Agricultural Economy

Yasutaka Yamamoto
Laboratory of Agricultural and Environmental Policy
Research Faculty of Agriculture
Hokkaido University
E-mail: yamay@agecon.agr.hokudai.ac.jp

Chapter 7
Agricultural Economy

Yasutaka Yamamoto
The main objectives of this chapter are to contribute to a better understanding of
Hokkaido’s agriculture sector and the role it plays in the economy.
1. Food self-sufficiency ratio and producer support in Japan(1) Food self-sufficiency ratio in Japan
Japan’s food self-sufficiency ratio is the lowest among the major advanced
countries (Fig. 7-1). Japan’s food self-sufficiency ratio on a calorie basis has
decreased from 60% in 1970 to 40% in 2000. This reduction was due to thetendency of domestic production to shift to relatively higher value added
agricultural products such as vegetables and livestock products (MAFF, 2007a).
The changes in dietary habit and increased imports of agricultural products havealso caused a decline in the food self-sufficiency ratio.
(2) The level of producer support in JapanThe Japanese government seems reluctant to reduce Japan’s agricultural tradebarriers because Japan has a comparative disadvantage in agricultural
production compared to relatively land-abundant developed countries such as
the United States and Australia, or relatively labor-abundant developing
countries such as China (Yamamoto, Sawauchi and Masuda, 2007). Therefore,
Japan has been using tariff and non-tariff trade barriers in order to increase
domestic producer prices of agricultural products and increase domestic
agricultural production. Increased producer prices have led to more intensive
agricultural systems in Japan.
Table 7-1 shows that high tariffs remain on farm and food-sector

7-1200 %

180

176

160
140

132

120

100

96

80
60

60
53

40

40

48

20
0

1970
Japan

1980

1990
Hokkaido

2000

FranceGermany

United Kingdom

The United Statesyear

Fig. 7-1. Food self-sufficiency ratios on a calorie basis
Source: MAFF, Website (http://www.maff.go.jp/j/zyukyu/zikyu_ritu/012.html,
http://www.maff.go.jp/j/zyukyu/zikyu_ritu/013.html, http://www.maff.
go.jp/j/zyukyu/zikyu_ritu/zikyu_10.html).

Table 7-1. Ad Valorem tariffs of different commodities on bilateral basis (1997)
Unit:%

Commodity
Rice
Wheat
Cerial grains
Other crops
Raw milk
Cattle & sheep
Other livestock
Rum meat
Other meat
Dairy products
Other foodResource products
Manufacturing products
Services

Japanese tariffs onimports from Korea
409
249
20
38
0
149
5
36
58
287
38
7
2
0

Source: GTAP Database Version 5.4.

7-2

Korean tariffs onimports from Japan
5
3
304
74
0
31
10
75
22
26
45
10
8
0

commodities in Japan (Yamamoto, Sawauchi and Masuda, 2007). The highest
Japanese tariffs on imports from Korea are levied on rice (409%). Commodities
whose tariffs are higher than 100% in Japan are rice, wheat, cattle & sheep anddairy products.
The percentage Producer Support Estimate (PSE) is the key indicatorused to measure support to agricultural producers (OECD, 2008a). It expresses
the estimated monetary value of policy transfers from consumers and taxpayers
to producers as a percentage of gross farm receipts. The percentage PSE issuited to analyze changes in the level of support in the OECD area across time,
as well as the levels of support across individual OECD countries.
In the OECD countries, support to producers, as measured by thepercentage PSE, was 29% in 2004-06, implying that agricultural support
increased farmers’ gross receipts in OECD countries by more than one quarter(Fig. 7-2). In Japan, PSE has declined from 64% in 1986-88 to 55% in 2004-06,
but almost twice the OECD average. There continued to be a considerable
diversity in the level and composition of support among OECD countries. This
reflects in part the wide variations in farm structures, natural environments,socio-economic conditions and trade positions (OECD, 2008a). In 2004-06,
Australia and the United States had percentage PSE of 20% or below, while
Japan and the European Union had support levels that were 30% or above.
2. Hokkaido’s agriculture in Japan(1) Agriculture’s share of Economy
While Hokkaido’s agriculture has played an important role in Hokkaido’s regional
economy, the size of agriculture has declined relative to the rest of the economy.
Total economic output in Hokkaido has grown faster than its agricultural output,
leading to a decline in agriculture’s share over time.
Gross value added for agriculture, forestry and fisheries as a percentage
of total Gross Prefectural Product for Hokkaido have declined from 7.5% in 1980
to 3.6% in 2005 (Fig. 7-3). Gross value added for agriculture, forestry andfisheries as percentage of total Gross Domestic Product for Japan has declined
from 3.8% in 1980 to 1.5% in 2005. The trends of relative decline in agriculture’s

7-3

70

%
64

60

1986-88

2004-06

55

50
41
40

38
34

30

29
22

20

14

8

10

5

0

Japan

Australia

European
Union

UnitedStatesOECD

Fig. 7-2. Producer support estimates by countries
Source: OECD, PSE/CSE database.
Note: Data show the percentage share of Producer Support Estimates in GDP.

35

%

30
25

20
15
10
5

7.5
3.6
1.5
year
2005

3.7

0
1980

1990
Japan
China
United States

2000
Hokkaido
Republic of Korea

Fig. 7-3. Agricultural share of economy
Source: United Nations Statistics Division, National Accounts Main Aggregates
Database. Economic and Social Research Institute Cabinet Office, Annual
Report on National Accounts and Annual Report on Prefectural Accounts.
Note: Each value shows agricultural share of Gross Domestic Product in Japan, China,
Republic of Korea, and the United States, and agricultural share of Gross
Prefectural Product in Hokkaido.

7-4

share of economy are also found in other countries such as China, Republic ofKorea and the United States.
(2) Contributions of Hokkaido to Japan’s agriculture
While the trends of relative decline in agriculture’s share of economy are found in
Hokkaido, Hokkaido has played the most important role in Japan’s agriculture.
Hokkaido is called ‘Japan’s biggest food supplier’ for products such as
wheat, soybeans, adzuki beans, sugar beet, corn, carrot, potatoes, onion,
pumpkin, milk, beef, and racehorse. Average size of Hokkaido’s farm household
is the biggest in 47 prefectures of Japan mainly due to relatively abundant land
resources compared with the rest of Japan.
An examination of the relative contributions and characteristics of
Hokkaido’s agriculture to Japan reveals that (Table 7-2):-about one quarter of Japan’s cultivated land and more than 80% of Japan’s
grasslands exist in Hokkaido;-average cultivated land per farm in Hokkaido is more than ten times of theaverage cultivated land per farm in Japan;-around 10% of agricultural gross output is produced in Hokkaido;-Hokkaido produces more than 40% of Japan’s raw milk, more than 60% ofJapan’s wheat and potatoes, and more than 80% of Japan’s adzuki beans andsugar beet; and-around half of Japan’s dairy cattle exist in Hokkaido.
3. Farms in Hokkaido(1) Number of farms
The number of commercial farm households1) in Hokkaido declined from 95
thousand in 1990 to 52 thousand in 2005 (Table 7-3). The number of commercial

7-5

Table 7-2. Comparisons between agriculture in Hokkaido and Japan
Content
Land area
Cultivated land
Paddy field
Upland field
Grasslands
Cultivated land per farm
IncomeNational (prefectural) income

Unit

1,000 ha1,000 ha1,000 ha1,000 hahabillion yen

Agricultural income
billion yen
Gross agricultural output
Gross output ( A )=( B )+( C )billion yen
Crop output ( B )billion yen
Livestock output ( C )billion yen
Quantity of agricultural production
Rice
1,000 tWheat
1,000 tPotato1,000 tSoy bean
1,000 tAzuki bean
1,000 tSugar beet
1,000 tRaw milk
1,000 tBeef
1,000 tNumber of livestock raised
Dairy cattle
1,000 head
Beef cattle
1,000 headPig
1,000 head
Layer
1,000 head

Hokkaido Japan
A
B
1,166
227
939
523
19.8

A/B

4,671 25.0%
2,543
8.9%
2,128 44.1%
627 83.4%
1.3 1523.1%

SourcesYear ofReference
Survey
2006
2006
2006
2006
2005

397

3,263

12.2%

Economicand Social
2004 ResearchInstitute ,Hokkaido
2005 MAFF

1,066
564
502

8,806
6,037
2,702

12.1%
9.3%
18.6%

2005
2005
2005

MAFF

644
514
2,008
70
56
3,923
3,798
74

8,546
7.5%
837 61.4%
2,598 77.3%
231 30.3%
63 88.9%
3,923 100.0%
8,134 46.7%
500 14.8%

2006
2006
2006
2006
2006
2006
2006
2005

MAFF

2005
2005
2005
2005

MAFF

14,308 361,013

856
1,635
467
2,755
522
9,620
7,787 176,955

4.0%

52.4%
17.0%
5.4%
4.4%

Source: Hokkaido prefectural government, Agriculture in Hokkaido, Japan 2007.

7-6

MAFF

farm households in Japan declined from 3,835 thousand in 1990 to 1,963
thousand in 2005 (Table 7-4). The number of commercial farm households inJapan and Hokkaido declined by about 50% between 1990 and 2005.
In 2005, about half (52%) of Hokkaido’s commercial farm households
engaged in full-time farming. More than three quarters (77%) of Japan’scommercial farm households engaged in part-time farming.
(2) Income of farm households
In Japan, until 1998 the key policy statements described the main objective ofagricultural policy as “to enable farmers through increased farm income to enjoy
equal standards of living with workers in other industries” (OECD, 2003).
Fig. 7-4 illustrates total income per farm household in Hokkaido and therest of Japan. In 2005, total income per farm household in Hokkaido (6,551
thousand yen) was about 1.3 times larger than in the rest of Japan (4,971
thousand yen). Agricultural income per household in Hokkaido (5,150 thousandyen) was about 4.7 times larger than in the rest of Japan (1,101 thousand yen).
However, non-agricultural income in the rest of Japan was larger than in
Hokkaido.
Hokkaido was developed by immigrants from other parts of Japan after
the Meiji Restoration. It has maintained its proportion of full-time farmhouseholds because the decline in the number of farm households has led to anincrease in average farm size (Tama and Carpenter, 2007). The economic
theory says that farm households that can support themselves on agricultural
income alone will remain and others will leave farming; it has worked in the caseof Hokkaido. This theory, however, has not held true for others parts of Japan,
where small-scale farming has been maintained by compensating for income
shortfalls from farming with off-farm employment by household members.
(3) Size of farms
Fig. 7-5 and Fig. 7-6 show the shares of number of rice farm households by sizeof cultivated land in Hokkaido and in the rest of Japan. The size of rice farmhouseholds in Hokkaido is much larger than in the rest of Japan. In 2005, the7-7Table 7-3. Number of farm households classified by full-time and part-timein Hokkaido
Unit: thou. household, %
Year

Total

1990
2000
2005
2005/1990

a=b+c
95
63
52
0.54

Full-time
farm householdbb/a*100
43
45%
29
46%
27
52%
0.64
-

Part-time
farm householdcc/a*100
53
55%
34
54%
25
48%
0.47
-

Source: MAFF, Census of Agriculture and Forestry.
Table 7-4. Number of farm households classified by full-time and part-timein Japan
Unit: thou. household, %
Year

Total

1990
2000
2005
2005/1990

a=b+c
3,835
2,337
1,963
0.51

Full-time
farm householdbb/a*100
592
15%
426
18%
443
23%
0.75
-

Part-time
farm householdcc/a*100
3,243
85%
1,911
82%
1,520
77%
0.47
-

Source: MAFF, Census of Agriculture and Forestry.
thousand yen
7,000
6,000

6,551

1,401
4,971

5,000
4,000

Non-Agricultural
income
3,870

3,000
5,150

Agricultural income

2,000
1,000
1,101
0
Hokkaido

Rest of Japan

Fig. 7-4. Total income of farm household per farm (2005)
Source: MAFF, Report of Statistical Survey on Farm Management and Economy(Statistics on Type of Management).
Note: Non-agricultural income = non-agricultural income + income of relational
agriculture + annuity, presents, gifts, etc.

7-8

share of number of rice farm households that cultivated more than 10 ha was
44% in Hokkaido. In the rest of Japan, the share of rice farm households thatcultivated more than 10 ha was less than 1%. In 2005, the share of number ofrice farm households that cultivate less than 1 ha was 52% in the rest of Japan.
Fig. 7-7 and Fig. 7-8 show the shares of number of the dairy farmhouseholds by herd size in Hokkaido and in the rest of Japan. The size of dairy
farm households in Hokkaido is much larger than in the rest of Japan. In 2005,
the share of number of dairy farm households that raised 50-99 milking cows
was about half (47%) in Hokkaido. In the rest of Japan, the share of dairy farmhouseholds that raised 50-99 milking cows was only 12%.
(4) Costs of production
Fig. 7-9 and Fig. 7-10 show the production costs per 60 kg of brown rice and per
100 kg of raw milk in Japan and Hokkaido. Costs of rice as well as raw milk
production are lower in Hokkaido than in Japan since the size of farms in
Hokkaido is larger than in Japan. As per famous economic law ‘economies ofscale’, larger is the size of farms, lower is the production cost per agricultural
output.
4. Multifunctionality of agriculture
The concept of "multifunctionality of agriculture" recognizes important potential
benefits of agriculture in addition to the production of food, which is essential forhuman living. Agriculture and rural areas in Hokkaido besides producing
agricultural products are playing a number of important roles including
preservation of the natural environment and biodiversity, development offavorable landscapes, provision of recreational and educational opportunities tourban people, etc. Such benefits from multifunctionality of Hokkaido’s agriculture
was estimated at around five hundred billion yen per year, which is about half ofthe gross agricultural output value in Hokkaido (Demura, Sato and Iwamoto,1999).
There is growing concern about fulfillment of the multifunctionality ofagriculture due to stagnation of agricultural production and the decline in

7-9

1990

5

35

40

21

0-1 ha

2000

6

30

31

33

1-5 ha5-10 ha2

2005

10 ha22

0%

31

20%

40%

44

60%

80%

100%

Fig. 7-5. Share of number of rice farm households by size of cultivated landin Hokkaido
Source: MAFF, Census of Agriculture and Forestry.

1
1990

59

40
2

2000

59

39

0-1ha
1-5ha
5-10 ha

2
2005

52

0%

20%

10 ha-

45

40%

60%

80%

100%

Fig. 7-6. Share of number of rice farm households by size of cultivated landin rest of Japan
Source: MAFF, Census of Agriculture and Forestry.

7-10

community functions (MAFF, 2007a). More efforts should be directed to further
promote the understanding of the multifunctionality of agriculture.
Notes1) The term of “farm household” used here refers to a household that operates
farming with 10 ares and more of cultivated land on the survey date or ahousehold whose agricultural product sales amount to a specific value (e.g.
500,000 yen in 2005) and over in a year prior to the survey date, even with its
cultivated land being below 10 acres (MAFF, 2007b). Since 1990 Census, the“farm household” is further divided in two categories: “commercial farmhousehold”, which is a farming household mainly producing agricultural products
for sales, and “noncommercial farm household”, which is a farming household
mainly producing agricultural products such as rice for its own use (MAFF,
2007b).
The “full time farm household” applied in the statistics on number ofcommercial farm households is defined as a farm household, which has nohousehold member engaged in other jobs than farming (MAFF, 2007b). The“part-time farm household” is defined as a farming household, which has one ormore household members engaged in other jobs than farming (MAFF, 2007b).
References
Committee for the Japanese Agriculture Session, XXI IAAE Conference (1991)
Agriculture and Agricultural Policy in Japan, University of Tokyo Press.
Demura, K., K. Sato and H. Iwamoto (1999) “Valuing Public Benefits from
Agriculture in Hokkaido,” Review of Agricultural Economics, Vol. 55. (inJapanese).
MAFF (2007a) Annual Report on Food, Agriculture and Rural Areas in Japan
F.Y.2006, MAFF. Available at http://www.maff.go.jp/e/annual_report/pdf/fy
2006_rep.pdf (last access 16 January, 2009).
MAFF (2007b) The 81st Statistical Yearbook of Ministry of Agriculture Forestry
and Fisheries, MAFF.
OECD (2000) Agricultural Policies in OECD Countries: Monitoring and

7-11

1
1990

7

66

2000 3

26

41

1-9
head

48

8

10-49
head
50-99
head

2005 3

38

0%

20%

47

40%

60%

100
head-

11

80%

100%

Fig. 7-7. Share of number of dairy farm households by herd size in Hokkaido
Source: MAFF, Census of Agriculture and Forestry.

1990

35

2000

61

18

4

70

11 2

1-9
head

10-49
head
50-99
head

2005

18

0%

68

20%

40%

12 2

60%

80%

100
head-

100%

Fig. 7-8. Share of number of dairy farm households by herd sizein the rest of Japan
Source: MAFF, Census of Agriculture and Forestry.

7-12

Evaluation 2000, OECD.
OECD (2001) Environmental Indicators for Agriculture: Volume 3 Methods andResults, OECD.
OECD (2003) Farm Household Income: Issues and Policy Responses, OECD.
OECD (2008a) Agricultural Policies in OECD Countries: At a Glance 2008,
OECD.
OECD (2008b) Agricultural Support, Farm Land Values and Sectoral
Adjustment: The Implications for Policy Reform, OECD.
Okada, A. (1981) Japan’s International Trade of Agricultural Products, Japan
FAO Association.
Tama, S. and V. L. Carpenter (2007) Japanese Agriculture from a Historical
Perspective, Tsukuba-Shobo.
Yamamoto. Y., D. Sawauchi, and K. Masuda (2007) “Does Agricultural Trade
Liberalization under FTA Reduce Pollution from Agriculture? : The Case of
the Japan-Korea FTA,” Selected Paper prepared for presentation at theAmerican Agricultural Economics Association Annual Meeting 2007.
Available at http://ageconsearch.umn.edu/bitstream/9969/1/sp07ya02.pdf.
(last access 16 January, 2009).

Acknowledgement
The author thanks Dr. Daisuke Sawauchi for invaluable assistance in collecting
and processing data and constructive comments on earlier drafts.

7-13

yen/60kg
20,00016,75017,5002,965

15,00012,044

12,500
5,012

2,013

10,000

3,458

7,500
5,000

8,773
6,573

2,500
0
Japan

Material cost, etc.

Hokkaido

Labor cost

Other cost

Fig. 7-9. Production cost of rice (2005)
Source: MAFF, Report of Statistical Survey on Farm Management and Economy(Production Cost of Rice Wheat and Barley).

yen/100kg
8,000

7,580

6,894
1,951
1,691

6,000

4,000

2,000

2,393

2,363

3,236

2,840

0
Japan
Feed cost
Other material cost

Hokkaido
Labor cost

Fig. 7-10. Production cost of raw milk (2006)
Source: MAFF, Report of Statistical Survey on Farm Management and Economy(Production Cost of Livestock).

7-14