INTELLECTUAL PROPERTY LAW AND AGRICULTURE CASE OF KOBE BEEF

by Divya Sampath *

– IP attorney and Advocate at Cholamandal IP

Kobe beef is a delicacy renowned throughout the world for its succulent flavour and exorbitant prices. Its quality is so high that in many countries, including the United States, there is no beef grading category (e.g. prime, choice) to accommodate true Kobe beef1. Kobe beef is regulated as a geographic indicator by the Japanese government and the Kobe region. Recently, there has been a surge in the production of Kobe style beef in America, which can be attributed to the low costs of raising cattle herds in the United States, relative to the high costs of raising cattle in the geographically smaller Japan. American farmers are beginning to patent the names “Wagyu” and “Kobe beef,” which could be a precursor to a geographic indicator debate.2 Until American beef was temporarily banned in early 2004, many Japanese preferred to buy Kobe style beef from America because it was cheaper than its authentic Japanese counterpart. Although Japanese beef consumption declined after the mad cow disease scares from 2001-2004, it is expected to pick up within the next few years (particularly after beef trade with America is resumed). Once the Japanese beef market regains its strength, there will likely be debate concerning Kobe style beef from America, and whether it can be marketed under the name “Kobe” or “Kobe style” beef.

True Kobe Beef is produced in the Hyogo prefecture (of which Kobe is the capital) in Japan, from a type of cattle called Wagyu (which roughly translates to “Japanese cow”). It is characterized by bright red meat with pure white, extensively marbled fat. There are four breeds of Wagyu: the Japanese Black, the Japanese Brown, Japanese Shorthorn, and Japanese Polled. Kobe beef generally comes from the Tajima strand of the Japanese Black. Although most people consider these breeds to be native to Japan, they are not truly native. There was a group of wild cattle in the Kagoshima Prefecture (on the south western tip of Japan) that was crossbred with European cattle. These cattle are the progenitors of the modern Japanese Wagyu3. The difficulty in transporting cattle prevented the continuation of this crossbreeding once the herds were established. Particularly in Kobe, the mountainous and rocky terrain isolated the community and generally prohibited the transport of cattle in or out of the area, meaning that the ranchers could no longer breed the Wagyu with other types of cows. Instead, they selectively cultivated a species that is genetically predisposed to extensive marbling, which gives the beef its distinct flavour and texture.

Farmers also use a special, secretive process to raise their cattle, which contributes to the excellent quality and flavour of the Kobe beef. Although there is a great deal of speculation as to what this process entails, the specifics are generally unverified.

Kobe beef is protected by government standards, in that the Wagyu cattle must be born in the Kobe region in order to be called “Kobe beef.” The Wagyu breed, however, is only regulated on genetic lines, so Wagyu beef can be born and raised anywhere, as long as it is from a Wagyu genetic line. These regulations offer ranchers looking to increase sales of an extremely expensive product two alternatives to raising Kobe beef in Kobe. Because Kobe beef can only be created from a certain type of cattle raised in Kobe, and since there is a special way to raise the cow, the issue is both product- and process-related.

Market and Grading of Kobe Beef:

Although its popularity is increasing worldwide, the market for Kobe beef is still rather limited to the very wealthy. In most cases, the high prices mean that few people are willing or able to pay for Kobe or Wagyu beef on a regular basis. For example, a single 16 ounce Wagyu Porterhouse steak from Lobel’s, a well-known butcher shop in New York, costs $98.98. A slightly larger (18 ounce) Prime grade Porterhouse from Lobel’s is $48.984, while a 24 ounce Choice grade Porterhouse (which can be found in most supermarkets) retails for approximately $215. In Japan, a true Kobe steak of comparable size would be hundreds of dollars. For those in the United States who are willing to pay, American style Kobe beef has only recently become available on a limited basis. In the Washington D.C. area, Sunnyside Farm sells American-style Kobe beef at many farmers’ markets, including the FreshFarm Market in Dupont Circle. Otherwise, the beef must be specially ordered, found at a specialty market, or eaten at one of a few restaurants. The limited supply is due, in part, to limited demands of the American consumers, but more so to extensive exporting (in large quantities) to Japan . In fact, last year, according to the USDA, “Nearly one-third, or about 240,000 tons, of all beef eaten annually by the Japanese [came] from the United States. That accounts for a $1 billion export for the US cattle industry”6.

The most recent development in beef trade in Japan stems from the issue of Bovine Spongiform Encephalopathy (BSE or mad cow disease), which was found in the United States in a Canadian cow. The mad cow scare caused the Japanese to ban all imports of American beef, unless the USDA tested each animal for BSE. While the American cattle industry certainly wants to resume exporting to Japan, they believe that such thorough testing is unnecessary and uneconomical. In October 2004, however, Japan consented to allow importing beef from cows under the age of 20 months (at which age cows are supposed to be safe from BSE), with the possibility of full trade resuming in July 20057.

The lore of Kobe beef is part of what makes it special, and the rumours surrounding its production encourage people to try it for the first time. If not for the geographic isolation, the farmers in Kobe would have never bred selectively the Wagyu cattle for the most succulent meat, nor would they have created the fabled beer diet, Sake rubs, or massages that contribute to the beef’s flavour. Since few (if any) farmers are willing to share their secrets (or confirm the rumours), it is impossible to produce true Kobe beef anywhere else in the world. While many American ranchers produce Kobe style beef from cattle that are similar, they do not necessarily receive the same treatments or have the same genetic background. Therefore, the Japanese culture that surrounds Kobe beef (especially its exclusivity and renown) is threatened by American attempts to join the market.

In the recent past, American ranchers began to produce a version of Kobe beef that is similarly high in quality, but somewhat lower in price. American style Kobe beef comes from Wagyu cows that were bred and raised in America. Usually, a rancher will import a few live Wagyu cattle from Japan, and start a herd from there. A great deal of the American Kobe-style beef is marketed in Japan, (where top grade true Kobe beef sells for hundreds of dollars per pound) to those who want high quality beef, but cannot afford genuine Kobe beef8.

In order to remain competitive with the American ranchers in Japanese markets, some Japanese ranchers began shipping young cattle to the United States (where land and feed are less expensive and more plentiful) to be raised, then importing the butchered meat, and selling it as true Kobe beef. This meat could technically be sold as true Kobe beef because it was produced in the Kobe region, and raised according to the exacting standards set by the government and the ranchers.9 However, since the cattle are actually raised in America, it is questionable whether this beef should be considered true Kobe beef. It is also questionable because the American-raised cows do not receive the same feed, as they are given American grass and grain rather than the more expensive Japanese feed.

Grading process:

The beef grading scale used by the US Department of Agriculture refers to the amount of fat in the beef, though the USDA describes it as a description of “tenderness, juiciness, and flavour.” “Marbled” fat refers to the level of fat distributed throughout the “lean” or edible meat portion of the beef10“. Kobe beef’s quality is so high (and so much better than even a top prime beef) that it does not fit on this chart. The Japanese beef grading scale has a range of 1-12, with twelve being the best meat possible. A score of 12 is extremely rare; a good piece of Kobe beef usually ranks around 10. The chart below compares the USDA scale to the Japanese scale. Kobe-style beef from America usually earns scores of 6-8 on the Japanese scale.

Legal issues in Kobe Beef Trade

The round of negotiations in the World Trade Organization at Uruguay saw the discussion of many issues regarding global trade. During this round, an Agreement on Safeguards was reached on January 1, 1995. A safeguard “allows members to impose temporary border control measures […] if a surge of imports causes or threatens to cause serious injury to a domestic industry”11. The Agreement on Safeguards sets forth several limitations, including the types of safeguards allowed (quotas and tariffs), length of time safeguards may be in place (initially no more than four years, and no more than eight total after a qualified extension), the necessity of progressive liberalization from the safeguard, and the repetition of safeguards (time without the safeguard must exceed the time the safeguard was in place before said safeguard can be reinstated). Additionally, the agreement says that the nation applying the safeguard must compensate the affected nation in some way; if a compensation agreement cannot be made, the exporting country can take retaliatory actions after a certain amount of time12.

In accordance with the Uruguay Round table conference; Japan placed a safeguard tariff on its fresh/chilled beef imports on August 1, 2003, which was in effect until March 31, 2004. Japan enacted this safeguard because its beef imports surpassed the trigger level of 63,563 tons. In order to determine the trigger, the Japanese government compares the volume of beef imports each quarter to the prior year’s corresponding imports. If the current import values exceed the comparable past imports by 17%, the government increases tariff rates up to 50%. In August 2003, the government responded to increased beef imports by raising the tariff to 50% from 38.5% 13.

Many exporting countries opposed the Japanese safeguards, saying that they were not consistent with the spirit of the Uruguay Round Agreement on Safeguards. One source of contention is with the trigger levels that Japan sets. The triggers are based on the previous Fiscal Year’s imports, meaning that a year with abnormally low beef import values will set the triggers at artificially low levels, as was the case in 2003. Beef consumption in Japan decreased in late 2001 and early 2002, as several cases of BSE were found in European and Japanese beef. As consumers regained their confidence in the safety of beef, they purchased more beef, leading to increased American and Australian exports. In the first quarter of Japanese Fiscal Year ‘03/’04, beef imports rebounded to levels similar to those before the BSE scare. With normal beef consumption, these levels would not have set off the triggers; however, since they were being compared to a year with extremely low import values, the triggers were exceeded and tariffs were raised 14.

Although Japan acted legally by enacting the safeguard, nations like Australia and the United States saw the action as unjust. They claimed that the Agreement on Safeguards was meant to protect against relative overall increases, rather than those that result from market recovery. Australia was particularly affected by the tariff hike when US beef imports were banned in December 2003, because it became the main exporter of beef to Japan, and therefore had to shoulder much of the costs. Since beef consumption dropped in Japan after the US ban, many government officials are predicting a situation similar to that of the first quarter of Japanese Financial Year ‘03/’04 in the near future. Australian Agriculture Minister Warren Truss has expressed concerns that “when U.S. beef re-enters the Japanese market, after its recent BSE incident, the rise in overall imports could again trigger the snapback in 2005.” In order to prevent unjust situations in the future, he says, “The government is also committed to fighting for a better deal for our agricultural exporters in a range of international markets and across all agricultural sectors that puts an end to automatic ‘snapback’ tariffs of this nature”15.

The potential problem, as predicted by the Australian government, is that the resumption of beef trade with the United States will increase overall beef imports and consumption, leading to increased tariffs. This, however, poses more of a problem for those who export beef to Japan. In fact, increased tariffs may actually be beneficial to the Kobe farmers, as the tariffs will likely increase the price of imported beef, bringing it closer to the relatively higher prices of Japanese beef. As Kobe style beef from America becomes more expensive and the prices become more similar, it is possible that the Japanese will choose the higher quality authentic Kobe beef over the lower quality (but still premium) Kobe style American beef.

While there has not yet been any legal discourse regarding the beef trade, the governments that export to Japan are certainly dissatisfied with the status of the trigger levels that cue the safeguards. Since Japan was technically acting in accordance with WTO guidelines, there has been no attempt to redress Australia’s grievances. It is likely that if the resumption of trade with the United States does trigger the tariffs again, the affected nations will make further complaints to the WTO. Unfortunately for the exporters and the Japanese must pay for the higher costs, Japan may choose not to adjust its triggers unless ordered to do so, as the current levels are beneficial to its own farmers (including those who produce Kobe beef).

As the trade bans are lifted, trade in Kobe beef and Kobe style beef between Japan and America can resume. Since the majority of Japanese exports to America are Kobe beef, the end of the trade bans is important to the ranchers in Kobe. Not only will it allow them to regain a source of income (not many nations are wealthy enough to afford the luxury meat), but it may also present a problem as Japanese consumers are given the option to buy the less expensive, but not authentic, Kobe style beef from America.

 

Conclusion:

Authentic “Kobe” beef is actually a patented breed of cow from a specific geographic location in Japan that is protected by Japanese trademark law. True Kobe Beef is only produced in the Hyogo prefecture (of which the city of Kobe is the capital) from a type of cattle called Wagyu. There are four breeds of Wagyu: the Japanese Black, the Japanese Brown, Japanese Shorthorn, and Japanese Polled. Kobe beef usually comes from the Tajima strand of the Japanese Black breed.

However, these standards and the brand “Kobe” are meaningless in America and it has been known for some time that American producers use it incorrectly. They are able to get away with this due to the fact that the United States is not a party to the Treaty of Madrid, the main source of international regulation regarding the protection of geographically designated food production. There are other famous food products associated with a specific area, such as Parmigiano-Reggiano cheese16, are also not protected under U.S. law and so anybody in this country is free to use these regional designations on their products. The same holds true for “Kobe” beef. American consumers might feel angered and deceived that they spent good money on something marketed under a false pretense, but the roots of this problem lie, strangely enough, in law.

*This paper was presented on 18th September 2014 as a part of a discussion on Agriculture law in West Bengal National University of Juridical Sciences, Kolkata

Reference

*Divya Sampath

– IP attorney and Advocate at Cholamandal IP.

1 “Agreement on safeguards”world trade organization. 273-281, www.wto.org.english/legal.com, 17th September 2014

2 Bhattacharya. Sanjiv “The observer” www.observer.guardian.co.uk.foodmonthly/story.html, 17th Septmeber 2014

3 Economic Research service, “WTO: Beyong Agreement on Agriculture” 17th Septmeber 2014

4 Bhattacharya. Sanjiv “The observer” www.observer.guardian.co.uk.foodmonthly/story.html, 17th Septmeber 2014

5 Ibid 4

6 “Transborder Issues in beef farming” http://www1.american.edu/ted/kobe.htm, Last accessed 17th Septmeber 2014

7 “Japan to accept US beef again” Washington post 24th October 2014

8 Ibid 6

9 Ibid 6

10 The various grades for kobe beef are based on the USDA grading system: prime: top quality beef, with the highest degree of marbling, around 25%, choice: high quality with around 20% fat, select: leaner meat due to less marbling.

11 Ted Nuget: Case study on Kobe beef, http://www1.american.edu/ted/kobe.htm, Last accessed on 17th September 2014

12 Economic Research service, “WTO: Beyong Agreement on Agriculture” 17th September 2014

13 Ted Nuget: Case study on Kobe beef, http://www1.american.edu/ted/kobe.htm, Last accessed on 17th September 2014

14 Ibid 14

15 Ted Nuget: Case study on Kobe beef, http://www1.american.edu/ted/kobe.htm, Last accessed on 17th September 2014

16 “ http://www.ipbrief.net/2012/05/26/kobe-beef-are-you-getting-what-you-pay-for/” Last accessed on 17th September 2014