Media  Global Economy  2017.10.24

Can the Abe Administration Export Rice? -Why Not Learn from the Principle of "High Quality, Low Price" Advocated by Historical Figure, Kamezo Nishihara?-

The article was originally posted on Webronza on September 27, 2017

Rice was exported mainly to Europe up until the mid-Meiji period

The Abe administration has begun considering expanding rice exports. It is reported that the government will form producing areas and actively make inroads into overseas markets, thereby boosting the volume of rice exports to 100,000 tons by 2019, ten times the current volume of 10,000 tons.

This move comes in response to a decline in domestic rice consumption, which has been reduced by 80,000 tons each year. In other words, the government is striving to offset the decreased domestic consumption by increasing exports. However, even if 100,000 tons of rice is exported, it makes up a mere 1.3% of 7.5 million tons of rice currently produced. In addition, it has to increase its targeted amount of rice export by 80,000 tons each year in order to compensate for the loss by decreasing domestic consumption.

In fact, rice had been an important article of export from the beginning of the Meiji period to around the 1890s, with nearly 15% of the total production exported. In the early Meiji period, taxes were imposed on rice exports in order to prevent the consumer budget from being adversely affected, as rice exports led to a decrease in the domestic rice supply and a hike in rice prices.

Up until the mid-Meiji period, rice had been exported mainly to Europe. Although there were some costs involved in rice exports to Europe, such as export taxes and transport costs, it was more advantageous for rice producers to, even if they were forced to bear such costs, sell their products in the European market rather than in the domestic market when domestic rice prices fell. This helped rice prices in the domestic market to remain higher than the rice price in the European market after deduction of necessary costs such as export taxes and transport costs, since lower prices in the domestic market than that level would prompt producers to export their products while decreasing the domestic supply by exportation, which would eventually raise domestic prices to match export prices. Stated differently, rice exports propped up domestic rice prices.

However, in the late 1890s, rice, which had thus far been one of Japan's top three exports along with raw silk and tea, became unavailable for export as a result of the increased domestic rice demand due to the country's economic development and rising national income, or rather Japan started to import foreign-grown rice in a year of poor harvest.

Under these circumstances, the focus of agricultural policy and administration shifted to achieving food self-sufficiency. Tateki Tani, the first Minister of Agriculture and Commerce, Tokiyoshi Yokoi, professor at Tokyo Imperial University, and others became outspoken advocates of "food independence," the equivalent to what is now called food security. This led to campaigns aimed at the introduction of a rice tariff, marking the start of agricultural protection in Japan.

People involved in agriculture in the prewar period who understood the truth of trade

The reason why Japan became unable to export rice and had to introduce a rice tariff is simple; it was due to the higher price of rice on the domestic market than that on the global market. Cheap rice can be exported, whereas expensive rice cannot, hence a tariff on rice imports is needed. This is just the simple truth.

People involved in agriculture in the prewar period had a better understanding of the truth of trade.

At the beginning of the Showa period, a groundbreaking reform of agriculture and farming villages was implemented in the former Kumohara-mura in Yosa-gun (now Fukuchiyama City) which was said to be the poorest village in Kyoto. It was led by Kamezo Nishihara (1873-1959), a power broker of the prewar political world famous for his efforts to promote the so-called Nishihara Loans, a series of loans provided to China to support it.

Nishihara, who had endeavored to rescue and develop the economy of East Asia, thought that Japan should boost the vitality of its farming villages from an international economic perspective, and argued that product prices should be reduced to help Japanese industries to acquire international competitiveness.

His argument was as follows: "If we live in a global economic environment and hope to stabilize our living situation and increase our happiness, we must introduce the principle of "High Quality, Low Price" and establish social organization where cheap products of high quality are inevitably provided."

To provide "quality goods at low prices"-this is just what Japan's present-day export industries are aiming to do. Amid a declining population and dwindling demand for local products, a global perspective is essential to the revival and revitalization of not only agriculture but also regional economies. The principle of "High Quality, Low Price" advocated by Nishihara is also essential to compete in international markets. In order to achieve this principle, Nishihara pushed through consolidation, rearrangement and readjustment of farmland. This transformed the once-poor Kumohara-mura into a bustling village. Prior to the Second World War, political leaders such as Fumimaro Konoe and Kuniaki Koiso visited the village and praised the achievement, while after the war, it was honored by GHQ as a model Japanese farming village.

Present-day people in charge of agricultural policy and administration who cannot understand the simple truth

Unfortunately, present-day people in charge of agricultural policy and administration cannot understand the simple truth seen above.

When importing agricultural products from other countries, they insist that it is necessary to impose import tariffs because domestically produced products are more expensive and thus less price competitive. On the other hand, when exporting Japanese agricultural products to other countries, they are unaware of the importance of price competitiveness and claim that the products ought to sell well as long as their quality is good enough.

They contradict themselves. People actually engaged in rice exports are well aware of the fact on a day-to-day basis that although the quality of Japanese rice is good, high rice prices are the major stumbling block in their effort to expand exports.

People in charge of agricultural policy and administration may not be very stupid. They say they will pay producers striving to expand into new markets through measures such as exports a subsidy of 20,000 yen per 10 ares, presumably in an attempt to reduce export prices of rice. However, the WTO agreements prohibit export subsidies.

Does the Japanese government intend to ignore rulings by the WTO, as the Trump administration does?

To strengthen the price competitiveness of Japanese rice, all the government needs to do is lower prices through abolition of the acreage reduction program. If the program is abolished, the price of domestic rice is expected to decline from 14,000 yen per 60 kilograms to 7,000 yen. If there are any negatively affected full-time famers, the government only has to make a direct compensation for their damage or loss. The amount of compensation is unlikely to exceed half the amount of the acreage reduction subsidy currently paid to farmers.

In cases where a trading company exports rice, which it has purchased at its domestic price of 7,000 yen, the price set upon the abolition of the acreage reduction program, at the export price of 12,000 yen, the domestic supply will fall by the increase of rice exports and the domestic rice price will rise to as high as 12,000 yen. Rice exports will prop up domestic rice prices as they did in the Meiji period.

When this happens, the amount of direct compensation will decline. Based on the domestic rice price of 12,000 yen, the next year's rice production will expand to around 11.3 million tons, of which 3.6 million tons will be exported with the export value reaching roughly 700 billion yen. In addition, when high-yield rice varieties start to be grown as a result of the abolition of the rice acreage reduction program that had curtailed rice production, the production volume will surge to 15 million tons or more, of which 7.5 million tons will be exported with the export value amounting to approximately 1.5 trillion yen. Not only will the government's current export target of 100,000 tons be attained as a matter of course, but also it will become possible for Japan to export a quantity of rice equivalent to the current production volume.

The expansion of rice exports will also ensure food security in the event of a crisis. If food imports become impossible due to a food crisis, we can keep hunger away with rice which would otherwise have been exported. At the same time, using the farmland resources retained for the purpose of exporting rice to the greatest possible extent for the cultivation of high-calorie products such as potatoes, we can secure the quantity of food necessary for the lives of Japanese citizens. Rice exports during peacetime help us to secure rice stock and agricultural resources in case of crisis. Furthermore, the stock will not require us to shoulder any financial burden such as warehouse fees or interests.

Let us learn from a historical figure!

The abolition of the rice acreage reduction program is found to have been fake news fabricated by the Abe administration.

As the Ministry of Agriculture, Forestry and Fisheries and Liberal Democratic Party lawmakers affiliated with farm organizations had expected, the significant increase in the acreage reduction subsidy paid for the conversion from rice for human consumption to forage rice has led to a rise in the production of the latter and a fall in the supply of the former. Consequently, the domestic rice price increased from 12,000 yen in 2014 to 13,000 yen in 2015 and 14,000 yen in 2016, and is forecast to stay on its upward path in 2017.

The Japanese government has adopted a policy that will not make the price of Japanese rice more competitive on the international market, but rather make it less competitive. Rice exports are more likely to decrease than to increase.

Prime Minister Abe mentioned Genrokuro Furuhashi, an agricultural leader at the end of the Edo period and in the Meiji period, at the end of his policy speech to the extraordinary Diet session in September 2014. He should also learn from the principle of "High Quality, Low Price" advocated by Nishihara, a historical figure from the not-so-distant past.