Issues concerning the review of the rice paddy set-aside program

1. The rice paddy set-aside program is currently under review. What points are being reviewed?

Some media outlets incorrectly reported that the rice paddy set-aside program would be abolished. No one in the Ministry of Agriculture, Forestry and Fisheries (MAFF) and the ruling Liberal Democratic Party (LDP) has stated this.

The rice paddy set-aside program has been in place since 1970, and is essentially a subsidy to be paid to rice farmers who convert paddies to other crops in order to reduce rice production. The amount of subsidy is calculated on the basis of the size of area to which rice production is converted to other crops. In addition to this subsidy, in 2010, the then-ruling party, the Democratic Party of Japan, introduced a new subsidy called individual household income support to be paid to rice farmers who comply with a target production quantity which sets a maximum limit of rice production. This subsidy is paid on the basis of the size of area in which rice is actually planted. This current review concerns the latter subsidy, and is intended to abolish the individual household income support as well as the target production quantity. Media reports sometimes refer to the individual household income support as a set-aside grant or a set-aside subsidy. However, it is inappropriate to call it as such because it is linked to the planting of rice in a rice paddy under production limits.

In actual fact, in 2007, the then-ruling LDP had abolished the target rice production quantity once already. At that time, there was no individual household income support. So, the abolishment of the target production quantity and the individual household income support means a return to the situation in 2007. The important point is that the funds obtained by the abolishment of individual household income support will be utilized to expand the set-aside subsidy implemented in 1970 which is directly linked to the size of rice paddy actually set aside for crop conversion. This means that there is no change in the long-lasting, fundamental agricultural policy to support rice farmers' income by maintaining a high price of rice through restricted production, to which rice farmers are subsidized to reduce rice production.

2. How will the rice paddy set-aside program be changed?

Rice is one of the easiest crops for farmers to grow. At the end of the last LDP-led government in 2009, a new arrangement was introduced as a part of the rice paddy set-aside program, under which a set-aside subsidy is paid for the conversion not only from rice to wheat or soybean, which is not really easy for rice farmers to grow, but also to rice which is not provided for direct human consumption but used for rice flour or feedstuff. In the current review, LDP and MAFF are planning to increase the amount of the set-aside subsidy under this arrangement.

In rough terms, the price of rice for direct human consumption is currently inflated from 8,000 yen, the market equilibrium price without the rice paddy set-aside program, to 14,000 yen due to the program. In addition to that, taxpayer money is used to pay the difference between 14,000 yen for direct human consumption and 3,000 yen for rice flour or 2,000 yen for feedstuff. In this way, net income is guaranteed for rice farmers who grow the cheaper rice for flour or feedstuff at the same level as if they had grown the expensive rice for direct human consumption. Even under the current system of set-aside subsidy, the volume of production of rice for flour or feedstuff is small due to poor demand. So, this current review intends to step up the subsidy and reduce the price of rice for flour or that for feedstuff in order to promote the conversion to rice flour or rice for feedstuff and to increase its demand and production. The point to be noted in this is that globally, rice is not commonly used for feedstuff. Corn or wheat is much more common.

3. What are the problems in the planned change of the rice paddy set-aside program?

In the past under the food control system, the Japanese government wasted three trillion yen of taxpayer money by purchasing rice that was subsequently stockpiled and eventually used for feedstuff and other purposes. I think that the planned changes in the rice paddy set-aside program under discussion will have a similar effect of wasting taxpayer money. The difference this time is that subsidies will be paid in advance to prevent excessive stockpiling of rice. The problems of the planned changes are as follows:

First, it increases the fiscal burden and requires taxpayer money. Under the current program, rice farmers who produce rice flour or rice for feedstuff are paid 80,000 yen so that they are guaranteed to earn 105,000 yen per decare: the equivalent as if they had grown rice for direct human consumption. The total size of cultivation areas of rice for flour and feedstuff is currently 68 thousand hectares, which is less than ten percent of the total size of rice paddies actually set aside under the program. The size of the area is small, but the amount of subsidy is substantial. In short, 54.4 billion yen is being paid for the cultivation of rice for flour and feedstuff out of the total amount of set-aside subsidy of about 250 billion.

MAFF estimates the maximum demand of rice for feedstuff at 4.5 million tons. This requires 65 thousand hectares of farmland. If the LDP decides to increase the subsidy from 80,000 yen per decare to 105,000 yen, this increase alone boosts the total amount of subsidy for the conversion to rice for feedstuff to 700 billion yen. In addition to other set-aside subsidies, a total amount could reach up to 800 billion yen. This means that an additional 550 billion yen of taxpayer money is required for the set-aside subsidy. If the production of rice for feedstuff increases, there may be a risk that subsidizing this conversion will require more expenditure than that can be saved by the abolishment of individual household income support.

Under the current rice paddy set-aside program and individual household income support, the price of rice is inflated using 500 billion yen of taxpayer money. Furthermore consumers are forced to fund subsidies to the amount of 600 billion yen to buy this expensive domestic rice. If this current review has more effect than anticipated, specifically an improvement in the profitability of production of rice for feedstuff and the expansion of production, it could result in a reduction of the planting of rice for direct human consumption and a further increase of the price of rice. If this is the case, a bigger financial burden could be placed on consumers in addition to an increase in their burden as taxpayers. In the discussion regarding an increase in consumption tax, many people blame the regressive nature of consumption tax as it increases food prices and the burden on the poor. Accordingly, a reduction in the tax rate for food is under consideration. It seems strange to me that no politician takes up the issue of the artificial inflation of rice price despite the fact that the rice is undoubtedly the staple food of Japan.

The second problem of the planned change in the rice paddy set-aside program under discussion is that it will cause friction in trade. Currently, 11 million tons of corn is imported to Japan for use as feedstuff. From this amount, around 10 million tons of corn is imported from the United States. The largest amount of surplus rice used by the Japanese government for feedstuff in one year was 1.47 million tons in 1971 and 5.11 million tons in a total of 7 years. Disposal of surplus rice was made from time to time in the past. If rice for feedstuff is produced every year and increases under the reviewed program, imports of corn from the United States could fall substantially. If the production of rice flour increases, wheat imports from the US could also fall. It is possible that the US would bring the case to the WTO, and consequently be possible that the US be allowed to take retaliatory measures by imposing higher import duties on imports of Japanese cars for example. This could have a significant impact on the Japanese economy.

I would like to say that more attention needs to be paid to the agricultural issues by Japanese citizens as taxpayers, as consumers and as employees in other industries.

(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 November 26, 2013.)