Costs Increased Several Times From Dock to Store Shelf : Japan’s Consumers Pay High Price for Imports

During a visit to Tokyo’s Tsukiji fish market, Mayor Ed Koch of New York said he was told that the best tuna sells for $9 a pound and comes from New York.

“When I asked them what they were paying New York fishermen for that tuna, there was total silence,” he added.

Prime Minister Yasuhiro Nakasone’s government, however, recently did shed some light on what happens to the prices of other foreign products after they reach the Japanese ports:

- A bottle of Chivas Regal, Old Parr, Logan or Haig & Haig Pinch Bottle whisky, all identified as imports on which the heftiest margins are levied by Japanese importers, wholesalers and retailers, costs a mere $3.50 to $4.50 landed at a port in Japan. But for the consumer, it is priced at $50. Top-quality brandy, like Courvoisier V.S.O.P., imported at $4.50, sells for $60.

- Top-quality imported wine, for which the consumer pays $15 a bottle, lands at Japanese ports at for a cost of as little as $2.40.

- A cosmetic item imported at a cost of 50 cents often will wind up on a store shelf priced at $5.

- A man’s overcoat costing $180 at the dock will sell for $600 in the store.

- As much as 50% of the retail prices of such food products as bananas, grapefruit, jam, tea, lamb, honey, natural cheese, flavorings, instant coffee, tuna and shrimp goes to distributors. They also pocket as much as 70% of the price that Japanese consumers pay for lemons, olives, frozen vegetables and candy.

- Prices of such imports as watches, leather briefcases, cooking utensils, toys, textiles, ceramics, smoking pipes and some furniture items after tariffs are paid, more than triple as they pass through the distribution system.

- Prices before tariffs of shoes, leather briefcases, cooking utensils and shirts rise by four times or more before reaching the consumer.

Four government agencies were ordered by Nakasone to examine how Japan’s often-criticized distribution system contributes to making foreign products expensive here. They failed to find any item among the 59 imports that they surveyed that did not at least double in price from dock to counter.

The National Tax Agency, the Economic Planning Agency, the Ministry of International Trade and Industry (MITI), and the Agricultural Ministry, in separate reports, concluded, however, that the distribution system was not the main culprit. Although exceptions--such as whisky, brandy and wine--were found, the ministries and agencies reported that, in general, distributors do not make bigger margins, in percentages, for foreign products than they do for domestic goods.

All of the agencies cited only percentages, not absolute sums of money, in disclosing the breakdown of what goes into a retail price of consumer goods. The amounts of middlemen’s margins could be determined only in a few cases in which the agencies cited the retail price of the item they surveyed.

Import Agents Cited

The culprit, in most cases, was identified as the Japanese import agent.

The Economic Planning Agency discovered that distribution costs account for an average of 59% of the retail prices of the 15 daily-use consumer products it surveyed, compared to 40% for similar domestic products. But if import agents’ margins were subtracted, distribution costs for the foreign products amounted to 44% of the retail prices, on average, or only slightly higher than distribution costs for domestic goods.

Import agents took a margin equivalent to 15% of the retail price of the foreign goods that they handled but spent between one-third and two-thirds of that amount to advertise the foreign products, the Economy Planning Agency and MITI found. Wholesalers get 14%, while retailers, on average, take 34% of the retail price, the Economic Planning Agency added.

The major case of outright profiteering involved imported whisky, brandy and wine.

The Tax Agency’s survey showed that import agents add an average of $22.50--as much as 45% of the price a consumer pays--before they pass along a bottle of Chivas Regal to a wholesaler, who, in turn, supplies a retailer. The import agent’s fee was the biggest single part of the retail price.

As much as 73% of the price paid by the consumer for imported whisky is raked off by import agents, wholesalers and retailers, compared to an average of only 23% of the retail price which goes to distributor costs for Japanese whiskey.

The revelation, with its implied criticism of the huge markups, stirred a protest from the Scotch Whisky Information Center here. It charged that the report was designed to detract attention from a European Community study that condemned Japan’s system of taxes and classifications of whisky as favoring domestically blended alcoholic beverages.

Whereas both European countries and the United States assess a single rate of excise tax based upon alcoholic content, Japan’s system differentiates between alcohol made from cereal grains (foreign brands) and that which is blended with neutral spirits (Japanese brands). It then classifies alcohol into “special grade,” “first grade” and “second grade” qualities.

Higher Rate Charged

The result for imports, the center charged, is that the minimum rate of Japan’s domestic liquor tax on Scotch whisky is more than seven times that applied to Japanese whiskey--and more than six times higher than the European Community’s tariffs on imported whisky.

Although Japan’s tariff is only $1.50, a domestic alcohol tax ranging between $8 and $8.50 and miscellaneous handling fees of $4.50 are added to the price of a bottle of Scotch whisky before the import agent takes control of it, the Tax Agency’s survey showed.

Those three fees insure that the price of an imported bottle of Scotch--a popular gift item among Japanese but seldom purchased on a continuing basis--amounts to at least $17 before it enters the distribution system. By comparison, the retail price of the most popular brand of Japanese whiskey, Suntory Old, is $15.85.

Major importers, including both of Japan’s top whiskey makers, Suntory and Nikka, as well as such trading companies as Mitsubishi and Mitsui & Co., denied that their margins as import agents were excessive. All of them admitted they were adopting a policy of fixing high prices on imported whisky to appeal to prestige-conscious consumers but also pointed out that the importer, not the foreign maker, bears the costs of advertising here.

In many cases, foreign Scotch and brandy makers instruct their import agents to sell at high prices both to create a prestige image for their product and to avoid competition with cheaper Japanese brands, the Tax Agency found.

Despite of the findings that all foreign products increase in price by two times or more after they are landed at ports in Japan, MITI concluded that, “in general, the level of retail prices of foreign goods in Japan cannot be called irrational in comparison with prices of the same products in the country of manufacture or in third country markets.”

Some Sell for Less

While such items as leather goods and cosmetics sell for more than twice--and sometimes as much as four times--the retail price in the country in which they were manufactured, other imports such as film and tennis rackets sell for less in Japan than in the producing country, MITI said.

Prices of American products sold in Europe and of European products sold in the United States are not significantly different than prices of the same products sold in Japan, the ministry claimed. MITI also claimed that distribution costs in Japan are not higher than those in the United States--although it used American data 13 years old to make that claim.

For imported cars surveyed by MITI, the import agent’s margin--a cost which domestic car makers do not have to bear--accounts for as much as 20% of the retail price, while retailers’ margins account for another 20% of the price to the customer. Included in the import agent’s markup are the costs for making adjustments to meet auto standards in Japan, which MITI said amount to about 5% of the retail price.

Although Japan imposes no tariff on auto imports, an excise tax, which is assessed on the factory price of domestic cars but on the cost of foreign cars landed at the dock in Japan, accounts for between 10% and 15% of the retail price of imported models, MITI said.

The Agricultural Ministry said 70% of the distributors of imported food products it interviewed declared that reductions of their margins which account for 50% to 70% of retail prices would be “difficult.” Most of the distributors, however, also said they intended to increase their sales of imported foods.

High Food Prices

Although the ministry did not cite any prices, Philippine bananas are now selling at 80 cents a pound, Florida grapefruit at $1 apiece and large California lemons at 63 cents apiece in neighborhood grocery stores in Tokyo.

MITI’s survey concluded that, among many measures necessary to promote more imports of consumer goods, tariffs, excise taxes and handling charges assessed on imports should be reduced.

In 10 of 33 categories of products examined by the Economic Planning Agency, these costs accounted for 10% or more of the retail price. Among the import agents, 64.7% blamed tariffs and excise taxes as the main cause of high prices of imported products.

MITI discovered in its survey that distributors of products aimed at mass sales in Japan managed to hold markups from port to store counter to about 50% of the retail price, whereas the prices of foreign “brand” products or prestige items rose by as much as 5.7 times.

A U.S. official, who asked not to be identified, said most American firms fail to make any effort on their own to export to Japan and refuse to assume any risk for the sales of their products here. As a result, he said, import agents take a margin which, by itself, often exceeds the import cost of the product they sell.

By comparison, Japanese exporters send their products directly into American wholesaling outlets, such as K-mart, and do not deal with import agents in the United States, he added.

Must Assume Risk

“The only way to get prices of imports down is adopt a strategy of selling on volume, not on high margins. That means the American manufacturer is going to have to assume the risk,” the official said.

He cited American Tourister, a luggage maker based in Warren, R.I., as a rare example of a U.S. firm which has made a commitment to sell consumer products in Japan. The firm worked out arrangements with Japanese distributors that succeeded in keeping the retail prices of its goods at a level competitive with Japanese luggage, the U.S. official said.

“It can be done,” the official said. “But the average American company is just exporting as a hobby.”