KEY POINTS:
Portraying New Zealand Inc's business mission to Tokyo as a move to "butter-up" the Japanese could be seen as rather crass.
But these are not normal times.
The ability of New Zealand to provide Japan with guaranteed supplies of prime New Zealand food products, like butter, was the major selling point used by Prime Minister Helen Clark to persuade Japanese Prime Minister Yasuo Fukuda to agree to a joint study on the benefits of a bilateral free trade agreement.
Japanese businesspeople present at the inaugural Japan New Zealand Partnership Forum in Tokyo last week (an initiative by the recently formed New Zealand International Business Forum and attended by a who's who of NZ business) were also concerned by the impact of the international "food shock" on their countrymen.
So it's no surprise that they listened intently when Fonterra's Phil Turner posed a question to the forum: "How is it possible for Japan - perhaps the wealthiest and most sophisticated food market in the world - to run out of butter in its supermarkets?"
Turner brought the message home by flashing a photo he had taken in his own local supermarket in the Tokyo suburb Shirogane showing a written apology to customers for being unable to supply retail butter packs. "This despite Japan having some of the world's highest prices for butter - What's going on?"
Turner is Fonterra's general manager commercial intelligence and strategy. His butter story is compelling.
The big story in dairy has been the extraordinary rise in prices which has seen all four main dairy products: skim and whole milk powder, butter and cheese, double in price between late 2006 and 2007 - a "major shock to consumers worldwide" - but a bonanza to New Zealand's dairy farmers.
This price escalation has caused ripples within New Zealand.
But in Japan, which produces only 39 per cent of its own food locally, the impact of the price rise along with those for imported food products such as beef, sugar, rice, wheat, barley and pork has not only put additional pressure on household budgets but also raised concerns over the security of long-term food supplies.
As Turner emphasises: world food production is struggling to keep up with demand, fed by population and income growth, dietary change and competitive pressures on land use.
In dairy, demand is growing at 2.5 to 3 per cent annually, while production has fluctuated around the 2 per cent level or lower - hence the higher prices.
Highly protectionist Japan is now experiencing a situation where international prices for dairy products like skim milk powder are exceeding Japanese local prices for the first time in memory. Stocks have sunk to near minimum reserve levels.
The Japan premium - the price Japanese consumers have been prepared to pay for security and quality - has basically disappeared. Japanese food processors and consumers are being forced to compete with other consumers around the world.
Turner did not need to over-emphasise to Japan's power brokers how high input costs and tight regulation - including border protections like tariffs and quotas - are preventing Japanese agriculture from responding to consumer demands. While milk production in Japan has been stagnant for 10 years and its farmers are ageing, go-ahead agriculture interests are putting pressure on the Japanese Government to undertake reforms. The keen appetite for economic reform expressed by the top-notch Japanese delegation to the forum was impressive.
Many of those speaking under Chatham House rules indicated impatience for Japan to go further down the free market reform path and open its agriculture industry to greater competition. Around the corridors there was plenty of discussion over the pork-barrel nature of Japanese politics where the ruling Liberal Democratic Party (LDP) is seen to have been too captive to local influences.
These barely disguised concerns came to the fore in a joint interview I undertook with Yoshiya Sato who is editor-in-chief of Nikkei Business Weekly. Sato made considerable play over NZ's reform process during his questions to Philip Burdon, who was NZ co-chair for the forum.
Japan's loss of dominance in Asia following the rapid emergence of China appeared to have crept up on many influential Japanese who believed Japan was now at a "watershed".
In Parliament yesterday, Trade Minister Phil Goff described the commitment to a joint study as a "major breakthrough" with New Zealand's third largest export market.
"It's the first time Japan has signalled a readiness to enter discussion potentially removing trade barriers to New Zealand goods and services."
Goff couldn't put a figure on the dollar value to NZ of an FTA with Japan. But he said if it matched the ambition of the recently signed China NZ FTA ("high quality, comprehensive and WTO compatible") the economic benefits would be "very significant". The Ministry of Foreign Affairs and Trade - which will soon get down to the task of forming terms of reference for the study in conjunction with its Japanese counterpart - had not made an economic assessment of the upside. New Zealand sends 15 per cent of its exports to Japan, almost three times the amount sent to China.
An Otago University economist - cited by Goff - reckoned a trade deal could be worth around US$395 million ($510 million) annually from the removal of tariffs alone.
But it won't all be plain sailing.
Forum co-chair Yoshihiko Miyauchi told the Business Herald that Japan's preference had been for policy-based multilateralism to deal with the New Zealand relationship. The world focus had now switched to bilateralism and Japan's concerns to protect its social system were showing some rupture. But Miyauchi cautioned that Japan still had considerable domestic interests to assuage.
Japan signalled New Zealand could be doing a lot more to warm the relationship. Tourism - where Japan sends 150,000 visitors to New Zealand each year and receives 30,000 in return - was singled out by a Japanese Vice-Foreign Minister (speaking on Fukuda's behalf) as an opportunity for New Zealand.
Others like Sachio Semmoto - the boss of Emobile who has been described by the Economist as a serial entrepreneur - were more direct ("It's a two way street").
Some joint projects were also suggested:
* International climate change: Sumitomo would like to partner up with NZ to counter deforestation in areas like Indonesia, which are adding to global warming problems.
* Innovation: A suggestion that Wellington could become the site for a pilot study into the use of electric cars grabbed attention. Particularly the potential for using electric cars developed in Japan by Toyota and other manufacturers in a city provided by renewable electricity from Meridian's wind power farms. The "sustainable outcome" was appealing.
Keen interest was also shown in Air New Zealand's sustainability push.
The economic relationship is clearly not just focused on the dairy trade. New Zealand also supplies aluminium, forestry and fishing products to Japan. New Zealand is also dependent on Japanese investment through uridashi bonds and other securities.
The inaugural forum was rated by both sides as a success - there was a tangible outcome through Fukuda's commitment to a joint study on a bilateral FTA and a commitment to explore new areas of cooperation at future forums.
* Fran O'Sullivan received accommodation assistance from the NZ International Business Forum.
