:. Food Industry News


Japan Bread Prices Going up, and Beer Could Follow

Source: Reuters
16/10/2007

Tokyo, Oct 16 - Japanese consumers, accustomed to years of deflation, will finally feel some pain of soaring grain prices when bakers raise bread prices in December for the first time in more than two decades, and brewers are likely to follow suit.

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Japan's dependence on farm produce from abroad -- 61 percent of its food on calorie basis is imported -- means higher world prices of commodities like corn, wheat and soybeans are, in theory, passed through to retail food and beverage prices.

Prices of orange juice have already risen this year for the first time in several years on tight global supplies. Prices of mayonnaise and vegetable oil have increased for the first time in 15 years, as growing use for biofuel helped drive prices of soybeans and other oilseeds higher.

But government control over the bulk of wheat imports has narrowed the impact on flour millers of a near-doubling in Chicago wheat prices <WZ7> in the past 12 months, and fragile consumer spending and competition are putting a lid on retail prices of some other products such as beer.

"With bakeries in the latest list, announcements of price hikes from major food companies are almost over," said Makoto Morita, an analyst at Daiwa Institute of Research. "Beer is the next single item to follow."

Food prices in Japan's core consumer price index, excluding fresh foods, started rising in November 2006 for the first time in two years and have topped year-earlier levels in each of the following 10 months.

But the year-on-year rise in August was a meagre 0.3 percent, as supermarkets held the line on prices in view of stagnant wage growth.

Retail prices of rice, the staple food of which Japan imports less than 10 percent of annual demand, continued to fall as consumption has been declining for the past decade.

Goldman Sachs, however, sees the year-on-year rise in consumer food prices accelerating to 0.5 percent in January to -March.

"Food price increases resulting from higher prices for corn, wheat and other ingredients are occurring in all major countries, and Japan -- despite a relatively low inflation rate -- is no exception," Goldman Sachs said in a research report on Friday.

BREAD, NOODLE, BEER

Kirin Holdings Co Ltd , Japan's second-biggest beer maker, said it was considering whether to pass higher raw material costs on to customers. The No.1 Brewer, Asahi Breweries Ltd , said it was making efforts to cut other costs.

"Higher beer consumption in the rest of the world, together with poor harvests, have tightened malt supplies," said Hiroki Umezawa, deputy manager at Kirin's investor relations.

Prices of hops and other ingredients, such as corn syrup, are also on the rise, increasing cost pressure, he said.

Currently, some beer makers are negotiating on aluminium can contracts for the business year starting in April, a key factor determining retail beer prices, industry sources said.

Beer prices in Japan have held steady since 1990.

Last week Yamazaki Baking Co Ltd , Japan's No. 1 bread maker, said it would raise the prices of most of its bakery products from December because of higher flour, edible oil and packaging costs.

Yamazaki's suggested retail price for "Double Soft", a popular loaf of bread, will be raised from 200 yen to 220 yen ($1.87), the first price hike since 1983.

Other bakeries made similar announcements, and Nissin Food Products Co Ltd said last month it would raise the price of its flagship "Cup Noodle", packaged ramen noodles, by some 10 percent to 170 yen from Jan. 1, its first hike in 17 years.

Millers, such as industry leader Nisshin Seifun Group Inc , have said they will raise flour prices from November, following a price hike in May when they increased prices for the first time in more than two decades.

The price hikes came after the government, their dominant supplier, raised sales prices of imported wheat to users by 1.3 percent in April and then by 10 percent in October.

In a new scheme introduced in April to better reflect market trends and cut costs, the Ministry of Agriculture revises every six months the sales prices of foreign wheat it buys via tenders. Previously, the prices had stayed fixed throughout the year.



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