US-Japan Apple Case

CASE NUMBER: 1
CASE MNEMONIC: APPLE
CASE NAME: Apple Imports in Japan

1. Issue

Japan officially opened its markets to apple imports in 1971. Because of phyto-sanitary import standards, however, not one U.S. apple entered Japan for 22 years despite continued diligence on the part of U.S. apple growers. Washington apple growers called Japan's continual barriers the "bug of the month club." As growers attempted to meet each hurdle of regulation (including fire blight and coddling moths), the Japanese allegedly continued to erect new hurdles. Finally, in 1993 the growers filed a formal complaint with the U.S. Trade Representative (USTR). The U.S. Secretary of Agriculture and the USTR sent a letter to Japan's Minister of Agriculture who. in return, promised to open Japan's markets to U.S. grown apples in 1994. However, the USTR also threatened Japan with Congressional retaliation under Section 301 of U.S. trade law. Finally, Japanese standards were changed and U.S. apples were allowed into Japan in 1995. U.S. apples sold for less than half the value of Japanese ones. However, after an initial upsurge, sales of U.S. apples in Japan dropped off. The drop-off cause: consumers complained the apples had a rather sour taste.

2. Measure: Import Standard

The (former) Japanese measures on apple imports fall under the category of import standards. An agreement on hanging these standards was reached shortly before the APEC summit in the fall of 1993. Japan's Vice Minister for Agriculture, Forestry and Fisheries agreed in a letter to the USTR Mickey Kantor to allow U.S. apples grown in 1994 into Japan.

3. Exporter and Importer: USA and JAPAN

4. Trade Impacts

Since 1971, the Japanese have imported a total of only 4,500 boxes of apples, all from South and North Korea. In June of 1993, the Japanese also allowed the importation of some New Zealand apples. "New Zealand was a forerunner in apple exports to Japan, shipping 235 tons last year after a ban was lifted in June, 1993. But the price of the New Zealand apples is nearly twice as high as that of Fuji apples, due to high quarantine costs."1

Japan's apple imports in 1994 did rise to $6.7 million, from virtually nothing, largely due to inroads by American exporters. U.S. apple exports totaled $6.0 million or 87 percent of the Japanese import total (see Figure 1), followed by New Zealand ($0.5 million), and Turkey and South Korea ($0.1 million each).

After Japan opened its apple market to imports in 1995, U.S. apples entered at much lower prices than their Japanese counterparts. However, after an initial success, U.S. apple sales dropped off. Japanese consumers complained that U.S. apples were too sour. However, if U.S. apples were allowed to ripen longer for extra sweetness, to satisfy the consumer, then they would more likely to be damaged during transport.

With the opening of the Japanese market, exporters discovered that gaining significant market share will also require honing of apples to the Japanese taste. The United States will not be alone in this respect: France and Canada have also appealed to Japan to permit apple imports from those countries.

How does Japan compare with other East Asian importers? Taiwan and Hong Kong (as well as Mexico) each imported about 4 million boxes of Washington apples in 1995. In January 1995, Japan imported 400,000 42-pound boxes of Washington apples. By the end of March, only 100,000 more boxes had been sold and growers stopped shipping any more. U.S. sales by March 31, 1995 were much less than the expected 12,000-15,000 tons.2

This export performance stands in stark contrast to the profile of U.S. apple exports to Asia (see Figure 2). Japan's imports actually accounted for only 4 percent of the total. Hong Kong, whose population is about 5 percent of Japan's and per capita income is less, leads with 28.1 percent. Thailand followed with 15.4 percent, Indonesia with 8.9 percent. Singapore's imports were about double the size of Japan's.

Longer-term estimates remain optimistic. The USTR predicted that in three to four years, with the elimination of Japanese barriers, U.S. apple exports to Japan could generate sales of about $75 million per year. The price effect on Japanese consumers could be quite large. A single apple can sell in Japan for up to $5.00. Japanese consumption is currently about 52 million boxes of apples per year. As a result of the enormous consumption, the U.S. Embassy revised its initial estimate to $100 million.3

Environment was a concern in a second respect: chemicals used on the apples. U.S. representatives are careful to note that the only chemicals used on apples intended for export to Japan were ones also legally allowed in Japan. The Daiei supermarket chain began sales of American apples, pricing them 20 to 30 percent lower than domestic apples. Currently, the most popular homegrown Fuji apples are priced between 80 yen (80 cents) to 150 yen ($ 1.50) each.4

One last comparison is on a per-capita basis. The average Japanese consumes only about 15 pounds of apples a year, compared to 33 pounds in the United States and 48 pounds in Europe. Japan consumes a million tons of apples a year.5 If they reached the level of the Americans, this would expand the market three-fold.

5. Other Economic Impacts

Apples are produced in Japan with great care and are labor intensive products. Growers usually pluck away leaves near each apple while the fruit is still on the tree -- this to ensure that the apple receives balanced sunlight and therefore ripening. The apples are protected by individual bags several weeks before harvesting to prevent surface marring of any kind.6

Japanese apple growers are responding to new U.S. competition by discontinuing some leave removal practices. Traditionally, about 20 percent of the labor involved in growing apples in Japan has gone into leaf removal, according to a report in the Asahi Shimbun, a leading Japanese newspaper. Japan also will start exporting top-of-the-line Fuji apples, which are bigger and sweeter than most American apples, to the United States. Then, the terms of engagement will reverse.

"For apple producers who see the introduction of American apples as a calamity, they have little to fear," James Parker of the U.S. embassy said. Parker noted the experience of Japanese cherry growers when that fruit was finally allowed importation into Japan. "Since U.S. cherries were first imported, the market has simply gotten bigger," Parker said. "Prices for Japanese cherries have grown stronger, cherry production acreage has increased and cherry consumption is twice what it was before importation." Logically, the Japanese apple market would find a similar experience.7 "The effect on Japanese apple production is unknown, but given the continued prosperity of the Japanese cherry industry in the face of booming imports, it is likely that Japanese apple growers will be able to ride out the import wave quite well."8 Report Code: JA9424A, AGR Number: JA4094, 9, Agricultural Situation: Current Situation and Outlook.

In Aomori Prefecture, the major apple-producing area in the northern part of Japan, producers still fear new standards will fail. Tokuei Kimura, who heads an organization of apple growers, said there have been instances in the past when insects were found on imported produce despite permission from the Farm Ministry. Aomori produces about 500,000 tons of apples a year, or about half of Japan's total apple crop. Farmers also requested local and central governments to provide them with aid so they can compete better with foreign products.

6. Environmental Impacts

Prevention of infestation, and possible destruction, of Japanese apple groves represents the basis of the case and therefore the actual risks embodied in phyto-sanitary regulations. The general issue of species introduction via trade is a significant problem. Introduced organisms have wreaked havoc on many of the world's forests. The later NEMATODE case illustrates the significant economic and trade values in wood. The Dutch elm disease infested North America, as did a blight which has nearly wiped-out the beloved American chestnut. Ironically, the organism that killed the chestnut was introduced from Japan.

7. References

1. David Holley, "No More Forbidden Fruit, U.S. Apples Make a Crunchy Debut after Japan Lifts Ban," Los Angeles Times, p. D1.

2. Marvin Dreyer, "US Apples Try Another Slice of Japan," Los Angeles Times, Home Edition, December 18, 1995, page D-4, from the Electric Library on the Web. Washington state accounts for 90 percent of U.S. apple production, producing 100 million boxes of apples per year. About 9 percent of that is exported to Asia annually. Domestic prices are $8 to $12 per 42-pound box, making annual sales around $800 million in the United States. There are 4,000 orchard owners in Washington state. However, only 3,200 acres have been planted to Japanese specifications, i.e. in isolation from all other plants.

3. "U.S. Trade Demands Bear Fruit in Tokyo," Reuters Limited, The Reuter European Community Report, January 7, 1995.

4. Reuters Limited, "U.S. TRADE DEMANDS BEAR FRUIT IN JAPAN", European Community Report, January 7, 1995, Saturday, BC cycle, TOKYO.

5. "U.S. Trade Demands Bear Fruit in Tokyo.

6. David Holley, "No More Forbidden Fruit, U.S. Apples Make a Crunchy Debut after Japan Lifts Ban," Los Angeles Times," p. D1.

7. Richard Gross, "Washington Apples hit Tokyo Shelves," UPI, January 13, 1995.

8. Web site URL is: gopher://una.hh.lib.umich.edu:70/00/ebb/agworld/fsja4094.txt