New York Times | May 14, 1989
By ANDREW POLLACK
In California's agricultural belt, a meat-packing plant that had been closed for years reopened recently with new financial backing - Japanese. In the same city, Fresno, a Japanese textile company, is building what will be the first cotton mill west of the Mississippi River.
In the Napa Valley, California's famous wineries will soon be joined by a sake factory built by a Japanese brewing company, complete with the obligatory tasting room for tourists.
From the California wine country to the Florida citrus groves and Montana ranches, a wave of Japanese investment is sweeping through American agriculture and food processing.
Much of the investment has been spurred by trade agreements signed last year that opened Japan's market to increased imports of beef, citrus products and other foods. Production costs here are far lower than in Japan, the land of the $25 melon and the $20-a-pound sirloin. To compete against cheap imports, Japanese companies are establishing their own sources of inexpensive food in the United States.
''It's very economical to produce here and export to Japan,'' said Taizo Sano, a representative here of the Kagome Company, Japan's largest ketchup producer, which is building a ketchup and fruit drink factory in Los Banos, Calif.
The Japanese investment is generally welcomed, for it is helping revitalize depressed American farm areas and is providing a new market for American agricultural products. In fact, California officials recently completed a trip to Japan specifically to court food companies.
But the trend is also stirring some uneasiness. After similar waves of investment in factories, banks and real estate, even the American cowboy now seems to be falling under Japanese sway. And some feel frustrated that after the United States finally pried open Japan's food market to American food exports, it is the Japanese companies that are positioning themselves to benefit, possibly blocking American competitors.
Some cattlemen, although not many, have raised concern, said Thomas M. Cook, director of industry affairs for the National Cattlemen's Association in Washington, which at its last convention resolved to monitor the situation. ''They want to sell them the beef, not the operations,'' he said.
But Japanese companies argue that they need food production facilities to tailor the products to Japanese tastes. For example, Japanese consumers prefer a fatty, highly marbled beef, they say.
''Our American consumer now is geared to the lean type of beef. They can't really go out on the open market and buy the cattle they want,'' said Gene Davis, president of Mount Shasta Beef, in Cottonwood, Calif., which is partly Japanese owned.
To be sure, Japanese investment is still in its infancy, and might prove to be as inconsequential as the feared Arab invasion in the 1970's, which led Congress to require disclosure of foreign purchases of farm land.
Altogether, foreigners own only 12.5 million acres, or just under 1 percent of the 1.3 billion acres of privately owned American farmland and timberland, according to the Department of Agriculture, and Japanese own only 218,000 acres, less than 2 percent of that held by foreigners.
Still, after holding steady for many years, the amount of Japanese-owned farmland jumped more than 40 percent in 1988. Japanese made 42 purchases totaling 65,000 acres in 1988, a steep rise from the 15 acquisitions totaling less than 5,000 acres in 1987.
The major purchases in 1988 included the $3.5 million purchase of a 31,000-acre ranch in Colorado by Otaka International and a $54 million stake in the huge 25,000-acre Fellsmere citrus grove in Florida by the Sumitomo Corporation. The Zenchiku Company, a major meat wholesaler, bought Montana's 28,000-acre Selkirk Ranch, but too late to be included in the Agriculture Department's 1988 tally.
Tetsusaburo Hayashi, director of agriculture for the Japan External Trade Organization, a trade promotion agency affiliated with the Japanese Government, said that at least 40 Japanese food companies had some factory or other facilities in the United States, with about half of those in California. But he expects the number to grow rapidly.
''Every restaurant chain and supermarket is forced to think about the possibility in order to compete with other companies or with imported food,'' said Mr. Hayashi, who is based in Los Angeles. ''It's still low key, but below the water many companies are doing research or feasibility studies.''
Under a trade agreement reached last June, Japan's import quotas on beef and oranges will be raised each year until they disappear in April 1991. Orange juice quotas will end in April 1992. Quotas on other products, including tomato sauce, apple juice and ice cream will end at various times during the next three years under a separate agreement signed about a month later.
Even with the quotas, Japan has become the largest export market for American farm products, surpassing all the Western European nations combined. But with the quotas being lifted, some analysts say the market for American products, particularly beef and fruit juices, could easily double or triple.
Japanese companies are attracted to the United States in part by the comparatively low prices - raw food products like tomatoes are one-fifth their cost in Japan, where land is limited. But other factors are also important, including the weakness of the dollar against the yen and the lower cost of American packaging materials, like aluminum cans. Those factors make it economical for companies like Kagome to produce and package ketchup and fruit drinks in California, rather than Japan.
So far, much of the action appears to be in beef. Japanese beef consumption is only one-fifth the American level per capita at present, so Japan could become a big market for American beef producers, who are facing a decline in domestic consumption.
Earlier this month, a Japanese company named Stamina Foods and the Marubeni Corporation, a Japanese trading company, announced that they would build a beef-processing plant in Fremont, Neb., to produce special cuts of meat for export to Japan. Japanese companies have also bought the Washington Beef Company, a processor in Yakima, Wash., and half of Colonial Beef in Philadelphia.
In California, Masaaki Tanabe, an exporter, has put together a network of joint ventures with Americans, including a ranch to breed cattle, feeding lots to fatten them and packing houses to slaughter and butcher them into Japanese-style cuts. Mount Shasta Beef, as well as Southfield Beef Packing Inc., which took over the deserted meat-packing plant in Fresno, are two of these ventures. Americans run them and are part owners.
The meat from this vertically integrated network will then be exported by Mr. Tanabe's South Pasadena company, Mercury Overseas, which is partly owned by the Hannan Corporation, a major meat wholesaler in Osaka.
Other food areas are also seeing Japanese investments. At least five California wineries have been bought in the last few years by Japanese brewers and pharmaceutical companies, eager to learn about wine in general and to supply the growing Japanese market, where California wine is starting to make inroads.
Several American bottling companies are already bottling fruit and soft drinks for Japanese companies.
Even rice, the product Japan has given the most protection, is seeing some action. While rice cannot be imported easily, some products made from rice can. A Japanese-owned company called American Sunny Foods, based in Stockton, Calif., began exporting rice flour to Japan last year, mixing it with sugar to skirt the import barriers. The sugar is removed and sold in Japan, and the flour is used to make rice pastries known as mochi, a spokesman said.
The American production of sake, a rice wine, goes mainly to supply Japanese restaurants in this country, but California officials expect exports to begin eventually. The Napa sake factory, which will be the fourth in California, is being built by Kohnan Inc., which is owned by Satsuma Shuzo, a Japanese brewing company. Kohnan also bought a Napa winery, which it has renamed the Silverado Hills Cellars, according to Kojiro (Mike) Iwasaki, its president.
One long-term threat to American food and agriculture companies is that the Japanese will use their United States facilities not only for exports but also to penetrate the American market. Indeed, the Fresno cotton mill - being built by a Japanese textile producer, Nisshinbo Industries, along with Kanematsu-Gosho Ltd., a trading company - is aimed at selling to the American market where there are barriers to imported textiles.
Mr. Sano of Kagome said the company was also thinking eventually of expanding its California facility to move into the United States ketchup market, first by producing for American companies. The factory in Los Banos will only use one-quarter of the land the company bought. ''We have room to grow,'' he said.
THE TRADE PACT: NO VICTORY?
When the farm trade agreements between the United States and Japan were signed last summer, American trade officials predicted that sales of American beef and oranges to Japan would double within a few years. Judging from their investments in American ranches and citrus groves, Japanese companies agree.
But Colin Carter, an associate professor of agricultural economics at the University of California at Davis, argues that the results of the trade agreements might well prove disappointing for the United States.
In a paper he will present at a conference in South Korea this week, Dr. Carter argues that Japan has been favoring the United States under the existing quota system because of America's political importance. Once the quotas disappear, as the trade agreements provide, total imports by Japan will increase but the American share of those imports is likely to decline and there might even be an absolute decrease in American exports, he said.
Dr. Carter noted that the American share of beef imported by Japan rose to 35 percent in 1986 from 2 percent in 1970, while Australia's share declined to 59 percent from 87 percent. Japan excludes Canadian beef.
Both Australia and Canada are net exporters of beef to the United States, suggesting they have a competitive advantage, Dr. Carter said. Hence they should be able to outsell Americans in the Japanese market once Tokyo stops controlling the sources of its imports, he said. Moreover, he noted, the United States imports more beef than it exports, so that any price increase resulting from Japan's market opening would have a net detrimental effect on the United States trade balance, he said.
Others disagree. ''I've heard that argument and I'm skeptical,'' said Clyde Prestowitz, a former chief American trade negotiator with Japan.
Tommy Beall, director of market research at Cattle-Fax, a Denver market analysis concern, said American exports to Japan are high-quality, grain-fed beef that do not directly compete with lower-quality Australian beef, which is also the kind the United States imports.
But Dr. Carter is not alone in pointing out that the results of the trade agreement might not result in a straightforward increase in American exports. For instance, if American beef displaces Japanese beef, then the Japanese might buy less American grain for use as cattle feed.
