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March 30, 2011

Nuclear uncertainty a second blow to Japanese food industry

As Japanese food makers struggle to deal with the after effects of the tsunami and earthquake that devastated north eastern Japan earlier this month, they have been hit by a second threat as the fear of nuclear contamination dampens consumer sentiment and weakens export markets. Katy Humphries reports.

As Japanese food makers struggle to deal with the after effects of the tsunami and earthquake that devastated north eastern Japan earlier this month, they have been hit by a second threat as the fear of nuclear contamination dampens consumer sentiment and weakens export markets. Katy Humphries reports.

The devastation caused by the tsunami and earthquake that struck Japan earlier this month shocked the world.

Images of crumbling buildings and decimated roads spoke of the almost unimaginable damage done to the country’s infrastructure. Broken supply chains and rolling power-outages in Tokyo and seven surrounding prefectures interrupted production throughout the country and, for a time, international investors pulled their money out of the Nikkei over fears that the world’s third largest economy could be on the brink of collapse.

This investment exodus soon reversed as investment funds smelt bargain prices thanks to a declining stock market and a weakening yen. As a result, it wasn’t long before economists were predicting that after perhaps two quarters of constriction, the Japanese economy would rebound thanks to the jump in spending that would be required to kick start efforts to rebuild.

According to Sebastian Mallaby of the US-based Maurice R. Greenberg Centre for Geoeconomic Studies, the impact of natural disasters in mature economies typically follows two stages – with an initial downward trend in production due to the disruption caused, which is then offset by an increase in industrial output during reconstruction.

With Japan’s imbalance of over-supply addressed by the disaster – which both reduced supply and increased demand in the economy as a whole – some commentators suggested that the tsunami and earthquake would actually act as catalysts to drive GDP growth and help Japan struggle out of the economic gloom that is afflicting global markets.

“Over a period of around nine months, you would expect to see production levels balance out,” Mallaby suggests.

However, the fear that Japan could be facing a Chernobyl-like nuclear catastrophe has cast its shadow over events in Japan. This uncertainty, coupled with concerns that the damage done to the country’s infrastructure could have a knock-on affect on corporate profitability, has caused many commentators to cut their outlook for Japanese economic growth.

Moody’s has reduced its GDP forecast for the year to 1%, down from its pre-earthquake prediction of 1.4%, while JP Morgan now expects growth for the year to total just 1.1%.

Japanese authorities have been battling for over two weeks to bring a nuclear crisis under control and avert a meltdown at the Fukushima Daiichi nuclear plant, which was crippled when the tsunami knocked out the plant’s cooling systems. Some radiation leakage has already been confirmed, and this is particularly bad news for Japanese food makers.

Masashi Takizawa, agriculture and food division director of the Japanese trade body JETRO based in London, tells just-food that the Japanese government has taken swift action to prevent foodstuffs contaminated with nuclear radiation from entering the food chain. Authorities have banned shipments of spinach and milk from areas around the Fukushima plant after levels of radiation found in samples exceeded legal limits.

The decision, announced earlier this week by Japanese authorities, relates to Spinach products from Gunma, Tochigi and Ibaraki, which border Fukushima, and spinach and milk from Fukushima itself. While it comes as another blow to the local economy in the north east, such measures are designed to protect consumers and the Japanese food industry as a whole.

“The Japanese Government is executing shipment limitation of the agriculture and livestock products in a part of the region. Therefore, the food that the consumer eats is safe,” Masashi insists.

Elsewhere in the country, Masashi said that food makers have resumed production, which was temporarily interrupted by logistical issues and the disruption of the country’s infrastructure. However, he added: “manufacturers making Sake, Soy sauce and so on in the Tohoku area can’t recover yet, because the gas is not [being] supplied now.”

Even with production returning to normal levels, the Japanese food industry must deal with a shift in its supply priorities. Domestic demand – particularly of convenience foods – is being given priority, while various export markets are tightening restrictions – temporarily at least – on Japanese food imports.

A number of countries, including the US, China, Singapore, the EU, Canada, Australia and Russia, have set up programmes to test samples of Japanese food in order to check radiation levels, while some have implemented import restrictions on food produced in the prefectures surrounding Fukushima.

In a statement released yesterday (29 March), the US Food and Drug Administration (FDA) said that food products imported from Japan remain clear from contamination.

“There has been no report of radioactive contamination,” an FDA spokesperson tells just-food. “We have found no evidence that consumers need be concerned over the safety of imported Japanese foods.”

Nevertheless, the spokesperson adds: “We continue to monitor developments in Japan and if there were any indication of increased risk levels we would be willing to implement more stringent measures to protect US consumers.”

The real issue then for the Japanese food industry – and indeed for the state of Japan’s economy as a whole – is whether authorities can get a handle on the nuclear threat without further radiation leaks. If nuclear catastrophe is averted, in the medium term, the Japanese food industry will likely bounce back with the wider economy. As the crisis enters its third week, the world watches with baited breath.

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