De La Salle University Manila

Ramon V. del Rosario College of Business

ASEAN SME CASE STUDY

AGRI-BUSINESS IN JAPAN
JA UMAJI AGRICULTURAL COOPERATIVE

In Partial Fulfillment of the Requirements

in BUS835M Strategic Management

Submitted By:
Margarita Chua
Charlie John Lazaro
Kevin Matibag
Raymund Sabarre

Submitted To:
Dr. Philip Ella Juico

January 25, 2017

I.
II. Background of the Case and
 Statement of the Problem

JA Umaji was established in 1948 with a paid-up capital of Yen 190,509, pursuant to the 1947
Agricultural Cooperatives Law. It is part of a nation-wide cooperative association with 957
members. Umaji Village is located in the remote region of Kochi Prefecture, Shikoku Island,
Japan, with a current population of less than 1000 second least populated village, with a land
area of 16, 552 hectares, and has almost 95% area covered with mountain forests.

Until the 1970s, the key industry of Umaji Village was forestry. However, because of
liberalization of timber imports in 1964, the forestry industry became less competitive and less
profitable leading to major migration to urban areas which caused a sharp decrease in the
population of the village.

In 1961, the Japanese Government passed the law on Fruit Promotion and Development, to
encourage each region to plant specific fruits. JA Umaji selected Yuzu since Yuzu trees were
growing wild in this region.

The cooperative encouraged its member farmers to plant Yuzu trees by distributing Yuzu
seedlings to their coop members. The members delivered all the harvest to JA Umaji
Agricultural Cooperative, who in turn, sold Yuzu as fruit or squeezed juice to local food
processing firms.

However, competition in the market was severe especially in terms of pricing and quality.
Moreover, the Yuzu fruits produced by Umaji were smaller and less appealing due to the black
spots on the rind as compared to others available in the market.

In 1987, the Shikoku Prefecture experienced the largest Yuzu harvest in history. This led to
sharp decrease in price and the stockpiling of harvests in the warehouses.

As a response, in 1988, Umaji commenced production of the two new products: Fresh Yuzu
juice mixed with honey and water without preservatives, and Ponzu with Yuzu extract.

Mr. Totani observed that people repeatedly bought the juice. This prompted him to tap into the
regional market by approaching a local TV station and a newspaper company for advertisement
and fliers. Furthermore, he hired a graphic designer for the packaging of the products.

After their success, they targeted the national market by joining Specialty Food Fairs in different
department stores. From these, Umaji was able to obtain a list of more than 3000 clients which
they used for direct marketing.

In 1996, JA Umaji established their homepage which showed not only the products but also the
published events in the village.

The annual sales of Umaji jumped from Yen 89 million in 1987 to Yen 3 billion in 2010. However,
the revenue decreased from Yen 3,340 million in 2010 to Yen 3,070 million in 2011. This is
mainly due to the increasing competition.

To cope with the increasing competition, JA Umaji developed new products from Yuzu like
pepper, tea, jam, marmalade, salad dressings, and other. As of July 2012, the Yuzu product line
totaled more than 40 items. In addition to the Yuzu product line, Umaji introduced the Monacca
bags. These bags are made of thinned cedar, using the residuals from forest thinning.
Building on the success of the Yuzu products, Umaji also capitalized on marketing their village
as a tourist destination. In 2006, an integrated production and shopping facility was built. It
included a processing plant, packing/distribution terminal, a call center, a bakery, restaurant,
and a gift shop. The strategy was to sell the image of Umaji as the Village of Yuzu.

At the present, JA Umaji has a list of more than 320,000 direct and regular customers, in
addition to the visiting tourists. Umaji also promoted its hot spring facility and restored the
railroads. In 2011, almost 60,000 tourists visited the village.

Statement of the Problem:

How can JA Umaji achieve sustainable growth in terms of its Yuzu business and the tourism of
the village?

III. Objectives of the Study

To be able to increase the sales of the Yuzu products despite increasing

competition.
To be able to increase the tourism of Umaji village from 60,000 per year to
200,000 per year.

IV. Areas of Consideration

Point of View
The group will focus on the point of view of the management of JA Umaji

V. Theoretical Framework

A. Macro Environment - PESTEL Analysis

Political Factors
The Japan agricultural cooperative associations were organized in accordance to a government
mandated agricultural land reform act seeking to protect family-run farms. These cooperatives
also known as JA (Japan Agricultural Cooperative Associations) was the governments solution
to food shortages after the war - it enabled the collection and distribution of staple products such
as rice, wheat and barley from farmers.

The law promulgated in 1961 regarding fruit promotion and development - encouraged the
planting of specific fruit per region it has since been replaced by revised reforms in 2005 -
focusing on formulating a strategic plan for the fruit producing communities with a longer horizon
of 5-10 years. The revision in focused on the viability of farming, future leadership, marketing,
production, labor issues, and the like. It strongly suggests that the plan should be developed by
farmers. The focus is to address the decline on the aging farmer population and its subsequent
impact on domestic food/fruit domestic production

Another law impacting Umaji VIllages economy is the liberalization of timber import in 1964.
The local wood or forestry industry succumbed to cheaper wood coming from abroad. This
resulted to low job availability and small number of new or younger workers. There was also
lower demand for domestic wood as it became more expensive than imported wood. This, as
well as lower wages and harsh working environment resulted in alienating the new generation in
the traditional jobs offered in the village. This further pushed younger people to seek jobs in
urban areas.

The Japanese government protects it farmers not just by subsidizing production but also
imposing tariff rules on fruits that will directly compete with what the farmers are producing.

Economic Conditions

The Japanese market for fresh fruit has traditionally been dominated by domestically grown
produce with a narrow group of products allowed for import. The government has ensured that
trade barriers in the form of tariffs and phytosanitary rules are in place to protect domestic
growers/farmers. This resistance to trade liberalization can mean that production can fall as the
country is also experiencing population decline. There continues to be less and less young
people who are willing to work in the farms opting to work in urban areas.

Japans tariff and phytosanitary rules on specific fruit items also impact the price in which
farmers can offer their products. It may prevent some imports and raise the cost of other
products. Also, subsidies and government imposed trade policies on trade and production give
incentives to domestic farmers who can conform adhere to forecasted production levels.

However, the fact remains that Japan is one of the worlds largest net importers of agricultural
products. Japanese consumers look closely at quality and safety of the fruits that are available
to them and are willing to pay premium price for high quality imported tropical fruit (e.g.
bananas). However, most of these products are not in direct competition to what the local
farmers can produce.

In many ways, domestic produce continue to be more expensive than imported fruits due to
small production yields and high labor cost - there will continue to be a niche market who will be
willing to pay premium price to support the local industry.

In the case study, it was mentioned that the Umaji village was adversely affected by a period
where they experienced bumper crops as this brings down the price of their product and
increase stored inventory. However, this was before the new measures were imposed by the
government (The Fruit Supply-Demand Stabilization Program, 2007) where producers or
farmers were encouraged to cull and destroy excess crops thereby meeting production/demand
targets or divert the crop to the processing market to avoid oversupply of fresh produce.

Sociocultural Forces

Umaji Villages primary industry was forestry until the liberalization of timber import in 1964. As
stated earlier, low wages and harsh working conditions combined pushed young people to seek
jobs in urban areas. The shift to agri-business by farming Yuzu fruit was seen as a necessity to
create jobs and revitalize the villages economy

The villages focus on organic farming proved to be both a boon and bane for the farming
community. Its target consumers did prefer healthy eating and appreciated naturally grown
products. However the limited size of the local market, increase in harvest production as well as
price competition (due to a centralized distribution system via the local food processing
companies) meant limited opportunities for growth and profitability.
The cooperative also followed the trend in shopping habits of its customers. From 1988 - 1999,
the village transitioned from direct marketing, advertising in radio and TV as well as building a
call center and online shop to facilitate the sales and distribute of its products

Technological Factors

Japans agriculture output is characterized by high labor cost and low production yields. The
high cost is due in part to the heavy use of multiple agricultural machinery and equipment vs
area covered. The machines represented a big financial outlay for the farmers.

However, recent improvements with regards to operations - consolidation of farms and less use
of farming machinery per area will probably have an impact in a couple of years. Japan exports
farming machinery globally as well.

In terms of marketing, Umaji has clearly been able to harness technology by establishing an
online presence via website to market its product, its location and events. it now has an internet-
based retail business. The cooperative was successful in turning itself into a product selling the
idea of a country lifestyle

Environmental Factors

The Fukushima earthquake of 2011 in some ways have also impacted the market leading
consumers to look closely at what they eat and its origins as the threat of nuclear contamination
was very real

Due to global warming, planting area of domestic fruit is moving to the northern part in Japan.
This may impact seasonal or production cycles in the future for Umaji village

Legal/Regulatory Conditions

The presence of safety nets such as subsidies and insurance from the government in principle
should encourage farmers to build more efficient farms. However, the government has also
established regulations that protect against market risk such as encouraging farmers to
cull/throw excess harvest and divert to processing plants.This creates a market with a very
stable price as opposed to allowing market forces to dictate the price.

It is possible that consumers will buy more fruit if market price will be applied to the farm
produce.

Another safety net introduced by the government is the concept of Chisan Chisho or local
production for local consumption - where schools and farmers markets are utilized to promote
local produce. The policy requires schools should source the raw materials for its lunch
programs from locally produced products by over 30 percent.

B. Immediate Environment Porters 5 Forces Model

Bargaining Power of Suppliers (weak)

The bargaining power of suppliers is weak because the Yuzu products are mainly sourced from
the immediate area of the Umaji Village. This means that they do not need to deal with other
villages or producers of Yuzu to manufacture their own Yuzu juice or Ponzu.

Bargaining Power of Buyers (moderate - normal)

The local market in Shikoku Island was small and is dominated by the buyers. This is because
the other villages in the region also produce Yuzu fruits thereby making price fluctuations very
volatile and competition very stiff. However, buyers are more willing to pay for a higher price if
the product is of high quality. In addition, buyers developed awareness and preference for
organic and natural products which is favorable to Umaji.

Substitute Products (moderate - normal)

Outside the region, Yuzu was not well known and there are other readily available citrus fruits in
the market. There are other citrus-based juices in other regions that are available in the market
like sudachi, kobosu, or lemon.

Threat of New Entrants (normal)

Various new players have entered the market. Some regional producers also produced their
own Yuzu products and even copied the concept and strategy of Umaji.

Rivalry of Competition (strong)

Competition is strong considering the popularity being gained by Yuzu. Other villages in the
region are also producing Yuzu products. In addition, other areas outside the region also have
access to Yuzu products. Likewise, Ponzu products are also available in the market with at least
13 brand names especially in groceries and supermarkets.

Attractiveness of the Market

Despite strong rivalry and the threat of new entrants, the market still remains attractive
considering that there are still ways to improve the quality of the products being offered by
Umaji. Differentiation and higher quality can still be attained in order to attract more customers
to buy the Umaji products. Moreover, being one of the popular brands of Yuzu and by marketing
Umaji as the Village of Yuzu, Umaji still has the first mover advantage which provides recall and
retention to the customers.

C. Internal Environment - SWOT Analysis

STRENGTHS (JA Umaji) WEAKNESSES (JA Umaji)

Strong brand image - especially Decline in profit (2011)
on its Yuzu Products Faced pricing issues on
Protected domestic market products
Rich in natural resources Employment issues - aging
population
OPPORTUNITIES THREATS
Increasing number of Increasing number of
tourists/ travellers competitors
Technological Law restrictions that may
improvements/ innovation on farming/ affect operations and pricing
agriculture Pressure to
Variety of products derived merge/consolidate with other
from Yuzu municipalities from the government

VI. Alternative Courses of Action

ACA 1: Formation of a sub-group cooperative association within Kochi Prefecture,

Shikoku Island, Japan, under the JA (Japanese Agricultural Cooperatives)

The first ACA deals with Umaji farmers merging with other small cooperatives within their area
but who are all members of the nation-wide agricultural cooperative association of JA. It is
assumed that Umaji will have to consolidate with other producers of Yuzu to increase production
and to be able to complement the number of farmers needed for increased production. As a
more empowered group of farmers, this will enable the group to bargain more to make them
more competitive in the market. As a result, if their production becomes bigger, the option to
export or go out of the domestic market is a possibility.
ADVANTAGE/S DISADVANTAGE/S

Improved operation due to consolidation and Non-performing cooperatives will just ride on
increase in resources (both human and raw Umajis success
materials)

More available resources Consolidation of resources is easy but the

hard part is when conflicting ideas start to set
in

Decrease in competition but only in local level

Improved economies of scale Given that Umaji is the second least

populated village in the area, too much supply
might become a problem especially if they are
not converted to finished goods

ACA 2: Go into diversifying by adding to existing product line outside agricultural

production

The second ACA proposes JA Umaji Agricultural Cooperative to pursue diversification and focus
on more value-added products outside agriculture. This addresses the current problem of
shortage of farmers and limited agricultural lands which set a limit of only 45 hectares on steep
mountainous slopes of the area. With an array of other products aside from its existing Yuzu
fruit and juice and Ponzu which is a seasoning with Yuzu fruit as its main ingredient, it went into
other products like vinegar, pepper, tea, jam, marmalade and salad dressing. They ventured into
more value-added products like shampoo, soap, rinse, skin lotion and even produced
Monacca bags which is sourced from thinned cedar residuals. The introduction of new
products every year became the normal thing for JA Umaji which made them very fresh and
interesting especially to those outside of the region. This interest from their customers will pave
the way for Umaji village to jump start its tourism industry while continuing to produce their
popular Yuzu fruit and related products on the side.

ADVANTAGE/S DISADVANTAGE/S

Additional sources of revenue especially from Going into more diversified products entail
their non-agricultural products additional costs in terms of marketing, R&D,
operating and other related costs

Diversification will be the much-needed jump Diversification translates to difficulty in

start Umaji village needs in terms of revenue entering new markets
and tourism

Jump starting tourism in Umaji will help
address the problems of migration especially
amongst the youth of the village. This
migration has been the reason behind the
villages depleting workforce.
Since tourism is considered an engine of
growth, too much focus on it might indirectly
kill the Yuzu business of Umaji
ACA 3: Strengthening of Yuzu production with emphasis on re-engineering the process
of production

This ACA will purely concentrate on improving the process of production of Yuzu juice, Ponzu
products and Yuzu fruit. One way of improving the process of production is to concentrate on
the organic way of farming which may be used by Umaji to address the growing need for
organic and fertilizer-free produce. This is another venue by which Umaji can improve market
share by serving the needs of customers looking for an alternative and a healthier way of
cultivating agricultural products.

ADVANTAGE/S DISADVANTAGE/S

Increased market share Corresponding increase in costs (R&D,

development costs, etc.)

Improved brand recognition for Umaji Yuzu The urge to export due to improved brand
and Ponzu recognition will entail stiff competition and
might affect Umajis growth

Improve revenue and growth for Umaji and its Due to migration problem, number of farmers
attached businesses in Umaji have dwindled down and may
hamper harvest capacity

Decision Criteria:

Criteria ACA 1 ACA 2 ACA 3

Importance to 30% 28% 24% 27%

main business of
farming

Entails the least 30% 28% 24% 26%

cost

Sustainability 40% 34% 36% 38%

TOTAL 100% 90% 84% 91%

VII. Recommendation: Adopt ACA

3 and ACA 1 while carefully considering ACA 2 in the near future

The group finds it feasible for JA Umaji to focus their attention on the improvement of their Yuzu
and Ponzu products by strengthening and re-engineering the process of production. JA Umaji
should also aim to be a prime mover in the organic produce category to capture a substantial
share in the market which remains to be untapped in the area. But to be able to complement
this effort, JA Umaji should formalize their consolidation with other similar small agricultural
cooperatives within Kochi prefecture and nearby areas to increase their capacity to produce the
organic Yuzu fruit. With improved economies of scale, JA Umaji can slowly go to diversification
for more value-added products. Such products will make JA Umaji fresh and current and create
interest for its customers and eventually jump start the ailing tourism industry of the village.

VIII. Action Plan

As Kaizen (continuous improvement) is very important to survive business nowadays, it is

imperative that JA Umaji should consider to take advantage on developing Yuzu and Ponzu
products to the next level. Research and development should be prioritized, wherein new
product improvements may be done or discovery of new uses for both Yuzu and ponzu may be
explored.

While, R&D is in progress, there should also be proposals done, to partner with other
cooperatives. This would actually help lessen the competition, hence support system will be
developed instead. Then, by the time that improvements on Yuzu and ponzu products has been
done, as well as the partnership with the cooperatives, then the JA Umaji management may
consider diversifying the organization's product offerings. For example, they can appeal to
families by offering a children's station where kids may be left or make agricultural activities
available for kids. In this way, tourists market wont only increase by numbers from adult
tourists, but also from children. /
Also consider partnering with schools for field trip tours to increase income for tour services.

Activities Year 1 Year 2

Q1 Q Q3 Q4 Q1 Q2 Q Q4
2 3

1. Create a dedicated committee to focus in R&D. Continue

performing R&D all throughout

2. Conduct series of meeting with other cooperatives and

build partnerships with them

3. Prepare for the advertisements and other promotional

kits for the new products

4. Launch the new/ improved Yuzu and Ponzu products.

Then. continuously produce the products

5. Continue to meet with partner cooperatives,

 6. Re-evaluate strategies

IX. References

Ito, K and Dyck, J (2010, April), Fruit Policies in Japan Kenzo Ito,
https://www.ers.usda.gov/webdocs/publications/fts34101/8707_fts34101_1_.pdf Retrieved from
URL

Japan Basic Information (2016, Oct 11) https://www.ers.usda.gov/topics/international-markets-

trade/countries-regions/japan/basic-information/ Retrieved from URL

Fruit and vegetables to Japan:Trends and opportunities,

http://www.austrade.gov.au/australian/export/export-markets/countries/japan/industries/Fruit-
and-vegetables Retrieved from URL

Thompson, A.A., Strickland, A.J., and Gamble, J.E. (Eds.) (2009). Crafting and Executing
Strategy: The Quest for Competitive Advantage: Concepts and Cases. (2009 Customs Edition).
New York: McGraw-Hill.

The Japan AgriNews, Exploring value-added agriculture: Umaji, Kochi Prefecture, (2014, July
29) http://english.agrinews.co.jp/?p=2411 Retrieved from URL