The Impact of the COVID-19 Crisis on Japan's Dairy Industry and the Supply-Demand Adjustment System

Japan's dairy industry has a characteristic supply-demand adjustment system based on quantitative adjustment rather than price adjustment, and it has responded to the huge supply-demand fluctuations caused by the COVID-19 crisis. This study aims to identify the challenges facing the dairy industry's supply and demand adjustment system by analyzing the impact of the COVID-19 crisis on the industry and its response to the crisis. Supply-demand adjustment to the COVID-19 crisis has kept milk disposal and significant price declines under control. However, systemic risks have emerged, such as restrictions on milk supply during summer, reduced capacity to adjust supply and demand because of instability in dairy production, and imbalances in the burden of supply-demand adjustment costs. While a wide range of actors enjoy the benefits of supply-demand adjustment, the costs are concentrated in a few actors. The method of sharing the costs of reducing dairy inventories will be determined through negotiations between the actors, including the government, which will take some time but may have the advantage of making the costs visible to the actors. COVID-19 has brought about a form of crisis that has amplified the problems that have traditionally plagued the supply-demand adjustment system. If it proves difficult to share the adjustment costs among the actors, a permanent system in which the government compensates for costs will be necessary.