Buying the Farm : Japanese Boost Stake in State’s Agriculture

Kaz Fujisaki, his wife and their two young sons have begun to settle into life in Fresno, where Fujisaki’s Japanese firm broke ground last July for what will be the West Coast’s first cotton-spinning and weaving mill.

When the $54-million plant begins operation next November, Nisshinbo California will produce undyed fabric--so-called greige goods--for U.S. manufacturers. In doing so it will also provide nearly 200 new jobs for Fresno County and a ready outlet for one of the San Joaquin Valley’s major crops--cotton.

“We’re creating a new business,” said Fujisaki, the venture’s sales director. “We noticed continuous growth in the market for textile products in California over the last 10 to 15 years, and we thought that now is a good chance to establish our own production facility here in California.”

Nisshinbo, a subsidiary of a leading Japanese textile firm, decided to build in California for a number of reasons--not least of which is the fact that the United States is highly protective of its domestic textile industry. But the high value of the Japanese yen in relation to the U.S. dollar also has been pricing Japanese clothing products out of the huge American market. Being located in the United States also will give the new mill a significant advantage over foreign suppliers, which must pay a hefty U.S. tariff plus ocean freight charges.

These factors, plus recent initiatives that will open up new markets for food products in Japan, are stirring a quiet wave of Japanese investments in U.S. agricultural businesses following earlier investments in manufacturing, banking and commercial real estate.

The investment wave is especially evident in California, the nation’s leading agricultural producer, whose total harvest last year earned $15.5 billion. California earned $3.3 billion of that from export sales--53% of it to Pacific Basin trading partners and 29% of that to Japan alone.

Kagome, a Japanese food processor, is expected to announce Tuesday plans to build a $23-million tomato-processing plant in Merced County. And a Japanese-American joint venture, Southfield Beef Co., already is refitting a Fresno meat-packing plant, closed since 1984, to begin producing the highly marbled beef favored by Japanese consumers.

These projects follow recent agreements by the Japanese government to begin opening the nation’s huge food market--second only to that of the United States--to more foreign products. Japan has agreed over the next three years to lift trade restrictions affecting a dozen categories of agricultural products. These include beef, processed tomato products, citrus fruits and other commodities--all major crops in California.

Joining Competitors

“We’re seeing just the tip of the iceberg right now,” said Mark Gustafson, a vice president of the U.S. Meat Export Federation in Denver. “We’re early in the investment stage, and you won’t really see this manifested for about three years when the Japanese market really opens up.”

Japanese businesses that resisted imports are now moving abroad to join the competitors in selling to Japan, said Allan Melkesian, director of the California Department of Commerce’s office of foreign investment.

“Overall,” he said, “I think that in the next two years we’ll see a lot more activity dollar-wise--in fruit processing and vegetable processing. Because their markets are being opened, the Japanese companies want to be in place to compete with the foreigners.

“The nice thing about this is that all the products are going to be exported back to Japan,” Melkesian said.

California wineries have been notable targets of Japanese investment. Kohnan Inc., a subsidiary of Minami-Kyushu Coca-Cola Bottling in Japan, is building a sake plant on the edge of the Napa Valley wine country, where Kirin, the giant brewery and beverage company this fall bought Raymond Winery for $18 million.

Raymond became the fifth Japanese purchase of a premium winery in Northern California since Suntory, another beverage concern, bought out Sonoma County’s Chateau St. Jean in a $40-million deal five years ago. And, according to Eric Drew of Mid-Town Realty in Healdsburg: “There are quite a few other people out there looking for wineries.”

Capitalizing on Location

Melkesian of the state’s foreign investment office predicted that the Japanese acquisitions will prove to be “something that California is going to be extremely rewarded by in comparison with other states,” explaining: “We have just begun working in a cooperative way with the (state) Department of Food and Agriculture to target the major companies that would be likely to make the initial investments in California.”

California intends to move aggressively to capitalize on its Pacific location in wooing Japanese investors, said Jack Parnell, the department’s director and himself a Placer County cattle rancher. At a symposium on agricultural trade sponsored this month by the Japan America Society of Southern California, Parnell said he views Japan as not part of “the Far East but the Near West.”

“We’ve been very aggressive in Japan seeking foreign investment,” Parnell said. “We don’t see that as negative, but positive. . . . We’re rapidly becoming interdependent in many ways, and we need to recognize that. California is absolutely dependent on viable agricultural export markets.”

Parnell noted that while Japan’s refusal so far to allow imports of foreign rice has developed into a major trade issue, Japan does allow imports of products containing rice, such as packaged rice pilaf. Taking advantage of that opening, a Japanese venture, American Sunny Foods, was formed last month in Stockton to export rice flour made from California rice.

Yasuo Endo, agricultural counselor at the Japanese embassy in Washington, told the symposium that Japan’s food imports have shifted over the last decade from basic commodities such as wheat and corn to meat, fruits, vegetables and processed foods--all of which favor California’s highly diversified farming.

The surging Japanese interest in U.S. farm goods and food products extends well beyond California. A survey by Business Tokyo magazine published last month found Japanese money moving into the harvest of soft-shell crabs, clams and sea urchins along the Maryland and Virginia coasts to citrus farms and juice plants in Florida, and to cattle operations in Montana and Washington.

One reason is the Japanese yen, which has doubled in value over the last three years in relation to the dollar and made almost anything abroad much cheaper than in Japan, said Ted Hayashi, Los Angeles-based agricultural director for the Japan External Trade Organization, better known as JETRO. Some of the investment impetus is due also, Hayashi added, to pressures placed on the Japanese government--especially by the United States--to open its markets at home to help overcome persistent trade imbalances.

Processing Cheaper in U.S.

“Some Japanese food manufacturers and agricultural companies agreed with that pressure,” Hayashi said, “because they have to compete with very cheap imported food. They are now going abroad for raw materials, processing and re-exportation (to Japan).”

Processing fruit juice in the United States, for example, costs only about half what it costs in Japan, he said, and the juice itself costs a third what it does in Japan. Even the cost of trucking from Osaka to Tokyo is not that different from shipping products from Sacramento to Tokyo, he added.

Moreover, Hayashi said, buyers can produce items that appeal to Japanese tastes. “If Japanese companies come over to the United States, then they can make the appropriate product suitable to the Japanese market.”

Hayashi argues that both American and Japanese firms can gain marketing advantages from joint ventures in U.S. agriculture. “The Japanese need a good (U.S.) partner, because the partner knows this country; but the Japanese partner knows much better about the Japanese market.”

Hayashi added that Japanese investors feel that “100% ownership is not desirable” and may cause “repercussions” in host countries such as the United States. (Indeed, Japan already has experienced a backlash of sorts from within Australia’s beef industry, where the Japanese have recently made major investments.)

So far, said Melkesian, the pattern of Japanese investment has been low key. The Japanese, he said, are approaching agricultural investments in a “very confidential, but very quick manner”--generally avoiding the usual preliminary inquiries with governmental entities.

Import Own Products

“There is definitely an increase in interest,” reported George Schneider of Pearson Realty in Fresno. “We’ve had a series of very strong inquiries. We had one group looking for large plots of open ground, and another was looking for a very, very large block of almond orchards.”

Japanese concern over a potential negative reaction as investment increases and becomes more visible is not without reason. The Japan Economic Institute, a Washington research center partly financed by the Japanese government, last May reported: “No matter that European and Canadian businesses have a long record of takeovers while their Japanese counterparts are newcomers to the mergers and acquisitions game, American opinion leaders and the public alike worry more about Japanese investors capitalizing on the yen’s increased purchasing power than other foreigners using their extra financial leverage.”

The institute sought to portray Japanese investments in the broader context of foreign direct investment from all sources. While “there is no question” that Japanese acquisitions are increasing, it maintained that Bridgestone’s $2.6-billion acquisition of Firestone Tire & Rubber and Sony’s $2-billion purchase of CBS’ recording business are the exception, not the rule. “The vast majority of Japanese purchases fall into the $50 million and under category, with most well below $20 million.”

Typical of these more modest investments are two in Southern California.

Camino Real Foods in Vernon signed a deal this month with a Gardena subsidiary of Osaka-based Nissin Food Products under which Nissin will distribute frozen burritos and other Mexican specialty foods in Japan under the Tina label. (Nissin is Japan’s leading marketer of Oriental snack noodle products in the United States, selling under the Top Ramen label.)

Exporting Beef

Gary Viner, whose GVA Financial Group in Phoenix brought the two firms together, said the venture takes advantage of a rapid development of convenience stores in Japan and other Pacific Rim countries. (Arco of Los Angeles and Kyodo Oil of Tokyo this month agreed to open more than 500 Arco am/pm stores at Kyodo service stations, and Arco has a similar deal in Taiwan and is looking at other Pacific Basin countries.)

The other Southland deal is longer standing and grew out of E. B. Manning & Sons, a family owned meat-packing operation in Pico Rivera with farming roots reaching into the last century. Members of the Manning family formed Manning Beef Products International four years ago with Masaaki Tanabe, a Japanese partner based in South Pasadena, to export well-marbled beef to Japan--much as Southfield Beef plans to do at its refurbished packing plant in Fresno. (The Japanese are fond of beef with a higher fat content.)

“We do custom slaughtering for International” while Japanese workers assure quality control, said Lloyd Manning, president of E. B Manning and a part owner of the export venture. “We cut to their specifications.” Customers include three major supermarket chains that Manning called “the Vons and Ralphs of Japan.”

As Japan begins enlarging its beef quota, which is expected to double the present U.S. sales there to more than $1 billion, Manning expects to step up its own sales by 50% a year--even as the domestic beef market continues in the doldrums. Already, the international venture accounts for more than half the company’s 115 workers, he said, “and we’re thinking of putting on a double shift--another 40 people.”