Developing Carcass Beef for the Japanese Premium Market: a Montana Enterprise
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University of Montana ScholarWorks at University of Montana Graduate Student Theses, Dissertations, & Professional Papers Graduate School 1992 Developing carcass beef for the Japanese premium market: A Montana enterprise Scott G. Hibbard The University of Montana Follow this and additional works at: https://scholarworks.umt.edu/etd Let us know how access to this document benefits ou.y Recommended Citation Hibbard, Scott G., "Developing carcass beef for the Japanese premium market: A Montana enterprise" (1992). Graduate Student Theses, Dissertations, & Professional Papers. 5847. https://scholarworks.umt.edu/etd/5847 This Professional Paper is brought to you for free and open access by the Graduate School at ScholarWorks at University of Montana. It has been accepted for inclusion in Graduate Student Theses, Dissertations, & Professional Papers by an authorized administrator of ScholarWorks at University of Montana. For more information, please contact [email protected]. Maureen and Mike MANSFIELD LIBRARY Copying allowed as provided under provisions of the Fair Use Section of the U.S. COPYRIGHT LAW, 1976. Any copying for commercial purposes or financM gain may be under^en only with the author’s written consent. MontanaUniversity of Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. DEVELOPING CARCASS BEEF FOR THE JAPANESE PREMIUM MARKET A Montana Enterprise by Scott G. Hibbard B.A., Williams College, 1974 M.F.A., University of Montana, 1979 A Professional Paper Submitted to a Committee of Graduate Faculty in Partial Fulfillment of the Requirements for the Degree of Master of Business Administration School of Business Administration University of Montana Missoula, Montana 1992 Approved Chairman, Board of Examiners Dean, Graduate School J r 2 li . _ _?r------ Date Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. UMI Number: EP36648 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. UMT OtMMctttion niUMiing UMI EP36648 Published by ProQuest LLC (2013). Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code uesf ProQuest LLC. 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106 -1346 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. TABLE OF CONTENTS ACKNOWLEDGEMENTS .......................................... V LIST OF T A BL ES ............................................. vi LIST OF ABBREVIATIONS......................................vii INTRODUCTION .............................................. 1 PART I. BEEF CONSUMPTION IN JAPAN — A FRAMEWORK Chapter 1. A BRIEF HISTORY OF CATTLE IN J A P A N .................. 3 2. THE DEVELOPMENT OF MODERN JAPANESE AGRICULTURE . 7 3. RURAL POLITICAL STRENGTH IN JAPAN .................. 15 The waning of rural power in J a p a n .............20 4. PROTECTION OF THE JAPANESE MARKET ................... 24 5. LIBERALIZATION OF THE JAPANESE BEEF MARKET .... 28 6. JAPAN'S AGRICULTURAL ECONOMY ...................... 34 7. BEEF PRODUCTION IN J A P A N ............................ 42 8. DISTRIBUTION OF BEEF IN JAPAN ........................ 55 9. ECONOMIC OPPORTUNITY IN THE JAPANESE MARKET .... 61 10. DEFINITION OF PRODUCT ................................ 71 11. BEEF GRADING IN JAPAN ................................ 74 12. THE JAPANESE BEEF M A R K E T ............................ 79 13. THE JAPANESE CONSUMER .............................. 8 3 14. PRODUCT DEVELOPMENT.......................... 94 15. COMPETITION AND COMPETITIVE ADVANTAGE ...... 100 A u s t r a l i a ........................................ 103 J a p a n ............................................ 109 ii Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. The United States ............................... 114 16. MARKET RISK .......................................... 120 PART II. THE MARCHI PROJECT 17. MARKET E N T R Y ........................................128 18. NICHIRO CORPORATION .............................. 131 19. THE MARCHI-NICHIRO FEED T R I A L S .................... 134 20. WASHINGTON STATE UNIVERSITY AND THE JAPANESE BEEF MARKET ...................................... 149 WSU Feed Trials ................................. 150 Marbling and Carcass Development in Wagyu and A n g u s ................................. 152 Market Considerations ........................ 159 U l t r a s o u n d ...................................... 163 21. ZENCHIKU LAND AND LIVESTOCK, INC.................... 165 22. SUMMARY OF FINANCIAL ANALYSIS ................... 172 23. CONCLUSION ..........................................176 An Investor's perspective .................... 182 Appendix Marchi Angus Ranches 1. SUMMARY OF FINANCIAL DAT A .......................... 185 2. FINANCIAL RATIOS, 50 HEAD PER MONTH, BEST C A S E ........................................ 187 3. FINANCIAL RATIOS, 50 HEAD PER MONTH, WORST CASE ........................ 188 4. PRO FORMA BALANCE SHEET, 50 HEAD PER MONTH . 189 PRO FORMA STATEMENTS OF INCOME AND EXPENSES: 5. NOVEMBER 1, 1991 THROUGH OCTOBER 31, 1992 .... 190 iii Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 6. SENSITIVITY ANALYSIS — BEST CASE, YEARS 2 THROUGH 5 ............................... 192 7. SENSITIVITY ANALYSIS — WORST CASE, YEARS 2 THROUGH 5 ............................... 194 PRO FORMA STATEMENTS OF CASH FLOWS: 8. NOVEMBER 1, 1991 THROUGH OCTOBER 31, 1992 .... 196 9. SENSITIVITY ANALYSIS — BEST CASE, 50 HEAD PER M O N T H ............... 198 10. SENSITIVITY ANALYSIS — WORST CASE, 50 HEAD PER MONTH ............................... 200 Nichiro Corporation 11. PRO FORMA PROFIT AND LOSS, SCENARIO I .............. 202 12. PRO FORMA PROFIT AND LOSS, SCENARIO I I ............. 203 LIST OF REFERENCES ........................................ 204 IV Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. ACKNOWLEDGEMENTS I would like to thank the research team at Washington State University for the time and effort they graciously extended in providing information for this paper. Special thanks to Jerry Reeves, Ray Wright, and Thomas Wahl for their generous help. Hiroshi Aoyama of Nichiro Corporation, and Hidetaka Iwasaki of Nichiro Pacific, Ltd., were most helpful. I thank them for their help and their friendship. The contributions of John Morse, Steve Browning, and Matthew Cohn are gratefully acknowledged. My graduate committee — Paul Larson and Richard Dailey of the University of Montana, and Joseph Atwood of Montana State University — were supportive and encouraging. Their assistance is deeply appreciated. My sincere appreciation to Jon Marchi, from whose imagination this topic sprung, and on whose shoulders its success rests. To my family, Gretchen, Tyrrell and Cooper, this paper is humbly dedicated. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. LIST OF TABLES Table Page 1. Nominal Rates of Agricultural Protection ......... 24 2. Import Quotas .......................................... 32 3. Numbers of Japanese Farms and Farm Workers . .37 4. Japanese Farm I n c o m e ................................. 38 5. Wagyu and Dairy Cattle Numbers in Japan ........... 47 6. Farm, Wholesale, and Retail Beef Prices in J a p a n ............................................. 49 7. Farm Output, U.S. and J a p a n .......................... 51 8. Volume of Japanese Beef Production and Beef I m p o r t s ........................................... 53 9. Exchange R a t e s ....................................... 63 10. Former Japanese Beef Grades and U.S. Equivalents....................................... 75 11. Carcass Grades of Beef Steers in Japan (1988) . 78 12. Changes in Food Consumption in J a p a n ............... 88 13. Australian and U.S. Share of Total Japanese Beef Market ...................................... 101 14. Australian and U.S. Share of Japanese Beef Market: Frozen and Chilled B e e f ..............102 15. Cost of Finishing Cattle in Japan and the U.S. 119 16. Cattle Performance, 1991 WSU Feed Trial ............ 152 VI Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. LIST OF ABBREVIATIONS BMAA Beef Market Access Agreement CPI Consumer Price Index GATT General Agreement on Tariffs and Trade GNP Gross Domestic Product HQ High Quality LDP Liberal Democratic Party LIPC Livestock Industry Promotion Corporation MAFF Ministry of Agriculture, Forestry and Fisheries MTN Multilateral Trade Negotiations ROA Return on Assets ROI Return on Investment WSU Washington State University VI1 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. INTRODUCTION With the liberalization of the Japanese beef market in April of 1991, the opportunities for expansion of beef exports to Japan from the United States improved dramatically. This paper