Media Global Economy 2020.05.08
Prime Minister Abe said "In order to put the Japanese economy back on track for growth and get everyone's cheerful smile back, we will take drastic measures at a stroke with unprecedented ideas" against coronavirus at a press conference on March 15. He also said "We'll take drastic measures at a stroke in an unconventional manner to implement strong economic policy" at the meeting of Committee on Financial Affairs, House of Councillors, on March 24. The details of the policy are not well communicated, but his words are assertive as usual.
The LDP's proposal for "wagyu gift certificates"
These words may have been reassuring. So Liberal Democratic Party (LDP) lawmakers representing agricultural interests (farm-interest lawmakers) proposed issuing gift certificates for domestically-produced beef as an "unconventional," "drastic measure" "with an unprecedented idea."
The LDP held a joint meeting of Research Commission on Agriculture, Forestry and Food Strategy and Agriculture and Forestry Division on March 26, and deliberated and approved the proposed economic measures against novel coronavirus. At that time, a proposal was made "to support (snip) measures for promoting the purchase of domestically-produced beef by consumers including elementary and middle school pupils and the elderly, using Meat Coupons etc., in order to respond to the major decline in wagyu demand due to a decrease in inbound tourism demand" (Shokuhin Sangyo Shimbunsha dated March 27).
It is said that this has invited a lot of criticism on the Internet.
It began with a report by the Japan Agricultural Newspaper, an organ of Japan Agricultural Cooperatives (JA), on March 25 that the LDP was examining gift certificates for wagyu consumption. However, LDP farm-interest lawmakers acknowledged such criticisms and then decided on this proposal on March 26.
When I read the Japan Agricultural Newspaper article, I thought "The current LDP farm-interest lawmakers would make such a proposal." As was to be expected, distribution of gift certificates for the sake of a specific industry and to boost demand for wagyu, which is not bought by ordinary consumers on a daily basis, didn't harmonize with public sentiment.
In addition to these criticisms on the Internet, this "unprecedented, drastic measure" has some problems.
In this short article, I would like to point out these problems and examine why such a proposal that was unthinkable before (unprecedented in that sense as well) was made.
Why wagyu only? Is this a situation where producers cannot make a living?
Firstly, why were the gift certificates limited to wagyu as criticized by the public?
The reason given for the proposal of gift certificates for domestically-produced beef was that wagyu consumption decreased because people have stopped going to expensive restaurants, so the price went down.
However, not only wagyu is suffering a decrease in consumption. Furthermore, wagyu is a luxury that consumers do not often eat, so a decline in the use of expensive restaurants caused a decrease in consumption as well. Wagyu is not an indispensable food for consumers.
Distribution of gift certificates for necessities would be somewhat understandable as a measure for poor consumers, but not so. This proposal is obviously a bailout only for wagyu producers.
Secondly, is this a situation where wagyu producers cannot make a living?
As pointed out in "Unknown aspects of Japan's farming communities (I): the average annual income for pig farmers is 20 million yen!", "the price of domestically-produced wagyu beef, which has been on the rise, is at an all-time high now" until the beginning of March.
The figure below shows the price indexes in the years to 2018 and those by month from 2019, with both indexes in the base year of 2001 being 100. In this figure, crossbred means cattle born through artificial insemination between wagyu semen and dairy cows (Holstein etc.). Their meat quality is intermediate between wagyu and dairy breeds.
Since 2015, the price of carcasses has stayed 1.5 times higher and the price of calves has stayed more than 2 times higher than the prices in 2001. There is no reason why beef cattle farming cannot absorb a temporary price drop. At the time of the financial crisis around 2008, the prices that had risen until then significantly fell to the level in 2001. At that time, however, no proposal for gift certificates was made.
The price of calves as of the 3rd quarter of FY2019 is 760,000 yen. This is a price more than 2 times higher than the guaranteed standard price that guarantees reproduction for calf farmers at 332,000 yen (until 2018) in the program to subsidize beef calf producers, which has played a leading role in measures for coping with beef trade liberalization in 1991. Even if the price slightly falls, there is no need to worry about calf reproduction.
At a press conference, the Minister of Agriculture, Forestry and Fisheries made the exaggerated claim that wagyu production may disappear from Japan due to coronavirus, saying "Wagyu production has a long history of consistent efforts. In the storage spaces of slaughterhouses in Japan, wagyu stocks have been built up, so wagyu cannot be stored any more. This means cattle cannot be slaughtered. Even if cattle reach adulthood, they cannot be slaughtered. If they cannot be slaughtered, it is a matter of course that fattening farmers will be in business trouble and not need to purchase new cattle. It is natural that calves will not sell well. If that happens, the flow of wagyu production will completely stop. If so, (snip) wagyu culture may disappear."
However, if fattening farmers adjust or delay the shipping time a little, wagyu stocks will not be built up. Even if additional feed expenses for this adjustment or delay are incurred, a low-interest loan should be made to cover the cost. The Ministry of Agriculture, Forestry and Fisheries (MAFF) would be able to take this measure with ease.
In addition, this situation will not last forever. If a vaccine is developed, coronavirus will be stamped out and demand will normalize again. So, the government need only take action until then. The virus will not cause wagyu culture to disappear.
Already more than enough measures
Thirdly, even if gift certificates are not issued, more than enough measures for a reduction in the price of calves or carcasses have been already prepared.
One of these measures is the program of subsidizing beef calf producers mentioned above. Under this program, when the market price of calves is lower than the guaranteed standard price, the government is supposed to compensate for the difference. Essentially, the purpose of the program was "If the price of carcasses falls with beef trade liberalization, beef fattening farmers will try to decrease the price of calves. They might as well reduce it substantially. This in turn will hurt calf farmers financially. So why not pay compensation money to calf farmers to close the gap between the guaranteed standard price and the market price?" In other words, this program aimed to stabilize the management of fattening farmers by making a compensatory payment to calf farmers.
With this program, any policy for beef fattening farmers should have become unnecessary.
However, MAFF has also issued a subsidy for management guarantee (called "marukin") to beef fattening farmers as a budgetary measure. With this measure, the government is supposed to pay compensation money to beef fattening farmers unless the price of carcasses rises sufficiently even when the price of calves--the key cost for them--rises and calf farmers make (excessive) profits exceeding the guaranteed standard price (fattening farmers do not beat down the price of calves).
The "marukin" measure was logically impossible judging from the purpose of the program of subsidizing beef calf producers, but this could be realized as a measure to cope with beef trade liberalization because the late Mr. Sadanori Yamanaka, a lawmaker who made a significant contribution to the introduction of consumption tax, exercised his authority over the Ministry of Finance as a leader of lawmakers representing the livestock industry's interests. This measure, however, had been operated on the sly, financed by a public corporation.
However, just as farm-interest lawmakers requested, the Abe administration legislated and legalized this policy as a measure in response to the TPP and then raised its level. This should not have been made. There are more than enough measures against a reduction both in the price of carcasses and in the price of calves.Gift certificates are unnecessary.
Finally, this is a policy that clearly goes against the GATT/WTO.
The GATT stipulates the rule of "non-discrimination" in Article 3, which bans favorable treatment of domestic products in comparison with foreign products. This is the basic principle of the GATT/WTO. The issuance of gift certificates only for domestically-produced beef clearly violates this principle. If gift certificates are issued, they have to cover foreign beef as well.
Around 2000, the LDP pushed the use of domestic forest products preferentially for local government buildings. At that time, the Ministry of Home Affairs (the present Ministry of Internal Affairs and Communications) stated at a sectional meeting of the LDP that that violated the GATT. I was surprised that the Ministry of Home Affairs, which seemed to stay far away from international relations, made the assertion regarding the GATT, and I felt that the basic principle of the GATT/WTO was well known even to the public. The proposal for gift certificates ignores even that principle.
In the 1990s, would this poor-quality proposal have been made? If anything, I consider the problem to be why this apparently crazy policy was proposed.
The Ministry of Finance, which was considerate toward the important figure Mr. Sadanori Yamanaka
I was in charge of policy regarding beef trade liberalization and for the livestock industry and dairy farming in the Livestock Industry Bureau, MAFF, from April 1989 to March 1993. If lawmakers had proposed that gift certificates be issued for domestically-produced beef at that time, how would we MAFF staff have responded to it?
First, a person in charge (Deputy Director of the competent section) would go to see the lawmakers, explain how many problems the proposal has, and try to persuade them to withdraw the proposal. If they were not persuaded, a Director at a higher level would work to persuade them. However, normally the lawmakers would be persuaded.
One of the reasons is that the fiscal authorities (the then Ministry of Finance) did not accept such a proposal. At that time, the fiscal authorities had remarkably strong power. If the Manager of the Budget Bureau, Ministry of Finance (an equivalent figure of Deputy Director in other ministries or agencies) said no, the budgetary request could not be accepted. Even LDP lawmakers would withdraw unless they were extremely important figures when we said "even if we say OK, the fiscal authorities would not accept your request."
Of course, there were "extremely important lawmakers" beyond our persuasion. The lawmaker in the case of the livestock industry was the late Mr. Sadanori Yamanaka.
The tax reform request toward the party tax deliberation committee at the end of the year is an opportunity for petitions of ministries, agencies and industries. Of course, government officials and industries have no right to speak at the meetings of the party tax deliberation committee, so lawmakers concerned substitute for them. Lawmakers who can speak are not experts in tax systems and policies, so they usually read out documents prepared by public offices. Mr. Yamanaka, knowing this, usually took no notice but sometimes asked a question such as "Can you put what you've said now into your own words?" Before Mr. Yamanaka, who was well versed in tax systems, most lawmakers became nervous. The meetings of the party tax deliberation committee were also an opportunity for general lawmakers to receive an assessment or evaluation by Mr. Yamanaka.
As long as Mr. Yamanaka reigned as president of Japan Livestock Industry Association and a leading figure in the livestock industry, it was absolutely impossible for general lawmakers to make a proposal off the top of their head. Even if there had been the idea of wagyu gift certificates at that time, it would never ever have been proposed before Mr. Yamanaka, well-versed in livestock policy matters.
Of course, even Mr. Yamanaka could not refuse to realize unexpected policies. The special tax exemption measure on the income tax for beef cattle farmers was introduced by Mr. Yamanaka in 1967. The marukin measure for fattening farmers would have also been one of those policies.
The fiscal authorities also felt a debt of gratitude toward Mr. Yamanaka (and the former Prime Minister Takeshita) as introducer of the consumption tax. The Ministry of Finance was an extremely faithful government office, though I don't know how it is now. It seemed that the Ministry gave special consideration to proposals with which Mr. Yamanaka or Mr. Takeshita was involved. Mr. Yamanaka also said "No one but me can make such a policy."
By the way, Mr. Yamanaka was an unforgettable lawmaker. I came in contact with him in his later years, and no other politician has impressed me more as a "man of noble character" than he. An acquaintance of mine who worked at the Ministry of International Trade and Industry said that he had felt "wind pressure" from Mr. Yamanaka, the then Minister of International Trade and Industry, which he had not felt from other persons. Mr. Yamanaka stated in his will that he would not produce a political heir from the Yamanaka family, which confused the LDP's Kagoshima Prefectural Federation, which had taken the succession of lawmakers from a politician's family for granted.
At that time, Mr. Hiroshi Moriyama, current Chairman of the Diet Affairs Committee, was elected in the by-election after Mr. Yamanaka's death. Mr. Moriyama also became a farm-interest lawmaker, but he is more of a type good at adjusting or coordinating various interests and opinions, different from Mr. Yamanaka, who was an aggressive leading politician good at proposing a policy by himself.
Symbol of the deterioration of Japan's agricultural policy
So, why has the stupid plan of "wagyu gift certificates" been proposed now?
One of the reasons is that the power of the Prime Minister's office (Kantei) has increased, while the power of the fiscal authorities (the Ministry of Finance) has significantly decreased in the Abe administration.
In days gone by, except for big proposals including the settlement of the GATT Uruguay Round negotiations, general government offices would not make a report or an arrangement about individual proposals with Kantei, and neither would Kantei give any specific directions to government offices.
Certainly, special-interest lawmakers had strong power, but individual government offices including MAFF used to take into consideration the wishes of special-interest lawmakers, as well as industries and constituencies behind the lawmakers, negotiate with the fiscal authorities seeking a point of compromise, and finally try to give a conclusion so that each party concerned could fulfill its request to a certain extent. The fiscal authorities had strong power, so special-interest lawmakers and industries used to act thinking it would be difficult to completely fulfill their requests.
Even when an industry requested a policy, wording was used such that it could be asserted inside the organization that the request had been fulfilled even in the worst case. It took time, but all parties concerned could be involved in the process. Each party could accept the final result as unavoidable in a way. Of course, in some cases, that did not go well.
In the Abe administration, however, Kantei's authority to manage personnel affairs has increased while the degree of its involvement in policies has also increased. More persons dealing with policies in Kantei are from the Ministry of Economy, Trade and Industry. Although they take interest in sending up an advertising balloon to give a popularity boost of the administration, they have little interest in taking pains in coordination of conflicting interests.
In agricultural policy, the government proposed agricultural product exports of 1 trillion yen. Although the target has not been hit, a new target increasing agricultural product exports to 5 trillion yen will be set in the new Basic Plan for Food, Agriculture and Rural Areas at Kantei's strong request.
All policies other than those like advertising balloons are left to farm-interest lawmakers. In the times of multiple-seat constituencies, there were rival LDP lawmakers in a constituency, so each lawmaker studied policies hard. For example, in the Hokkaido 5th district (1947-1993) of east Hokkaido, in which dairy farming prospers, the four LDP lawmakers of Shoichi Nakagawa, Muneo Suzuki, Tsutomu Takebe and Naoto Kitamura competed with each other centering on dairy farming policies.
In the single-seat constituency system, however, when an LDP candidate is certain to be elected, studying policies takes low priority. Spur-of-the-moment ideas such as this proposal for wagyu gift certificates can be generated.
Moreover, such spur-of-the-moment ideas can pass because there is no restraint like Mr. Yamanaka among farm-interest lawmakers.
Thus, requests that would have been turned down with opposition from MAFF before becoming a party decision in the past, can now become a party decision.
Due to the power relationship with Kantei, the fiscal authorities cannot say no either. As we saw in the legislation of marukin, farm-interest lawmakers' requests for policies pass as they are as well, and fiscal discipline has loosened.
I think the wagyu gift certificates symbolize the current deterioration of Japan's agricultural policy.