Japanese Consumers Feel the Pinch of Biofuel Demand

by VR Sreeraman on Sep 12 2007 6:59 PM

Japanese Consumers Feel the Pinch of Biofuel Demand
Japanese consumers hoping to reduce their dependence on petrol at the pump are getting a surprise as they feel the pinch elsewhere -- when they sip orange juice, slurp noodles or bite into a sandwich.
As more people embrace ethanol and other biofuels as eco-friendly alternatives to fossil fuels in curbing global warming, the unintended consequence is a rise in food prices as demand puts pressure on agriculture.

While the most frequently voiced concern is that food will become more expensive in the developing world, the effects are already being felt in quiet ways in rich countries such as Japan, which relies on imports for most of its food needs.

The biofuel craze has been blamed for rises in the price of a range of foodstuffs in Japan, from fruit juice to mayonnaise, with one chain of restaurants serving up inexpensive curries hiking prices by some 12 percent this month.

"I had no idea why the price of the curry I just ate went up," said office worker Hidenori Kuboaki, 36, after finishing a pork curry-rice at a Coco Ichibanya outlet in Tokyo.

The price of his lunch had suddenly risen to 450 yen (3.9 dollars) from 400 yen (3.5 dollars).

"Biofuel is one reason," said a spokesman for the restaurant chain, saying prices were rising for pork, beef and dairy products as the animals are fed grain that is also used to produce fuel.

The crunch has also hit small companies. Marufuku, a bakery in Tokyo's old Itabashi area, recently decided to hike the price of a loaf of bread by several yen (cents), as biofuel production pushes up the price of the raw materials.

"The rise in price is all related to the cost of ingredients for bread. We're barely able to make a profit," bakery manager Norikazu Abe said with a troubled look on his face.

Wheat prices for December delivery reached an all-time closing high of 7.84 dollars a bushel on the Chicago Board of Trade for the week ended September 1, up from 7.42 dollars the week before.

Japan is particulatly vulnerable to rises in commodity prices, as the country's self-sufficiency in food has slipped below 40 percent for the first time in more than a decade, the government said last month.

The proportion of Japan's food produced at home came to 39 percent in the year to March, falling below 40 percent for the first time in 13 years, according to official data.

Japan imports about five million tonnes of wheat annually, more than 80 percent of its domestic demand, according to the farm ministry.

The price changes at consumer level are more subtle, but they are affecting a growing number of food products.

Nissin Food Products, the inventor of instant ramen, said September 5 it was increasing the price of its iconic Cup Noodles for the first time in nearly two decades due to rising costs of wheat and other crops.

"The price hike was inevitable, as the government-set price of imported wheat is to rise by 10 percent in October," following a 1.3 percent rise in April, said Nissin spokesman Masayuki Yasutake.

The government announced the price hike last month, saying "world prices of grains are rising significantly, due to increasing demand for biofuels" along with demand caused by economic growth of emerging countries.

Kirin Tropicana, the Japanese sales agent of US beverage giant PepsiCo Inc.'s Tropicana products, in May raised prices of its 100-percent fruit juices by between 10 and 18 percent.

The area that was planted with oranges in key citrus producer Brazil has been declining in recent years despite solid demand, according to the Japan Fruit Juice Association.

"Because sugar cane is easier to grow and the prices are surging, reflecting demand for biofuel, farmers in Brazil are encouraged to change crops to sugar cane," said Sanosuke Tsuchiya, a board member of the association.

Other companies that have raised prices include Kewpie Co., Japan's top mayonnaise maker, and Nisshin Oillio, which hiked prices for rapeseed and soybean oil by about 10 percent in July.

While Japan, importing 60 percent of what it eats, is particularly sensitive to the biofuel crunch, other countries have also been alarmed.

China has imposed restrictions on the amount of corn that biofuel producers can use. But with companies ignoring the restrictions, China's consumer price index still rose 3.5 percent in the first seven months of this year driven by rising food prices.

Akio Shibata, director of Marubeni Research Institute in Tokyo, said further effects around the world were "only a matter of time".

World leaders are promoting biofuels, with European Union member states in February agreeing that they should constitute at least 10 percent of fuels used in new vehicles by 2020.

In the hope of curbing food prices, Japan's farm ministry is looking to study ways to turn inedible commoditieis, such as straw, into biofuel rather than corn and other crops.

It also plans to research whether it can make biofuel out of the millions of wooden chopsticks that are discarded each year in Japan.


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