Media  Global Economy  2015.03.26

Problems regarding agriculture and agricultural policy

English translated version of "Business Prospect" on NHK Radio Channel 1 on March 03, 2015

1.What are the problems in Japanese agriculture?

The problem regarding Japanese agriculture is its inefficiency. This is especially true of rice. Although 70% of farmers in Japan are producing rice, this amounts to only 20% of all agricultural products in Japan. This means that a lot of inefficient producers are engaged in rice farming.

The reason for the inefficiency of rice farming is the result of artificial influences; without these influences inefficiency would not occur. After the 1960s, the Japanese government aimed to increase farmers' income and inflated the price of rice under the Food-Control System under which the Japanese government purchased rice from farmers. Due to the high price of rice, small scale producers with high production costs could continue producing rice. Also, due to the progress of mechanization, farmers with about one hectare of land needed just thirty days a year to produce rice. As a result, the number of part-time farmers with Monday to Friday jobs out of farms such as in the public sector or in factories increased.

Because those part-time farmers did not give up their land it became difficult for full-time farmers to expand, lower costs and increase their earnings. As a result of the rise of the price of rice, part-time farmers were able to continue producing rice whereas life became more difficult for full-time farmers.

2.How is the present situation, after the Food-Control System was abolished?

After the Food-Control System was abolished in 1995, the high price of rice has continued due to the acreage-reduction policy. An acreage-reduction policy is one where the government subsidizes producers in order to reduce the amount of rice production with the result of raising the price of rice. To provide this subsidy, Japanese taxpayers have been sharing part of the cost: 400 billion yen. Also, consumers have paid 600 billion yen for rice as a result due to its high price. Almost all policies with a financial burden aim to provide consumers with a lower price of products or services. However, this acreage-reduction policy passes on a double burden to citizens both as taxpayers and as consumers. The Japanese rice industry is worth 2 trillion yen; of which the Japanese public account for 1 trillion yen.

The prices of other crops are also artificially inflated compared with international prices. To do this, high tariffs are necessary. For example, in order to maintain the high price of domestic wheat - 14% of the wheat consumption in Japan - the government collects tariffs on imported wheat which makes udon noodles or bread expensive. Regarding the consumption tax increase, the extra burden borne by low income households has become a problem. Accordingly, a reduced tax rate on foodstuff will be introduced. However, it is also a regressive measure to urge people to purchase expensive foods while maintaining the acreage-reduction policy or high tariffs. This is especially true of rice. Although rice is the staple food for the Japanese people, the acreage-reduction policy cannot be abolished.

3.Was there no other way than to raise of the price of rice?

Earnings are price multiplied by sales volume minus costs. Accordingly a reduction of costs would have been another way to raise earnings. In the case of rice farming, an expansion in scale is necessary in order to reduce costs. However, to expand the scale of individual farms in a limited area of land causes a reduction in the number of farms. Politically, this means a drop of political support from farmers.

For Japan Agricultural Cooperatives, sales commissions are higher when the price of rice is raised. Additionally, part-time farmers remained in the rice industry and deposited their income in Japan Agricultural Cooperatives' banking accounts. As a result, the Japan Agricultural Cooperatives grew to be the second largest megabank in Japan with deposits of 90 trillion yen.

4.The Abe administration has grappled with a reform of the Japan Agricultural Cooperatives.

I can appreciate that the Abe administration has grappled with the matter where no other administration has. The authority of JA-ZENCHU, which is the leadership and political body for the Japan Agricultural Cooperatives and sits at the top of the pyramid organization, has been weakened as a result. I can say that this is not the final but nothing but the first step in the reform of the Japan Agricultural Cooperatives.

I think that the JA, the present Japan Agricultural Cooperatives, should separate their agricultural arm and leave it as a rural or local cooperative. The JA uses only 1%-2% of its deposits for agricultural loans; 30% is used for the other loans such as housing loans of associate members who are not farmers, and the rest is used for securities investment on Wall Street. Originally, the Japan Agricultural Cooperatives were established as an association for mutual loans among farmers. However the characteristic of agricultural financing has almost disappeared from the present JA. I think it is ridiculous to call it agricultural cooperative when among its members there are 750 thousand more non farmers than farmers.

The JA has grown out of a pre-war control group. I think it is better for full-time farmers to set up agricultural cooperatives independently from the JA, in the same way consumers set up the CO-OP (consumer cooperative). This should be the primary cooperative.

5.What is the policy for agricultural reform?

If the acreage-reduction policy is abolished, the price of rice will be lowered and small scale farmers will turn over their land. If a subsidy is paid only to full-time farmers, they can afford to pay the rent and land will be consolidated in the hands of full-time farmers. If the scale of farms expands and costs are lowered, international competitiveness will increase. Then, I think it will be possible for Japanese agriculture to expand beyond the domestic market, which has shrunk due to the decrease in population, towards the international market. If the reform of the Japan Agricultural Cooperatives, who have promoted the acreage-reduction policy, progresses a desirable agricultural sector can be realized.

Finally, I would like to thank listeners who have been listening for 9 years before ending my program. Thank you very much.

(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 March 03, 2015.)