Reaping the Harvest of Lax Approach to Agricultural Reform

Change desperately needed to make farming sector economically, socially viable, but subsidy flap presents another political impediment to progress

Masahiko ISHIZUKA (Councilor for the Foreign Press Center Japan and a Lecturer at Waseda University)

Japan is being compelled to shed new light on the future of its agriculture industry and find ways to make it a viable sector economically, socially and politically. But in a setback for the reform agenda, recent political developments could deter this effort.

Since the days of high-flying economic growth in the 1960s, the country's agriculture sector has been home to formidable protectionism combined with undisciplined fiscal policy. This has kept the domestic farming community as a dumping ground for unabashed pork-barrel politics, special interests, and policies based on bureaucratic whims.

Japan's postwar economic growth was achieved by the remarkable strength of its manufacturing industry, where the likes of Sony Corp. and Toyota Motor Corp. have symbolized the nation's industrial prowess and international competitiveness. The manufacturing and related sectors brought the bulk of Japan's wealth, earning foreign currencies, generating tax revenues and creating jobs.

Agriculture has always been overshadowed by the industrial sector and, more recently, the service sector. But it has also been a chronic embarrassment for Japan's international trade policy because of the protectionism it has demanded - the bonds of which remain quite strong. In both bilateral and multilateral trade negotiations, Japan has continually pleaded for special treatment for its farm sector, especially rice. Coming from one of the greatest beneficiaries of the international free trade system in the post World War II period, this is certainly ironic.

That said, to the extent that Japan seeks freer access to export markets under increasingly popular bilateral free trade agreements, it recognizes that its agricultural sector acts as in impediment to reciprocal concessions. The paradox that is the Japanese economy's dual structure becomes all the more prevalent as relentless economic globalization progresses, a reality from which Japan cannot escape.

Problems with the agricultural sector carry significant implications for domestic policies as well, given the heavy protection farmers and rural areas have been afforded for decades. Absorbing a disproportionately large portion of the national budget backed by an electoral representation system weighted heavily toward rural constituencies, such political and fiscal distortion is becoming increasingly untenable.

By the numbers

Some basic figures tell the story of the current state of Japan's agriculture. In 2005, the agricultural population stood at 3.35 million, or 2.6% of the total national population, having decreased 20% in 10 years. More than 60% of farmers are over 65 years of age, and farmland per farming household is 1.8 hectares (4.4 acres) compared to 30-50 hectares in Germany and France and 180 hectares in the U.S.

For an overwhelming majority of Japanese farmers, farming is actually a part-time job accounting for only 14% of their total income, which averaged ¥7.71 million ($70,000) in 2003 - 20% more than the average for wage earners. Against the background of the slow decline of rural areas in contrast to prosperous large cities, it is easy to imagine farmers as poor. In reality, they are generally better off thanks to various factors, and the main problem is the weakness of the farming industry rather than farmers' individual incomes.

Another confusing thing, in light of Japan's notorious agricultural protectionism, is the fact that the country's self-sufficiency ratio in food is dangerously low at slightly under 40%, compared to the 70-80% seen in leading industrial countries like the U.K. and Germany.

The reason is that the protectionism has been focused on a limited number of crops - rice being at the forefront - along with some dairy and fisheries products. A wide range of farm products have been left to market forces through various stages of liberalization and consumer demand, resulting in high levels of imports.

Some people justify protectionism with food security in mind and argue that the self-sufficiency ratio must be raised. But protectionism needs to be separated from a truly viable policy that strengthens domestic agriculture to meet consumer's tastes. The problem is that such policies have long been neglected.

In the years immediately following the end of World War II, Japan suffered severe shortages of food. White rice, the staple, was coveted by the people like a precious gem - becoming the all-important crop in the Japanese government's agricultural policy and garnering an almost sacrosanct position. All sorts of farming policies - like those regarding farmland ownership, crop growing, distribution and marketing of rice, along with the building of related infrastructure like rural roads and irrigation facilities - have created a monstrous machine that has expanded and protected vested interests in agriculture. Even former Prime Minister Junichiro Koizumi's highly touted reform campaign left agriculture untouched, despite the fact that reform was needed there more than anywhere else.

Ironically, the protective policy has become more and more unnecessary due to an oversupply of rice, as people have come to eat less and less of it. Rice prices have dropped 40% in the past 15 years, even though as many as 40% of rise fields have been purposely taken out of production.

Youth movement

One thing that is considered essential is to enlarge the unit scale of farm management and provide incentives for younger people to engage in agriculture. Also deemed necessary is to infuse flexibility into the farmland ownership system, which under existing law is not allowed to be separated from the farmer who uses the land.

Along this line, the government implemented a policy from this fiscal year to compensate farmers with land larger than 4 hectares for the gap between product prices and costs. Farmers, however, are critical of this policy - proposed by the ruling Liberal Democratic Party - which they say is intended at marginalizing small-scale farms.

The opposition Democratic Party of Japan capitalized on farmers' discontent in its upper house election victory this past summer and came up with a proposal to provide compensation to all farmers irrespective of their area under management. Nervous about again losing rural votes in the lower house election expected be called sooner or later, the LDP is proposing to loosen the qualifications for receiving compensation to accommodate more small-scale farmers - an allegedly populist compromise that could act as yet another roadblock to truly strengthening Japan's agricultural base.

(Originally appeared in the November 26, 2007 issue of The Nikkei Weekly, reproduced here with permission.)