Emerging Markets / March 27, 2018

Macroeconomics and Food Labeling in Japan

Purchasing Power Parity (PPP) is often used to compare national economies with different currencies because it is a more accurate reflection of the productivity and cost of living between countries. In order to determine macroeconomic indicators based on PPP, the price of a fixed basket of goods, including foodstuffs, energy costs, and housing prices, amongst others, is calculated for each country. For instance, a well-known economic indicator that reflects the principle of PPP is the Big Mac index, which compares the price of a popular and internationally available food item throughout different national markets. If a Big Mac is worth US$4 in New York versus €3 in Paris, the PPP conversion rate that can be established between these two prices can be a more accurate macroeconomic indicator than the official exchange rate. In this regard, Japan is the world’s fourth largest national economy in terms of PPP after the United States, China, and India. With a Gross Domestic Product of US$5.4 trillion in terms of PPP, Japan also has a GDP of US$4.9 trillion in terms of the official exchange rate.

Macroeconomics and Food Labeling in Japan

Since the withdrawal of the United States from the proposed Tran-Pacific Partnership (TPP), there has been much talk about the establishment of a bilateral Free Trade Agreement (FTA) between the US and Japan. In terms of trade, Japan and the United States are major partners. During 2016, Japan exported a total of US$131 billion to the United States, of which 31% or US$40 billion consisted of cars. Likewise, in 2016, the United States exported US$63.2 billion towards Japan, which represents an overall trade deficit of almost US$68 billion vis-à-vis Tokyo. Amongst the key exports of the United States towards Japan are medical instruments, totaling US$2.5 billion or 4% of the total exports, as well as packaged medicaments, accounting for US$2.3 billion or 3.6%.

Like neighboring countries in East Asia, Japan relies heavily on the United States and South American nations for its supply of certain agricultural commodities. For example, Japan imports 100% of the corn that it consumes as well as 95% of its soybean supply. Therefore, Japan’s recent modification to its food labeling regulations is important, particularly as it relates to international trade. This past month, Japan’s Consumer Affairs Agency decided to maintain the current identity preservation (IP) system for food labeling. However, it also decided to raise the bar for its “Non-GE” or “Non-GMO” labeling, which will now require a non-detectable or zero tolerance for GE/GMO components in order to receive such labeling. This means that now the non-GE or non-GMO market in Japan will occupy an even smaller niche given that Japan imports and consumes a large amount of foodstuffs issued for operations that incorporate agricultural biotechnology.

(Read more about Strategic Trade between the United States and China)

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