Market Overview – Japan

Country profile

Income and expenditure

The Japanese economy began to recover from the emergence of the pandemic after a contraction of 4.6% in 2020, as real GDP increased by 1.8% in 2021. During 2022, economic growth is forecast to accelerate, influenced by stronger household consumption, rising capital spending, and accommodative fiscal and monetary policies. In addition, the Regional Comprehensive Economic Partnership (RCEP) effective January 2022, is also expected to boost Japan's economic development and promote stronger trading relationships between the Association of Southeast Asian Nations (ASEAN) countries and Australia, China, Japan, New Zealand and Korea, through tariff reductions and the simplification of trading rules. In the forecast period (2022-2040), Japan's economy is expected to expand at a compound annual growth rate (CAGR) of 0.7%, in comparison to the average of 4.2% in Asia Pacific (Euromonitor International).

Japan's average gross annual income was US$32,581in 2021, ranking third of twenty-two countries in Asia Pacific. Disposable income growth however is set to remain one of the lowest globally from 2021-2040 due to the country's high tax and social security contributions, sluggish wage growth, labour market rigidities which limit productivity growth, and one of the highest global old-age dependency ratios due to a rapidly ageing and declining population (Euromonitor International).

Demographics

The total population of Japan is forecast to attain 125 million in 2022, with baby boomers ( age 55+) occupying roughly 27% of the population segment. The median age of the population is 49.5 years and the single person will account for 37% in comparison to couples with children, who are to account for 24% of household types forecast for 2022. Tokyo is the largest city in Japan representing 30% of the total population in 2022, however the Kanto region is anticipated to remain the largest consumer market in Japan by 2040, accounting for 37.7% of total consumer expenditure (Euromonitor International).

Consumer trends

The Japanese consumer, particularly younger consumers, intensified their pursuit of healthier eating and food buying habits during the pandemic. 25% of Millennials (those aged 15 to 24 years) and 26% of Gen Z (those aged 25 to 39 years) look for healthy ingredients in foods and beverages while 22% of both groups say they closely read nutrition labels. Of note, the government has recently tightened its nutrition label standards to help consumers identify healthy food ingredients. As such, a producer's potential usage of "free from GMO" labelling must now meet stringent requirements and Japanese processed food manufacturers must display the country of origin of their products' primary ingredients on their labels (Euromonitor International).

Currently, the number of vegans, vegetarians and flexitarians within the Japanese population remains low. Further, only 12% of millennials (versus 28% of global millennials) reported that they intend to reduce their meat consumption in the future despite the increasing popularity of plant- based foods amongst the consumer (Euromonitor International).

The Japanese consumer prefers unique and tailored products and branded goods. They also tend to buy from companies or brands they trust. In relation to cooking habits, 19% of consumers report that they do not have time to cook while 61% reported that they cook or bake every week. In terms of food delivery services, only 8% of Japanese consumers reported using home delivery food services on a weekly basis compared to 37% globally. Many consumers do however, view home food delivery as an integral option for the future, especially within the context of the rapidly ageing population. (Euromonitor International).

Production

Rice was Japan's primary domestic crop, with production volumes of 9.7 million tonnes in 2020. The production volume of rice has decreased by a CAGR of −2.9% between 2016 to 2020. Onions and shallots and sugar beet attained the highest CAGR of 10.1% and 5.2% respectively, while rice (paddy), sugar cane and apples also experienced declines in CAGR's of 2.9%, 1.6% and 1.5% respectively, during the same period.

Poultry (chickens) were Japan's largest livestock production with 319.7 million chickens in 2020 and a CAGR of 0.8% from 310.1 million in 2016, while swine/pigs (as Japan's second largest livestock production), decreased in CAGR by 0.5% from 9.3 million to 9.1 million during the same period.

Poultry was Japan's primary meat, producing 2.3 million tonnes in 2020 and a CAGR of 2.0% from 2.2 million tonnes in 2016. Goat meat production declined in growth by 2.7%, while sheep meat experienced the largest CAGR of 2.6% from 177 tonnes in 2016 to 196 tonnes in 2020.

Trade

Japan is a net importer of agri-food and seafood products. In 2021, Japan's agri-food and seafood trade deficit was US$67.6 billion with imports valued at US$77.4 billion, and exports at US$9.8 billion. The United States (U.S) and China were Japan's primary agri-food and seafood suppliers with values of US$16.2 billion (20.9% market share) and US$9.0 billion (11.7% market share) respectively, in 2021. Canada in comparison, was Japan's third largest supplier of agri-food and seafood products with values of US$4.8 billion (6.2% market share) in 2021. Top imports from Canada in 2021 were low erucic acid rape or colza seeds (rapeseed) (US$1,422.5 million, 29.6% market share), fresh or chilled pork (US$983.0 million, 20.5% market share), wheat (US$554.9 million, 11.6% market share), soy beans (US$205.6 million, 4.3% market share) and frozen beef (US$156.6 million, 3.3% market share).

Japan's agri-food and seafood imports have increased slightly by a CAGR of 2.1% from US$71.3 billion in 2017. In 2021, top agri-food and seafood imports from the world were corn, chewing tobacco, frozen pork, chicken meat or offal and fresh or chilled beef. Key supplying countries were the United States (U.S) (20.9% market share), China (11.7% market share), Canada (6.2% market share), Thailand (5.7% market share ) and Australia (5.7% market share) in 2021.

Japan's processed food and beverage imports were valued at US$51.9 billion in 2021, with Canada accounting for 4.5% of that market. In 2021, the U.S., China, Thailand, Australia and Canada were the largest suppliers of processed food to Japan accounting for 51.3% of the market. Japan's processed food and beverage imports decreased by 1.2% between 2017 and 2021.

In 2021, Japan's top agri-food and seafood exports were food preparations n.e.s., frozen molluscs, prepared sauces, whiskies and bread, pastry, cakes and biscuits. Top export markets were Hong Kong, China, the U.S, Taiwan and Vietnam. Canada was Japan's thirteenth largest export market for agri-food and seafood with values of US$123.6 million (1.3% market share) in 2021.

Canada's performance

Canada exported US$4.2 billion of agri-food and seafood products to Japan in 2021. The top agri-food and seafood suppling Canadian provinces were Alberta (28.0% market share), Saskatchewan (25.5% market share) and Manitoba (19.4% market share).

Low erucic acid rape or colza seeds (rapeseed) was the largest commodity exported (US$1.3 billion) with Saskatchewan representing 56.3% of the market share, followed by Alberta and Manitoba representing the remaining shares of 26.8% and 16.6% respectively, in 2021. Fresh or chilled meat of swine (pork) was the second largest commodity exported to Japan with values of US$779.5 million with Manitoba providing 50.9% and Québec providing 25.5% of the market share in 2021.

Retail sales

Prior to the onset of the pandemic, packaged food for the Japanese consumer consisted of higher-value products, particularly those within mature product categories, as well as health-conscious (low-carb and high-protein) and convenience (on-the-go consumption) products. As the pandemic progressed and government imposed measures ((working and schooling from home) to restrict virus transmission were implemented, more frozen and easy-to-prepare packaged food products were sought. Relatedly, consumer demand for health and wellness food to strengthen one's immune systems and prevent infection, also increased (Euromonitor International). Further, according to Euromonitor International's Health and Nutrition Survey, over half of Japanese respondents preferred to adopt natural or traditional solutions in the prevention of disease, ranking Japan third in this regard, among all countries that were surveyed. This tendency is reflected in consumers' eating habits and the desire to seek out food for medical purposes rather than taking supplements or medicine.

E-commerce, as a popular distribution channel for packaged food during the pandemic, increased in demand. Grocery home delivery providers such as Oisix, experienced increases in the delivery of noodles, frozen packaged food products and meal kits. In addition, supermarkets such as Aeon, increasingly offered more e-commerce options to improve the services and variety of product availability in response to growing consumer demand from home (Euromonitor International).

The packaged food market in Japan was valued at US$180.3 billion in 2021 and experienced a marginal increase in compound annual growth rate (CAGR) of 1.0% from US$171.5 billion in 2016 (+3.6% from US$173.9 billion in 2019 to US$180.2 billion in 2020) . The market is forecast to increase slightly in CAGR by 1.3% to attain US$192.0 billion by 2026.

The top three packaged food categories in Japan, in terms of largest retail value sales in 2021, were processed meat, seafood and alternatives to meat with values of US$38.8 billion (21.5% market share) increasing at a CAGR of 0.9% from US$37.1 billion in 2016 , followed by baked goods valued at US$23.3 billion (12.9% market share), representing an increase in CAGR of 0.4% from US$22.9 billion in 2016 and meals and soups with values of US$21.1 billion (11.7% market share) and increasing in CAGR by 2.3% from US$18.8 billion in 2016. Of interest, the plant-based dairy category performed well within the historic period as retail sales of the product experienced the largest increase in CAGR (5.8%) as retail sales increased from US$789.5 million in 2016 to US$1.0 billion in 2021. Similarly, processed fruit and vegetables also experienced an increase in CAGR of 5.7% as retail sales grew from US$1.7 billion to US$2.3 billion during the same period. In contrast, baby food experienced a decline in CAGR of 2.0% as retail sales decreased from US$1.0 billion in 2016 to US$909.9 million in 2021.

Japan's packaged food market is expected to remain positive in the forecast period, as more consumers continue to work from home post-pandemic and the demand for convenient products with preventative benefits for the health-conscious and ageing population remain (Euromonitor International).

Health and wellness

According to Euromonitor International, during 2020 and the onset of the pandemic, health and wellness (HW) packaged food retail sales grew due to increased home consumption while HW beverages retail sales declined due to a decrease in on-the-go consumption outside the home. Further, as the recovery from the pandemic remained largely suppressed because of its continued presence, overall home consumption of HW products were maintained while on-the-go consumption was hampered.

Notable health and wellness trends that developed from home seclusion was the shift in consumer value from convenience to affordability, as manufacturers developed larger sized products to accommodate increased home consumption. The consumer's greater awareness and appreciation for healthier products as a result of the pandemic was also reported (Euromonitor International).

Retail sales of health and wellness food and beverage products in certain distribution channels, such as convenience stores and vending, were more effected by the pandemic than other channels due to the decrease in the consumer's on-the-go demand as home seclusion was implemented and sustained (Euromonitor International). In comparison, e-commerce as a distribution channel for health and wellness packaged food and beverages, especially niche products, such as organic products, grew and is expected to continue its expansion in the future. Further, store-based retailer shelf space is often limited providing e-commerce the opportunity to offer brands the ability to raise their profile and increase their sales (Euromonitor International).

The health and wellness food and drink product sector in Japan remained stable (unchanged), experiencing 0.0% in CAGR from US$55.2 billion in 2016 to US$55.1 billion in 2021 (-2.6% from US$56.3 billion in 2019 to US$54.8 billion in 2020) and is expected to increase in CAGR by 1.6% to attain US$59.8 billion in 2026. Naturally Healthy (NH) was the largest health and wellness category in the historic period with retail sales of US26.3 billion in 2021 and is expected to remain the largest category in the forecast period with retail sales of US$28.5 billion in 2026. Fortified/Functional (FF) was the second largest health and wellness category in the historic period with retail sales of US18.8 billion in 2021 and is expected to remain the second largest category in the forecast period with retail sales of US$20.4 billion by 2026. Of interest, Free From Dairy experienced the largest increase in CAGR in both periods (7.3% and 5.2% respectively/

The health and wellness food and drink product sector is expected to marginally increase throughout the forecast period as workplace consumption occasions remain limited and infrequent and home consumption remains higher. In addition, as the number of marriages and children born significantly decreased in 2020 and 2021, the acceleration of an already aging population is anticipated thus products that support healthy ageing are likely to perform well and increase the demand for health and wellness products in the future (Euromonitor International).

Foodservice

According to Euromonitor International, consumer foodservice was one of the industries most impacted in Japan due to the pandemic, and the government imposed restrictions to limit transmission. Independent foodservice types in particular, where more effected than their chained counterparts as many independents lacked the economic foundation to survive the evolving closures and restricted operating hours established during the pandemic (Euromonitor International).

In 2021, foodservice types such as bars and pubs struggled due to a reduction in operating hours and an alcohol ban implemented by the government. To assist, the Japanese government responded by providing financial support to struggling foodservice industry members and those wanting to apply new business models, such as takeout, home delivery or food trucks (Euromonitor International). In comparison, limited-service restaurants, especially burger and chicken limited-service restaurants, maintained their predominance due to the continuing demand for takeout and home delivery. Relatedly, full-service restaurants pivoted to offer takeout and home-deliverable menu options and offered smaller food portions with an increased variety or discounted alcoholic drinks to promote in-restaurant solo eating and/or drinking, as states of emergencies lifted. Other full-service restaurants offered experience-focused dining based upon the traditional conveyor belt sushi restaurant design with elements of modern Tokyo pop culture design to attract younger consumers (Euromonitor International).

Consumer foodservice in Japan declined in CAGR by 5.1% from retail sales of US$201.8 billion in 2016 to US$155.6 billion in 2021 (-21.4% from US$202.3 billion in 2019 to US$158.9 billion in 2020). In addition, the government also recently accelerated the concept of sustainability through the reduction and recycling of plastic materials by promoting Sustainable Development Goals (SDGs) to become a carbon-neutral society by 2050. Consequently, consumer foodservice types in the growing takeout/home delivery segment are expected to be most affected; however, food waste and sustainable sourcing are being explored by some industry members. For example, Starbucks has begun to discount its food menu before closing to reduce food waste, while sushi full-service player Kura Corp, has established its own fishery company, Kura Osakana Farm, to ensure sustainable sourcing (Euromonitor International).

Consumer foodservice retail sales are expected to recover in the forecast period by a CAGR of 4.8% to attain US$196.5 billion by 2026. Euromonitor International notes that the prospects for the Japanese consumer foodservice industry will be positive once the pandemic subsides however; increasing operating costs - the rising costs of ingredients and labour, remain. In response, foodservice industry members are beginning to examine their pricing strategies to incorporate new value added menus while accelerating their digitalization and implementing new technologies such as cashless payments, mobile and tablet ordering to reduce labour reliance within a declining population (Euromonitor International).

Full-service and limited-service were the largest foodservice types in the historic period, despite full-service restaurant's recent decline in CAGR, with retail sales of US$67.3 billion respectively in 2021, while cafés and bars experienced the largest declines in CAGR (14.8%) as retail sales decreased from US$41.9 billion in 2016 to US$18.8 billion in 2021 (−42.0% from US$40.4 billion in 2019 to US$23.5billion in 2020).

The standalone (freestanding foodservice establishments, not operating in a travel, leisure, lodging or retail location) format was the largest consumer foodservice by location with retail sales of US$125.5 billion (80.7% market share) in 2021, representing a decline in CAGR of 2.4% from US$141.6 billion in 2016 (−11.5% from US$141.6 billion in 2019 to US$125.3 billion in 2020). Euromonitor International notes that strategic store openings will be key to remain present in the standalone market due to evolving consumer habits, especially in terms of work patterns, as teleworking and flexible working hours have become more accepted in Japanese workplaces. Further, rural and urban standalone positioning should consider convenient and unique gourmet foods for rural workers to consume at home or near home while prominent areas that demonstrate presence and exposure to potential customers who frequent urban areas for shopping and entertainment would benefit the standalone format's positioning.

Consumer foodservice through lodging (food establishments located in hotels) and travel experienced the largest declines in CAGR's (30.4% and 26.2% respectively) in the historic period (−66.9% and −63.4% respectively from 2019-2020), however these locations are expected to recover by CAGR's of 19.3% and 23.1% respectively, by 2026 as pandemic implemented travel restrictions ease or are removed.

Opportunities for Canada

The benefits of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)

The CPTPP gives Canadian agriculture and agri-food products preferential market access to key export markets, including Japan. Under the agreement, tariffs will be eliminated or reduced on a wide range of Canadian exports for the agricultural sector, including meat, grains, pulses, maple syrup, wines and spirits, seafood, and other agri-food products.

The first six CPTPP parties (Canada, Australia, Japan, Mexico, New Zealand and Singapore) implemented their first tariff cuts on December 30, 2018, eliminating duties on 89% of tariff lines between them, followed by a second tariff cut on January 1, 2019 (except for Japan, which made its second tariff cut on April 1, 2019). Once the agreement is fully implemented, 94% of Canada's exports of agriculture and agri-food products to CPTPP countries will be duty-free. For further information, please consult CPTPP benefits for Canada. Prior to exporting, one of the first steps before entering the market is to determine whether or not a product is authorized for sale in Japan. For example, there could be restrictions due to phytosanitary or food safety related concerns that can prevent a product from being imported. In addition, products must also meet Japanese regulations for food ingredients, especially with regard to food additives. Exporters are therefore strongly encouraged to work with the local import agent, distributor, and the end-user to ensure their products are authorized for sale and are in compliance with Japanese regulations, and that all required documentation has been completed. For more information, please consult Food exports (Canadian Food Inspection Agency) and the Step-by-Step Guide to Exporting (The Canadian Trade Commissioner Service).

The CPTPP commits to helping small and medium-sized enterprises (SMEs) take advantage of the agreement's commercial opportunities. SMEs represent over 99% of Canadian businesses and almost 90% of all private sector jobs in Canada. For further information, please consult CPTPP benefits for small and medium-sized enterprises. Of note, funding and support programs, such as CanExport SMEs, are available to interested Canadian SMEs to assist with international market development activities. If you interested in exporting and have questions about exporting your agriculture or food products, or are looking for support, please contact the Market Access Secretariat, Agri-food and Agriculture Canada at aafc.mas-sam.aac@canada.ca.

For more information

The Canadian Trade Commissioner Service:

International Trade Commissioners can provide Canadian industry with on-the-ground expertise regarding market potential, current conditions and local business contacts, and are an excellent point of contact for export advice.

• Find a Trade Commissioner

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For additional information on FoodEx Japan, please contact:

Ben Berry, Deputy Director
Trade Show Strategy and Delivery
Agriculture and agri-food Canada
ben.berry@agr.gc.ca

Resources

• Euromonitor International;
  • Country Report; Packaged food in Japan, December 2020
  • Country Report; Health and wellness in Japan, December 2021
  • Country Report; Consumer foodservice in Japan, March 2022
  • Country Report; Consumer foodservice by location in Japan, March 2022
  • Country Report; Economy, finance and trade: Japan, March 2022
  • Country Report; Income and expenditure: Japan, August 2022
  • Voice of the consumer: Lifestyles survey 2022
  • Consumer lifestyles in Japan, June 2022
• Global Trade Tracker, 2022

Market Overview – Japan
Global Analysis Report

Prepared by: Laurie Bernardi, International Market Research Analyst

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