Media Global Economy 2020.02.13
The dairy farming sector cannot be likened to a toddler in need of parental protection. It is some other sectors that the Japanese government should support with subsidies.
The Japan-US trade agreement took effect on January 1. The TPP-11 and the Japan-the EU Free Trade Agreement are already in effect. Under these pacts, Japan is reducing tariffs on beef from the US and Australia, and those on pork from the US, Canada, Denmark, and Spain.
Regional newspapers have carried some articles expressing concerns about the negative implication of these pacts for farmers. The government earmarked 325 billion yen (US$ 3.0 billion) in the supplementary budget to appease farmers. This is increased from the annual appropriations for the same purpose, which totaled around 300 billion yen (US$ 2.7 billion) in recent years.
Stock farmers outstrip private sector employees in terms of average annual income
In my previous article "Unknown aspects of Japan's farming communities: the average annual income for pig farmers is 20 million yen($182 thousand)!," I argued that the impact of lower tariffs is too small to require measures to support farmers with high incomes.
In particular, the argument that the average pig farmer earns 20 million yen a year seems to have come as a revelation to many readers. It seems to have invited a backlash from those who know what it was like to be a farmer in the past.
This figure, however, is based on the official statistics of the Ministry of Agriculture, Forestry and Fisheries (MAFF). In the following paragraphs, I look deeper into this issue based on the preliminary data MAFF released at the end of last year. In the process, I add a slightly different perspective.
Special focus is placed on the livestock industry, for which the government plans to take measures to mitigate the possible adverse effects of market liberalization. The history of promoting the industry, as well as its present features, are also reviewed. The specific source used is MAFF, Report of Statistical Survey on Farm Management and Economy (statistics by type of farmer and those on the cost of production of farm produce and livestock products, among other statistics) [available only in Japanese]. This source is readily accessible from the MAFF website.
The following paragraphs look at the annual average agricultural income of stock-farming households--which include many farm households with corporation status--by type of farm. (Agricultural income does not include pension income or non-agricultural income.)
The average income in 2018 stood at 14.63 million yen ($133 thousand) for all dairy farm households (as compared with 16.98 million yen, $154 thousand in 2017; the following figures in parentheses denote the average income in 2017); 41.38 million yen, $376 thousand (47.92 million yen, $436 thousand) for dairy households with more than 100 cows; 3.76 million yen, $34 thousand (5.3 million yen, $48 thousand) for cattle breeding households, which produce calves on a relatively small scale; and 8.01 million yen, $73 thousand (9.67 million yen, $88 thousand) for cattle fattening households, which purchase calves and fatten them until they grow up.
The average annual income of all pig farm households in 2018 was 18.76 million yen, $171 thousand (31.48 million yen, $286 thousand). That of pig farm households with more than 2,000 pigs stood at 44.72 million yen, $407 thousand (78.43 million yen, $713 thousand).
Although the agricultural income for cattle breeding households dropped to a significantly low level in 2018, the total income of the average cattle breeding household, which included non-agricultural income and pension income, was 6.37 million yen, $58 thousand in that year. It is thus safe to say that regardless of their type, livestock farms fared significantly better than private sector employees, whose average income was 4.41 million yen, $40 thousand in 2019.
A comparison of figures between 2017 and 2018 shows that the income of pig farm households plunged while the income of dairy households remained stable. The price of milk is rather stationary from year to year, which means stable sales for dairy households. By contrast, the price of pork fluctuates greatly.
The price of pork is particularly vulnerable to the import prices of grains; indeed, Japan's livestock products are so dependent on feed imports from the US and other countries that they can be described as processed products of imported grains. The cost for pig farm households is substantially exposed to the volatile international grain prices as well as to the exchange rates. Purchased feed accounts for the bulk of the material cost for the pig farming sector. It represented 72% in 2018, compared with 44% for the dairy sector, which also uses pasture for feed.
Income is calculated by subtracting the cost from sales, which is the product of the unit price and the quantity sold. The income of pig farmers is particularly changeable because both the price and the cost are prone to fluctuation. For example, a higher pork price and a lower grain price can result in a substantial increase in income. The reverse can lead to a substantial drop in income.
The average agricultural income of rice-farming households was only 0.72 million yen , $6.5 thousand in 2018, not least because they are largely small, part-time farmers who engage in farming only on weekends. Yet that of rice-farming households that cultivate more than 20 hectares as full-time workers was 17.2 million yen, $156 thousand in the same year (22.47 million yen , $204 thousand in 2017).
A shocking report that was released a few years ago predicts that the depopulation process will result in most of the country's municipalities disappearing in the not-too-distant future. Among other predictions, the report says that Akita Prefecture will see all of its municipalities disappear except one--Ogata Village, in which all households are farmers.
These farming households earn some 17 million yen a year on average by cultivating rice in paddies that average 19 hectares in total area. Their children, many of whom go to universities in Tokyo, return to the village after graduation with no interest in landing a job at a large company. In other words, all farming households have someone to take over their family business. The village cannot disappear.
Agricultural income is even higher per hour worked
In the livestock industry, where large farm households make up a majority, farm management and farm work are often done by two or more farmers, whose workload may vary from worker to worker. It might therefore be inappropriate to directly juxtapose the income of farmers and the income of workers in other industries. (For example, large farm households--dairy farm households with more than 100 cattle and pig farm households with more than 2,000 pigs--have three household members on average who engage in farming. Therefore, the average income of these large farm households must be divided by three. If it stands at 42 million yen($382 thousand), the per capita income is 14 million yen($127 thousand). However, very few households even in Tokyo earn such a large income.)
The following paragraphs thus compare the per capita agricultural income of farm households per hour in 2018 with the average hourly wage in other industries (with corresponding figures in 2017 in parentheses).
In the dairy sector, the average hourly farm income stood at 2,509 yen (3,007 yen) as a national average: 3,050 yen (3,778 yen) in Hokkaido, where the figure for farms with more than 100 cattle was 4,647 yen (5,256 yen); and 2,069 yen (2,488 yen) for all prefectures except Hokkaido, where the figure for farms with more than 100 cattle was 5,763 yen (7,540 yen).
In the beef cattle sector, the average hourly farm income stood at 1,457 yen (1,982 yen) for cattle breeding households and 2,517 yen (2,628 yen) for cattle fattening households. In the pig farming sector, the figure stood at 2,554 yen (4,326 yen) for all pig farm households and 5,531 yen (12,804 yen) for those with more than 2,000 pigs.
The figure for pig farm households for 2017 is exceptionally high. This attests to their vulnerability to fluctuations in the prices of pork and feed as discussed earlier. In the rice farming sector, the average hourly farm income was 3,194 yen for households with a farm of 20-30 hectares and 4,330 yen for those with a farm of more than 30 hectares.
What about other industries?
The minimum hourly wage in farming prefectures is generally low. Although it is relatively high in Hokkaido at 861 yen, the minimum wage is 790 yen in the prefectures of the Tohoku region (excluding Miyagi and Fukushima) and in those of the Kyushu region (excluding Fukuoka). The average hourly wage for temporary employees is estimated at 1,500 yen. The figure for private sector employees as a whole was 2,205 yen in 2019 as calculated by dividing their average annual income by 2,000 hours, the figure representing their total annual hours worked.
The average hourly wage for stock farmers, except cattle breeders, is on a par or above the average figure in the private sector. The average hourly wage for large diary and pig farmers is more than twice as much that of the private sector. If farmers earned less than the minimum hourly wage, the government would need to do something about it. But even the figure for cattle breeders far exceeds it.
In short, there is no need to take measures to support farmers from the perspective of income.
A leap in scale
The readers who know only what agriculture used to be might not be convinced.
It is important to note here that stock farming is now more industry-oriented than any other sector in agriculture. Like industry, stock farming has remarkably transformed itself over the past half a century thanks to technological progress and investment. Knowledge about stock farming that was cutting edge ten years ago is now out of date.
Livestock farms have steadily increased in scale. In 1965, there were 0.7 million pig farm households and 3.98 million pigs in Japan, meaning only 5.7 pigs per such household.
Now the country has only 4,000 pig farm households, which raise 9 million pigs in total. The number of pig farm households is extremely small compared with rice-farming households, which are estimated to total 1.6 million in number.
According to data as of February 2019, these 4,000 households produce 0.9 million tons of pork, accounting for 49.2% of the total domestic consumption, which amounts to 1.83 million tons. The percentage represents the self-sufficiency rate for Japan. The average number of pigs per pig farm household is staggering, standing at 2,119. The figure is 372 times as large as the average in 1965. It may not be easy to imagine that a single farm household raises more than 2,000 pigs.
The situation is similar in the dairy sector as well. Only 15,000 farm households raise 1.33 million cows, producing over 7 million tons of milk. The average number of cows per dairy household grew from 3.4 in 1965 to 88.8 in 2019. Over the past five decades, the number of dairy households decreased by a factor of 25 while milk production quadrupled.
The selective expansion strategy under the Agricultural Basic Act
What has happened in the past half a century? Let me explain with a focus on dairy farming, which has undergone radical changes.
Until the 1950s, stock farming was done by rice farmers, who milked cows as a sideline in a practice known as integration of livestock in farming. When I visited a farmer who was a relative of mine as a child, he gave me goat milk. I remember that the milk was quite sweet compared with the cow milk I usually drank.
A phenomenal shift in dairy policy came in 1961, when the Agricultural Basic Act came into effect. The act called for, among other things, promoting dairy farming in Japan.
The main objective of the 1961 act was to close the income gap between farmers and factory workers. Immediately after the end of World War II, a bad rice harvest resulted in a severe food shortage in Japan. A spike in the price of farm produce greatly enriched farmers. Farmers were simply rich. By contrast, non-farmers had to exchange their kimonos in their dressers for food with farmers. They were force to lead a "bamboo shoot life," in which people sold off their clothes one by one, thereby being stripped like a bamboo shoot of its skin. As the Japanese economy gradually recovered centering on the industrial sector, however, farm households began to see their income dip below that of workers' households.
Under the slogan of boosting food production, Diet members elected from rural constituencies successfully secured budget allocations from fiscal authorities and trumped such achievements in their constituencies in postwar Japan. That did not last too long. The government declared the end of the postwar phase in 1956. As food production increased, it seemed to the Diet members increasingly difficult to secure budget allocations for agriculture.
These lawmakers then changed their tactic. They advocated increasing farmers' income to the level enjoyed by factory workers. They observed that West Germany established a basic law on agriculture and subsequently increased the budget for the industry. Diet members called on the Ministry of Agriculture and Forestry (MAF) to draft a similar bill.
Although their motive may have been self-serving, the upshot was a sincere discussion about the issue, led by two leading economists. One was Seiichi Tobata, professor at the University of Tokyo, who was one of the best pupils of the renowned economist Joseph Schumpeter. The other was Takekazu Ogura, a bureaucrat, who later chaired the Government Tax Commission for 16 years.
Back then, most farm households lived on rice farming. A viable approach to increasing their income was to increase the size of rice farms for cost reduction purposes.
An increase in the average farm size, however, required a decrease in the number of rice-farming households, which could be achieved by persuading some of them to give up rice farming.
The alternative sectors to which they could switch were fruit farming and stock farming, two of the sectors where demand was expected to increase as the national income grew. This strategy was called "selective expansion."
MAF set about promoting stock farming in earnest.
At the same time, the government eliminated tariffs on corn, which serves as stock feed. As a result, Japan's dairy farming was destined to develop as an industry dependent on imported grains, rather than domestically produced ones.
The government generally failed to learn about the crux of the industry from the experience of Denmark, where pork farms cultivate grains in vast farmlands around their piggeries for feed. A major pork exporter, Denmark could have served as a suitable model for Japan to implement the selective expansion strategy, as demonstrated by Anjo City in Aichi Prefecture, an agricultural municipality dubbed the "Denmark of Japan."
The Deficiency Payment Act of 1965
The promotion of dairy farming was accelerated by the establishment of the Act on Temporary Measures concerning Compensatory Payments for Producers of Milk for Manufacturing Use of 1965, better known as the Deficiency Payment Act.
The leading drafter of this bill was Tokutaro Higaki, Director-General of the Livestock Industry Bureau, MAF, who later became a member of the House of Councillors, and a heavyweight in the Nakasone faction of the ruling Liberal Democratic Party. Support for Higaki from the livestock industry came from Toichi Otsubo, President of the National Federation of Dairy Cooperative Associations, who had also served as Director-General of the Livestock Industry Bureau.
There is an interesting anecdote about Otsubo, a heavy drinker. When he was at MAF, Ichiro Kono, a big shot in the Japanese post-war politics, was the minister. A non-drinker, Kono could not stand the smell of drink emanating from Otsubo. One day, when Kono was on his way to the Diet Building in a small car with Otsubo, he exploded. "Otsubo-kun, you drank heavily last night, didn't you? Not again!" Otsubo replied calmly, "Not last night, sir. This morning, sir." He drank on the very morning when he was about to answer questions in Diet deliberations. Those were the good old days.
Otsubo began lobbying then-Finance Minister Kakuei Tanaka who became a Prime Minister in 1972 to pass the deficiency payment bill. Tanaka, whose father was a dealer in cattle and horses, asked about the total number of dairy farm households in Japan. Otsubo replied, "I'm sorry to say that it has dropped to 0.36 million." Tanaka responded, "That's great. Multiply that number by 25, and you get 9 million votes. Gotcha. I'll let it pass in the Diet." This is a story I heard directly from Otsubo.
Dairy farmers are busy milking early in the morning and evening but do not have much to do during the day. This is why many dairy farmers assume an honorable post in their communities, like an organizer or a head of community firefighters. In short, the average dairy farmer gets 25 votes by asking people around him. Tanaka's acumen astonished Otsubo.
Under the Deficiency Payment Act, the government paid subsidies to dairy farm households that produced milk for butter, skim milk powder and other milk-processed products ("manufacturing-use milk") in order to fill the gap between the price the government set to guarantee reproduction by farm households and the affordable purchase price for dairy manufacturers. The manufacturing-use milk producing region eligible for such subsidies was Hokkaido, which is far away from the consuming regions.
Before the Deficiency Payment Act, it was feared that raw milk from Hokkaido, which was produced at a low cost, could be sold for a low price in the other prefectures and thus push down the price of milk there. The idea behind the legislation was that if the price of milk from Hokkaido was guaranteed, the price of milk for direct consumption produced in all the other prefectures would not go below the sum of the guaranteed price of milk from Hokkaido and the cost of transportation to other prefectures. The legislation was a delicate balancing act designed to guarantee the price of milk for direct consumption produced in all prefectures except Hokkaido by guaranteeing the price of manufacturing-use milk from Hokkaido.
The Deficiency Payment Act put an end to the fierce battle between dairy farm households and dairy manufacturers over the price of milk, paving the way for the stable development of the dairy industry.
Innovative technologies that accommodate globalization
The dairy farm sector was hit by the wave of globalization.
In 1987, a GATT panel decided, in response to an appeal by the US, that Japan's quantitative import restrictions on skimmed milk powder and some other dairy products as well as starch violated GATT rules. After negotiations, Tokyo and Washington in 1988 agreed to eliminate the quantitative import restrictions on processed cheese, ice cream, and frozen yogurt among other items. Washington agreed that Tokyo could maintain such restrictions on skimmed milk powder as the product from the US was uncompetitive.
The GATT Uruguay Round negotiations, however, called on the parties to GATT to replace all non-tariff barriers, including quantitative import restrictions, with tariffs, a process known as tariffication. Japan, for its part, "tariffed" its quantitative import restrictions on butter, skimmed milk powder, and all other items except rice. As it was agreed to introduce tariffs equivalent to the differences between the domestic and international prices in the base period, 1986 to 1988, Japan was able to set high tariffs on these two products that were equivalent to an ad valorem tariff of more than 200%.
Nevertheless, further cost reduction was deemed necessary to stem the tide of globalization. What contributed greatly to this process was an innovative farm practice made possible by a shift to the free stall milking parlor system, which allows dairy households to raise a large number of animals.
The conventional farm practice is to arrange cows in lines by fixing the neck of cattle onto equipment called a stanchion stall. Because cows cannot move about, farmers have to move from cow to cow in a cowshed to milk and feed them, allowing for 50 cows at most. Farmers attach a tool called a milker, which is connected to the pipelines above the cows, to their teats, one cow at a time. The need to squat down to milk the cows means hard work for farmers.
In the free stall milking parlor system, cows are put to pasture and allowed to move about in free-stall cowsheds. Because they can move to feed themselves, feeding work is not so demanding. Cows are trained to enter the milking parlor when feel like being milked. In this milking setting, many cows are milked at a time. When they are finished, they leave the milking parlor to allow another group of cows to enter. Because cows themselves move about, the milking process requires fewer workers.
In recent years, dairy households have begun to use milking robots. When a cow goes into the partition frame, a milking robot locates its teats and attaches the milker to them. When the milking process is completed, the robot removes the milker, allowing the cow to leave.
Lavish state subsidies and soft loans are provided to introduce such facilities. For example, a dairy household what planned to introduce a facility worth 20 million yen, $182 thousand is eligible for a subsidy that covered half the cost, i.e., 10 million yen , $91 thousand. The remaining half is financed by a soft loan from the Japan Finance Corporation. These arrangements significantly lessen the burden on dairy households. In fact, public funds totaling nearly 3 trillion yen, $27 billion have been spent to support livestock industry including dairy farming since Japan's beef market was liberalized. These funds have been financed by the income from related tariffs.
Use of embryo transfer technology
Another technological innovation concerns the production of wagyu (Japanese cattle) from Holsteins with the use of embryo transfer technology.
Being an animal, a cow does not produce milk unless it gets pregnant and gives birth. When a milk cow is artificially inseminated with the semen of dairy cattle, the resultant calf has a 50/50 chance of being either male or female. Dairy households raise female calves for milking purposes. They sell off male calves, which are irrelevant to their dairy farm management, to cattle fattening households.
When quantitative import restrictions on beef were abolished and replaced by tariffs in 1991, the dairy and beef sectors worked out a plan to lessen the impact of this liberalization process. They decided to artificially inseminate some female cows with the semen from wagyu (Japanese cattle) instead of that of dairy cattle. The resultant calves produce beef that is half cow and half wagyu in meat quality. Such a calf, called a hybrid (F1), fetches a high price.
Technological innovations do not stop there. In recent years, some dairy households have begun to produce wagyu calves from dairy cows by producing a fertilized egg from a wagyu egg and wagyu semen and putting it into the uterus of a female cow. This is known as embryo transfer technology.
The resultant calves are genuinely wagyu, which definitely sell for higher prices. The fact that a wagyu calf is smaller than a Holstein makes the delivery easy, lessening the burden on mother cows. In fact, some dairy farm households fatten wagyu calves for sale rather than selling them off right away in a practice known as "dairy-beef integrated farming."
Sustainable management of dairy households, however, requires producing female calves by artificially inseminating cows with the semen of dairy cattle in order to secure successor cattle. Successor cattle will be increasingly difficult if increased production of hybrids and wagyu calves means less opportunities to artificially inseminate cows with the semen of dairy cows. To avoid this, a new technology has been developed that judges whether a sample of dairy cattle semen will give rise to a male or female calf and uses dairy cattle semen that will result in a female calf for artificial insemination. The technology thus allows for sex preselection, making it possible to produce wagyu calves while securing successor cattle.
Again, income is calculated by subtracting the cost from sales, which are the product of the unit price and the amount of units sold. Raising or fattening a large number of cattle with the free stall milking parlor system has contributed to an increase in the amount sold and a decrease in the cost of producing milk. Meanwhile, embryo transfer and sex preselection technologies have contributed to a higher price of calves, a byproduct of dairy farming. The income of dairy farm households has increased in this way.
Is dairy farming excessively hard work?Dairy farm households maintain that their work is hard, stressing its onerous aspects such as animal waste treatment and the difficulty in having a day off because cows must be milked every day. To some, their argument might seem like the reflection of their desire to elicit government subsidies.
The dairy helper system has been in place for some 30 years in Japan, with support coming from the Ministry of Agriculture, Forestry and Fisheries (MAFF). But the system remains underutilized. This state of affairs in Japan contrasts sharply with the situation in New Zealand, for example. Dairy farmers there can afford a long vacation by making all the cattle they raise deliver calves in a specific season in a practice known as seasonal delivery. This in turn helps to synchronize the non-lactating period, a period designed to lessen the burden on milking cows. However, few Japanese dairy farmers make efforts to achieve this seemingly attainable goal.
As the anecdote involving Kakuei Tanaka suggests, dairy farmers are not so busy during the day apart from milking hours. Hospital doctors and nurses seem to work under far more severe working conditions, including remuneration. Don't dairy farmers care about other people? I just can't understand why they continue to grumble.
Recently, I was flabbergasted to learn about a government subsidy program called "raku-raku (making dairy farming easy)" on MAFF's website. The idea behind this program is that the average dairy farmer works 2,200 hours a year, which is longer than the average annual working hours of 2,050 in the manufacturing sector, and that dairy farmers are more likely to be bound by their work all year around. The program thus provides a subsidy that covers up to the half of the cost of installing a facility such as milking robots designed to mitigate these conditions. A dairy household is eligible for a subsidy of up to 30 million yen , $372 thousand.
The proneness to be restricted as such can be mitigated by taking advantage of the dairy helper system or seasonal delivery. Is working just 150 hours longer than workers in the manufacturing sector a year that demanding? Is working 40 minutes longer a day really hard? The "hard" work of dairy farmers is rewarded with high remuneration in terms of hourly wage.
Some 30 years ago, when I worked to support them at MAFF, I worked more than 3,000 hours a year--including unpaid overwork hours--if I remember correctly. I suspect that MAFF officials in charge of this raku-raku program work much longer than the average dairy farmer.
I believe that if a dairy farmer deserves 30 million yen in subsidies, there are many other types of occupations that more justly deserve higher pay and better working conditions, most notably hospital doctors and nurses as I noted earlier.
When I was an MAFF official, a representative of a group of dairy households kept complaining to me. He stressed only the negative aspects of their work, describing it as being so demanding, dirty, difficult and unprofitable that he cannot find his successor. I then asked him: "Doesn't your grumbling discourage your son from succeeding you as a dairy farmer? Is dairy farming, your choice of occupation, so unappealing?"
Unlike salaried workers, dairy farmers have no boss who harasses or intimidates them. Unlike shop owners who just have to wait for customers to come, dairy farmers can sell as much milk as they produce for a stable price. Above all, dairy farmers chose their occupation of their own accord. The government did not force them to do so.
No longer can the dairy farming sector be likened to a toddler in need of parental protection. And yet, how many dairy households are aware of this, I wonder.