Media  Global Economy  2013.06.18

A new organization for aggregating farmland

English translated version of "Business Prospect" on NHK Radio Channel 1 on May 14, 2013

1. Media reports say that the Japanese government will set up a new organization, called "Farmlands Intermediary Administration Institute," in each prefecture to aggregate farmlands.

The government expects the new organization to borrow farmland from farmers, upgrade them by replotting or aggregating them to form larger plots or by providing water conduits, etc. if needed, and lend them to the main agricultural actors, such as large-scale farmers or agricultural corporations. In other words, this organization is expected to play a role as a receiver of farmlands and intermediary between lenders and borrowers.

As a matter of fact, there is a precedent for this, called the Farmland Ownership Rationalization Program. Under this program, farmers sell or lend their farmland to a corporation, which then accumulated it into large plots and sold or lent it to large-scale farmers. The corporation that undertakes the role of receiver of farmlands in this program is called the Farmland Ownership Rationalization Corporation. At the prefectural level, all 47 prefectures have this kind of corporation in the form of a public corporation (Kosha), which conducts primarily buy-sell operations. At the municipal level, municipal governments, public corporations or agricultural cooperatives (Nokyo) perform the same function as the Farmland Ownership Rationalization Corporation, which mainly engages in lending farmland. However, this program has not achieved the kind of results that were expected of it. While the total size of Japan's farmland is 4.5 million hectares, the annual sale of farmland since 2005 has been between 7,000 and 9,000 hectares and the total size of rented farmland has been between 12,000 and 16,000 annually, a miniscule amount.

The difference between the new organization currently under consideration and the existing Farmland Ownership Rationalization Corporation is that under the new organization replotting or accumulating farmland is combined with developing farmland infrastructure, such as providing water conduits, so that well-developed and large-scale farmland is provided to the main agricultural actors. Although both accumulating farmland and developing farmland infrastructure are the responsibility of the Ministry of Agriculture, Forestry and Fisheries (MAFF), these have been carried out irrespective of one another. In this sense, the new organization has value in that it goes one step further than the existing program. It may have the additional merit of concentrating abandoned or likely-to-be abandoned farmland in the hands of the new organization. However, this organization will engage only in lending farmland, not buy-sell transactions as does the Farmland Ownership Rationalization Program.

2. Please explain the reasons for setting up the new organization.

There are two different kinds of agriculture; one which does not involve large farmland, such as vegetables and flowers, and another which produces rice or wheat, thus requiring a large amount of farmland. In Japan, vegetable farming competes well with imports despite low tariffs. On the other hand, farming that requires a large amount of farmland lacks competitiveness and is therefore protected with high tariffs. Some argue that this kind of farming would be severely affected by the TPP agreement, which might eliminate tariffs.

Production costs decrease with an increase in the scale of farming. Rice produced by a farmer with less than half a hectare of farmland costs 15,000 Japanese yen per 60 kilograms while the cost of rice produced by a farmer with more than fifteen hectares of farmland is 6,000 yen, which is less than half of the former. Income is calculated by sales minus costs. Due to the high cost of production, smaller farmers owning less than half a hectare of farmland suffer an average loss of 100,000 yen, while those with farmland between half and one hectare earn a mere 20,000 yen in profit. Conversely, larger farmers with farmland between 15 and 20 hectares earn 10 million yen, while those with more than 20 hectares earn more than 13 million yen.

In reality, rice farmers in every prefecture (excluding Hokkaido) cultivate less than one hectare of farmland. For example, each of 30 farmers in a village with a total of 20 hectares of farmland cultivates an average of 0.7 hectare of farmland and earns around or a little more than the break-even point. However, if all farmland were concentrated with one farmer and cultivated by him, he could earn 13 million yen, a part of which could be distributed as rent to the other 29 members in the village who lend the land to him. As a result, the income of every member of the village would increase. (The members who lend farmland would be obliged to maintain their land in good condition and provide them with water conduits, etc. This is the same as a building owner being obliged to maintain the building.) Thus, concentrating farmland is necessary in order to strengthen farmers' competitiveness and increase their income.

3. Do you think that the government's proposal to set up the new organization will be effective in concentrating farmland?

Although it may be more effective than the existing Farmland Ownership Rationalization Program, I do not expect it to achieve as much because it does not adopt appropriate measures to ensure a sufficient amount of farmland available for lending, or to prevent the abandonment of farmland.

There are two problems with this. One is the conversion of farmland to housing sites. In Europe converting farmland to housing sites is strictly controlled by land-use regulations, while Japan has looser regulations which enable farmers to convert farmland to housing sites more easily. Converting one-tenth hectare of farmland gives the owner an income of about 25 million yen in non-urban areas and about 60 million yen in urban areas. If an owner lends his farmland to a farmer, he cannot convert and sell it whenever he finds a buyer. It is this better to hold on to his own farmland even if he does not cultivate it. Real property tax on farmland is minimal even if they are abandoned and not cultivated.

The other issue is maintaining the high price of rice through the rice paddy set-aside program. As the price of rice is artificially higher, farmers with even higher costs can continue farming. Even if farmers want to rent additional farmland to increase their scale of farming, they are obliged not to grow rice on more than 60% of their total farmland under the rice paddy set-aside program. Thus, farmers tend not to lend out their farmland while those who want to borrow farmland also face difficulty.

Kunio Yanagida, a well-known folklore scholar and a respectable ex-MAFF official over a hundred years ago, said that "a person who improves a little when his country requires drastic reforms and says that it is better than nothing, is neither concerned about his country nor loyal to it." I would think that it is time to implement fundamental reform for Japan and for its agriculture.

(This article was translated from the Japanese transcript of Mr. Yamashita's speech in the "Business Prospect" session of the radio program "First in the Morning News" broadcast by NHK Radio Channel1 on May 14, 2013.)