Media  Global Economy  2021.10.14

The COVID-19 pandemic, rice, and the election — The Constitutional Democratic Party of Japan follows the path of the Socialist Party of Japan

Astonishing anachronism of the leading opposition party

The article was originally posted on RONZA on September 24, 2021

Agricultural Policy/Genome

Impact of the COVID-19 pandemic on rice

Americans often use the saying “Every cloud has a silver lining.” It means that every difficult or unpleasant situation has some advantage. It is equivalent to the Japanese expression “a blessing in disguise” or “it’s not all bad.”

The COVID-19 pandemic has had a great impact on the economy. However, not all industries were equally affected. Some automobile manufacturers have reaped large profits. On the other hand, the food service industry, such as eateries, restaurants, and pubs, that provide face-to-face services suffered great damage.

Although in the same service-providing industry, colleges and universities could use computers to provide services online. But food cannot be provided through computer screens. Even with the use of take-outs and home-delivery services such as Uber Eats, it has been difficult for the food service industry to ensure sales.

If restaurants are affected, agriculture that provides food ingredients to restaurants is also impacted. As the effects of the COVID-19 pandemic became apparent, farm-interest lawmakers made proposals for luxury wagyu beef gift certificates and the use of wagyu beef in school lunches, which received strong criticism.

Beef prices remain at a high level with almost no effect from the COVID-19 pandemic. But a noticeable effect has been seen in the Japanese staple food of rice: the plunge in rice prices.

Despite the strong impression that Japanese people eat rice at home, only 70 percent of staple rice is consumed at home while 30 percent is used for boxed lunches and at restaurants. Rice consumption at home increased slightly owing to the stay-at-home demand, but the increase could not cover the drop in rice consumption in the food service industry.

The drop in rice consumption led to private stock increases, which reached 2.19 million tons by the end of June, exceeding the proper stock level of 1.8-2.0 million tons. The Japan Agricultural Cooperatives (JA Group) lowered rice prices paid to farmers for this year by 20-30 percent over the previous year.

Will the COVID-19 pandemic destroy acreage reduction?

The basis of rice policy is to keep rice prices high. In the age of the food control system when the Japanese government purchased rice from farmers, the Liberal Democratic Party (LDP) government sought to compensate farmers’ income by raising the government’s rice purchase price (producer rice price).

But rice prices were raised too high, leading to more production and less consumption, and resulted in serious surplus of rice. The government disposed of the excess stock of rice as livestock feed and foreign food aid for next to nothing. The amount spent for the disposal totaled 3 trillion yen of hard-earned tax money. Additionally, the government sought to cut back the amount of rice purchase by paying financial subsidies to farmers to keep the production of rice down. This was the beginning of acreage reduction.

After the food control system was abolished in 1995, the government no longer purchased common-use rice but only rice for emergency stockpiles. The government’s direct support of rice prices in the age of the food control system no longer existed. Instead, the government now maintains high rice prices by cutting back rice production through acreage reduction. Without acreage reduction, the price of rice would decline. Even now, acreage reduction continues. The Abe administration’s abolishment of acreage reduction is fake news. The government uses 350 billion yen of hard-earned tax money to pay subsidies to farmers for reduced rice production each year.

But this year, it was difficult to meet acreage reduction. The demand for rice has been declining by 100,000 tons every year. Additionally, the amount of rice production last year exceeded the target amount by more than 200,000 tons, which means that more than 300,000 tons of cut back is considered necessary for this year. The optimum rice yield indicated by the Ministry of Agriculture, Forestry and Fisheries of Japan (MAFF) is 6.93 million tons, which is less than half the peak amount of 14.26 million tons in 1967.

Even last year, there was a 43 percent reduction in paddy fields as only 1.37 million hectares of the 2.38 million hectares of paddy field areas were used for planting staple rice. The farmers’ response was that they could not meet any more acreage reduction than last year’s level. It became doubtful that the targeted acreage reduction (reduction of rice production to the optimum amount indicated by MAFF) would be achieved. The JA Group took the matter very seriously. If rice prices were to decline, JA’s sales commission would decrease. Furthermore, if high-cost part-time farmers and pensioners quit not only farming but also being members of agricultural cooperatives, part-time farming and pension income would not be deposited in JA Bank accounts (JA Bank’s deposit balance as of end of March 2020 was 104 trillion yen, of which 92 trillion yen were deposits from farmers and other individuals). The JA Group frantically encouraged farmers to reduce acreage and managed to achieve the target. JA’s stance is to reduce production of staple rice without inhibition if necessary for maintaining rice prices.

As demand for rice declines amid the COVID-19 pandemic, there will be more need to strengthen acreage reduction next year. But acreage reduction has reached its limit.

With ordinary policies, the government takes on fiscal burdens to provide less expensive goods and services to the Japanese people. Comparatively speaking, the acreage reduction policy by which the government increases consumers’ financial burden by paying subsidies for less rice production and raising rice prices is highly abnormal. Japanese people bear the double burden as taxpayers and consumers. If the government paid directly from finance to compensate farmers as in Europe and America, farmers would have no trouble making a living, even if rice prices declined. It would be a shift from the current policy of a double financial and consumer burden to that of only a financial burden. Furthermore, if the target of direct payment is limited to full-time rice farmers, the government can significantly reduce the financial burden.

This is the very abolition of acreage reduction. It is a policy that lowers the price of staple rice and places importance on Japanese consumers. There is no burden on producers either. If I were to find a silver lining of the COVID-19 pandemic, this would be it.

The astonishing anachronism of the Constitutional Democratic Party of Japan

I had hoped that the COVID-19 pandemic would lead to the realization of proper agricultural policies, but the Constitutional Democratic Party of Japan (CDP) has proposed astonishing anachronistic rice policies to gain farm votes.

One of them is to increase emergency stockpiles of rice to maintain rice prices by purchasing rice from the market. This is what the JA Group had informally demanded and was rejected by the LDP government. The LDP seems to be better than the CDP.

There is no guarantee that the decline in rice demand brought about by the COVID-19 pandemic is temporary. The demand for food services cannot be expected to immediately recover to normal levels next year. Supposing that rice demand, compared with a normal year, decreased by 500,000 tons this year, 400,000 tons next year, 300,000 tons in the third year, 200,000 tons in the fourth year, 100,000 tons in the fifth year, and returned to normal in the sixth year, the total amount of rice that must be purchased would be 1.5 million tons. This would require a national expense of 375 billion yen, calculated at a purchase price of 15,000 yen per rice bag (60 kg). In addition to the purchase cost, interest and storage costs would also arise and be borne by taxpayers.

Moreover, rice consumption has been declining 100,000 tons every year, regardless of the COVID-19 pandemic. Amid difficulty in furthering acreage reduction, if the government were to maintain rice prices, it will have to purchase, for example, 100,000 tons of rice in the next initial year, 200,000 tons in the second year, 300,000 tons in the third year, and so forth, accumulating more and more rice stockpiles and increasing the accompanying financial burden.

Furthermore, the CDP, a successor of the former Democratic Party of Japan (DPJ), proposes reviving the farmers’ door-to-door compensation system implemented by the DPJ. In 1993, the European Union (EU) lowered grain prices and compensated farmers with direct payments. It was a switch in agricultural policy from that of imposing the burden on consumers to taxpayers. The policy to ensure farmers’ income not by rice pricing but by direct payment has little market distortions and is recommended by economists (but not many Japanese agricultural economists seem to agree). However, the former DPJ’s farmers’ door-to-door compensation system was to make direct payments in addition to raising rice prices through acreage reduction. In other words, it was a system that added further financial burden to acreage reduction that imposed financial and consumer burdens. Certainly, farmers were happy being able to receive additional money. The CDP intends to revive this system in its election campaign.

The CDP’s contradictory policy systems

It is clear that the CDP’s campaign promises are aimed at farm votes.

But does the CDP know the real conditions of farmers? In 2015, farmers aged 65 and over accounted for 64 percent of all farmers. Since a vast majority of farmers grow rice, it would not be wrong to say that this also is the reality of rice farmers. Stated differently, almost all rice farmers are pensioners. The second largest category is farmers working as salaried employees at offices and factories on weekdays. Only nine percent of all rice farmers are full-time farmers making a living from rice.

Pensioners and salaried employees only grow rice in their spare time or on the side. Their main sources of income are pensions and salary payments. For prefectures’ average farm households with landholdings of one hectare, earnings after deducting costs of fertilizers, pesticides, etc., are negative even with the current high price of rice. They do not make a living from rice.

The time when the Japanese word for rice “kome” was said to be read “hachijuhachi,” meaning eighty-eight great cares, is in the past. With the progress in mechanization, rice farming has become the easiest farming. As the word “saotome (early maiden)” suggests, planting rice in paddies was the task of women. Women stooped to plant rice, so their backs were bent in later years. Today, there are no women bent with age in farming communities. Given that one works eight hours a day, an annual labor of 251 days was necessary to cultivate rice paddies of one hectare in 1951. Today (2015), only 29 days are necessary.

University students spend more time working part-time, don’t they? Is the CDP going to compensate income for work that requires less time and effort than part-time jobs? If the CDP is so generous, I expect that it is naturally prepared to make door-to-door compensation to freeters (seasonal workers) who spend more time working than rice farmers.

The CDP’s agricultural policy is to maintain rice prices. This is a great burden to consumers who eat rice as their staple food. At the same time, the CDP promises to lower consumer taxes to five percent. The amount transferred as farmers’ income by having Japanese consumers pay higher prices for agricultural products reached 4.1 trillion yen in 2019 (OECD). Since one percent of consumption tax is equivalent to 2 trillion yen, this amount equals two percent of consumption tax. In addition, tariffs are imposed on imports such as flour and beef, for which consumers also pay higher prices. If this is not regressivity, what is? Furthermore, if the CDP plans to lower consumption taxes while at the same time recklessly distributing money to gain farm votes, the CDP is too irresponsible for financial restructuring.

Food is a necessity. Consumption taxes are also imposed on luxury goods. If the government intends to reduce the burden on consumers struggling to make ends meet from the COVID-19 pandemic, shouldn’t the government lower the price of expensive agricultural products and groceries instead of reducing consumption taxes?

The CDP follows the fate of the former Social Democratic Party of Japan

In the age of the food control system, when the LDP government raised rice prices, the Social Democratic Party of Japan (JSP) and other opposition parties criticized the government saying that rice prices should be raised much further. The government raised rice prices to retain high-cost small farmers, and then again raised rice prices saying that higher prices were necessary to cover the costs of such small farmers. This process has been repeated. Even after rice was in excess supply, the JSP opposed acreage reduction and advocated the purchase of all rice production by the government. The JSP’s electoral power base had been the rural areas, not the urban areas, just like the LDP.

The balance of power between the ruling LDP and the opposition party JSP, known as the 1955 system, was called the one-and-a-half party system. Even the JSP itself did not think of taking over the reins of government by replacing the LDP. Thus, the JSP repeated irresponsible claims giving no heed to finances.

The reason lies in the failure of the cabinet headed by JSP Chairman Tetsu Katayama in 1947. “There were times we had the JSP take power, but things did not work out. At the very worst, we have no choice but to have the LDP take power.” This was the actual feeling of many Japanese people who lived in the postwar Showa Era. The Japanese people saw through the JSP’s irresponsible claims. No matter how good a fight the JSP put up, the JSP could only win half the seats of the LDP, as in the general election held after the adoption of the consumption tax.

The CDP overlaps with the JSP to me. When the left-wing political party JSP took power, there was a feeling of exaltation among Japanese people just like the time of the advent of the DPJ administration in 2009. However, both administrations, being mixed forces of lawmakers with different principles and policies, eventually collapsed owing to internal conflicts. In the DPJ administration, the unpredictable Prime Minister Yukio Hatoyama added further confusion. I sometimes think what it would have been like if Yoshihiko Noda had been the first DPJ president, but in history, “if it had happened otherwise” should never be thought.

Many Japanese people do not consider the CDP as an alternative to the LDP. No matter how low the Suga cabinet’s approval rating had plunged, support for the CDP would never have gone up, but rather the LDP approval rating remains flat or even increases. As with the JSP, the CDP probably does not believe that its own agricultural policy would be realized. The two parties are also similar in their attitude of coming up with campaign promises just to gather support without considering consistency in fiscal and political measures.

In terms of maintaining high rice prices, the CDP’s agricultural policy faces the same direction as that of the LDP. The only point that differs is that the CDP’s policy is overprotective. As such, an opposite axis cannot be created between the CDP and LDP. Why not have the courage to work it out with measures to completely abolish acreage reduction, lower rice prices, and make direct payments limited to full-time farmers, just as I have been claiming? In fact, the plan I mentioned above had been the DPJ’s campaign promise until 2003.

If this cannot be done, the Japanese people will not consider the CDP as an alternative to the LDP. The only thing the Japanese people can expect is a change of administration within the LDP. The attention given to the election of the LDP president shows the people’s concerns. The CDP seems to worry about being “submerged,” but what the party should really worry about is the fate of the former JSP after following the road to becoming “sunken.”