CPTPP Stimulus

From meat and seafood to potatoes and pasta, trade treaty feeds Japan’s hunger for quality Canadian food

Among the many strong trade ties that link Canada and Japan, food figures high on the list. Canada exports a wide variety of products to Japan — from things that you’d expect, such as maple syrup and seafood, to more surprising offerings.

They come from across the country: the regions on the Pacific and Atlantic coasts, which generate a wide variety of marine products, and the agricultural heartland. And thanks to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the mar­ket conditions are excellent for Canadian agri-food companies to send their products to Japan.

CORNUCOPIA

Nathan Funk
First Secretary (Commercial) and Trade Commissioner
Embassy of Canada to Japan in Tokyo

As First Secretary (Commercial) and Trade Commissioner Nathan Funk from the Embassy of Canada to Japan in Tokyo explained, Japan is one of Canada’s top export destinations and in 2019 there were more than C$4.7 billion worth of agri-food and seafood exports from Canada.

Funk said the range of products are quite diverse: “In addition to the more well-known Canadian food products like maple syrup and salmon, Canadian pork is extremely popular and sought in Japan due to its high quality and similar taste profile to Japan’s domestic pork.

“Canadian beef has also experienced a steady rise in popularity and brand recognition, es­pe­cially since the implementation of the CPTPP. Canola seed, used to produce canola oil, is Canada’s number one agricultural export to Japan and continues to be Japanese crushers’ oilseed of choice.”

He added that there are also some products coming to Japan from Canada that might not be expected: “Japanese consumers may not know that Canada is Japan’s number one supplier of mustard seeds, canola seed, lobsters and malt used for beer. It might also be a surprise to learn that Canadian durum wheat is used in the majority of the pasta produced in Japan, while Canadian soy is commonly used as an ingredient in Japanese foods such as tofu, miso, natto and soymilk. 

“On the seafood side, many consumers might not imagine that Canada is one of Japan’s major suppliers of herring roe, which is indispensable in traditional Japanese New Year dishes.”

“If we want to promote Canadian products, we could do a better job.”

The CPTPP has also created a wide array of opportunities for Canada when it comes to offering products in Japan, Funk said. “The implementation of the CPTPP in 2018 created a first-mover advantage for Canada over key competitors to cement new and expanded relationships in key agriculture sectors. As one of the primary beneficiaries of Japanese tariff reductions under the CPTPP, many Canadian agricultural exports have noticeably increased since the agreement entered into force. Additionally, new market access in recent years for products like cherries and greenhouse peppers have paved the way for a broader range of Canadian agriculture products to be offered to Japanese customers.”

However, while Japan offers a great deal of opportunities for Canadian producers, it is not without its challenges, Funk explained: “Time zone and cultural dif­fer­ences, stringent specifications and complex technical import re­quirements are some of the key challenges for Canadian food exporters to overcome. Although it often takes time for Canadian suppliers to find success in this market, Canadian agri-food exporters find that Japanese companies tend to be reliable, long-term partners that appreciate high-quality Canadian products.”

PIONEER

One company that is well established in the Japanese market is Maple Leaf Foods Inc., based in Mississauga, Ontario. The first Canadian pork supplier to open in Japan, they launched in Japan in 1980 as Canada Packers Japan. The company’s name changed to Maple Leaf Foods Japan Co., Ltd. in 1991. The Japanese operations are 100 per cent owned by the Canadian company.

Maple Leaf Foods Senior Sales Manager Munenari Hiramoto explained that the com­pany was launched in response to a growing demand in Japan for pork products at the time: “Responding to increased inquiries from the Japanese market for high quality pork products, Maple Leaf International Trade Division senior executives, along with several Japanese part­ners, decided it would be beneficial to have a permanent presence in the Japanese market for further business expansion. The feeling was that Japan was a sophisticated market, so it was imperative to have Japanese employees in the market to educate both the end customer about Canadian pork as well as Maple Leaf employees about the intricacies of the Japanese market and its pork quality and taste preferences. This exchange of information enabled Maple Leaf Foods to more quickly adapt to the demands of its Japanese customers.”

When they first launched in Japan, the company sold only frozen pork cuts, such as loin and tenderloin. However, over the years, their business has expanded to include many other cuts including belly, collar butt, ham and picnic [pork shoulder], as well as pork fat and offal items. 

Hiramoto explained that the company’s most popular item is chilled pork, which is sold at Japanese retail stores. This has become a very important business for Maple Leaf Foods because the product attracts a steady demand, comparable to the company’s domestic business. Across the market, the demand for Canadian chilled pork has grown drastically over the past 10 years, almost tripling from roughly 5,000 metric tonnes to 15,000 metric tonnes a month. 

He added, “Maple Leaf Foods also sells frozen pork, which is destined mainly for further processing, and becomes raw material for Japan national brands of sausage, ham and bacon. Many Japanese are eating Canadian pork without realizing it, since products that have come from Canada could make up some portion of the processed meat products they consume from day to day.”

Hiramoto commented that Canadian pork is a good fit for the Japanese market because of its many similarities to domestic pork, so customers are comfortable with its appearance, texture and taste.

In addition, to stay abreast of changing trends and demands, Maple Leaf Foods relies on its in-market experts to guide them and ensure that they can supply Japanese consumers with products that meet their tastes.

Although Maple Leaf Foods Inc. is a global leader in pork exports, selling products to 40 countries, Hiramoto says that the Japanese market is critically important, and that many of their Japanese customers are among the company’s most strategic partners. “The con­ti­nuity and stability of demand, along with Japan’s demand for high-quality products is a perfect fit for Maple Leaf Foods,” he said.

This strong connection to the Japanese mar­ket also plays out in pork production in Canada. Hiramoto explained that almost all of the cuts from its Lethbridge, Alberta, pork facility are destined for Japan in chilled or frozen form.

The operation’s pigs, feed, running and overall decision-making are based on a Japan first line of thinking. In addition, a large per­cent­age of high-value cuts from Maple Leaf Foods’ large Brandon, Manitoba, pork facility — their largest — are also destined for Japan as chilled or frozen cuts.

Hiramoto explained that the company, which in 2019 became the first major food company in the world to become carbon neutral, is hoping to bring similar emission targets and environment-related investments to Japan. “We believe Canada is on the leading edge of sustainable business, and Maple Leaf Foods, which rep­resents excellent Canadian food in Japan, needs to bring that value, too. This can help us establish even stronger bonds between Canada and Japan that can last for many decades.”

ON THE RISE

Naoyuki Funakoshi
Chief business development officer, Asia
HyLife Pork Japan Ltd.

Another player in the pork in­dustry is HyLife Pork Ltd., based in La Broquerie, Manitoba. In 2010, they started exporting to Japan and launched HyLife Pork Japan Ltd. in 2016. As Naoyuki “Nick” Funakoshi — chief business development officer, Asia for the company — explained, the initial motivation to start up in Japan was to let consumers know the source of the pork they were already buying.

“Before we launched in Japan, we actually had a decent-sized business in Japan, with about 1,000 metric tonnes of pork exported from Canada to Japan every week. But without a brand, consumers couldn’t recognize that the pork was coming from Canada or HyLife Pork. So we wanted to provide a taste experience that people could recognize was HyLife Pork. And, once they had that experience, they could become repeat customers or even have an im­proved image of Canada.”

The company has a tight relationship with a number of strategic partners and distributors, including Itochu Corporation, which has a 49 per cent ownership. HyLife Pork’s most popular products are thick-cut pork steak and pork loin, which can be found everywhere, from Hokkaido to Kyushu.

Their primary customers are supermarkets — more than 1,500 stores around the country. Thirty per cent of their product is branded and sold as HyLife Pork, while the remainder is used in processed meat, such as sausages or bacon. They also co-brand some of their pork with other retailers.

“Every division’s key person needs to un­der­stand Japan and make that connection on an emotional level.”

They have grown rapidly since their launch. In 2010, they were shipping seven metric tonnes of pork to Japan a week, and are now shipping 1,000 metric tonnes a week. Funakoshi explains that this growth can be attributed to marketing strategy and their partnerships. Japan is crucial to HyLife Pork’s business ­— it is the company’s single biggest market.

To meet market demand, HyLife Pork relies on market research and a production process that is designed to meet the tastes of Japanese consumers. “We have an integrated production system, which means that we actually control the process, from farm to table,” Funakoshi said, adding, “especially in terms of pork, genetics and the environment in which the animals are raised are very important, and influence the taste. For Japanese people, the preference is for a lighter flavour, no strong odour and a tender consistency. Understanding these preferences, we can control the genetics and the feed ingredients in order to raise pigs that meet Japanese tastes.” 

Their early marketing efforts focused on the B2B side, which included educational programs, workshops and recipe promotion. And it has been successful, Funakoshi says. “I believe that now in the Japanese pork industry, there’s no one who does not know about HyLife Pork.”

Another part of their strategy was setting up HyLife Pork Table in 2016. Locating the flagship restaurant in the upscale Tokyo neigh­bour­hood of Daikanyama has helped to build brand awareness. Extending their marketing efforts to the B2C business, HyLife Pork is targeting a younger demographic — people in their twenties and forties — who are more likely to be interested in buying imported products, and who also appreciate the cost–performance aspect of the products. The company plans to pursue this approach for the coming five to 10 years, and are using everything, from social media influencers to recipe leaflets distributed at points of sale, to appeal to consumers. 

The importance of Japan for HyLife Pork also applies to the development of executives back in Canada, Funakoshi adds. “One of the unique things we have at HyLife Pork is a kind of master’s program, which serves as training for future executives. 

“It’s a yearly program, and at the end we invite 10 or so people to Japan. There, they learn about Japanese customers and culture, and they have HyLife Pork at HyLife Pork Table. Because for HyLife, Japan is the most important market, every division’s key person needs to un­der­stand Japan and make that connection on an emotional level.”

FRY KING

Takashi Nagai
President and managing director McCain Foods (Japan)

Operating in a different product space is McCain Foods Limited, based in Florenceville, New Brunswick. The world’s largest producer of frozen potato products, they have been in the Japanese market since 1987. Takashi Nagai, president and managing director of McCain Foods (Japan) Limited, said that they were inspired to set up in Japan following the boom in the french fry market, which was inspired in great part by the introduction of McDonald’s Corporation restaurants in the 1970s. 

“I think Japan was one of the countries to most quickly recognize the food culture of the United States represented by McDonald’s,” Nagai said. “Since the 1970s, Japanese people have gotten used to eating french fries. Now french fries are one of the most profitable items for restaurants, [pubs] and bars. They have almost 100 per cent exposure and visibility on menus at these outlets.”

McCain Foods sells a wide range of potato dishes in Japan, from traditional shoestring french fries to flavoured, appetizer-style potatoes. And although you can find McCain Foods branded potato products at Costco, most of the product that they sell in Japan — and around the world — is not branded as such.

But if you’re ordering fries during a karaoke session, at a family restaurant or while you’re getting a fast food fix, there’s a strong chance that you’ll be eating McCain Foods’ potatoes. 

Several major fast food franchises carry their products, and Nagai explained that about one-third of the french fries you can find at restaurants and hotels in Japan are from McCain Foods. 

Nagai says that the total Japan market for french fries, which is growing about two or three per cent each year, is highly dependent on the performance of large, fast food franchises. 

For the company, Japan is not a huge market — representing about three to five per cent of global sales. With no manufacturing plant in Japan, the company imports potatoes from Canada and the United States, with most coming from north of the border. 

But Nagai says that there isn’t a strong image of Canada when it comes to McCain Foods’ potatoes. “McCain is the largest supplier in Japan, and the world — the sign at the entrance of Florenceville says, ‘French fry capital of the world.’ But the image of french fries is from the US, because of McDonald’s.”

And it’s not just the image, when it comes to competitors in the market. “Our main com­peti­tors are from the US. And they’ve organized the United States Potato Board. It receives considerable investment from suppliers. They have an office in Japan and they have a large budget. Our french fries are from Canada so we cannot promote together. I think there’s an opportunity there. If we want to promote Canadian products, we could do a better job.”

About one-third of the french fries you can find at restaurants and hotels in Japan are from McCain Foods.

One idea has come up between his company and a Canadian pork exporter, Nagai says. “In the future we would like to possibly lead tours in Canada together.” 

“If we could invite some Japanese business­people there, we might be able to collaborate on a tour — maybe after they visit the pork farm we could schedule a plant tour for the french fries. We’re just discussing it, but if we paid for that, it would be quite expensive. So we need to figure out how to get some additional support from Canada. 

“Actually, about 20 years ago, we invited a lot of people from our food industry and we did a lot of plant tours. All of the customers appreciated this and have great memories from their Canadian tour. So personally, I’d like to do that again, and invite important customers, to attract them, and do exhibitions and make more sales.”

COVID IMPACT

The coronavirus pandemic has affected every corner of the business world, and the food industry is certainly no exception. However, as Funk explains, the first four months of the year have been better than expected in some areas.

“Canada recorded a 15 per cent [year on year] increase in agriculture exports to Japan over the first four months of 2020. When looking at trade data from January to April 2020, some key commodities that fared well include beef, particularly fresh and chilled beef, which was up 36 per cent [year on year], and barley, which was up 37 per cent [year on year].” Both beef and barley have seen reduced tariffs thanks to the CPTPP. 

Nonetheless, Funk explained that, during the same period, Canadian seafood exports were down 14 per cent, due to a sharp decline in food service industry demand, reflecting the temporary closure of restaurants, the cancellation of events such as wedding receptions, and the precipitous drop in the number of tourists coming to Japan. 

One particularly illustrative example of the export decline is Canada’s live or fresh lobster exports to Japan. They dropped more than 90 per cent in April 2020 compared with the same month last year — C$126,000 in 2020 compared with C$2.07 million in 2019. 

For Maple Leaf Foods, Hiramoto explained that the pandemic has meant the quarterly or twice-yearly visits from members of the Canadian team have come to a halt, but like all businesses, they’re using a wide range of communication tools and platforms to adapt to the new normal and stay in touch with stakeholders.

HyLife Pork, meanwhile, has spent more than C$3 million to create a safer work en­vironment for their employees at processing plants, by such means as building plastic walls and making other adjustments that will allow people to continue working while maintaining social distance. 


Export Growth for Canadian Agri-food Products

A range of Canadian agricultural products have already benefited from the CPTPP’s reduced and eliminated tariffs, having experienced export growth in 2019 compared with 2018: 

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