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Interview with Maruha Nichiro Foods President

July 9, 2009

A new business entity has been in operation for a little over a year since a merger between Maruha and Nichiro. In the past year, a Tenyo Foods scandal and a consumer freeze due to a structural recession during the last half period forced the food industry to face a tough, bitter fight. How was the first year of Maruha Nichiro Foods business in the midst of the situation? We interviewed President Michiro Sakai about the results of the first year as well as the future polices:

Well-Fought Fight During Previous Fiscal Term

Suisan Times (ST): You just had the very first financial settlement as a new business corporation.
Maruha Nichiro Foods (MNF): The Tenyo Foods scandal hit us hard first, negatively affecting sales of mainly commercial frozen foods. During the first half year, the prices of materials and basic ingredients skyrocketed, and stagnating consumption due to the market deflation and demands for lower prices from mass retailers were seen for the last part of the year.

ST: There was swirling dead wind.
MNF: We bravely dealt with the hardships. The operating profit of the foods segment added up to \8.9 billion, of which \4 billion came from cold foods, \2 billion from processed foods, \500 million from livestock, \8 million from chemical products, and \1.6 billion from operations in Asia and Oceania. Though cold foods and processed foods as the main operations suffered a lot, we paid extra attention to production adjustment in order to maintain appropriate inventory. We concentrated on the 11 major products of commercial cold foods, which led to productivity improvement. In the end, we managed to achieve a planned result of operating earnings.

ST: That will boost your confidence in the future performance.
MNF: This fiscal term is the intermediate year of the mid term business plan "Double Wave." We planned on a \11.7 billion operating profit. This is a must-achieve number in order for us to reach the final results of \300 billion sales and an operating profit of \15 billion.

ST: It will not be an easy task to raise \8.9 billion to \11.7 billion.
MNF: One of the results of the merger is a cost reduction and the foods segment accounts for 90 percent of the cost curtailment. The merger effect of the first year generated \2.6 billion as a whole. We are projecting a further reduction of fixed expenses, about \7 million, by layoffs, bringing us an overall \1.7 billion merger effect for this business year.

ST: Is there any more room for deeper cost reductions?
MNF: A marginal income of \1 billion can be made by structural revisions, reductions in logistics and marketing costs, and cutback in sales promotions. Existing waste, which can be converted to earnings, is "a mountain of fortune."

ST: What about more improvements or new moves?
MNF: For the tweaking of production, distribution, development, and finance, each unit operation of cold foods, processed foods, livestock, chemicals, and international business started to take action. The unit operation inside the foods segment is under way. Acknowledging inventory, fund management, and cash flow is a crucial point, when the efficiency of human resources, products, and money, or the maximization of corporation value is actualized.

ST: You mean that compartmentalization within the group is a key.
MNF: In foods business, the modification of production lines and logistics are a big profit eater. Having said that, the main 11 products of commercial cold foods have increased their market share, contributing to the further profit margin improvement. In terms of professional grade foods, their peculiar nature of high-mix low-volume production deters profit generation. Commercial canned and processed foods products are exhibiting the merger effect, however, we have a lot to do, when it comes to products for business use. It is one of the main goals for this term.

ST: What about the current situation and issues of each product category?
MNF: Processed foods, such as canned and kneaded fish products, suffered a great deal as a result of increasing raw material costs during the first part of the year. For the rest of the year, deflation hindered access to consumers. How added value will be promoted is our future issue to tackle. The metropolitan and Kansai areas still have room for growth.

Strengthening Product Development for Elderly Diet

ST: Canned seafood products, excluding tuna can, overwhelmed market share.
MNF: Our products account for 55 percent of the market share in the industry. Mackerel, saury, and sardine of a "Maruha" brand, and salmon, scallop, and crab of an "Akebono" brand are both performing favorably at retailers.

ST: Fruit jelly products are selling well.
MNF: This category now sells \10 billion worth of products. A new product of "Calorie Zero" is gaining popularity at retailers. We are going to continue our effort for product development. We attempt to reinforce the categories of lunch box items, rice, and noodles in commercial cold foods, and further pursue higher productivity. As for special need diet for the elderly, we will focus on product development in response to in-home nursing needs.

The original article was published on July 9, 2009 and was translated by Kiyo Hayasaka.

Japan-China-S. Korea Private-Sector Fishery Talks on Resources Management

July 8, 2009

A private sector meeting between Japan, China, and South Korea was held in Jeju-do, S. Korea on July 1. Dialogues about safe fisheries operations and resources management were exchanged. 12 delegates from Japan included Chairman Isao Nakase from the Japan Fisheries Association, Chairman Ikuhiro Hattori from the JF National Federation of Fisheries Cooperative Association, as well as Chairman Kyoichi Kawaguchi from the National Pelagic-Offshore Squid Fisheries Association.

S. Korea emphasized the improvement of resources management based on the decline of S. Korean fishing boats in provisional waters of the Sea of Japan from 6,500 to 3,500. Referring to the resources management, S. Korea admitted that "boat reductions will be the most effective method"; however, the country suggested that "the installation of artificial fishing reef and seed release will also be as effective. Therefore, it will be a good idea to establish a joint marine resources creation center in the East Sea where three countries conduct fishing operations." Moreover, S, Korea indicated her further effort for beach cleanup evidenced by an increasing governmental subsidy for this particular purpose.

Fair use of fishing grounds and the betterment of operational order in the provisional waters did not show any advancement in the past. Japan expressed her appreciation for willingness of the countries involved to proceed with a joint fishing ground cleanup project, which has been discussed since late last year. Furthermore, Japan indicated active communication and information exchanges relating to resources management of the provisional waters among researchers of the three countries. Japan suggested the need to approach each government about a setup of a regional fisheries management organization on an international level.

Representatives from China made an emphasis on their efforts towards the extension of fishing rest periods and regulation of fishing nets, in addition to a boat reduction from 26,000 to 18,000 in the provisional waters. It was also stated that "soaring fishing prices are becoming evident due to declines in supply."

Careful Approaches to Eliminations of Tariff and Subsidy

With regard to WTO negotiations in the field of fisheries, S. Korea said, "The progress of the negotiations isn't clear; nonetheless, subsidies for duty exempted oil and small scale fisheries are necessary." Mentioning the sectoral removal of seafood tariffs and across-the-board prohibition of fisheries subsidies, Japan asserted that "this may adversely affect continued existence of fisheries and fishing villages, and therefore fisheries associations and groups of each country must collectively deal with these matters." As for the adoption of LED, Japan pointed out that "LED actualizes positive results, such as a fuel cost reduction and CO2 curtailment. Nevertheless, it is about time to create a rulebook to prevent illumination power issues."

The original article was published on July 8, 2009 and was translated by Kiyo Hayasaka.

"Chi-Chiku" by Kibun Chosen as Exportable Processed Foods Product

July 6, 2009

Kibun Shokuhin's "Chi-Chiku - five pack," popular as a hors d'oeuvre or snack item, was selected for the Ministry of Agriculture, Forestry, and Fishery's "40 Select Exportable Processed Foods Recognized by the World."

"Chi-Chiku" has been already marketed in the United States and various parts of Asia through Singapore, Hong Kong, and Taiwan. Now that the product was chosen as one of the "Select 40," it will be introduced at export promotion events organized by the Ministry. Therefore, the further reorganization of the product is expected.

This "Select 40" was picked out of 253 items submitted for "exportable Japanese foods favored by foreigners" and voted by staff members of foreign embassies in Japan and stakeholders of the trading industry. Seven processed marine foods, including "Chi-Chiku," consist of 20 other processed foods items.

The original article was published on July 6, 2009 and was translated by Kiyo Hayasaka.

Major Seafood Company's Bluefin Tuna Aquaculture Series, Part 1:
Kyokuyo Strengthens Bluefin Tuna Aquaculture Operation

July 2, 2009

Kyokuyo is slated to invest \100 million in the installation of three new preserves in October, aiming to strengthen bluefin aquaculture facilities of its subsidiary, Kyokuyo Marine Farm (Sukumo City, Kochi Prefecture).

Kyokuyo set about its bluefin aquaculture operation in 2007. In the first year of the operation, the company released 9,000 tuna juveniles, 10 to 15 cm in length, purchased from local fishermen. 12,000 juveniles in 2008 and another 20,000 in 2009 were released; the company gradually expanded the aquaculture operations, accumulating the empirical knowledge of bluefin tuna farming. Currently, there are four fish preserves, which are 60 cm in diameter; and three more will be added sometime this year, making it a total of seven fish pens.

The first harvest is scheduled for this October. Juveniles that were released to corves in 2007 will grow to be 40 kg size bluefin in two and a half years; approximately 3,200 tunas, a total weight of 110 tons, will be shipped out. An annual sales value of \300 to 400 millions is a goal.

Kyokuyo is one of the major suppliers of sushi fish for sushi boat restaurants. The company plans to directly sell its cultured bluefin tunas to sushi boat restaurant chains and other restaurant chains, making the best of the company's sales channel. Market distributions will be also considered.

Furthermore, Kyokuyo Suisan, another subsidiary of Kyokuyo, processes imported frozen tuna to appropriate sizes for sushi use and blocks, and now the company aims to produce value added products, such as "Tsuke Maguro" (marinated tuna). To this end, the first and second processing plants in Ohikawa will be either reconstructed or renovated.

Kyokuyo, also, aspires to "possess 10 fish corves in three years and annually harvest 260 tons of tuna," and "intends on running bluefin tuna aquaculture operations in the different areas."

The production amount of domestically cultured bluefin tuna for this year is projected to be about 10,000 tons, as harbingers are expanding their production operations and some new comers also entered this field. Kyokuyo is one of the new comers; and, the company sets its mind to the establishment of an integrated system from production to distribution as one of the major seafood enterprises, aiming for even further advancement.

The original article was published on July 2, 2009 and was translated by Kiyo Hayasaka.

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