**4. Potential causes of the high price of imported Chinese licorice**

Our aim in this section is to understand the recent high prices of imported Chinese licorice using the economic concepts explained in the previous section. More specifically, we consider the potential causes of the high price of Chinese licorice in Japan and how it can be understood in economic terms by looking at changes in its supply and demand.

One of the potential major causes of the high price of Chinese licorice is the fluctuation of the exchange rate between the Japanese yen and the Chinese yuan. In the period 2007–2015, the value of the Japanese yen fell against Chinese yuan. This caused Chinese products to become more expensive in Japan. Viewed in the context of the market analysis from Section 3, we find that from the suppliers' point of view, there has been an increase in their input costs (i.e., a leftward shift of the supply curve). However, it is simplistic to assume that the high price of Chinese licorice in Japan is solely a result of the depreciation of Japanese yen. There are, in fact, several other matters that can potentially affect the price and trading volume of Chinese licorice in the Japanese market.

As was mentioned before, licorice is one of the most commonly used herbal medicines in the production of pharmaceutical products [2]. In recent years, the production of pharmaceutical products using licorice as a raw material has increased steadily. **Figure 7** shows the value (in millions of yen) of pharmaceutical production using licorice as a raw material in Japan in the period 2007–2014.10

As seen in **Figure 7**, the value of the pharmaceutical production using licorice as a raw material in Japan in this period increased. This is likely due to the growing need for pharmaceutical products in the Japanese medical field. This trend can be understood from an economic point of view in the following manner. This growing need for pharmaceutical products increases

<sup>9</sup> **Figure 6** originates from Ref. [5]. In this figure, price and quantity traded of the good are indicated on the vertical and horizontal axes, respectively. The initial supply schedule, a rightward shift, and a leftward shift are labeled S, S', and S", respectively.

<sup>10</sup> **Figure 7** is prepared by the author from the statistics of production by pharmaceutical industry conducted by the Japanese Ministry of Health, Labour and Welfare (http://www.mhlw.go.jp/toukei/list/105‐1.html) [Accessed: 2016‐09‐17]. Data limitations prevent us from introducing 2015 data.

demand for certain materials (e.g., Chinese licorice). Applying this to the market analysis discussed in Section 3, we find an increase in the demand for Chinese licorice, causing the demand curve to shift to the right.

**Figure 7.** Trend in the value of pharmaceutical production using licorice in Japan (2007–2014).

By examining the supply of licorice in China, we find certain factors leading to the increased price. So far, almost all licorice produced in China involves its native strains, as cultivation methods for licorice are not widely established in China [1]. As with natural resources, the amount is limited, and continuous collection causes their depletion. In addition, excessive harvesting can also cause desertification of that area [3]. To prevent the depletion of native licorice and the destruction associated with its harvest, the Chinese government began to restrict the harvest of native licorice in 1984. These restrictions did not apply to three northern regions (the province of Gansu and the two autonomous regions of Neimenggu and Ningxia) [1]. These restrictions were tightened in 2000 [1]. This reduced the supply of native licorice as a herbal medicine in China. Using the market analysis from Section 3, we find a leftward shift of the supply curve of Chinese licorice.

There are other issues that had negative impacts on the supply of Chinese licorice. For example, China has recently been experiencing rapid economic growth, which may bring about an increase in the price of commodities, including licorice. Moreover, Chinese economic growth also increases the labor costs of licorice production. Labor costs are considered part of the input price of licorice. As a result, the input costs of licorice become more expensive at any given price. From the market analysis in Section 3, there is a leftward shift of the supply curve.

As discussed above, there are several issues affecting the supply and demand of Chinese licorice. We now try to simulate the price and quantity traded of Chinese licorice in the Japanese market by examining the changes in its demand and supply. As noted in the discussion of economic concepts, the price and amount traded of a product are generally determined by its supply and demand [5]. We also discussed how supply and demand are potentially affected by factors such as the growing needs of pharmaceutical producers, restrictions on the har‐ vesting of licorice, and increases in labor costs. The current situation for Chinese licorice in Japan can be visualized in **Figure 8**, where market equilibrium is determined by a demand curve with a rightward shift and a supply curve with a leftward shift.11

**Figure 8.** Current situation of the Chinese licorice trade in Japan.

demand for certain materials (e.g., Chinese licorice). Applying this to the market analysis discussed in Section 3, we find an increase in the demand for Chinese licorice, causing the

**Figure 7.** Trend in the value of pharmaceutical production using licorice in Japan (2007–2014).

By examining the supply of licorice in China, we find certain factors leading to the increased price. So far, almost all licorice produced in China involves its native strains, as cultivation methods for licorice are not widely established in China [1]. As with natural resources, the amount is limited, and continuous collection causes their depletion. In addition, excessive harvesting can also cause desertification of that area [3]. To prevent the depletion of native licorice and the destruction associated with its harvest, the Chinese government began to restrict the harvest of native licorice in 1984. These restrictions did not apply to three northern regions (the province of Gansu and the two autonomous regions of Neimenggu and Ningxia) [1]. These restrictions were tightened in 2000 [1]. This reduced the supply of native licorice as a herbal medicine in China. Using the market analysis from Section 3, we find a leftward shift

There are other issues that had negative impacts on the supply of Chinese licorice. For example, China has recently been experiencing rapid economic growth, which may bring about an increase in the price of commodities, including licorice. Moreover, Chinese economic growth also increases the labor costs of licorice production. Labor costs are considered part of the input price of licorice. As a result, the input costs of licorice become more expensive at any given price. From the market analysis in Section 3, there is a leftward shift of the supply curve.

As discussed above, there are several issues affecting the supply and demand of Chinese licorice. We now try to simulate the price and quantity traded of Chinese licorice in the Japanese market by examining the changes in its demand and supply. As noted in the discussion of

demand curve to shift to the right.

48 Biological Activities and Action Mechanisms of Licorice Ingredients

of the supply curve of Chinese licorice.

As seen in **Figure 8**, at the new equilibrium (E'), the price of licorice is higher than it was previously considered. There is a possibility that this simulation in our market analysis describes the recent rise in the price of Chinese licorice in the Japanese market.12
