Any which way you slice it the price of pizza in Tokyo is high by international standards. One reason for this is that Japan protects its farmers by controlling the market for many of pizza’s basic ingredients like cheese and dough.
The good news is that the price of a slice might come down a notch, should the 12-member nations involved in the Trans-Pacific Partnership (TPP) talks succeed in their negotiations. TPP aims to remove all tariffs and restrictions on trade between member countries. That would cause the price of wheat and wheat flour (dough), among other goods and services, to fall.
Supporting high prices is Japan’s Minister for Agriculture, Forestry and Fisheries (MAFF), which holds a virtual monopoly over wheat imports. It buys unmilled wheat at market prices from overseas suppliers and then resells to domestic millers at a much higher price. The difference is paid to farmers as a subsidy.
Millers don’t have to buy from MAFF, so long as they are prepared to pay a prohibitively high tariff. In practice, few millers do so.
Japan depends on imports for over 90% of the wheat it consumes. The demand is almost entirely filled by MAFF, which acts as a de facto state owned enterprise. MAFF has exclusive rights to import wheat within a tariff rate quota set during the World Trade Organization’s Uruguay Round.
The quota on wheat is large − 5 million tons per annum. Within it, nobody but MAFF can buy wheat of any kind, and it does so at a 0% tariff rate. Outside the quota, millers pay an exorbitant ¥55/kilo tariff on unmilled wheat, the most common form of wheat traded in Japan.
That drives the retail price of wheat flour up, according to John Dyck, Agricultural Economist for the US Department of Agriculture, who Beacon Reports spoke to in the preparation of this report. The price of wheat flour in Tokyo is 2.25 times higher than in New York ($1.28/lb vs. $.57 lb). White bread prices are 1.57 times higher, where a loaf will set you back $2.44/lb in Tokyo vs. $1.55 in New York.
Should TPP be finalized and go ahead as planned, does that mean the price of pizza in Tokyo will come down? In the short term that is unlikely. Among the sensitive and difficult issues being negotiated under TPP are agriculture (for Japan) and automotive (for the US). These will likely be subject to a straight-line tariff elimination schedule spanning a decade or more. That will give protected industries time to adjust to the new legislation, but postpone the fall of the price of a slice.
To learn why the Trans-Pacific Partnership is important to the US and Japan, click here.