Media  Global Economy  2018.01.12

People Will Be Deceived Again: TPP Measures for Which a Huge Budget Will Be Executed Despite Having No Adverse Effects

The article was originally posted on Webronza on December 19, 2017

It has been reported that, among the revised budget of 2.7 trillion yen for FY2017, 460 billion yen will be appropriated to the Ministry of Agriculture, Forestry and Fisheries, which will use 317 billion yen for agricultural measures related to the TPP (Trans-Pacific Strategic Economic Partnership Agreement). A budget of 15 billion yen will be appropriated for boosting the competitiveness of domestic cheese as a measure for the Japan-EU Free Trade Agreement, and more than 100 billion yen will be used for improving livestock farming systems. Although the Ministry of Finance attempted to limit the budget to 250 billion yen or less, the Ministry of Agriculture, Forestry and Fisheries and the Liberal Democratic Party's Diet members acting in the interests of farmers and foresters seem to have successfully insisted that the budget be maintained at 300 billion yen or above for three consecutive years.

Uruguay Round measures taken at a cost of 6.01 trillion yen despite having no adverse effects

Although the TPP does not have any adverse effects on agriculture in Japan, the Government of the Liberal Democratic Party has stated that it will carry out measures for farmers who will be influenced by the TPP. This is similar to the Uruguay Round measures in 1995, 20 years ago.

When Japan decided to open up the tariff rate quota amounting to about 800,000 tons of rice as minimum access opportunities during the Uruguay Round negotiations, the Hosokawa Cabinet agreed that the decision would not adversely affect the supply and demand of rice in Japan.

The Cabinet explained as follows: because the Government would buy the same amount of domestic rice as imported rice and use it for feeding domestic animals and foreign aid, it would be unnecessary to reduce domestic production; in addition, because tariff ication (conversion of non-tariff measures to the tariff only system) would not be applied to imported rice for the time being and the import restriction would be maintained as before, domestic agriculture would not be affectsd at all. Therefore, it was unnecessary to carry out any domestic measures (Japan finally resorted to tariffication of rice trade measures in 1999).

Despite this, the Government carried out measures at a cost of 6.01 trillion yen for the reason that the measures would promote the streamlining of agriculture. Because municipalities did not know how to use the money allotted to them, they built spas and other facilities unrelated to the the objectives of the measures.

Beef trade liberalization measures that wasted 2.5 trillion yen

The TPP measures center on reduction of tariff on livestock products. Regarding pork, however, the Ministry of Agriculture, Forestry and Fisheries insisted that the import volume not increase, since the Ministry protected the fundamental structure of the existing import system. Although the tariff on beef will decrease from the current 38.5% to 9% in 15 years' time, reduction of the tariff by about 30% has been more than compensated by the 40% depreciation of the yen over the past several years. As mentioned already, there is no adverse effects on cheese. EU trade officials made a blunder in the negotiations.

Although there is no adverse effects this time either, the compensatory measures will be carried out.

That is not all. The Government used a huge budget of 2.5 trillion yen for veal measures for the nominal purpose of improving productivity of the livestock industry to cope with beef trade liberalization in 1990 (the source of finance was revenues from tariff on beef imports). Despite this, livestock farming, such as beef production and dairy farming, was not streamlined at all.

The streamlining centered on a system of paying the difficiency payments to veal farmers when the market price became lower than the price guaranteed to them. However, this system was applied to Japanese beef only when the price suddenly fell in wake of the outbreak of BSE. In this case also, measures were taken despite having no adverse effects on beef trade liberalization (the difficiency payments was paid only for dairy cattle).

Under this system, two kinds of prices were set: a standard price for guaranteeing calf farmers' reproduction, and a target price for encouraging farmers to promote their streamlining.

The system was established to increase productivity through liberalization measures so that the standard price for guarantee would approach the target price for streamlining sooner or later.

Since the system began, however, the guaranteed standard price has not decreased to the target price for streamlining. On the contrary, the gap between them has widened. Reflecting an increase in the price of carcass imports, the price of Japanese calf beef has increased to 750,000 yen.

This is more than twice as high as the target price for streamlining (280,000 yen) or the guaranteed standard price (340,000 yen). Because it is far higher than even the guaranteed standard price, it cannot be expected at all that the market price will approach the target price. In other words, the benefit of price reduction as a result of liberalization will not extend to consumers.

The original purpose of paying the difficiency payments to calf farmers was as follows: if the price of carcass decreases, cattle-fattening farmers will try to decrease the price of calf; it is all right for them to decrease the price as much as possible; because this results in worsening of calf farmers' business conditions, it will be necessary to pay calf farmers the difference between the standard price for the guarantee and the market price. That is, this measure should have made it unnecessary to take measures for cattle-fattening farmers.

However, because of the political power of Sadanori Yamanaka, a big shot in Japanese politics at that time, and other Diet members related to livestock farming, a measure was taken secretly to give money for cattle-fattening farmers via the Agriculture & Livestock Industries Corporation's subsidy program.

However, since the difference was paid to calf farmers, this measure for cattle-fattening farmers should not have been taken in the first place. Because this was double payment, it was carried out secretly. Despite this, when the TPP was agreed upon, the Ministry of Agriculture, Forestry and Fisheries and the Liberal Democratic Party's Diet members acting in the interests of farmers and foresters improved and legislated the measure. Such a measure was not carried out even by Sadanori Yamanaka.

While leaving the high price of calf as it is, the Government took such a measure because of the increased cost burden on cattle-fattening farmers due to the high price of calf. Unfairly high profits to calf farmers have been left as they are. In addition, this has nothing to do with trade liberalization.

Agricultural Village laughing all the way to the bank

The measures for cheese are worse than this measure:

Under the Japan-EU Free Trade Agreement, the amount of tariff rate quota is almost equivalent to the current import volume, and the tariff rate will not be reduced at all. Then neither the import volume nor the combined supply volume of imported and domestic cheese will increase; the price will not decrease either. Therefore, it is unnecessary to take any measures. This time, the Ministry of Finance, which two years ago faced the resistance of the Agricultural Village (consisting of agricultural cooperatives, the Ministry of Agriculture, Forestry and Fisheries, and Diet members acting in the interests of farmers), attempted to resist it making use of the Fiscal System Council. However, it suffered a crushing defeat as described at the beginning.

Moreover, on December 12, Hokuren (the Federation of Agricultural Cooperatives in Hokkaido) publicly announced that dairy manufacturers had agreed to raise the price of milk for cheese making by 4 to 5 yen (about 10%).

Is it not strange?

If the price of 150 yen, which has been protected so far by tariff and the like, can be reduced to 100 yen as a result of liberalization, it will be necessary to reduce the price of raw milk, the main raw material for cheese making. If so, raising the price of raw milk, which will result in an increase in the price of cheese, indicates that both Hokuren and the dairy manufacturers know that liberalization has no adverse effects on cheese at all. Although liberalization has no adverse effects, they have demanded liberalization measures that require considerable cost. This is a typical way the Agricultural Village adapts. Regrettably, there is no organization that checks this.

The Agricultural Village takes advantage of the misunderstanding that farmers are poor. While ten million people earn an annual income of less than two million yen, beef farmers annually earn eight million yen, dairy farmers 12 million yen, and pig farmers 15 million yen.

The Agricultural Village is laughing. It is laughing at the taxpayers who shoulder heavy fiscal burdens and the consumers who have to pay prices that will not fall despite liberalization ? that is, the Japanese ordinary people.

(This article was translated from the Japanese transcript of Dr. Yamashita's column in "Webronza" on December 19, 2017.)