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Market Dynamics and Growth Drivers in Japan’s Processed Food Industry

Economic Background

Japan ranks as the world’s third-largest economy in terms of nominal GDP, behind United States and China, and the country has a diverse manufacturing and service-oriented economy with a population of 124 million people. Japan stands out not just as a high-income nation but also as one of the most urbanised countries globally, with over 90 percent of its population residing in urban regions. According to IHS Markit, approximately 95 percent of Japanese households enjoy incomes exceeding USD 20,000 at purchasing power parity. Japan recorded an approximate gross domestic product per capita of USD 33,823 as of year 2022. According to a recent projection by the International Monetary Fund, Japan is expected to experience a real GDP growth rate of 1.3% in 2023 and 1.04% in 2024. The decrease in the growth rate is attributed to Japan’s aging and declining population.

Oils & Fats Scenario

Japan Oils & Fats Supply and Demand (1,000 Tonnes) 2018 2019 2020 2021 2022
Opening Stock 103 89 99 94 95
Production 1,849 1,855 1,795 1,838 1,798
Import 1,079 1,149 1,096 948 936
Export 51 41 40 37 53
Consumption 2,891 2,953 2,855 2,748 2,664
Ending Stock 89 99 94 95 112

Source: Oil World

Japan relies heavily on imports to fulfil its demand for oil crops such as soybeans and rapeseeds. This is due to challenging climate and geographical conditions where only 12% of Japan’s land is suitable for cultivation, therefore, Japan has no import tariffs on soybean, rapeseed and cottonseed.

Effective 1 April 2023, Japan eliminated import duties on crude soybean oil, crude rapeseed oil, and crude sunflower seed oil under the U.S.-Japan Trade Agreement. Most of Japan’s imports of palm oil, coconut oil, and palm kernel oil are duty free under the ASEAN-Japan Comprehensive Economic Partnership Agreements. In 2022, imported oils and fats accounted for approximately 36% of Japan’s total oils and fats supply.

The oils and fats production in Japan was at approximately 1.8 million MT in 2022, with rapeseed oil accounting for the highest production share at 49% of the total oils and fats produced, while soybean oil contributed around 30%. Japan does not produce palm oil or sunflower seed oil.

From 2019 to 2022, its consumption of oils and fats recorded a decline due to declining foodservice demand as Japan’s consumption tax was raised to 10% from 8% in 2019, & the COVID-19 outbreak. In Japan, the primary oils used are rapeseed oil, palm oil, and soybean oil, accounting for 33%, 24%, and 21% respectively.

Japan’s Vegetable Oil Consumption by Type Cooking Oil Margarine & Shortening Other Processing Industrial & Fuel
Soybean Oil 50% 4% 39% 7%
Rapeseed Oil 64% 6% 24% 6%
Palm Oil 13% 34% 35% 18%
Sunflower Seed Oil 8% 0% 82% 10%

Source: United States Department of Agriculture (USDA)

According to the table above, rapeseed oil and soybean oil were the primary oils and fats used in food applications in Japan. Approximately 64% of rapeseed oil and 50% of soybean oil were used as cooking oil. 13% of the country’s palm oil, on the other hand, was used as cooking oil, while roughly 34% was used in the production of margarine and shortening. That said, palm oil was the most widely utilised oil in Japan’s food processing industry.

Malaysia’s Palm Oil Market Share

Malaysia & Indonesia Palm Oil  (1000 Tonnes) 2018 2019 2020 2021 2022
Malaysian Palm Oil 459 498 433 421 564
Indonesian Palm Oil 301 280 314 220 135
Malaysian Palm Oil Share (%) 60% 64% 58% 66% 81%

Source: MPOB & Oil World

Between 2018 and 2021, Malaysia’s palm oil had a market share of around 60% in Japan. However, in 2022, Malaysia’s market share experienced a significant increase to 81% as a result of policy changes implemented by the Indonesian government.

The export of Malaysia’s palm oil to Japan experienced a downtrend between 2019 and 2021 due to the surge in palm stearin prices beginning in 2020. The use of palm stearin oil as a non-edible bioenergy feedstock was no longer profitable for power stations with Japan’s feed-in tariff payment at 24 yen/kWh. The United States Department of Agriculture (USDA) suggested that the utilisation of palm stearin oil for power generation would only recover if the price reached approximately 90,000 yen, or RM 2,900 per tonne.

Growth Drivers in Japan’s Processed Food Industry

Japan has a well-established and sophisticated market for processed food products, offering a wide range of healthy and innovative food products to customers. The Japanese food processing industry is worth around USD 190 billion in 2022, a decrease by USD 32 billion or 13% when compared to the previous year. This decline was due to the Japanese government’s response to the COVID-19 outbreak by limiting economic activities. In addition, the Japanese government did not provide any assistance to address the elevated edible oil prices.

Key growth drivers for Japan’s food processing sector in 2023 and 2024:

  1. Japan’s loosening of its international borders to boost tourism and economic activities in October 2022. This could reverse the declining food and beverage production which had begun in 2020, as international tourists return to Japan.
  2. Weakening Japanese yen may support palm oil consumption as Japan seeks to boost exports of processed food products. The weak Japanese yen makes Japanese goods much cheaper when exported abroad.
  3. Government of Japan’s introduction of an economic package worth around USD 550 billion in October 2022 to subsidise lower income consumers. This initiative is expected to boost domestic consumption of processed food, particularly considering the ongoing rapid urbanisation of the country’s population.

Prepared by William Lau, MPOC HQ

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