Under the law of Japan,the raw milk subjected to government subsidies is only material milk for manufacturing use [autholized milk products (butter,skimmed milk powder, condensed whole milk with suger added) and other milk product determind by government ordinance (whole milk powder ,suger added milk powder, condensed whole milk with no suger added, and skimmed milk for animal consumption) ] which makes up 1/4 of the overall raw milk output.
Between fiscal year 1966 [ the year when "temporary Law for Compensation Price for Producers of Milk for Manufacturing Use"( Deficiency Payment Law ) was enforced ] and 2000, the government had determind the average productin cost per 1kg of raw milk and the actual price negotiated between dairy businesses ( standard transaction price ) each year.The balance had been paid to producers as subsidies.
In order words, the producers had received guaranteed amount of money from the government as milk price,which was the total of the standard transcation price and subsidies ( =guaranteed price ).
However,as the Deficiency Payment Law was amended in May 2000 and re-enforced from fiscal year 2001, the government-determined guaranteed price and standard transaction price were abolished and subsidies system, which has allowed deficiency payment, has disappeared.

In the new calculation method of subsidy price, rate of change, calculated from the past three-year's average production cost and amount of milk, is multiplied by aid unit value of the previous fiscal year. In fiscal year 2001, the subsidy was determind to be the same price as 2000( 10.30yen/kg ) in order to shift the system smoothly.
Therefore, from the fiscal year 2001, the price of material milk for manufacturing use is to be determind by negotiation between designated raw milk producer groups and dairy services. The aid unit value in 2004 was 10.52yen/kg, 2005 is 10.40yen/kg .
The upper limit ( number limit) of material milk for manufacturing use, which was determind in conjunction with subsidies, was set in a same manner both before and after the amendment.
Under the new system, the price of material milk for manufacturing use has to be referred to in the free trading between the designated raw milk producer groups and the daily services.therefore, the price is likely to drop significantly depending on unexpected demand and supply changes.
Accordingly, "Budget Allocation for Projects to Stabilized Business by Producers of material milk for manufacturing use" is enforced along with the subsidies, as a measure to absorb abrupt change against such situation.The budget allocations grant 80% of the balance of the transaction price for material milk for manufacturing use ( without subsidies ) and compensation standard price ( =average transaction price for the past three years. The compensation standard price in 2001 was the same price as the standard transaction price of 61.83yen/kg in 2000) to producers as a compensation, with relying on the fund from 0.40-yen contribution from producer per 1kg of material milk for manufacturing use plus 1.20-yen government bounty per 1kg of material milk for manufacturing use.

Sources:"Statistics of Livestock in Japan" Ministry of Agriculture, Forestry and Fisheries. "Review:Dairy" ZMP. "Dairy compendium" ADC.
Note 1: ※ = The Australia figure is liter/Head in 1997.

In 2002, labor and commercial feed costs, a dairy farmer's two largest expense items, accounted respectively for 30.3% and 32.4% of total production costs. Many management in Japan depend upon purchase fodder from abroad, not self-sufficing fodder. Consequently, production costs is easily affected by the foreign fodder price. Then Secondary Products Price has been going up , because the cows situation in Japan itself are not enough.

Production Costs by Item (2002)(Per 100kg of Milk)

Item Amount(yen) Ratio(%)
Labor Cost 2,236 30.3
Commercial Feed Cost 2,387 32.4
Self-Sufficing Feed Cost 703 9.5
Deprecation(livestock) 863 11.7
Other Expenses 1,261 17.1
Secondary Products Price -572 -7.8
Rent Received ( land ) 225 3.0
Interest of Capital 275 3.7
Total 7,378 100.0
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