Assessing the impact of Japanese disaster on agriculture

by Ron Sterk
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As the disaster in Japan worsened with the spread of radiation from severely damaged nuclear power plants the first two weeks after the devastating March 11 earthquake and tsunami, the focus was on tending to survivors and recovering bodies. But as the nuclear situation appeared to improve, more attention turned to evaluating the impact on agricultural markets, which as might be expected, was wide ranging and still largely supposition.

There was an obvious impact on global equity and commodity futures markets on March 15 when the Dow Jones Industrial Average plunged more than 200 points, gold futures plummeted about $40 an oz and

several grains and oilseed futures prices saw near limit losses. Those declines were in reaction to the possible meltdown of radioactive material at damaged nuclear power plants, dwarfing declines seen when the actual earthquake and tsunami hit. Still, the declines were far less dramatic than the 16% plunge in Japan’s Nikkei Stock Index the first two days after the earthquake.

The drastic combination of events and market reaction prompted talk of recession and even possible depression in Japan. As with broader evaluations, the full impact in Japan was not yet known, but there was obvious agreement it would significantly set back Japan’s economy and may slow global economic recovery. Still, Japan’s stock market, as reflected in the Nikkei Stock Index, showed remarkable signs of recovery last week, gaining more than 4% on March 22 alone.

Because Japan is a major importer of commodities and exporter of manufactured goods, the impact was expected to be global, but to what degree and for how long remains unclear. According to the Economic Research Service of the U.S. Department of Agriculture, Japan imports about 60% of its food, with the United States the largest supplier. Japan was the United States’ fourth largest agricultural market at $11.8 billion in 2010, the E.R.S. said. Japan was the largest importer of U.S. corn and pork, the

second largest buyer of wheat, grain sorghum and barley and the third largest importer of soybeans and beef. While shipments of grains, oilseeds and meat dominate U.S. exports to Japan, significant amounts of fish, tobacco products, frozen potatoes and hay also are exported, the E.R.S. said.

By the numbers, Japan took about 28% of U.S. pork exports by volume (391,043 tonnes) and 39% by value ($1,552 million) in 2010 and about 14% of U.S. beef by volume (105,133 tonnes) and 15% by value ($546 million) last year, according to U.S. Department of Agriculture calculations.

The northeast region of Japan most devastated provides about 20% of the country’s fishery and marine supply, about 17% of its agricultural output (including vegetables, soybeans and livestock), 21% of rice and 26% of broilers, according to the E.R.S. But what still isn’t known is how much of that production capacity was lost or destroyed and for how long.

One stock analyst saw the devastation as short-term negative for U.S. beef and pork exports simply because the massive infrastructure damage in Japan would make distribution difficult. But as roads are rebuilt or become passable, there may be a boost to beef and pork imports as stores replenish empty shelves. There also may be increased meat imports due to the loss of livestock in Japan, since it takes longer to rebuild herds. On the other hand, the setback in Japan’s economic recovery also may be negative for higher-price meat proteins, one analyst noted, adding that reduced traffic in Japanese restaurants, where much of the U.S. beef goes, may slow significantly.

The loss of livestock also may be negative for grain demand. Japan was expected to take 18% of global corn exports in 2010-11, including about 30% of U.S. corn shipments, according to the U.S.D.A. and private analysts. U.S.D.A. data showed about 44% of the projected total already had been shipped for the marketing year that ends Aug. 31, leaving just five months to take the remaining 54%. One private analytical newsletter estimated 60% of Japan’s corn imports are fed to livestock, which means any significant loss of livestock would slow corn demand.

But some significant parts of Japan’s agricultural and food production systems were not significantly affected, overall. If there was a fortunate side to the disaster it was that most of the population, ports and food processing operations were in the southern portions of the country rather than in the hardest hit northeast.

The U.S.D.A. estimated 1.5% of Japan’s total rice area was “inundated” by the earthquake and tsunami, but noted there was no immediate impact because the rice harvest had been completed. While the U.S.D.A. said it was too early to tell the affect of salinization and infrastructure damage on 2011 plantings, increased area could be seeded elsewhere in the country.

“An escalation of rice imports is unlikely as Japan holds sufficient stocks, currently the highest in a decade,” the U.S.D.A. said. “Large domestic supplies and a structured import regime would suggest little or no impact on the global rice situation.”

Milling & Baking News earlier reported Japan’s grain milling industry saw only minimal damage, although processing was impacted by rolling blackouts across the country. Other reports indicated grain and oilseed shipments from Canada and the U.S. Pacific Northwest were continuing to ports in Japan that were not damaged, although movement of products within the country was a bigger concern.

Japan’s sugar cane refining industry escaped major impact as only 2 of the country’s 10 refineries were damaged with production expected to be shifted to factories in western areas.

As last week wore on, futures markets calmed, seemingly losing interest in the events in Japan, focusing instead on the unrest in North Africa and the Middle East and the upcoming March 31 U.S.D.A. Grain Stocks and Perspective Plantings reports. But the situation in Japan, including the impact of potentially spreading radiation in the food supply, was far from over.

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