Terrie's Take 481 -- Ajinomoto and the Trouble With Lysine, ebiz news from Japan

Sun Aug 10 22:42:29 JST 2008

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
(http://www.terrie.com)

General Edition Sunday, August 10, 2008 Issue No. 481

+++ INDEX

- What's new
- News
- Candidate roundup/Vacancies
- Upcoming events
- Corrections/Feedback
- News credits

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+++ WHAT'S NEW

What do you know about Lysine? Apart from it being one of
the 8 essential amino acids we learned about in school, we
never really gave it much thought. That is until we received
a tip from a reader, who told us about a major legal decision
that went against one of the world's largest manufacturers
of the stuff -- Ajinomoto.

Lysine is an amino acid that can't be synthesized in the
body, and so it must be absorbed by nutrition. According to
Wikipedia.com, it is a basic building block for protein
and helps build muscle and regulate calcium absorption as
well as the production of hormones and enzymes. Apart from
human nutrition, commercially it is a particularly
important food additive for swine and poultry around the
globe. Without adequate lysine, pigs and chickens suffer
stunted growth, stress, and low meat yield.

So whomever controls the world's production of Lysine
affects the health, productivity, and price of pork and
chicken the world over. That's where Ajinomoto comes in.
They are one of the big three producers world-wide, the
other two being the US-based Archer-Daniels-Midlands (ADM)
and China's Global Bio-Chem Technology Group. Ajinomoto in
its own website says that it currently produces about 30%
of the world's Lysine output -- which was approximately
1.05m metric tonnes of the stuff last year.

All well and good, but what happened last week is that a
law suit launched by Ajinomoto back in 2006 against Global
Bio-Chem went bad. After initial success at the Hague
Court in Europe last year, the company was told by a judge
at the International Trade Commission in Washington, DC,
last week that Ajinomoto's patents covering the production
of animal feed Lysine are invalid and thus Global Bio-Chem
has no charges to answer to.

Given that sales of animal feed Lysine accounts for
anything up to JPY286bn (Ajinomoto doesn't break out the
specific value of Lysine within their overall amino acids
business in their 2008 annual report) -- about a quarter of
the firm's total sales, this could mean that the company's
most reliable seller and profit earning segment is now at
risk of severe price competition from the Chinese and other
generic producers. Needless to say, Ajinomoto is appealing
the decision.

[Continued below...]

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[...Article continues]

The reason for the ITC judge's finding was apparently
because Ajinomoto in originally filing for its patent on
the low-cost Lysine fermentation production process they
came up with, did not clearly describe the best method of
producing the end product. This is a US requirement for
patent descriptions and is intended to stop inventors from
obfuscating the method so as to slow down competitors
trying to reverse engineer it and come up with an
alternative method.

We know that obfuscation of a patent process is common but
not very smart practice for smaller firms who have come up
with something exciting and need time to get to market
before a big guy figures out the process and comes up with
an alternative method. But for Ajinomoto to do this is
surprising. Maybe they didn't realize back in 1985 when the
patent was first registered just how big the business would
become, or maybe someone just simply slipped up.

Either way, as our reader has kindly pointed out, the
implications if Ajinomoto loses this battle are two-fold:
1) Global Bio-Chem will be allowed to export its cheaper
product created through the same process into the US
market, causing Ajinomoto severe competition on its "cash
cow" product. 2) While the company's shareholders will
suffer, consumers in the USA and possibly other regions may
be able to look forward to slightly cheaper pork and
chicken. True, the price of Lysine is only a small part of
the overall cost of raising meat animals, but in the
current environment of increasing costs, any cost-reduction
will be welcomed by producers.

The possibility of losing this law-suit could be a major
financial setback and very demoralizing for Ajinomoto. Over
the years, the company has diligently reinvested in its
manufacturing volumes of Lysine in order to retain market
share. From 2002-2004, for example, the company appears to
have spent more than JPY7bn building factories and
expanding production in the USA (Iowa), Italy, Thailand,
and Brazil. Since then they have built other new plants,
including a large one in China.

As the company notes in its 2008 report, the contribution
Lysine makes to sales and the bottom line is important.
The consumer food stuffs division in Japan, Ajinomoto's
biggest business, has fallen into a deep, black hole (sales
are down by a massive 43%, due to increasing materials
costs and the ripple effect of the Chinese gyoza scandal),
and the one bright spot has been the animal feed amino
acids business, of which Lysine comprises a large part. In
fact, this division had a 27.9% sales jump last year, to
yield an operating profit of JPY19.1bn, which along with an
increase in food sales to Asia by another division off-set
most of the plunge in the domestic business.

Actually, this is not the first time that Ajinomoto has
come under legal pressure about its Lysine business, which
clearly it is fighting tooth-and-nail to protect. The
company was found guilty, along with 5 others, in a 1996
price-fixing scandal involving the sales of Lysine in the
USA. The company had to pay a record fine at the time to
settle the suit with the US Department of Justice.
Ajinomoto, along with ADM and other manufacturers was
apparently able to boost the price of Lysine by 70% within
just 9 months of having formed the cartel -- such is the
power of a monopoly.

Since Ajinomoto is battle-scarred, you would think that the
company would be averse to lawsuits, whether being the
defendant or initiating them. Of course, the threat from
Global Bio-Chem's blatant exports to the USA of product
made with technology invented by the Company had to be
dealt with. However, when Ajinomoto initiated the lawsuit
in 2006, at least it should have diligently prepared and
checked its own paperwork, so as to ensure a successful
prosecution. Instead, the very worth of their key patents
are now in question.

We can only imagine that more than a few of the directors
of the board will be pointing fingers at senior management
for such a big gap in their legal work.

***********************

Next week is one of our four weeks off a year, so there
will be no Terrie's Take on Sunday the 17th. We'll be back
on duty on Sunday the 24th. Have a good Obon and if you're
headed to the beach, watch out for the sunburn.

Don't forget, also, to enter for the Japan Inc. Business
Awards (JIBA). It's free and rewarding if you win. See more
at http://jiba.japaninc.com/.

...The information janitors/

***------------------------****-------------------------***

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-----------------------------------------------------------

+++ NEWS

- Foreign tourists to significantly improve economy
- Geopolitics hits OZ/NZ dollars
- Bankruptcies jump again
- Dai-ichi buys into Australian insurer
- Suicide stalls JR Yamanote for 4 hours

-> Foreign tourists to significantly improve economy

Finally the penny drops. The government has realized that
not only are foreign tourists desirable from a public
relations point of view, but that they could have a major
positive impact on the economy, too. The Ministry of Land,
Infrastructure, Transport and Tourism has now calculated
that if it hits its tourism target of 20m foreigners
coming to Japan by 2020, the visitors would most likely be
spending around JPY4.3trn (US$40bn) annually. ***Ed: Now
all the Ministry needs to do is hire a properly qualified
PR agent -- preferably an international firm, not "We'll
do it all for you" Dentsu, to promote Japan as a desirable
and interesting destination.** (Source: TT commentary from
nikkei.co.jp, Aug 8, 2008)

http://www.nni.nikkei.co.jp/AC/TNKS/Nni20080808D08JFN02.htm

-> Geopolitics hits OZ/NZ dollars

Anybody with even a passing interest in Foreign Exchange
visa-vis the Japanese yen would have noticed the recent
sudden fall-off of the value of the Australian and NZ
dollars against the yen. According to analysts, this is
primarily because the markets are expecting US interest
rates to start rising again as the Fed tackles inflation.
As the US dollar becomes stronger, this causes carry trade
hedge funds and other investors to look at the US$-JPY
currency pair in preference to the much riskier (because
they are smaller economies and less traded) AU$-JPY and
NZ$-JPY pairs. The likelihood of lower interest rates
towards the end of the year in NZ has also hastened the
correction. ***Ed: Yet, surprisingly, Japanese housewives
and other individual investors here seem to think this
correction is temporary, and thus the volume of contracts
to buy NZ$ in particular has doubled in the last two weeks.
If carry trade funds continue to push the NZ$ down further,
and they do seem to account for the bulk of money moved,
then the downwards momentum caused by them is likely at
some point to spook individual Japanese investors, leading
to a general fleeing from both countries' currencies. It
could get a bit ugly.** (Source: TT commentary from
economicnews.ca, Aug 7, 2008)

http://www.economicnews.ca/cepnews/wire/article/107010

-> Bankruptcies jump again

Japanese banks may not have had much exposure to the US
subprime crisis, but the knock-on effects are certainly
impacting companies further down the food chain. Tokyo
Shoko Research says that corporate bankruptcies rose 12.9%
in July, over the same period last year. Particularly hard
hit were construction and real estate companies, partly
due to lesser availability of credit and also partly due to
the tighter building regulations imposed by the government
mid-last year. Other sectors figuring prominently in the
statistics included those which rely on fuel. The
government says that it is now working on a credit package
for smaller companies, fishermen, and farmers, to help them
stay in business. (Source: TT commentary from
guardian.co.uk, Aug 8, 2008)

http://www.guardian.co.uk/business/feedarticle/7709971

-> Dai-ichi buys into Australian insurer

Providing evidence to the argument that well-cashed up
Japanese firms would rather embark on M&A and layer in new
revenue streams to counter the coming economic downturn in
Japan, than splash the money around at home, Dai-ichi
Seimei has offered to buy 19.9% of the Tower Australia
Group insurance company from investment fund Guinness Peat
Group PLC. Dai-ichi is offering GPG AU$376.3m, which is a
significant premium to the existing market price for the
shares. ***Ed: M&A is all well and good, but you have to
worry when GPG comments in the press that Dai-ichi did not
request any due diligence information prior to arriving at
the price... Needless to say GPG was happy with the
result!** (Source: TT commentary from odt.co.nz, Aug 9,
2008)

http://tinyurl.com/5s6yff

-> Suicide stalls JR Yamanote for 4 hours

We can testify from an increase in staff lateness excuses
this year, that it's becoming more frequent -- suicides
jumping in front of trains. On Friday, and young female
university student in her 20's jumped in front of a JR
Yamanote line train and subsequently held up 4 hour's worth
of trains during the morning rush hour -- presumably so
that they could clean up afterwards. ***Ed: While you can
sympathize with someone feeling so depressed they're
willing to end it in front of a fast-moving train, the
resulting commuter hold-ups can be life-changing for those
on the trains as well. The last 3 weeks have been
university exams for students all over Japan (including
presumably the suicide) and often if more than half of a
class made it to the exam on time, those who are late due
to a train suicide are NOT allowed to take the exam. This
can mean waiting another 6-12 months in that subject,
causing the student to fall behind their peers. This in
itself is almost depressing enough to make one think about
jumping in front of a...** (Source: TT commentary from
nikkei.co.jp, Aug 8, 2008)

http://www.nni.nikkei.co.jp/AC/TNKS/Nni20080808D08JF548.htm

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.

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+++ UPCOMING EVENTS/ANNOUNCEMENTS

------------------- YMCA Charity Ball ---------------------

YMCA/FCSC 2008 Grand Gala Charity Ball:

One of the international community's most anticipated
social events of the year, the FCSC will hold their 2008
Grand Gala Charity Ball on October 17th at the Hilton
Shinjuku.

This year's event will feature Beatlemania as the theme,
with one of Japan's best known cover bands, the Beatle
Dollar Band. The evening also features fine wine, five
course dinner, dancing, and a grand raffle draw.

The highlight of the evening will be a Live Auction
including a guitar signed by Sir Paul McCartney and Ringo
Starr, other rare Beatles memorabilia, a guitar signed by
Led Zeppelin, photos of Tiger Woods, Harry Potter items,
and many more sports, cinema, and rock memorabilia.

All proceeds go to benefit the YMCA's Challenged Children
Project (CCP). Donations are 25,000 yen/per person, with a
10% discount for table reservations (10 persons). Special
overnight accommodation is available at the Hilton only for
YMCA/FCSC guests.

Attendance is limited so please contact the FCSC office;
03-5367-6640, fcsc at ymcajapan.org for tickets and more
information.
-----------------------------------------------------------

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-----------------------------------------------------------

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Events announcements are priced at JPY50,000 per week.
For more information, contact sales at japaninc.com

***------------------------****-------------------------***

+++ CORRECTIONS/FEEDBACK

In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to editors at terrie.com.

TT: In response to our TT477 issue about Oji Homes and
their disdain for caution with asbestos and other
pollutants...

Reader: Disturbing article about Oji and Asbestos. I
thought you'd be interested to know that this type of
problem is quite prevalent, even in the foreign community.
My daughter attends a popular and prestigious preschool
based on a NY School, and they are currently carrying out
a lot of reconstruction. The building is quite old and when
pushed by the parents, the School eventually admitted that
there was asbestos and that the builders were taking the
appropriate measures to remove the stuff. Which raises the
question, did the school know of the asbestos and were
concealing the fact from the parents or was the school
ignorant of its presence. Regardless, it shows a great lack
of responsibility and concern for the kids attending.

***********************************************************
END

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+++ ABOUT US

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Written by: Terrie Lloyd (terrie.lloyd at japaninc.com)

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