Health and Functional Foods to Japan

24 January, 2013: Version 1

Introduction
One of Australias major export destinations for food and beverage products, Japan is a mature market where consumers have a strong interest in health and beauty, recognise value, buy on price points, and expect over delivery. This report examines the latest market trends and key areas for future opportunities. It has been put together to help Australian exporters make an informed decision about whether to enter the Japanese market.

Market Environment
Japan is the worlds third largest functional food and beverage market, valued at 1.77 trillion yen (approximately A$ 22 billion) in 2011. A rapidly aging society, an increase in lifestyle related diseases, and a strong interest in health and beauty support this market. Many features and benefits are attached to functional food and beverage products. Intestinal regulation, nutritional fortification, and lifestyle disease prevention are the top three areas with sales of over 200 billion JP Yen (approximately A$ 2.5 billion) in 2012. The purchase decisions of Japanese consumers are also influenced by the following: o o o o o o o Efficacy data Positive experiences: a crucial point for repeat purchases The type of health benefit Name and content of the key functional ingredient The country of origin: Made in Japan usually has strong appeal, while Australia is seen as producer of natural and high quality products Naturalness: Naturally derived ingredients, not containing artificial ingredients, and simple or minimum production process The brand name of the product.

Health and functional food products are sold online and through catalogues and TV shopping: distribution channels which represent around 22 per cent of sales. Most suppliers provide special discounts for long term repeat purchases, so these distribution channels also encourage consumers to place repeat orders. As the market continues to grow, more businesses are entering this sector and the market is becoming even more competitive. Successful Japanese manufacturers have already started looking at export opportunities in the Asian market for functional food products, with some of these manufacturers producing ingredients and products at the GMP certified facilities in these countries. Japanese manufacturers have also focused on developing new technology to improve the ratio of absorption of active ingredients, including miniaturisation, solubilisation, nanoisation, smaller molecule, and liposome encapsulation.

Opportunities for Australian companies

In Japan, Australia is generally seen as a trusted, secure, and safe supplier of food and beverages because of its strict quarantine policy and advanced food safety and quality assessment system. This is already a competitive advantage.

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Organic certification is also an advantage, especially if the material is derived from plants More opportunities for ingredients: Marketing of overseas branded products in Japan is a timeconsuming exercise because of regulatory issues, current level of awareness, and consumers preference in package design and the size of tablets and capsules. For this reason, ingredients rather than finished or own branded products often provide more realistic opportunities for Australian suppliers in this sector. For example: o o o The supply of bulk products The supply of ingredients for Japanese-made health and functional foods Contract production under the Japanese specification at a GMP/HACCP/ISO certified facility. (Some Japanese manufacturers do not have their own facilities and are therefore reliant on outsourcing production.)

Recent examples of Australian ingredients that have been successfully introduced to Japanese companies are: o o o Bovine cartilage powder Freeze dried young barley grass powder Fish oil (EPA).

Proven efficacy and high levels of consumers awareness are always important in Japan. For this reason, Australian companies entering the market should first check which ingredients are used with efficacy data. Products to be presented in Japan should clearly address their competitive advantages. Although Japanese companies usually show interest in new ingredients, materials and ideas, they are unlikely to use them unless the products have proven efficacy and safety, plus a high potential to win consumers interest. There were no products containing new or less-known ingredients successfully marketed to Japan in 2011; however, products with enhanced efficacy where other well-known ingredients or where the functionality on an existing product was introduced such as glucosamine, chondroitin, and collagen were successfully marketed. (See Appendix for examples of well-known functional ingredients or elements in Japan.) Most Japanese companies seek a direct business partner/ingredient supplier rather than dealing through a consolidator or agents. The Japan Food Sanitation Act sets very tough specifications and standards for foods imported into Japan. (Suppliers should confirm details of requirements well in advance.) Becoming a back up supplier can be a good option as a start for entering the Japanese market because Japanese manufacturers are continually looking for ways to increase their production. Manufacturers require a stable supply of quality ingredients so they often secure two or three trusted supply sources for key ingredients as backup. Ingredients manufactured with advanced technology are of interest to Japanese manufacturers, and the technology itself can also be of interest.

How Austrade can help

The Austrade team based in Japan can assist with initial market entry, potential product launches, and in extending market opportunities for those companies already operating in the region.

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To help us convert enquires into prospective business for you, tell us what your products offer. We are seeking interest from Japan market-ready and market-appropriate companies to: Present your product information to health and functional food manufacturers and seek feedback Present commercial opportunities to you that may arise from these introductions.

Alternatively, we can tailor a market visit program and market research to meet your specific requirements on a fee-for-service basis.

Contact us
To learn more about these opportunities or to talk to one of Austrades experienced Food and Beverage team in Japan, please contact: Sally Phillips (Sally.Phillips@austrade.gov.au) in Japan

Disclaimer
Austrade does not endorse or guarantee the performance or suitability of any introduced party or liability for the accuracy or usefulness of any information contained in this Report. Please use commercial discretion to assess the suitability of any business introduction or goods and services offered when assessing your business needs. Austrade does not accept liability for any loss associated with the use of any information and any reliance is entirely at the users discretion.

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Appendix
Background information: Market size and trends
Japan is the worlds third largest functional food and beverage market. In 2011, the market including drinks, supplements and functional foods was valued at 1.77 trillion yen (AU$ 22 billion if 1A$=80yen). The total market size was slightly decreased from 1.78 trillion yen in 2010 because production was affected by the great earthquake in Tohoku in March 2011. However, sales of several types of products have since increased and there are signs of a further increase in the 2012 figures. The major reasons behind the growth of the health and functional food market in Japan are as follows: 1. A rapidly aging society Around 25 per cent of Japans population will be over the age of 60 by 2025. As people become older they have a higher risk of locomotive syndrome from the weakening of bones, joints, and muscles. This can eventually trigger serious diseases due to lack of exercise. Older people also tend to have poor or less balanced nutrition because of the difficulty of shopping and cooking for themselves. The provision of convenient, supplementary, well-balanced nutrition is very important for these consumers 2. Increasing lifestyle-related diseases In Japan today many middle-aged people risk metabolic syndrome the result of obesity and consumers are increasingly turning to functional foods.

3. Increasing consumer interest in health and beauty

Products for diseases prevention are in high demand in Japan. For example, the demand for indigestible dextrin, which prevents hyperglycaemia, has increased by 137 per cent since 2009. The market demand in Japan for the products to support beautiful skin is already assessed at 195 billion JP Yen (A$2.4 billion), and is expected to increase in 2012. The Japan Ministry of Internal Affairs and Communications has estimated that the average healthy life expectancy in Japan is 73 for men and 78 for women, while the average life expectancy is 79 and 86, respectively. People are aware of the importance of maximising their healthy life span, both in terms of quality of life and in the necessity for medical expenditure to make this happen.

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Estimated market size in 2011 by products functional claim Anemia prophylaxis , Immunostimula 0.8% tory action , 1.6% Others, 10.5% Eye Care, 3.1% Liver Function Support , 3.6% Green Charge , 4.5%

Intestinal regulation, 14.7%

Nutritional fortification , 12.4%

Multi Balance, 6.7% Nutrition Balance, 4.6%

Lifestyle disease prevention, 11.4% Beautiful Skin, 10.7%

Diet (Weight management) , Bone and Joint 7.1% Support, 8.3%

Functionality Intestinal regulation

2011 Estimate (Billion JP Yen) 262

Growth 10-11 (%) 97.17

2011 Market Share (%) 14.7

2012 Estimate (Billion JP Yen) 262

Note Yoghurt and milk products containing lactic acid bacterium. Production was reduced in 2011 because facilities were damaged or not in full operation after the massive earthquake and resultant power outage. Led by drinks containing royal jelly, deep sea shark extract, or soft shell turtle extract. Demand is high in summer. Middle-aged to senior consumers are the main users. Market potential is higher if the product is registered as FOSHU. Covering a wider age group of consumers. Collagen, hyaluronic acid, placenta, vitamin C are the main ingredients.

Nutritional fortification

220

104.5

12.4

223

Lifestyle disease prevention

202

99.7

11.4

200

Beautiful Skin

190

100.7

10.7

195

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Functionality Bone and Joint Support

2011 Estimate (Billion JP Yen) 146

Growth 10-11 (%) 101.0

2011 Market Share (%) 8.3

2012 Estimate (Billion JP Yen) 149

Note Glucosamine, chondroitin and calcium are the key ingredients. Consumers strong awareness of glucosamine is leading the market growth. Calorie control foods (noodles, cookies, etc.), sugar alternatives, products, and fat burning ingredients. Products containing a balanced amount of vitamins and minerals. Todays consumers want specific functionality on products. General nutritional support alone is not enough to appeal to the market. Sales increased after the 2011 earthquake. Block snack and jelly drinks are popular products. Green juice (aojiru), chlorella and spirulina are the main items. Powdered and frozen products are available. A natural image is appealing to consumers. Turmeric, ornithine and fresh water clam extract are the main ingredients. Turmeric is well known as a hangover cure. Blueberry is a well-known ingredient. A wide range of health food and supplements are available. Propolis and agaricus are the major ingredients. Consumers interest level is relatively low. Milk beverages containing iron are the main products. A prune yoghurt drink is popular. Not many varieties are available for supplements.

Diet (Weight management)

126

104.4

7.1

128

Multi-Balance

119

92.6

6.7

114

Nutrition Balance

81

101.7

4.6

79

Green Charge

80

100.7

4.5

81

Liver Function Support

65

93.7

3.6

69

Eye Care

55

101.9

3.1

55

Immunostimul atory action

28

96.1

1.6

28

Anemia prophylaxis

14

87.3

0.8

14

Source on figures for market size: Fuji-Keizai Group HB Foods Marketing Handbook 2012 No.3 General Overview

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Background information: Distribution channel

Some 18,000 to 20,000 companies (importers, manufacturers, wholesalers, and retailers) handle health and functional foods in Japan. This graph shows distribution channels. Distribution channels for health food (million JP Yen)

Others, Corresponden 250,134 ce sales, (14.1%) Convenience 393,660, stores, (22.2%) 238,160 Door-to-door (13.4%) Mass sales, merchandise 294,100, outlets, (16.6%) Drug stores, 366,290, 231,660, (20.6%) (13.1%)

Source: Fuji-Keizai Group HB Foods Marketing Handbook 2012 No.3 General Overview

The Japan Direct Marketing Association (JADMA) reported that the market size for correspondence retail business for all types of products in 2011 was JP Yen 413 billion, an increase of three per cent over the previous year. The association also reported that that 42.6 per cent of their members marketed health and functional foods, the largest product category handled by their member companies.

Types of health and functional claims attached to products in Japan

Functional foods and drinks are products designed for those who are concerned about their health. These products include: Regular or normal looking food and drinks Powder and granulated powder (freeze-dry, air-dry, spray-dry, drum-dry, slow-dry, etc.) Tablets Soft and hard capsules.

The manufacturing and sales of these products is regulated by the Food Sanitation Act and Pharmaceutical Affairs Act, and is categor ised as follows: 1. Health and functional conscious food products with no FHC, or FNSC Normal processed food and beverages with a minor content of functional ingredients Supplements of particular nutrition ingredients such as vitamins and minerals.

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2. Food with health claims (FHC) Food for specified health use (FOSHU) - Tokuho in Japanese These products are labelled with certain health claims which the Japan Consumer Affairs Agency (CAA) has assessed and approved based on the scientific evidence. The application process typically takes about one year. Around one thousand applications for certification of these products had been received by May 2012. The size of the market was estimated at JP Yen 517.5 billion in 2011. (Source: Press Release by Japan Health and Nutrition Food Association on 16 May 2012) Food for special dietary use (FOSDU) These products are labeled with certain nutritional claims looked for by specific users (people who are sick, expectant or nursing mothers, patients who have difficulty in swallowing, etc.). The Japan Consumer Affairs Agency (CAA) assesses and approves applications based on the scientific evidence. 3. Food with Nutrient Function Claims (FNFC) A requirement is stipulated in the Japan Food Sanitation Act that Food with Nutrient Function Claims (FNFC) must contain at least one of the specific nutritional item (five minerals and twelve vitamins) that are considered crucial for human health, and their degree of content must fit within the fixed ranges considered ideal for daily intake. Products that clear these conditions can be sold as Food with Nutrient Function Claims based on the manufacturers own judgment.

List of major functional ingredients and elements in Japan market

Astaxanthin (a type of carotenoid, red): Antioxidant. Increasing popularity in Japan. Protects from UV light and lipoperoxidative reactions. Contained in salmon, crabs, prawns, sea bream, etc., and mainly imported from the United States. A leading Japanese film manufacturer has developed new skincare products containing this element utilizing their nanotechnology. Barley/kale grass powder: For producing green juice (aojiru in Japanese). Cartilage powder (mucopolysaccharide): Consists of chondroitin sulphate, heparan sulphate, glucosamine, hyaluronic acid, etc. Various types of products are available using this ingredient. Derived from cartilage of beef, shark, and squid. Collagen and gelatine: A group of proteins. Demand for gelatine has increased and the price has also increased because of tight world supply. Enzyme: Fermented vegetables, fruits, seaweeds, and other various ingredients. This type of product is used in special diets or for fasting drinks. (No sugar or artificial additives are accepted in these special drinks.) The manufacturing of this type of product requires both unique and traditional techniques and in Japan the major producers are long-established alcohol manufacturers. The retail market is around JP Yen 27 billion. Glucosamine (element of mucopolysaccharide): Known for alleviating joint pain. Hyaluronic acid (element of mucopolysaccharide): Known for retaining moisture. Used for cosmetics and for functional foods and drinks. Krill oil: Contains Omega 3 fat acids such as EPA, DHA, and astaxanthin. Increasingly popular as substitute for fish oil and flax seed oil. A leading Norwegian company has registered IP for its Krill Oil processing technique in Japan. Lutein (a type of carotenoid, yellow): Antioxidant. Contained in the spinach and broccoli. Used as an eyecare supplement.

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Peucedanum japonicum: Called long life grass in Japanese. Contains vitamins, minerals, fibre, polyphenol, and Isosamidin, which reduce risks for arterial stiffening. Placenta: Derived from plants or animals (horses, cows, and sheep) and contained in cosmetics and supplements. Increasing popularity in Japan. Known for nutritional fortification, antioxidant properties, antiglycosylation, for improving skin condition, and a number of other efficacies. Resveratrol (a type of polyphenol): Antioxidant. Contained in the red wine and grapes. Turmeric: Known for improving liver function Type II Collagen: Known for alleviating joint pain.

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