Hokkaido–Russia Economic Exchange: On Food in Particular (Part Two)

|Russia

I think that the export environment for Japan regarding food is currently at its worst.

In addition to the exchange rate moving on a high-yen note since the Lehman shock, the problem of radioactive material from the nuclear power station associated with the earthquake disaster has given rise to a reluctance to buy Japanese products on a worldwide scale.

Even supposing that exports were possible, in terms of consumer sentiment there would be a no-buy situation.

As we are in such a grave situation, and as there is no guarantee as to when it will turn around, it is no good waiting for consumer sentiment to improve, and now, precisely for that reason, the exporting side needs to continue to promote itself out and out.

Our company has received a commission from Hokkaido this financial year also, and we will carry out publicity and sales in Sakhalin Oblast, putting the safety of the food to the fore.

The main point is regarding the results of the “PR Project for Hokkaido Foods to the Mainland Area of the Russian Far East” which was undertaken in Vladivostok in 2010, and I would like you to take a look as it is posted on the website of the Hokkaido government (Russia Group, Commerce and Economic Exchange Division, Department of Economic Affairs). They have formulated it so that it can be a practical reference, stating the details of the necessary formalities, the time required and the expenditure required.

For exports of food to Russia, points have been highlighted in various reports to date, such as the abstruseness of formalities, the poorness of logistics and the time required, and the expenditure for formalities, yet when considered conversely, as it is not the case that imports are prohibited, then one can reconfirm that it is possible, if time and effort are taken and the expenses are borne.

Against this backdrop, the requirements shown from the Russian importing companies are extremely harsh ones:

  1. The best-before date should be more than 180 days in the future;
  2. The packaging should have easy to understand images;
  3. The retail price in Russia should be of the level of 100 rubles.

As a so-called government-based research project, it means that the objective is an achievable one, but even with such a point there is the problem of whether to establish it as commercial trade in its own right.

In order to understand easily whether small and medium-sized manufacturing enterprises, which predominate in Hokkaido, will come to do business exporting by themselves, I raise an example, even though extremely rough and ready.

The commodity price is in the region of four-to-five million yen in the case where they fully load processed foods that meet the various conditions stated above in a 20-foot container. While the profit earning ratio varies depending on the form of company which handles the commercial goods, first let’s assume here the case is of a trading company, and not a manufacturing firm. Assuming that the commission revenue is 10%, then when one container is moved there is an income of 400,000 to 500,000 yen.

In order to become a specialist trading company, with full-time staff, then an income of around 10 to 15 million yen will be necessary, including such things as manpower expenses, administrative expenses, and operating expenses. Calculating up, they would have to handle some 30 containers annually, and these are figures where trade of a form employing full-timers would be difficult. On a retail price basis it would be in the region of 150 million yen. I think this is the same in Southeast Asia also, where trade is thriving, and not only Russia.

As the profit earning ratio differs in the case where manufacturers export directly, I think that what degree of business should be done can be seen when you calculate assuming a case of the companies own products.

There are two challenges here.

One is the securing of sales outlets. It’s a matter of whether a market exists for just selling thirty containers annually of commercial goods. Such a juicy-sounding market won’t suddenly exist. Companies will place their hopes on the importing companies, but if sales should fall off for the depended-on partner then they will just be dispensed with. Consequently, at the same time as exporting, it is necessary that the Hokkaido selling side carries out in parallel the securing of a market and the expansion of sales.

To this end we at our company have also already carried out promotion of the expansion of sales from Siberia to Moscow.

Nevertheless, selling at such volumes only in single products is most difficult for firms in Hokkaido. If they are to seek stable business they must deal in various products. The consumers, when good new products grow popular, require that they be able to choose something a little different. For example, for just soy sauce many kinds of product line the shelves in supermarkets. They make an assembly which will make money in the aggregate, making a selection of goods available to choose from depending on such things as the taste of the consumer and the amount they use.

If there are dozens of kinds of products that are collected in this way in units of several boxes, then it may be possible to fill a container. In this case, regarding whether manufacturing firms are able to create such an assemblage with their own products only, I think that for the great majority of companies it’s impossible. Therefore, it is necessary to create and nurture specialist local firms which can handle small amounts and a variety of products, or put simply, trading companies which have an attitude for the common good, and which handle the commercial products of small and medium-sized enterprises.

If there are dozens of kinds of products that are collected in this way in units of several boxes, then it may be possible to fill a container. In this case, regarding whether manufacturing firms are able to create such an assemblage with their own products only, I think that for the great majority of companies it’s impossible. Therefore, it is necessary to create and nurture specialist local firms which can handle small amounts and a variety of products, or put simply, trading companies which have an attitude for the common good, and which handle the commercial products of small and medium-sized enterprises.

As one example of this, there is a trading company which focuses on agricultural produce originating in Kyushu, but what is being carried out at our company is the creation of a system where it is possible to supply products throughout the year, collecting them from all over the country.

The area of production in turn moves northwards from the south, and when it finds its way from Okinawa to Hokkaido, it will soon be time in Okinawa for them to harvest again. When making combined use of a house, things become more reliable, don’t they?

It will be a matter of … Japanese-grown vegetables always lining the shelves, even of overseas supermarkets.

Consequently, it is not necessary to sell Hokkaido-produced foods only. With the need to be able always to sell similar foods from all over Japan, should they go there, it is important … that they are selling Japanese foods at all times.

Why Japan? The reaction of the world’s consumers associated with the nuclear disaster was that not just Fukushima’s but Japan’s food is … dangerous. Regional brands are popular, but even where emphasis is placed on the difference in regions, I think that this demonstrates that overseas it is certainly not of great import.

For the trading companies that could deal in the commercial products of small and medium-sized enterprises, management is extremely difficult because the profitability is low, and everyone would dislike dealing in such an area. However, if there weren’t such a capability, then the potential for the commercial products of small and medium-sized enterprises, which make up the great majority in the region, to be able to expand overseas would be extremely low. What is taken as a so-called pillar for regional development, by offering food products overseas, would be unreasonable. Moreover, creditworthiness is necessary to make up for the low-level of profitability, and therefore insuring the degree of common benefit will be an important element. It would be a differentiation from private enterprises.

When a system for constantly exporting is achieved, securing the volumes of materials in this way, it will inevitably lead to the securing of stable transportation routes, which is one of the challenges in the area of trade, and also to the lowering of export costs.

Well, business is an extremely severe world. For that reason alone, isn’t it necessary also to have hope for the future? For example, if they could lay the “shinkansen to Moscow”, as in my first piece, then, with a clearing of customs working together in Wakkanai and Korsakov, transportation non-stop to Moscow without transshipment would be possible. As the journey time would be three days, the transport even of fresh agricultural produce, marine products, and chilled products would become possible.

The foodstuffs for the Japanese food boom would all become transportable. From there they could go on to Europe in a day. It would become an emergency alternative route to the transportation route that goes south and passes through the Suez Canal.

In so doing it can be considered that transportation volume … trade would dramatically rise … no, not just exports, but also imports from Russia and Europe would drastically increase.

Am I the only one who thinks that such a day will come?

[Translated by ERINA]