

Cheese

JAEPA provided Australian exporters with duty-free, Australia-only import quotas for selected cheeses. Since JAEPA, the EU, New Zealand and the US have secured trade deals which improve their access for cheese exports to Japan.

Japanese cheese quotas are multiplex and vary substantially on a country-by-country basis. New country-specific cheese quotas for the EU, New Zealand and the US have led to increased competition in Japan. 

Since signing the Japan-EU EPA in 2019, the EU’s share of Japan’s cheese import market has risen by 7.6% from 37.9% in 2018 to 45.5% in 2021 (Figure 3). The Japan-EU EPA also provided the EU with several advantages, including the absence of some local mixing requirements and protection of geographical indicators.

Japan’s demand for cheese rose strongly during the 1990s, but consumption growth has slowed since 2000. Japan’s unique diet has kept per capita cheese consumption relatively low at 2.7kg/year, far below Western consumption:

• European Union (20.4kg/year)
• United States (17.9kg/year)
• Australia (11.8kg/year).

Increased home cooking during the pandemic led many Japanese consumers to experiment with new recipes. This led to a 15% increase in natural cheese consumption at home. There is optimism that household cheese consumption will continue to grow post pandemic (USDA 2022).

Figure 3: Japanese cheese imports by country (2010 to 2021)

Wine

Under JAEPA, tariffs on Australian wine have been progressively reduced to 0. Since the signing of JAEPA, Australian wine exports to Japan have increased by 26.6% from $40.4 million in 2014 to $51.2 million in 2021.

The Japan–EU EPA eliminated tariffs on EU wine exports to Japan in 2018. The CPTPP, RCEP and JUSTA include staged tariff elimination schedules. These will reduce tariffs to 0 by 2026 (CPTPP and JUSTA) or 2036 (RCEP) (Figure 4).

Currently, the EU, Chile and Australia all export wine to Japan at a 0% tariff. This gives them an advantage over competitors like the US, South Africa and Argentina. Australian wine remains a relatively niche product in Japan. The EU dominates the middle- to high-end wine market, while Chile supplies the lower end of the market.

Wine consumption in Japan has risen over the last decade from 2.3 litres per capita in 2009 to 3.2 litres per capita in 2019 (OIV 2019). As Japan’s population continues to age, the demand for high-quality wine is expected to increase (USDA 2019). Growing demand will support increased wine imports. This will mitigate some of the impact of increased competition for Australian exporters.

Figure 4: Japanese bottled wine tariffs for selected trade agreements

Resources

The Australian Government’s network of Agriculture Counsellors provided information for this article. More information about the Agriculture Counsellor network, including contact details, is available on the Department of Agriculture, Water and the Environment website.

Go to ABARES Insights for more evidence-based articles about Australian agriculture, forestry and fisheries industries.

Go to the DFAT Free Trade Agreement Portal to explore Australia’s free trade agreement tariff rates.