Reality-Media Disconnect

Lately, I've been reading a lot about how the bad economy in Japan is forcing prices downward and how this is such a terrible thing. Supposedly, with consumers keeping as much money in their tight little fists as possible, competition is pushing merchants to lower prices which leads to lower profits which in turn means they lower wages and layoff staff.

I'm not a consumer of high-priced goods, and only buy big ticket items like computers, televisions, etc. when something breaks down or is outdated enough to cause great inconvenience, so I can't speak to how the market for luxury goods or pricier bags, shoes, clothes, and adult toys (no, not the dirty kind) is working. I can say one thing for absolute certain and that is that the prices of daily necessities has not been dropping. In fact, as of about a month ago, the price of dairy products and milk in particular went up yet again.

About three years ago, a liter (about a quart) of milk could be had in Tokyo at most markets for about 170 yen (about $1.65). The price went through incremental increases and was hanging at around 198 yen (about $2.00) until recently when it went up to 208 yen ($2.10). Similarly, 200 grams (about two sticks in America or 1 cup) of butter used to be available for around 260 yen ($2.60) and now you're exceptionally lucky if you find it on sale for as low as 300 yen ($3.00). Usually, the price hangs around 388 yen ($3.80) for the equivalent of 2 sticks.

The dairy prices are particularly curious in light of the fact that I read recently that Japanese dairy farmers are crying that they can't make a living raising cows. In part, I can see where their problems are coming from. Feed prices have gone up due to fuel prices (though gas prices have gone down) and increased global demand for grain products, particularly corn, as alternate fuel and manufactured products material. However, prices have continued to go up so it's hard to believe that they aren't compensating for increased grain costs through these hikes.

One of the farmers who was saying he couldn't profit in the dairy business said that he is going to switch over to the rice growing business instead. The reason why this is curious is that Japan is awash in a sea of rice. The government has so much stockpiled that they are actively encouraging people to eat more rice and to return to traditional Japanese cuisine to consume rice, which is relatively cheap in comparison to other grain products like pasta and bread, and vegetable starches like potatoes. If Japan is full to the brim with rice, why would it be profitable to become yet another rice farmer? The answer is that rice is subsidized by the Japanese government so it's a more secure choice. Also, you don't have to depend on the price of animal feed if you grow rice.

I find it relatively frustrating to read articles again and again about how prices are going down only to find that things at the market continue to creep up. Starting about 3 years ago, rather substantial jumps in prices for all sorts of staple goods occurred, and this was in anticipation of oil price increases and conglomerates buying up supplies, not in response to these changes. Toilet paper that used to cost 198 yen currently sells for 258 yen, for instance, and it has not budged along with changes in fuel prices.

My feeling is that companies know there are certain daily use products that people will buy because they have to or are extremely reluctant to give up and that they continue to take advantage of the average shopper by keeping those prices high. As Japanese consumers grow increasingly frugal in response to news of more job losses, diminished bonuses, and stagnant wages, they continue to shy away from buying new "stuff" that they don't need, and focus on the basics. My guess is that, given that this is the only area where people can't really hold back on their spending, the much publicized decrease in prices isn't likely to hit such items any time soon.