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Farmers bet on steaks twice the price of silver

by Aya Takada

Bloomberg

Hirotaka Sekiguchi dresses his “wagyu” calves in T-shirts and jackets to protect them against the spring chill and an expected avalanche of cheap foreign beef.

The 59-year-old Sekiguchi pampers the 320 cattle on his feedlot in the town of Kamisato, Saitama Prefecture, with customized meals and private stalls to ensure they develop the kind of marbled, melt-in-your-mouth meat that fetches almost twice the price of silver in Hong Kong.

Farmers of “wagyu” (Japanese cattle) are betting that rising wealth in Asia will expand the market for premium beef and quadruple annual exports to ¥25 billion by 2020. New buyers are needed as Australia and the U.S. press Prime Minister Shinzo Abe to cut tariffs on imported meat, which the government estimates could undercut as much as 68 percent of domestic beef sales.

“The operators of huge farms overseas can’t give the individual care that we do,” said Sekiguchi, who tends his herd with his wife and two adult sons. “To get the best beef, the most important things are to keep them healthy, make each animal eat as much as it can, and let them sleep for as long as they want.”

Wagyu, which literally means “Japanese cow” or “Japanese cattle,” are characterized by their heavily marbled flesh and intramuscular fat that produce soft, sweet meat. Kobe beef is one well known variety of wagyu.

At the InterContinental Hotel Steak House in Hong Kong, the 14-ounce wagyu rib eye from Japan tops the price list at 2,400 Hong Kong dollars (¥32,000, or $310). The most costly, bite for bite, is a tenderloin weighing 8 standard ounces (224 grams) going for HK$2,180, the equivalent of $38.54 per troy ounce, the unit of measurement for precious metals. Silver was trading this week at about $19.90 per troy ounce.

Exports climbed 14 percent last year to ¥5.8 billion as demand for Japan’s premium meat increased, led by Asian sales in Hong Kong, Macau and Singapore. At the same time, competition in domestic markets is limited by the government’s 38.5 percent levy on beef imports.

Abe is moving to ease restrictions on foreign meat as he overhauls policies that have protected domestic farmers for generations, keeping food prices high. He set a goal of more than doubling food exports to ¥1 trillion by 2020 as part of an economic growth strategy that began with unprecedented monetary easing and fiscal stimulus.

The Abe administration is scuttling the four-decade-long “gentan” subsidy system that protects the nation’s 1.2 million rice farms, and the promise of trade deals is forcing a review of tariffs. Farmers are adapting to a gradual roll back of their political power as urban consumers demand cheaper prices and as courts question the weight disparity between rural and city votes.

For cattle producers, increased competition tests the viability of an industry in which many switched from lower-cost breeds to the high-end wagyu herds after an agreement with the U.S. in 1988 eliminated a ceiling on beef imports. Japan is reviewing new trade deals with the U.S., the world’s biggest beef producer and the fourth-largest exporter, and with Australia, the third-largest shipper.

Australian Prime Minister Tony Abbott is expected to arrive in Tokyo on Saturday as he and Abe seek to reach agreement on a bilateral trade pact. Abbott is ready to consider eliminating tariffs on Japanese cars and is asking Abe to lower the duty on beef, the Nikkei financial newspaper reported March 27.

The value of Japanese beef imports jumped by 21 percent to ¥267 billion last year, led by Australia, which accounted for 51 percent of inbound shipments, government data show. U.S. beef accounted for 38 percent after Japan recently eased restrictions imposed on American sales, hit by a prolonged ban in 2003 over mad cow disease.

President Barack Obama will visit Japan this month to discuss plans for the 12-nation Trans-Pacific Partnership, which has been championed by Abe for the benefits it would bring to manufacturers from Toshiba Corp. to Toyota Motor Corp.

Japan’s electrical-equipment exports in February totaled ¥947.4 billion, while motor vehicles were ¥858.6 billion, dwarfing foodstuffs at ¥34.2 billion, customs data show.

A new trade partnership is supported by Meat Companion Co., the Tokyo-based company that slaughters cattle from Sekiguchi and farms across Japan, and ships the prime cuts overseas under the “Samurai” label. Opposition to a deal comes from JA Group, the country’s biggest farm lobby with 9.8 million members.

In addition to increased meat sales in Japan, trade partners seek cuts to the 778 percent tariff on rice imports and duties of 360 percent on butter and 328 percent for sugar.

“If Japan improves access to its markets for other nations, they’ll do the same for us,” said Koichiro Uemura, a managing director at Meat Companion. “The benefits from higher beef exports outweigh the harm done by more imports.”

To justify premium prices, consumers in export markets need to see the lengths to which Japanese farmers will go to produce high-quality food, wagyu farmer Sekiguchi said.

The calves on his farm start life on mother’s milk before starting a diet of rice straw and Italian rye grass. Later comes compound feeds of corn and soymeal, to which he adds rice bran, a sprinkling of charcoal dust and beer lees, a yeast byproduct of brewing.

When the animals reach about 27 months or as much as 500 kg, they are ready for slaughter, Sekiguchi said. Every farmer has their own strategies to improve taste, texture and smell, with some going as far as massaging cattle and giving them beer to drink, according to Uemura.

Japan isn’t the only one betting on increased demand for premium meat in Asia. In Australia, Scott de Bruin has 5,000 head of cattle on his 7,500-acre property at Millicent, about 400 km west of Melbourne.

De Bruin, who is president of the Australian Wagyu Association and competes with Sekiguchi for sales in Asia, takes a different approach to raising his herd.

Unlike the animals raised on smaller farms in Japan, calves in Millicent roam the fields with their mothers for six months. Then De Bruin weans them and leaves the juveniles to forage for themselves for another two to four months before putting them onto a grain-feeding program until slaughter at about 26 months.

“There’s definitely a demand for both” original wagyu beef from Japan and its Southern Hemisphere offshoot, De Bruin said. “Australia is viewed as being so clean and green, having very high standards on food safety.”

The Steak House in Hong Kong also serves cuts from Australia, the U.S., Canada and Argentina. A 32-ounce Tomahawk Australian Wagyu costs HK$2,080 while the same weight of New York Strip sells for HK$1,808.

Head chef Calvin Choi said some customers come three or four times a week, and always order Japanese Wagyu.

“Inside the mouth, 10 seconds, it is melting to nothing,” Choi said. “Japanese beef, they eat the texture. American and Australian beef, the main thing is the flavor.”