Following a new formula

Europe shakes up Japan’s dairy industry

Text by Gavin Blair

Japan’s dairy sector is changing thanks to a combination of reforms to domestic regulations and the EU–Japan Economic Partnership Agreement (EPA).

In the aftermath of the Kumamoto earthquakes — which struck in mid-April 2016, killing more than 50 people, injuring thousands and leading to the evacuation of tens of thousands more — access to clean water was an issue for some survivors. This was a particular problem for parents feeding their infants with powdered baby formula.

Japan had a de facto ban on liquid baby formula because there were no safety regulations in place that covered it. However, during those difficult days, Finnish food company Valio donated more than 5,000 200ml packs of its Valio Tuuti liquid formula.

The usefulness of having ready-to-drink formula in such circumstances quickly became clear and prompted authorities in Japan to reconsider their position. In spring of 2018, then-Minister of Health, Labour and Welfare Katsunobu Kato announced that changes in the ordinances were on their way.

Following consultation with the Japan Dairy Industry Association, a set of safety regulations was decided upon and final approval given by the health ministry in August 2018, allowing domestic manufacturers to develop their own products and permitting imports.

However, no European company has yet taken the plunge.

“Liquid infant formulas have received good feedback in Japan. We are currently investigating their introduction to the Japanese market with potential partners,” says Timo Pajari, senior vice-president of food solution sales at Valio, Finland’s biggest food exporter. “However, no decisions on entering the Japanese market have been made yet.”

Swiss food giant Nestlé, a global leader in infant formula, is also absent.

“Although we sell liquid baby formula in a lot of countries, it is difficult to make it a viable business in Japan, which is very different to the global market,” says Tokuo Hosokawa, a spokesperson for Nestlé. “One of the main issues is that Japan is not aligned with the WHO Code, which we have to follow as a global company.”

The Code is the industry abbreviation for the International Code of Marketing of Breast-milk Substitutes, created to ensure lactating mothers are not discouraged from breastfeeding. It was adopted by the World Health Organization in 1981 after an international campaign in the late 1970s against the baby food industry — particularly Nestlé — for its aggressive marketing practices in developing countries.

Among Japanese companies, dairy-product giant Morinaga is said to have been looking into a liquid formula, but has yet to release a product, leaving Ezaki Glico to take the lead.

“Even before 2016, we had been aware of liquid baby formula products through their use in Europe, and their potential usefulness in times of disaster,” says Ezaki Glico spokesperson Masaki Ito.

Following the events in Kumamoto, the company began readying a liquid formula that could be brought to market as soon as possible after the ban was lifted.

Ezaki Glico launched ICREO Aka-chan Milk on 11 March this year, the anniversary of the 2011 Tohoku earthquake.

“Part of that was just due to the length of time it took to develop the product and receive approval,” explains Ito. “But it wasn’t a coincidence that we decided to release it on the 11th, because of its usefulness at the time of disasters.”

Seeing that there is a lack of awareness of liquid formula among parents in Japan, the company has been making efforts to get the word out about the product’s usefulness when disaster strikes or during other difficult times, according to Ito.

“Much of the initial feedback from customers was about disaster preparedness, but since then we’ve heard more about people using it when they’re going out somewhere,” he adds.

The company isn’t releasing sales figures, but Ito says that they have exceeded internal projections for the first few months by a factor of 3.2.

Equally eye-catching figures are being posted by some European companies for jumps in their exports to Japan of a more conventional dairy product — cheese. The upward trend was already evident before the cut in tariffs under the EPA in February, so it is hard to measure its precise effect.

“I think there will be a shift to European cheese — there has already been a spike in imports since February,” says a dairy industry official, “though the reduction of import tariffs will take a few years as it is being done in stages.”

Cheese production is increasing in Japan, but consumption is rising faster, creating chances for European exporters. Few opportunities currently exist within the dairy industry outside cheese, according to the official, who says milk is a non-starter due to the difficulty in transporting it fresh.

“Whey is used instead of skimmed-milk powder for products such as cakes and drinks in Japan, and we had expected imports of it to really grow, but that hasn’t happened yet, though they may do from now,” added the official.

Athanasios Fragkis, owner of Nostimia, an importer of organic Greek food and drink to Japan, points out that February’s initial reduction in the cheese tariff — from 29.8% to 26.1% — is relatively small, but says, “The publicity around cheese and the EPA has been helpful.”

Fragkis adds that the Protected Designations of Origin regulations under the EPA are “good for feta cheese, as every stage of production must be in [one specific] zone, which is stricter than the rules for Geographical Indication.”

New regulations, lower tariffs and more adventurous consumers have been a winning combination for Nostimia, which has quintupled its cheese sales — led by feta — over the past five years.

“Consumers in Japan are more inclined to try new things,” suggests Fragkis. “With travel, the internet and exchange of information, people have got to know that there is more out there than natto and miso.”   •