Japanese Cattle Call : Investments: Since quotas back home were eased in 1988, they have raced to buy U.S. properties, feedlots and meat-processing plants, including some in California.

Things just aren’t the same at the Fat City feedlot in Gonzales, Calif. Lean cattle once raised for diet-conscious American consumers have given way to behemoths with well-marbled flanks.

The final destination for these cholesterol-rich creatures is no longer the back yard barbecue, their eventual shape neither the New York steak nor the standing rib roast.

For Fat City is now the Monterey County Cattle Feeders Inc., and its owners are now a group of Japanese investors who bought the business with an eye toward producing Japanese-pleasing beef for shipment overseas.

Since Japanese quotas for imported beef were eased in 1988, Japanese investors have raced into the U.S. cattle market, buying up ranches, feedlots and meat processing plants.

Critics have cried foul, bemoaning increasing absentee ownership and the erosion of a traditional American enterprise. But industry watchers say there is nothing to fear, for Japanese investors are far from becoming the West’s newest cattle barons.

“The investments that we know of really don’t add up to a whole lot,” says Steve Kay, editor and publisher of Cattle Buyers Weekly, an industry newsletter based in Petaluma, Calif. “And the situation has calmed down a lot since 1988.”

But if purchases are down, production by Japanese-owned cattle concerns is on the increase. The Monterey County Cattle Feeders, for example, started from scratch in 1988. Today, it feeds an estimated 20,000 head of cattle for export to Japan, and plans are to increase that to 50,000, company officials say.

Statistics are difficult to come by, but so far, Kay says, Japanese investors have purchased some $100 million in American cattle properties--20 to 30 enterprises, half of which are in California.

The most imposing purchase was the former Selkirk ranch in Dillon, Mont. Selkirk boasts nearly 80,000 acres of ranchland; it was bought for a reported $13 million and has since been renamed the Zenchiku Land & Cattle Co.

But Selkirk is also an exception, according to industry watchers. For Japanese investors have been more interested in American processing plants and feedlots.

“Ranching is a real land-intensive business,” says Gene Egan, president and chief executive of Washington Beef Co., a mid-sized packing plant in Yakima, Wash., purchased by Japanese investors in 1988. “There are so many variables. They’re more interested in consumer goods and the end of it that you can control.”

The beef that Egan’s firm slices and wraps for Japanese export bears little resemblance to what hits the grill in the United States.

Premium Japanese beef comes from Wagyu cattle, a species that produces meat called Kobe. Kobe is heavily laced with fat and commands prices up to $100 a pound in Japan.

“The U.S. public is going toward lean beef, so we’ve been putting out an animal that doesn’t have the fat content that it had in the past,” says Donald Butler, president of Shasta Foods International, the holding company that runs the former Fat City. “The Japanese like an extremely well-marbled animal, so we have to feed American cattle longer and to heavier weights.”

For the U.S. market, cattle enter feedlots at 600 to 800 pounds. There they are fed for about 130 days before they are ready for slaughter. By that time, they will have grown to an average weight of 1,100 pounds.

But to please the Japanese palate, American cattle are fed twice as long to a weight of at least 1,500 pounds, sometimes as much as 2,000. The American-raised breed favored for the Japanese market is the Angus.

“It’s a much greater expense, 20% to 25% higher,” Butler says. “But our restaurant-grade beef will bring $45 to $65 a pound in Japan. Here, it’s probably $9.”

The Japanese businessmen who own the Monterey County Cattle Feeding Co. are also partners in Shasta, along with several American investors. Shasta has invested in three Northern California ranches, two packing companies and herds in Colorado and Nebraska.

Shasta started buying up U.S. cattle concerns late in 1988, at the height of the Japanese roundup.

Until July 5, 1988, Japan had strict quotas on beef, allowing only 300,000 tons of imported beef into the country, says Thomas Cook, director of industry affairs for the National Cattlemen’s Assn. The quotas were designed to protect the Japanese beef industry, whose products command ultra-high prices because of the costs of production in the tiny country.

But that July, Japan and the United States signed an agreement that increased the quota by 60,000 tons annually. The agreement also provides for an end to Japanese beef quotas in 1991.

“At that time, Japanese businesses saw the potential for increased beef consumption, and the U.S. beef industry became a potential viable investment to them,” Cook says.

The market is there, industry officials say, because the Japanese currently consume only an annual 14 pounds of beef per capita--just a fraction of the robust 72 pounds eaten by Americans, according to the U.S. Meat Export Federation.

But while many U.S. agriculturists look forward to the pending opportunities for increased beef exports to Japan, not everyone is pleased with the Japanese competition that goes along with it.

Miguel S. Errea, a partner in the 17,000-acre Errea Brothers ranch near Monterey County Cattle Feeders, says he has mixed feelings about Japanese investment in general and Monterey in particular.

“The Americans developed some of the markets in Japan, and now the Japanese are coming over here taking advantage of the markets our folks are trying to develop,” Errea said. “But when Fat City closed, it had a negative impact on feed grain sales.”

Bruce Berven, vice president for industry relations at the U.S. Meat Export Federation, contends that the common reaction when you talk to a U.S. cattle producer about Japanese investment is “alarm and concern.”

“The coffee shop talk starts and before long they’re convinced that the Japanese are buying up all of the U.S. packing facilities, and that all of the increased exports from these agreements the U.S. industry won’t see profits from because it’s going back to Japan,” Berven says.

Marty Strange, program director for the Center for Rural Affairs, puts it a bit more theoretically.

“We’re not concerned about any cultural, racial or national issues in this matter,” Strange says. “It doesn’t matter if the absentee investor is in Tokyo or New York. The effect on a rural community is generally bad.”

Profits leave the community, he argues, along with a feeling of responsibility for the land and an even more intangible asset--ownership.

Clayton K. Yeutter, the U.S. secretary of agriculture, has little patience with such sentiment. At the recent American Farm Bureau Federation convention in Orlando, Yeutter argued that the newly opened markets are more important than concerns like Strange’s.

“Do we really want to give up markets because someone wants to come in and buy our ranches?” Yeutter asked hundreds of farmers assembled from across the country during the second week in January. “Holy cow. I would hope that we’d have better sense than that.”

Realistically, though, Berven says Japanese investment in U.S. cattle concerns has dropped to 10% of the interest shown in the last six months of 1988 and early 1989.

And, in fact, Japanese-owned and -operated cattle companies are responsible only for an estimated 5% of the U.S. beef exports to Japan, Berven contends. That’s a small chunk of the $841 million in U.S. beef exported to Japan in 1988, the last year for which statistics are available.

But such numbers are little consolation for American First Beef, a feedlot in San Diego County purchased by Japanese investors in 1988. Since the feedlot poured out its first grain four months after that, it has had nothing but trouble with residents of nearby Sunshine Summit.

The range war pits American First against a trailer park a mere 2,000 feet from its corral.

The most tangible evidence of trouble came when windows in the company’s ranch house were shot out. The most troubling for business is an order from the Regional Water Quality Control Board that American First stop discharging cattle waste. The order is on appeal.

Dan Winne, general manager of American First, contends that the troubles concern urban encroachment on agricultural land, not racism.

And Winne says the company that he runs will continue to feed its extra-large charges and ease them toward the Japanese dinner plate. Ease them because Japanese cattle ranchers believe that calm cows are tasty cows. Take, for example, the cattle’s trip to the slaughter house.

“The cattle are gently moved so they’re not excited,” Winne says. “There are no cattle prods, no excitement. We don’t kill them right off the truck. We let them stand over night to calm them down.”

Why are Winne’s cattle “gentled” toward their death? “The Japanese feel that the heart isn’t pumping as fast and the blood isn’t throughout the meat. They feel the meat is cleaner.”