Agricultural Policy Reform & TPP
Research Director,
the Canon Institute for Global Studies

Kazuhito YAMASHITA

1

Japanese agriculture needs Free Trade The Japanese population is aging anddecreasing. The domestic market forJapanese agriculture protected by hightariffs will be shrinking.
 In order to survive, Japanese agriculture
has to create overseas market. Free
trade agreements which eliminate tariffs
on Japanese farm products areindispensable for Japanese agriculture.
2

Japanese agriculture is not competitive?
 The Japanese agricultural sector claims

that it is too small to compete with thoseof other countries. Scale is certainly
advantageous when other conditions areequal.
 But there are large differences among
countries in terms of the crops they grow,the fertility of their soil, crop yields, andquality. Scale cannot be the only criterion
for comparison.
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Scale is not everything Even the average farm size in U.S., theworld's largest exporter of farm products,
is only 1/20th that of Australia.
 The agricultural scale of the EU might be
10 percent that of the US and 0.5
percent that of Australia, yet thanks tohigh productivity and direct government
payments, the EU can export grain. The
wheat yield of the United Kingdom is fivetimes higher than in Australia.
4Japanese agriculture is not competitive?
 Just as there are sizable price differencesamong various types of cars, so too are there
price differences among various types of rice,reflecting the quality of rice.
 In Japan, Koshihikari rice grown in theUonuma district of Niigata Prefecture sells fora price 1.5 times higher than that produced inother areas. It is a mistake to argue that highgrade rice cannot compete with rice of inferiorquality because it is so much more expensive.
5

Japanese rice is highly evaluatedJapaneseKoshihikari

Rice Price in Hong Kong (/kg)

380 yen

California
Koshihikari
240 yenChineseKoshihikari
150 yenChinese japonica
rice100 yen

Agricultural policy in Abenomics
 The Abe administration proposes to double farmincome (I=PXQ－C) over the next 10 years.
 Three policies are proposed.
P. help farmers process or market farm products orprovide catering or accommodation service (agritourism) in order to raise their added value
Q. double the export of farm products
C. increase the farm size by establishingorganizations which borrow and accumulate
farmland to rent out to agricultural actors.
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Does it work?(1)Its offerings largely recycle past governmental
initiatives that have delivered little results.
 The previous DPJ administration proposed the same

policy to raise the added value of farm products. Most

farmers work part-time and do not have timeor skill to work on processing agricultural
products or managing guest houses.
 Abe's first cabinet proposed doubling exports in 2007

but exports actually fell. Unsellable oruncompetitive products cannot be sold nomatter how great the sales promotion is.
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Does it work?(2) The same kind of organizations have been active

since 1970. However, of the 4.5 million hectares offarmland across the country, these organizations haveleased only 12,000-16,000 hectares of farmland
annually since 2005, a miniscule amount.
 Little land is available for the organizations.
Farmers hang on to their land in order to make a profit
on sales for residential and other purposes due to lax
zoning regulations. Moreover, even with highproduction costs, small-scale farmers can still make aprofit on farming because of high rice prices
maintained through the rice paddy set-aside (reducingthe acreage under cultivation) program.
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The rice paddy set-aside program While paying the subsidy of 500 billion yen toentice rice farmers to join the program, thegovernment forces consumers to pay an
additional amount of 500 billion yen for the
price artificially inflated by limiting supply
through the program. It’s doubly wasteful.
 As a result, Japanese citizens pay about one
trillion yen to support rice farming, totalproduction of which amounts only to 1.8 trillion
yen.
 The high price has reduced rice consumption.
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The program increased costs
The cost of agricultural product per ton equals toproduction cost per unit area divided by tonnage of
agricultural product produced (yield) in such unit area.
 The larger the farm size, the less the production cost perunit area. But many small-size inefficient rice farmers inJapan continue to grow rice by high rice price.
 The larger the unit rice yield, the smaller the production
cost. But the rice paddy set-aside program is designed toreduce rice yield and production. Average rice yield inJapan at the moment is about 40% smaller than that in
California.
11What is really needed?
 Enhancing exports is the correct policy since it is

the only way to double farmers' income amidst ashrinking domestic market due to a declining andaging population.
 The only way for Japan to expand exports ofagricultural commodities is to reduce their costs
and prices and make them more competitive
internationally.
 In the rice sector, increasing international
competitiveness will require abolition of rice paddy
set-aside program and a reduction in prices.
12Price gap is narrowing（Yen）

25,000Japanese rice price(Yen/60kg)
Chinese rice price(Yen/60kg)

22,29620,00019,603
17,91917,254
17,12917,05415,00016,66016,048 15,731

15,074

14,746
12,687

14,635
10,53410,000
6,186
7,802

5,271
5,000

2,983
2,974

3,670

8,813 8,368

9,387

10,447

9,780

2008

2009 2010（production year）

4,250

0
1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

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The desirable policy reform
I have long proposed to get rid of the set-aside
program and introduce a direct payment scheme
only for the full-time farmers.
The decrease in rice price will drive inefficient
small-scale rice farmers out of the business.
They lease their farmland. Direct payment helps
full-time farmers pay rent. Thus full-time farmers
expand their farm size.
The elimination of the set-aside policy will
increase rice yields per hectare.
These will lead to lower production costs and let
rice farmers compete in the international market.
14More Explanation
 The average size of rice farmer is less than1hectare.The rice production cost for farmsof 15 or more hectares is 6,378 yen per 60
kilograms.
 If abandoning our rice acreage reduction
policy brought Japanese rice yields up toCalifornian levels, the production cost
would drop by 28 percent to 4,556. Thatwould be less than half the national
average of 9,478 yen.
15Comparison of agricultural policies
CountryJapan

USEU

Decoupled direct payments

No

Yes

Yes

Environmental direct
payments

PartialYes

Yes

Direct payments for lessfavourable regions

Yes

No

Yes

Production restriction
programme for pricemaintenance

Yes

NoNoTariffs* over 1000%

1 (tubers of konnyaku)

None

None

Tariffs of 500-1000%

2 (rice, peanuts)

None

None

Tariffs 300-500%

2 (butter, pork)

None

None

6 (wheat, barley, skim milk
powder, starch,beans and raw milk)

None

None

Tariffs of 200-300%* Specific tariffs are applied to tariffed products in Japan and the EU. Here, these specific tariffs are estimated as theirequivalents of ad valorem tariff rates, taking into account international prices.

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From Price Support to Direct Payment;
Consumer Burden Disappears
Price

Domestic
agricultural
price

Pricesupport↓Direct
paymentTariff↓
Tariff elimination

Importprice

Quantity

Domestic production

Imports

The proposed reform of set-aside policy
 The current set-aside policy consists of twoarea payments: those for the acreage
reduction of rice by planting other crops
than rice, introduced since 1970 and thosefor rice planting field for the farmers whoachieved the allocated limit of riceproduction by the government, introduced
since 2010 by the former DPJ government.
 The proposed reform is only doing awaywith the latter payments.
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The proposed reform of set-aside policy
 The government increases the payments for producing

rice for flour or feed, which is also regarded as acreage
reduction of rice for a staple diet.
 A farmer sells rice at 1,050,000 yen per hectare for astaple diet and at 250,000 yen for flour or feed. The
government pays the gap between the two revenues,
800,000 yen for a farmer producing rice for flour or feed sothat he or she may not be worse off.
 LDP proposes to increase the amount to 1,050,000 yen inorder to induce farmers to produce more rice for flour orfeed. This means that rice millers or livestock farmers
might get rice free by only paying for the transaction costs.
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The proposed reform of set-aside policy
 The MAFF argues that the demand for rice for feed

use amounts to 4.5 million tons. This, however, will
replace substantial corn import from U.S. whichamounts to 10 million tons. The production of rice forflour will replace some wheat import from U.S. whichamounts to 3.6 million tons.
 This subsidy is regarded as actionable orcausing serious prejudice in the meaning ofArticle 6 of WTO’s SCM Agreement. U.S.
could retaliate on Japan by imposing hightariffs on imported industrial products such as
automobiles from Japan.
20Evaluation
 If farmers produce 4.5 million tons of rice for

feed, the subsidy will amount to 900 billion yen
which far exceeds current 500 billion yen for theset-aside program. More expenditures needed.
 If a farmer gets some money for selling rice forflour or feed, he or she will be better off than
producing rice for a staple. This leads to lesssupply of rice for a staple. Rice price increases.
 This will make worse the nature of the doubly
wasteful policy: the increase of burden of both
taxpayers and consumers.
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Evaluation
 There is no sign of rice price decrease. Japancannot reduce or eliminate a tariff on rice in
TPP negotiations.
 The inefficient part-time farmers continue toproduce rice with the result that full-time
farmers cannot accumulate farmland. This is
the opposite of a structural adjustment policy.
 This reform, in a nutshell, is afake!
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Why hasn’t the reform been realized?
 By pegging the rice price high, the mostpowerful vested interest group in Japan, JA(agricultural cooperatives) could not only gethigh commission in proportion to price but
maintain the number of part-time farmers whohave been the sources of JA’s political powerand have contributed financially to JA.
 JA is the only legal person in Japan which can makeany kind of business including sales of farm inputs andoutputs, life insurance, damage insurance andbanking. JA’s membership is not confined to farmers.
 Note that JA is the second largest bank in Japan.
23The end result of TPP negotiations
 LDP and the Diet committees have adopted resolutions

urging the government to have Japan’s rice, wheat, beef
and pork, dairy products and sugar exempted from thetariff elimination under TPP agreement and to leave thenegotiating table if unable to do so.
 In Japanese politics, rice is a sacred cow. Only rice will
get special treatment. But making an exception requires
compensation. If an exception were to be made for rice in
TPP negotiations, an additional tariff-rate quota with zeroin-quota tariff for TPP countries might be imposed on topof the current tariff-rate quota of 770 thousand tons of riceon m.f.n. basis..This will reduce both the size of Japan’s
rice industry and its food self-sufficient ratio.
24What should be done?
 Abolishing the rice paddy set-aside program, the largest‘rocky mass’ in agriculture would reduce the price of rice,increase the farmland leases and reduce costs, andenhance export competitiveness. No import duties arenecessary and we do not need to claim an exemption ofrice from elimination of tariffs in the TPP negotiations.
 This is the only way to double farmers' income.
Remodeling ineffective past policies on the surface is noteffective
 It is not too much to say that the future of Japan'sagriculture rests on whether we can successfully destroy
the rice paddy set-aside program, the core or the central
pillar of Japan’s farm policy since World War Ⅱ.
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