Japan and the European Union just announced a deal on free trade and will seek to reach a final agreement by the end of this year. The EU has already promised to phase out its 10 percent levy on Japanese automobiles, while Japan says it will eliminate taxes on a raft of food items.

However, one sticking point remains: cheese. The EU has demanded even lower tariffs on cheese than what Japan had negotiated for in the Trans Pacific Partnership, to which the EU was not a party. Originally, Japan said it would not yield more than what it concluded for the now defunct TPP, a 29.8 percent tariff for “soft-type cheese,” because if it did the U.S. would likely demand similar concessions when it gets around to negotiating a new bilateral trade agreement with Japan.

But since almost every trade agreement Japan enters into is predicated on benefiting its automobile industry and the EU has conceded that point, Japan has to come up with something. As it stands, Japan will lower the tariff on soft cheeses over a 15-year period and establish a quota.

Europe makes a lot of cheese and Japan does not. Cheese has a relatively short history in Asia and thus is not as popular here as it is in the West. Nevertheless, there is a market, and there are dedicated cheese makers in Japan as well as large dairy companies like Morinaga and Snow Brand that manufacture and trade in cheese, and they want the government to protect their interests.

Without tariffs, a kilogram of natural cheese from the Netherlands, Denmark or Germany could be imported for as little as ¥300.

Prime Minister Shinzo Abe says he wants to renovate the agricultural sector, which is stuck in the past and controlled by the powerful and monolithic Japan Agricultural Cooperatives (JA), but his government is holding firm on protecting the dairy sector. On a recent NHK news report, a professor from Hokkaido, the main milk-producing prefecture in Japan, estimated that 80 percent of domestic cheese would be “replaced” by European cheese if tariffs were dropped.

The domestic cheese market is highly segmented. Retail sales of natural cheese, whether domestic or imported, are only one part of the larger system of cheese trade.

According to the agriculture ministry, in 2015, domestic makers produced 21,814 tons of natural cheese for sale to consumers and 24,174 tons of natural cheese for use in the manufacture of processed cheese.

Meanwhile, 248,054 tons of natural cheese was imported into Japan, 77,187 tons of which was used in the manufacture of processed cheese. About 8,200 tons of already processed cheese was brought into Japan, while at the same time domestic makers produced 119,606 tons of processed cheese. The total amount of cheese consumed that year, processed and natural, imported and domestic, by consumers and by businesses, was 320,519 tons.

These numbers point to an important aspect of the Japanese market: Almost half the cheese consumed in Japan, be it by the public or by businesses (restaurants, food makers, etc.), is processed cheese. And while the amount of imported natural cheese greatly overshadows the amount made in Japan, almost a third of the cheap imported cheese is used to make processed cheese here, and a good portion of that cheese is free from tariff, but only if the buyer also buys more expensive domestic natural cheese for the purpose of making processed cheese.

By doing so, the government assures a certain amount of domestic natural cheese sales, a system called dakiawase, which in turn assures demand for domestic raw milk. So if all tariffs for imported natural cheese were lifted, domestic processed cheese makers would have no incentive to buy domestic natural cheese, and the whole raw milk distribution system would be thrown into turmoil. In effect, Japanese milk would be competing with much cheaper EU milk.

This system is premised on the idea that Japanese people prefer processed cheese. According to the consumer research company Trend Plus, the top three best-selling “cheese products” in supermarkets in the summer of 2016 were the plain, almond-flavored and Camembert-flavored versions of QBB Baby Cheese, processed cheese that comes in packages of four individually wrapped rubbery cubes. The top 10 is filled out by similarly bland pseudo-cheeses.

Each package of QBB Baby Cheese costs about ¥100 retail, which may be as much as the average Japanese person is willing to pay for cheese, though the story we’ve always heard from cheese retailers is that most Japanese people don’t like “real cheese” unless it’s soft and mild, like unwashed Camembert, Brie or mozzarella. We’ve also heard that it’s the price of real cheese that discourages consumers from buying it, but the difference would be meaningless without the tariff.

True, 100 grams of aged Parmigiano Reggiano will set you back ¥1,000 at your local department store, but 100 grams of mature Gouda will only cost you ¥300 to ¥400. Without the tariff, it might be as cheap as processed cheese.

Of course, many supermarkets outside of major cities don’t carry any natural cheese at all, and it’s important to note that the government has promised that it will eventually eliminate the tariff for hard cheeses, most likely because they are the type that most Japanese people don’t buy.

But cheese consumption in Japan is growing. According to the Internal Affairs and Communications Ministry, the average family of more than two persons spent ¥453 on cheese in April, whereas the average monthly household expenditure for cheese in 2005 was between ¥200 and ¥300, a significant change. But how much of it is real cheese and how much is processed cheese?

The tariff for imported cheese is not really there to protect the small number of Japanese who only make natural cheese for retail consumption. Its main purpose is to keep the dairy industry stable, which begs the question: How would easing tariffs on European natural cheese that is expressly meant for direct sale to consumers affect the Japanese dairy industry?

Sales of processed cheese would theoretically not be affected by broader imports of natural cheese purchased by a minority of consumers. Then again, maybe tariffs aren’t the problem for people who like real cheese.

In an article that appeared in Tuesday’s edition of the Asahi Shimbun, a cheese importer implied that even if all tariffs were abolished, he didn’t think retail prices for high-end European cheeses would come down that much, thus indicating that high retail prices for cheese may have more to do with middlemen-importers and wholesalers than with tariffs.

If these middlemen think consumers will continue to pay dearly for cheese, then they can look forward to a considerable windfall when the tariffs come down.

Yen for Living, a column that covers issues related to making, spending and saving money in Japan, runs on the second Saturday of every month.

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