Cut flowers to Japan

(Last updated: 21 July 2008)

Trends and opportunities

The market

The cut flower market in Japan is considered to be worth A$12 billion in terms of retail value and is expected to grow by 25 per cent to around A$15 billion by 2010.

Depending on the sales channels, the price and variety of flowers differs significantly. Generally retailers set the price at 2.5 to 3 times the wholesale price allowing for 20 per cent to be damaged, lost or leftover.

Cut flowers are sold from various locations such as florists, home centres, supermarkets, convenience stores and more. The increase in Internet sales has also seen a growth in sales to individuals.

Japan imports cut flowers from around the world. Of imported flowers, 90 per cent are traditional varieties such as chrysanthemums, carnations, roses, orchids, and lilies. The chrysanthemum is one of Japan’s national flowers and regarded as the Imperial Crest.

Large chrysanthemums are also used for funerals and as offerings to the deceased. Carnations are the main gift for mothers' day and roses are purchased for various occasions especially for celebrations and as Australia as a token of love.

These varieties are most frequently purchased and their market is very competitive. Japanese companies often invest in or have partnerships with international suppliers and control product quality and standards.

While Japan is one of the biggest export markets for Australia, share by Australian flowers in the cut flower market in Japan is considered less than one per cent. Australia is mainly targeting customers who seek unique varieties. Australia is one of the main players in ‘other flowers’ category – 10 per cent of the imported cut flower market in Japan.

(Source: Japan Customs - Trade statistics)

Opportunities

While some successfully branded flowers are sold at premium prices, suppliers of traditional varieties are constantly struggling with the tough competition. As a result, not only overseas suppliers but also many domestic suppliers have had to close their businesses.

In contrast, unique varieties tend to attract higher prices if they are good quality and sold to relevant customers through the right distribution channels. Australian wildflowers including unique native foliages have been marketed in the Japan market for a long time and still have the potential to be traded as high value products if marketed properly.

In today’s challenging market, with the strong Australian dollar and increasing oil prices (transportation cost), it is very important to consider the following before exporting:

• Select varieties that are unique to Australia, popular in the Japanese market, and attract high values.
• Comply with required quality standards and packing, which in most cases are set by importers (standards vary depending on importers).
• Do business with reputable importers/partners that are experienced, have unique marketing strategies, and are selling to the right customers.

In addition, the following factors are considered barriers to the export of Australian wildflowers:

• Limited awareness of varieties. Sometimes even professional sales people aren’t that knowledgeable on Australian wildflowers.
• Limited availability due to seasonality.
• Some importers repack flowers into their company’s boxes. These are not always promoted as Australian flowers nor Australian brands.
• Usually importers aren’t very keen on marketing and promotional activities but more focused on importation and reading/forecasting supply and demand of the wholesale market. Retailers are more interested in marketing and promotional activities but they don’t have enough marketing materials and knowledge about Australian wildflowers.
• Due to supply of bad quality flowers in the past, some industry professionals are still suspicious about the quality of Australian wildflowers.
• Growers in Australia have limited opportunities to talk directly to retailers and wholesalers in Japan. Sometimes it makes it difficult for growers to know about market trends.
• There is not much market information and official data available publicly (especially in English).

Competitive environment

The market for the most popular varieties of flowers in Japan is very competitive. The major supply countries of traditional varieties besides Japan are:

• Chrysanthemums: Malaysia, China, Korea, Taiwan
• Carnations: Colombia, China
• Roses: Korea, India
• Orchids: Taiwan, New Zealand, Malaysia, Singapore
• Lilies: Korea, China

Japanese companies are often making investments or have partnerships with suppliers in these countries and controlling product quality and standards.

Tariffs, regulations and customs

Import procedure under the Plant Quarantine Law

The importer must request for import inspection and obtain a quarantine certificate under the Plant Quarantine Law in Japan.

Plant Quarantine Law prohibits the importation of the following items:

1. Harmful animals and plants (quarantine pests, as defined by the Ministry of Agriculture Forestry and Fishery - MAFF)
2. Soil or plants in soil
3. Plants determined as illegal by MAFF
4. Containers and wrappings made from illegal items

If category a (vermin or disease) is found during import inspection, fumigation may take place.

Although 3 and 4 are fairly unlikely to occur with cut flowers, prior consultation with importers is still needed.

When an importer requests an import inspection in Japan, they must submit shipping documents and Plant Quarantine Certificate (phytosanitary certificate) issued in the exporting country (to be issued by AQIS).

Other regulations:

• Some items are registered under the species registration system of the Seeds and Seedlings Law, and permission is required to import from species registration agents who may charge royalties depending upon the item.
• Importing endangered species is prohibited by the Convention on International Trade in Endangered Species of Wild Fauna and Flora, while some flowers require export permits from the exporting country.

Custom tariffs and consumption tax

Cut flowers and flower buds (HS0603) are free from tax.

For plant leaves and branches (HS0604), tariff rates are five per cent in general tariff, three per cent in WTO tariff, and zero per cent in preferential tariff.

A consumption tax of five per cent is charged at each handling stage (five per cent of the CIF price at the importing stage.)

(Source: JETRO Japanese Market Report: Cut flowers – regulations and practices, 2001)

Industry standards

Industry standards for quality and specification for cut flowers are set by various parties.

In most cases, suppliers will have to follow the standard set by their importer. Also, suppliers must count the number of stems correctly. The number of stems written on shipping documents must match their actual numbers.

Marketing your products and services

Market entry

Options to consider when entering the cut flower market in Japan include:

• A pre-entry study of market desirability.
• Supply through an experienced consolidator or export agent, or work with flower associations in Australia that are familiar with Japanese quality standards and other requirements.
• Participation in major tradeshows such as the International Flower Expo (IFEX) in order to meet potential customers. For less experienced exhibitors in particular, it is highly recommended to participate as a member of a large group because of the cost of participation, shipment of flowers, goods needed for making displays (including water buckets etc), and preparing and maintaining the stand during the show.
• Find relevant importers/wholesalers who have unique sales channels and strategies that are ideal for your products.

Distribution channels

The major wholesale distribution routes of cut flowers in Japan are as follows:

1. The auction system
   
   A large percentage of cut flowers are still sold through the traditional auction system. With this system, importers receive flowers, clear customs, and send flowers to auction houses on a consignment basis. Based on their own analysis and experience, importers decide which market to send flowers to that would attract the highest price. The final amount returning to the suppliers in Australia is fixed after the auction. Auction houses take a 10 per cent commission, which is designated by wholesale market law in Japan.
   
   Only registered buyers can buy flowers directly through the auction system. Small retailers, flower designers, and other buyers tend to buy through ‘intermediate wholesalers’ who have shops within the auction houses.
   
   The auction system was developed because of the difficulty in standardising quality with agricultural produce. The downsides of the auction system are:
   
   • Suppliers do not know the exact sales price until the auction is finished.
   • Market demand also influences the price. The delivery of high quality products does not always guarantee a good return to the supplier.
   • Buyers can't always get what they want.
     
     
2. Pre-ordering and pre-auction sales
   
   These systems were not actively used until the revision on the wholesale market law was announced. When pre-ordering the importer takes orders from the auction house or their own customers before shipment and in pre-auction sales, after shipment but before auction (pre-auction) and sell to them at fixed prices that are usually higher than auction prices. This system gives an improved return, but suppliers have to make a commitment to satisfy required standards set by the auction house or importer.
   
   
3. Direct sales to large retailers
   Some large retail customers such as supermarkets buy flowers directly from suppliers or through importers. Although you can avoid the auction house commission using this system, opportunity is often limited to certain varieties that are reasonably priced and ideal for volume retailers.
   
   
4. Sales to importer’s customer
   Some importers are actively developing their customer base and selling direct. This includes home delivery sales and correspondence sales operated by the importer or their related companies. This way of distribution is still only small in today’s market compared to the traditional ways of distribution.

New wholesale market law
 

A new Wholesale Market Law for fresh produce will come into effect from April 2009. This will make wholesale markets more competitive in terms of their service and commission, and will bring changes to the traditional methods of transactions and distribution of cut flowers in Japan. (For example, usually Australian suppliers do business with importers but after the revision of the law wholesale markets and retailers will become more approachable if they are ready to deal with foreign suppliers.)

It is predicted that more and more small-sized wholesale markets will be merged under large central wholesale markets under the new law increasing the use of electronic-based services and transactions.

The new Wholesale Market Law will see:

• An upgrade of quality control. Wholesalers will introduce better quality control methods.
• Deregulation of the rule of ‘co-occurrence of payment and delivery’. This means flowers can be directly delivered to the customer from supplier/importer while payment is processed through the wholesale market.
• Liberalisation of purchasing and consolidation. This will enable the wholesale market to handle both types of flowers: those received ‘on consignment basis from supplier/importer’ and ‘purchased from supplier/importer’.
• Wholesaler’s being able to sell directly to third parties and intermediate wholesaler’s being able to purchase directly from suppliers/importers. Under the current law, flowers must be sold using an ordered process:
  1. Grower/supplier/importer
  2. Wholesaler (= auction house)
  3. Intermediate wholesaler (or retailer who holds the right/licence to purchase from 2
  4. Retailer (who doesn’t hold the right/licence to purchase from 2.)
• After the revision of the law, flowers can be sold from 2 to 4, also from 1 to 3. (1 to 4 is ok under the current law regardless of the revision as it is ‘outside of wholesale market distribution’.)
• Flexibility in the wholesale markets’ commission. Under the existing law auction houses charge about 10 per cent in commission. After the revision of the law, auction houses are free to set the commission rate – this could mean it is reduced to become more competitive or increased with the addition of other services.
• Less restrictions on the services wholesalers can provide, clear financial standards for intermediate wholesalers, and transparency across the wholesale market’s transaction history.

(Source: Ministry of Agriculture, Fishery, and Forestry Japan - MAFF)

Links and industry contacts

Cut flowers-related resources

Reed Japan: International Flower Expo (IFEX) 2008 – www.ifex.jp/english/exhibit/market.html

Government, business and trade resources for Japan

Japan External Trade Organization (JETRO) – www.jetro.go.jp

JETRO: Handbook for Agricultural and Fishery Products Import Regulation – www.jetro.go.jp/en/market/regulations/pdf/agri2008-e.pdf

Ministry of Agriculture Forestry and Fishery Japan (MAFF) – www.maff.go.jp/e/index.html

MAFF: Plant Protection Station – www.pps.go.jp/english/index.html

Japan Customs: trade statistics – www.customs.go.jp/toukei/info/index_e.htm

Tokyo Metropolitan Central Wholesale Market – www.shijou.metro.tokyo.jp/english/index.html

Australian resources

Australian Quarantine and Inspection Service (AQIS) – www.daffa.gov.au/aqis

AQIS: Exporting from Australia (Plants) – www.daffa.gov.au/aqis/export/plants-grains-hort