The Sustainability of Japanese and EU Agricultural Policies

John de Boer (University of Tokyo & GLOCOM Platform)

Franz Fischler, Member of the European Commission responsible for Agriculture, Rural Development and Fisheries, will visit Japan between 26-27 July in order to attend the "5th Quint Agricultural Ministerial Meeting" to be held in Nara. The five members of the Quint group are the EU, Japan, the United States, Australia and Canada. In addition to attending the meeting, Commissioner Fischler will deliver a major policy speech before the Central Union of Japanese Agricultural Co-operatives (JA) on the theme of "Japan and the European Union: Partnership for Success".

Ever since the last WTO ministerial round in Doha both the EU and Japan have come under intense international pressure to reform their highly protectionist oriented agricultural policies. In the past, the two have often joined hands to defend their practices that support farmers with millions of dollars in subsidies citing reasons such as food security and multifunctionality. This pattern is likely to be repeated in the upcoming agriculture ministerial meeting as both try to ward off criticisms from highly competitive farm producers such as Canada and Australia. Complicating matters even further is the fact that both governments are facing severe budgetary constraints. In light of this, many are asking whether or not current EU and Japanese agricultural practices are sustainable. This week's EU report seeks to provide a background to the debate concerning the sustainability of EU and Japanese agricultural policies with the objective of giving our readers insight into what is about to unfold in Nara over the next several days.

Historically speaking, both Japanese and EU agricultural protectionism began as a result of a perceived fragility in the food supply that rose from negative experiences dating back to WWII. At that time, Japan and the EU, both heavily reliant on imports to feed their populations, faced severe food shortages and considerable human suffering. As a result of this experience, both Japan and the EU chose to develop a system that would guarantee the provision of food through domestic production. This meant creating favorable market conditions for the large number of small and medium sized farmers who represented the majority producers. While the subsequently developed support structures contributed to creating a stable domestic food source they have come under considerable criticism as of late due to the fact that they distort both domestic and international systems to an almost unsustainable level.

Most recent OECD statistics (2000) indicate that every European farmer (full time farmer equivalent) received, as an average, a subsidy of $14,000 US, which accounted for a 62% of their total gross farm receipts. During the same period, each Japanese farmer received double this amount pocketing $28,000 US. These subsidies were largely producer oriented and as a result have lead to severe price distortions. According to an indicator called the Nominal Assistance Coefficient, which indicates the extent to which gross farm receipts are higher than they have would have been in the absence of subsidies, during 2000 European producers had gross farm receipts that were 62% higher and Japanese 178% higher than they would have been without subsidies. In fact, the EU continues to allocate one out of every two Euros from its common budget to agricultural protection. As is demonstrated in the graph below, Europe and Japan have traditionally been the most ardent supporters of agricultural protectionism and price supports.

The most critical concerns voiced by countries such as Canada and Australia about Japanese and European protectionism relate to the fact that the EU and Japan continue to implement massive subsidization programs for commodities that have high self-sufficiency rates. For the EU these include wheat (115% self-sufficiency), wine (116%), sugar (113%), beef and veal (104%) and pig meat (107%). In the case of Japan, most subsidies go to support rice despite the fact that Japan is currently experiencing chronic problems related to overproduction. According to the findings of a government sponsored research group (Bichiku Unnei Kenkyukai, Stockpiling Management Research Group) actual demand for rice was only 51 per cent of what was produced domestically. Further angering potential rice exporters to Japan was the newly implemented rice tariff of 1000% installed during the winter of 2000 (Economist, June 9th, 2001, p. 81).

The sad part about all of this is the fact that such drastic support measures are not going to help small farmers. The number of farm households in Japan has decreased continuously from 6.2 million in 1950 to 5.4 million in 1970 and 3.1 million in 2000. Between 1995 and 2000 Japan witnessed a decrease of 35.7 per cent in the number of farms less than 2ha in size. In Europe the experience has been similar. According to the Australian based agricultural think tank ABARE, large farms in Europe which constitute 17% of the farming community get 50% of total subsidies while small farms (39% of the farming community) get only 8% of the total resources.

Apart from the fact that historical arguments in favor of protectionism based on concepts such as food security are no longer valid, the burden that the system has created on the economy has become almost unbearable. The need to confront the problem of price distortion and massive subsidies was recognized by PM Koizumi this past week (July 19) when he announced that he intended to trim subsidies for rice farming. Similar statements have been made by various EU ministers who are starting to realize that they cannot afford to continue paying their farmers as they have in the past under the Common Agricultural Policy (CAP). Nevertheless, up until now European and Japanese policy makers have not been willing to pay the high political costs associated with such a move. In both societies agricultural lobbies represent major political forces. In light of the political constraints juxtaposed with the sobering fiscal realities, it will be interesting to see what will come out of the "5th Quint Agricultural Ministerial Meeting". Will Japan and the EU continue to stand united in favor of protectionism or will they be forced to change their ways?