National Tax Agency report on Japan’s drinks industry – part 3

For historical reasons (including using alcohol taxes to fund military action) alcohol production in Japan is overseen by the Japanese National Tax Agency (NTA). As well as collecting taxes, they also provide a host of services and subsidies for companies making sake, shōchū, awamori, liqueurs, wine, beer and other drinks, and collate and publish statistics on production, consumption and export of alcohol produced in Japan. Their latest comprehensive report on the Japanese drinks industry, Sake no Shiori, was issued in March 2022. (162 page PDF, Japanese)

This post covers Part 3 of the 17-page Preface – the post for Part 1 is here, and Part 2 is here.

After covering the issues facing the Japanese drinks industry in Part 2, Part 3 of the 2022 Sake no Shiori answers the question, well, what is the NTA doing about it?

Their first stream of activity deals with product differentiation and high added value.

In 2021, the NTA helped to create branding strategies based on actual overseas market requirements by conducting surveys and analysis of effective marketing methods and publicly announcing the results. Such marketing initiatives will be considered as subsidised business activities under planned government subsidies for supporting overseas development for Japanese alcoholic drinks, which is designed to assist individual efforts by brewers and distillers and to create an overall industry brand for the Japanese drinks industry. The NTA will continue to offer similar support in 2022.

The NTA set up a committee for global branding strategies in 2019, which initially focused on sake based on its expected high potential for export. Committee members communicate with other government departments, organisations and experts involved in drinks exports, and consider current issues and future initiatives from different points of view. The Ministry of Agriculture, Forestry and Fisheries (MAFF) named sake, whiskey, honkaku shōchū and awamori as key products in its strategy to expand food exports in 2021, so the committee expanded its focus from just sake to all four of these drinks.

Another part of this stream of activity is Geographical Indication (GI). Having a GI increases product recognition both in Japan and abroad, so the NTA gives administrative and technical support for new GIs, and for improvement of existing GIs, so drinks companies can make the most of the certification. It will also expand initiatives such as consumer-facing seminars about GI to increase awareness and make it even more effective as a marketing tool. The NTA is also involved in implementation of new standards for quality in wine production, and revision of regulations such as the Sake Manufacturing Method Quality and Labelling Standards (covered here) and the Japanese Agricultural Standards for Organic Processed Foods.

The second stream of activity is developing overseas markets/export promotion. The principles for developing export markets for Japanese drinks have been laid out in a series of Japanese Cabinet decisions, such as the “Growth Strategy Follow-Up” of 18 June 2021. The Japanese government set export targets for agricultural products and food/drink, aiming for JPY 2 trillion by 2025, and JPY 5 trillion by 2030. An updated action strategy document announced on 15 December 2020 lists export targets by destination for 27 important  products, and three of those are drinks: whiskey, nihonshu and honkaku shōchū/awamori (treated as one). The NTA sees simultaneously increasing recognition of, and expanding sales routes for, Japanese drinks as key to reaching their by-market targets. Their support includes gathering, editing, updating and making available detailed information on drinks laws and regulations, consumer preferences, etc. for each country, as well as engaging with other government departments and organisations.

Increasing recognition of Japanese drinks is broken down into international promotion (understanding how to effectively and efficiently market, participation in overseas events, inviting overseas drinks specialists to Japan, etc.) centred on the target countries from the export action strategy, and promotion of sakagura tourism (supporting creation of model case studies to increase inbound tourist consumption, conduct surveys and analysis to uncover effective methods, subsidising such activities from funds for developing Japanese drinks exports, etc.). For nihonshu in particular, the NTA will concentrate on standardised labelling for export, branding by drink type, and advancing the GI system. Tax breaks given in 2017 to inbound tourists buying at breweries/distilleries are still in effect, and 143 sites had permission for duty free sales as of October 2021.

Under the heading of expanding sales routes, the Japanese Drinks Export Promotion Consortium (Sake Conso) set up in July 2020 continues to create opportunities by matching Japanese producers with exporters and wholesalers. They overhauled their site in May 2021 to give each company its own page that showcases its products and services and contact details for interested parties. The NTA also participates in major overseas trade fairs, focusing on hosting business meetings in countries listed as export targets.

The next stream of activity is elimination of tariffs through treaties such as Economic Partnership Agreements (EPAs), as well as international agreements to honour Japanese GIs. The EU EPA, which came into effect in February 2019, agreed the immediate elimination of tariffs on all alcoholic drinks, removal of restrictions on Japanese wine and import volumes of shōchū, and protection of Japanese drinks GIs in the EU. Japan is also party to the Regional Comprehensive Economic Partnership (RCEP) with Australia, Brunei, Cambodia, China, Indonesia, South Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. The NTA aims to streamline export procedures, and moved from written applications for export certificates to an online application process in April 2021.

A third area of activity is application of skills and securing personnel. This includes support for structural transformation in the drinks industry, including coping with declining domestic demand and an ageing workforce. Subsidies for structural transformation were included in the 3rd supplementary budget of 2020 to support attempts to differentiate products, diversify sales methods and novel use of information technology. The subsidy was later expanded to respond to pandemic-related issues. The NTA are also supporting the application to have sake, shōchū and awamori recognised by UNESCO as an intangible cultural heritage through their unique use of kōji in the brewing process, in partnership with the Agency for Cultural Affairs (文化庁, bunkacho) and the Association for the Preservation of Traditional Japanese Methods of Alcohol Production Using Koji  (日本の伝統的なこうじ菌を使った酒造り技術の保存会, nihon no dentōtekina kōji-kin wo tsukatta sakezukuri gijutsu no hozonkai, no existing English translation that I can find.) The organisation is led by Shineumon Konishi (小西　新右衛門), CEO of Konishi Brewing Company in Hyogo Prefecture. Traditional methods of alcohol production were recognised by Japan as an intangible cultural heritage in December 2021. The NTA also plans to work with the National Research Institute of Brewing (NRIB) to support development of brewing skills and conduct public outreach.

The fourth area is support for small and medium-sized businesses, including working with industry groups such as the Japan Sake and Shōchū Makers Assocation (JSS) on their modernisation project. The NTA will also offer guidance to drinks makers on national and local government support for SMEs, and promote uptake of this support.  They will also provide technical consultation at all regional tax bureaus for areas such as product development and quality control, in cooperation with the RNIB.

The fifth and final area where the NTA supports the drinks industry is compliance. This includes licensing, where regulatory reforms such as simplified procedures are being introduced, and the NTA is checking up on and cancelling licenses for defunct businesses. They also undertake to supervise drinks industry associations, ensure drinks companies adhere to standards for fair trading, provide guidance on labelling and technical guidance for ensuring quality and safety, promote recycling including a “3R Promotion Month” every October, prevent underage drinking through educational campaigns and training including an underage prevention month held every April, and promote measures to tackle alcohol-related health issues.

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And that covers part 3 of the Preface of the 2022 Sake no Shiori! I am grateful to the NTA for allowing their content to be reproduced/used with credit and a link to the original material. (The translation is mine, not to be used or reproduced without written permission.)

Links

• Sake no Shiori 2022 (PDF, 162 pages, Japanese, National Tax Agency Japan, Taxation Department, Office of Liquor Taxation and Export Promotion, March 2022)
• Sake labelling regulations to change in 2023
• Index page where you can download the whole report (linked above) or individual sections (Japanese)