- The success of the U.S. government in persuading Japan to
liberalize the beef market is viewed as a relief to the U.S.
beef industry. The economic benefit (to the U.S. beef
producers!) of the trade liberalization however is yet to be
seen. The size of this benefit is determined, among others,
by (a) the net change in Japan's retail price due to the
liberalization, (b) the price elasticity of demand for the
U.S. beef in Japan, (c) the degree of price rise in the world
market, and (d) the export capacity of the domestic sector.
Availability of alternative beef sources and the degree of
substitutability between the U.S. beef and those alternatives
affect factor (b) and factor (d) depends on the extent to
which beef and other meat products substitute each other in
the domestic market both in production and consumption.
Evaluation of the U.S. - Japan Beef Market Access Agreement
(BMAA) therefore has become a high policy profile.
In the interest of assessing possible policy effects of
BMAA, several researchers have attempted to parameterize and
quantify the Japanese demand for beef. The fact that this
market is (a) semi-isolated from the rest of the world by
restrictive import quota, (b) managed domestically by
government parastatal, and (c) characterized by multi- and
intensely differentiated beef with no parallel historical data
has made the choice of economic theory and methodology
difficult. While most researchers (Group 1) relied on
conventional method [e.g. 55; 125], others (Group 2) 
contend that managed import market may better be explained by
a model of political nature. By assuming the usual
competitive market behavior, Group 1 underestimates possible
implications of existing market structure for building and
estimating conventional econometric models. Group 2, on the
other hand, limits itself to normative analysis. Due to the
absence of consensus among researchers regarding implications
of policy-relevant parameters, the desirability of the BMAA is
still an unsettled policy issue.
The general purpose of this study has been to generate
some further information on Japan's beef market. In pursuant
of this objective, an attempt is made to (a) show how
significant the beef quality issue is in evaluating that
market, (b) test the market equilibrium hypothesis, and (c)
upon the acceptance of the alternative (disequilibrium)
hypothesis, estimate the structural parameters from a model
specified in the light of imperfections in the market. This
fills the void in previous studies.
Drawing on existing literature, the beef quality
categories are shown to have been narrowing and, in fact,
converging to the two middle categories, medium and common
grades. It is suggested that future market studies may
benefit from concentrating on these two grades in assessing
competitiveness and substitutability with domestic beef.
Understanding the nature of this convergence (i.e whether the
shift is attributable to changes in cost or preference
structure) may contribute to sound policy making.
Based on (a) increased concentration in production and
distribution sectors, (b) government intervention in beef and
related markets, (c) high degree heterogeneity in beef, and
(d) short-run supply inflexibility due to long fattening
period and restrictive import policy, the Japanese beef
market was hypothesized to have been in disequilibria due to
incomplete market information. In testing this hypothesis,
two data sets were used -Statistical Yearbook and the Family
Income and Expenditure Survey. For reference purposes, they
are referred to as Market I and Market II respectively.
The equilibrium hypothesis was tested for uniform and
upward and downward differential adjustment speeds. The
uniform adjustment rate estimated from the reduced form price
equation supports the hypothesis in both markets. The
structural equations were then adjusted in the light of the
imperfections in the market and structural parameters
estimated using non-linear three stage least squares.
Both upward and downward adjustment speeds in Market I
suggest perfect flexibility in prices on annual basis. In
Market II, prices are found to have been flexible downward but
rigid otherwise. The upward rigidity in prices suggest excess
demand. Perfect flexibility in prices on annual basis however
may not suggest market equilibrium in a period less than a
Consumers are found to be more price responsive than in
previous studies implying a greater response of the demand for
beef imports to changes in prices due to the liberalization
than envisaged by previous studies. The demand for beef
however is income inelastic suggesting a partial offsetting in
the incremental demand for imports. Finally, consumers
respond to changes in beef retail prices by consuming less
fish and poultry.