Updated as of October 2005

Satisfying an Appetite for Foreign Food.

In 2003, Japan's food processing industry shipped 22,736 billion yen or $214 billion worth of processed food products, down 1 percent from 22,984 billion yen in 2002. Shipments by Japan's food processing industry have been decreasing since 1992, when they reached a peak of 25,009 billion yen.

The annual growth rate in domestic production of processed food from 1985 until 1992 averaged 2 percent, very modest compared to Japan's robust economic expansion during the same period. This was due primarily to increased imports and falling prices. Japanese imports of foodstuffs and food products have risen substantially since 1985 when the value of imports was $3,719 billion. Total imports of foodstuffs and products in 2004 were valued at $4,743 billion, a roughly 28 percent increase from 1985.

However, due to the slow recovery of the Japanese economy after the bubble burst, the value in yen of imported food products has remained flat since 1996 and even declined in terms of U.S. dollars, reflecting a weaker yen against the dollar.

A primary characteristic of the Japanese food processing industry is that it comprises a great many small and medium-size firms. Of the total 48,700 firms in 1999, 99 percent employed less than 300 people, producing 80 percent of the total industry shipments and employing 84 percent of the industry's total of 1.1 million workers. The number of domestic firms, however, dropped rapidly to 36,142 firms in 2003.

Because the domestic supply of food materials is limited and the cost of material and labor is high compared to the international market, major Japanese food processing companies have been active in establishing food processing operations overseas, including in the U.S., such as Kikkoman, a soy sauce producer whose raw material supply is abundant in the U.S., and Nissin Food, producer of instant noodles called “Ramen”, whose main material is wheat flour, also abundant and much cheaper in the U.S. than in Japan.

Entry into the Japanese food processing market by U.S. companies has been quite aggressive, as seen in the case of Coca-Cola, Pepsi-Cola and other non-alcoholic beverage makers who dominate the Japanese market, as well as Kellogg breakfast cereals, all of which dominant market share in their respective product category in Japan. It is also notable that franchised fast food and restaurant chains such as McDonald’s, KFC, Pizza Hut and Denny's are deeply entrenched in Japan. These chains have become household names, finding footholds deep in the Japanese consumer lifestyle.

These trends are evidence that the Japanese are acquiring new tastes introduced by foreign brands. One conspicuous trend seen since the late 1990s is the extraordinary increase in wine consumption and imports from both Europe and the U.S.

While major Japanese and American companies enjoy relatively free penetration of each others markets, U.S. companies, with their international predominance, present a greater challenge to Japanese companies in the Japanese market. Many American brands of food products are becoming very popular with Japanese consumers. However, the main Japanese food products well-accepted in U.S. markets so far are limited to Ramen (a Japanese-style noodle soup), sushi and soy sauce.

As Japanese regulations on food product imports that protected Japanese agriculture have been eased and the demand for foreign food products in Japan has grown, while domestic labor costs rise, there is no doubt there will be ever greater inroads made by international food products and suppliers in Japan, either through export to Japan or direct investment.
The Japanese food processing industry, in recent years, has aggressively expanded its operations into overseas markets. Ajinomoto Co., Inc., Japan’s largest food processing firm, set up a plant to produce seasonings in Thailand, which is expected to start operation in 2005.

As already mentioned, Kikkoman International, Inc. is also a successful food manufacturing company which originally introduced a traditional Japanese product like soy source and started producing it in the U.S. using abundant local resources, then successfully penetrated the American and Canadian markets, as sushi rapidly gained popularity among all races.

In April 2004, Nissin Food Products Co., Ltd., the largest instant noodle maker, invested some 20 billion yen in a capital tie-up with Hebei Hualong F&N Industry Group Co., Ltd., which is China’s second largest instant noodle maker. This was the largest investment in China by Japan in the food processing sector.