Media  Global Economy  2014.06.05

I was surprised! The Regulatory Reform Council's JA (Japanese Agricultural Cooperatives) reform proposal is highly significant.

English translated version of "WEBRONZA" on May 16, 2014

I was surprised by the JA reform proposal that the government's Regulatory Reform Council published on 14 May. The newspapers have already published the general outline of the proposal. I did not think that they would actually publish it in writing.

The JA is the biggest pressure group in postwar politics. The JA problem is like an impregnable fortress. In 1955, then-MAFF Minister Ichirō Kōno, an influential politician who was aiming to become Prime Minister, tried to detach financial business from JA, but he was unsuccessful. He was only able to make a trusted Diet member submit a tentative plan.

During the days of Koizumi, who exercised the most leadership out of all recent Prime Ministers, the Regulatory Reform Council attempted to examine a similar separation plan. However, the ruling Liberal Democratic Party(LDP)'s nōrin zoku, Diet members who support agricultural protection, crowded into the Prime Minister's Office and crushed the plan before the examination even started.

No government organ, including ministries and even advisory bodies, has ever published a document regarding reforms to the JA. As soon as the word spread that the government was examining reforms to the JA, JA exerted great political pressure on the government.

This time, however, a government organ published their reform proposal in writing. Minister of State for Regulatory Reform Inada would naturally have accepted the contents. Furthermore, setting aside the question of whether they fully approved of the content, Prime Minister Abe and Chief Cabinet Secretary Suga would have also at least approved the publication of the document given that it is something that makes an enemy of the JA, fully aware that they will confront the JA.

The fact that this document was published is highly significant. When I was still a young bureaucrat, a senior in the Ministry of Agriculture, Forestry, and Fisheries (MAFF) told me, "Even if it's not the government's final decision, it is difficult to modify any bureaucratic document once it is written, let alone published. Once a document is published, it is 70% decided."

Of course, the Regulatory Reform Council will have to negotiate with the MAFF and the LDP. Given the difficulty of the tasks, it is highly unlikely that 70% of what is written in the reform proposal will be realised. This is because the three points included in the reform proposal are completely unacceptable and outrageous for the JA.

Firstly, the Regulatory Reform Council proposed to delete the provisions regarding JA-Zenchū, which has been the centre of the JA's political activities, from the Agricultural Cooperative Law. The Agricultural Cooperative Law stipulates that Zenchū can collect a levy from cooperatives that are part of the federated JA system; Zenchū collects 7.8 billion yen in this way. Without the backing of the Agricultural Cooperative Law, the Zenchū will become unable to forcefully collect the levy. Of course, they can engage in political activities using voluntary contributions from agricultural cooperatives, but that will not raise enough money. It will deliver a blow to the JA's political activities.

The JA has been using their political power constantly to oppose structural reform of agriculture. The high price of rice and acreage reduction policy that the JA promoted led to the piling up of a large number of small-scale, part-time farmers and the decline of rice farming. Non-agricultural income earned by part-time farmers, huge amounts of income gained from the sale of farmland for purposes other than agriculture such as housing, and the excess funds of associate members (any local resident can become an associate member of JA) were all deposited into accounts with JA Bank, and in this way the JA Bank became Japan's second largest megabank. JA has been prospering by making the people and consumers bear the burden of high prices, despite the fact that rice is supposed to be a staple food, and by making agriculture go into decline. The reforms will deliver a considerable blow to this political power.

Secondly, the Regulatory Reform Council proposed to turn ZEN-NOH, the national federation of JAs in charge of sale of farm products and inputs for agriculture into a joint-stock corporation. This means turning it into an organisation that is not a cooperative. This will have two effects.

First of all, ZEN-NOH will no longer be exempted from the Anti-Monopoly Law (private monopolies and cartels). JA was originally an organisation that was established for the purpose of allowing farmers to buy inputs at a cheap price. However, JA centring on ZEN-NOH is a huge monopolistic enterprise that has 80% of the sales share of fertilisers and 60% of the sales share of agricultural chemicals and machinery. Their exemption from the Anti-Monopoly has allowed JA to sell production material or input to farmers at a high price, which ultimately resulted in consumers having to pay high prices for food products. JA has also been selling agricultural products and food products at a high price, too. For example, even though there was a bumper crop of rice in 2012, ZEN-NOH, which has a 50% share in rice sales, deliberately reduced the supply of rice to manipulate the price and made the consumers bear the burden in order to secure sales commission revenue that was proportional to the price of rice.

Furthermore, ZEN-NOH will also lose the various privileges that they have been enjoying as a cooperative. The lower corporate tax rate (the corporate tax imposed on ZEN-NOH is 19% compared to the normal 25.5%), tax-free dividends for members, exemption from the fixed assets tax, loss compensation through profit made by JA's financial businesses and the large amount of subsidies are among some of the privileges. Without these privileges, they will have to compete under the same conditions as ordinary enterprises. The price of production materials and food products will naturally drop if they engage in competition.

Thirdly, in regard to the credit (banking) and kyōsai (insurance) businesses, the Regulatory Reform Council proposed to get local cooperatives to act as agents for the Norinchukin Bank and JA Kyōsairen, which are the national federations of JAs in charge of banking and insurance services. Local cooperatives can receive remuneration as agents, so there will not be much of a change in terms of their earnings, but formally the credit and kyōsai businesses will be separated from the local cooperatives.

I have touched on the above points in my book, Nōkyō Kaitai [Dissolution of JA] that was published in April. In particular, I proposed "turning JA into a joint-stock company" for the first time in this book. However, I did not imagine this idea would be published in writing in a government document. Of course, it might take a long time before these proposals can be realised, but it will be difficult for both MAFF and the LDP to stand against the Abe administration with its high support rate head-on. I would like to emphasise once again that the fact that reforms to the JA were published as a government document is highly significant.

(This article was translated from the Japanese transcript in the "WEBRONZA" on May 16, 2014.)