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Sake—known in Japan as nihonshu or seishu—is the internationally-renowned, traditional Japanese rice wine. One of Japan’s oldest extent industries, it is made from the very soul of Japan: water, rice, and rice malt.
While many traditional alcoholic drinks exist around the world, sake is surprisingly sophisticated considering its age. In wine and mead the raw material contains sugar, so alcohol fermentation can take place in a single tank. In beer, starch requires a reaction called saccharification, a reaction of malt enzymes in barley, before fermentation can occur—a multi-tank process. Rice, however, has neither sugar nor enzymes; meaning that rice and rice malt are used to simultaneously perform saccharification and fermentation by yeast in a single tank. This is called parallel double fermentation.
The resulting sake has a delicate yet complex flavor that goes well with almost any dish.
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Similar to champagne, where if it comes from outside the Champagne region of France it is technically sparkling wine, sake is such a particular, involved process that aficionados don’t consider sake brewed outside Japan to be ‘true’ sake.
But the same prestige bestowed by that particular, involved process—as well as the tradition and legacy producing such a cultural cornerstone entails—has proved to be something of a double-edged sword in the modern age.
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In order to produce sake, it is necessary to obtain a sake brewing license under the Seishu Tax Law. However, there are very high hurdles to overcome in order to obtain such a license.
First, a minimum annual production volume is set, requiring the brewery to produce at least 60,000 liters of sake for sale per year. This mass production requirement is not realistic for small-scale businesses or individuals to enter the market, and prevents a business from starting small and growing organically.
Secondly, the initial investment is enormous. The capital for brewing equipment, storage tanks, and sanitation facilities can range from tens of millions to hundreds of millions of yen. Money aside, the application process to engage in a culturally-protected industry like sake is extremely complex and requires specialized knowledge and experience.
The entrepreneurial reader with plenty of cash in their pocket and a love of sake in their heart might still be considering booking a flight to Japan, wondering if just meeting these requirements is enough, but there’s more. The fact is that since the enactment of the Seishu Tax Law in 1962, no new sake breweries have been issued licenses. If you want to run a new brewery now, you will have to choose between business succession or M&A to take over an existing license.
The situation is odd, however there are sound reasons for Japan having run a closed system for over 60 years.
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After the war, Japan tightened regulations on sake brewing to prevent overproduction and market disruption. This was intended to protect existing breweries and maintain the quality of sake. However, the resulting exclusion of new entrants to the market has resulted in a 45-year decline in demand for sake, and the number of sake breweries in turn.
It cannot be ignored that many breweries have fallen into financial difficulties due to the shrinking domestic market and changing consumer preferences. It is possible that regulations designed to protect breweries are, in fact, promoting the decline of the industry as a whole. Healthy competition with new entrants may be the key to revitalizing the market.
On the other hand, the case of deregulation regarding beer tells us that lowering the hurdles for new entrants does not necessarily lead to market revitalization.
To give some background on this, the number of beer breweries in Japan has increased steadily since the 1994 revision of the Liquor Tax Law, rising from 49 in 1994 to 281 in 1999. This was the so-called “microbrewery boom.” However, the volume of taxable beer, which peaked in 1994, declined in the same period, falling by about 20% in 1999. The decline in demand continued unabated, and by 2013, the volume of beer produced was less than 40% of its peak and the number of breweries was less than 60% of its peak. One of the reasons for the failure of the microbrewery boom has been attributed to the rapid deregulation and subsequent spike in interest which resulted in the market being flooded with low-quality/high-priced products, leading to consumer disillusionment.
No one in the sake industry or the consumer wants to see this lesson repeated. Existing sake breweries have a long history and are highly regarded for their skills and quality. However, if the sake industry is to expand, it must balance protecting the industry with leaving options for new brewers and consumers.
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The registration of Japanese food as a UNESCO Intangible Cultural Heritage, along with the rise of the ‘foodie,’ have greatly contributed to the global interest in sake. However, the supply system in Japan has not been able to keep up with demand.
Overall, the sake market is still small compared to other global alcoholic beverages such as champagne and wine. Wine has a global market size of 20 trillion yen, compared to sake’s 450 billion. It must be said that sake lags behind in brand diversity and market strategy, with many placing this stagnation at the feet of regulations that inhibit new entrants, leading to a decline in competitiveness in the international market.
This is beginning to change, however. Starting in April 2021, a significant change occurred concerning the future of the sake industry: deregulation. New sake breweries are, for the first time since the sixties, being allowed to open for business in Japan. The catch? They are only allowed to produce for export. This deregulation seeks to address the decrease in domestic demand in contrast to an increase in overseas demand; allowing new small-scale breweries to meet overseas demand while protecting legacy sake breweries.
An increasing number of Japanese brewers are producing sake overseas, such as Wakaze in France and Arizona Sake in the United States.
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In recent years, this small-scale, overseas brewing of sake—known as craft sake—has been attracting attention in the United States, Europe, and elsewhere. Craft sake uses non-traditional production methods and local ingredients, and have a distinctive flavor. They are highly acclaimed by local consumers and show new possibilities for sake.
In 2018, Arizona Sake won the Gold Award in the Overseas Sake Category at the annual Sake Competition held in Japan, followed by a gold medal in the Sake Category at the Los Angeles International Wine Competition the year after. It was the first non-Japanese brewery to win the Platinum Award at Kura Master 2020, a sake competition in France.
The success of craft sake has the potential to create waves in the Japan market as well. If regulations are relaxed in Japan allowing fresh blood to enter the market, many unique sake products will be born.
Sake is more than just a beverage; it is a mirror of the spirit and culture of the Japanese people. And just as people change with the times, so too must traditions if they wish to survive.
Ryuji Ikoma (SAKE HUNDRED｜Clear inc.) For More Info!
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