Agricultural Policy & Trade
Does Free Trade Threaten Food Security?
Research Director,
the Canon Institute for Global
StudiesKazuhito YAMASHITA

1

What are the root cause of theworld food problems?
 In developing countries with high population

growth, the demand for food has increased.
In developed countries, it has stabilized.
 In developed countries, farm technology has
greatly improved, while in developing
countries it has been stagnant.
 Thus, generally speaking, food prices indeveloping countries have increased andthose in developed countries decreased.
2What are the problems?
 The decrease of food prices in developed

countries have reduced the income of farmers.
The government tried to support prices forfarmers. This resulted in more production andsurplus. Those countries tend to be exporters.
 The increase of food prices in developing
countries has damaged consumers or workers
in the other industries. The government tried todecrease food prices. This reduced not only
farmers’ income but production. Developing
countries tend to be importers of food.
3

Major exporters of wheat
Production and Export of Wheat by Major Countries
USAUSA
Australia
AustraliaRussia
RussiaCanadaCanadaEU-27
EU-27
Argentina
Kazakhstan
UkraineProduction

TurkeyExportion
Exportation

million tons

Brazil
020

40

60

80

100120140

Source: USDA, Production, Supply and Distribution database4

Price matters in Food Security
 Price changes always equalize supply anddemand.
 Food is sufficient for the world population.
Obesity and waste in developed countries
but, in contrast, hunger and loss indeveloping countries.
 The poor in developing countries cannot
afford to buy food at world prices. The
prices are too high for them. “Food security”
is used in this sense in the FAO..
5

What does food security consist of?
 Food security consists of food affordability andaccessibility.
 Some nations lack both.
(1) Some people in developing countries cannot afford tobuy food. A food crisis occurs when food prices soar
as in 2008..
(2) Some people in developing countries have no accessto food due to the lack of transportation or distribution
infrastructure, even when food is delivered at ports.
 Economic growth and/or building infrastructureis essential for overcoming a food crisis.
6

Two scenarios of high food prices
 A hike in food prices exacerbates foodinsecurity in two cases.
 In the long run, food supply may beinsufficient for the growing world
population. On average, prices might be
too high for the poor..
 In the short run, the issue is volatility.
Occasionally, food prices soar as in2008, while they are low on average.
7

Increase of productivity matters
 So far, the increases in productivity

outpacing growth in demand have resulted
in a downward trend in the real price ofgrain. The current grain price is lower thanit was in the ’60s or ’70s in real terms.
 Arable land has slightly increased. The
increase in productivity is mainly attributed
to an increased yield per hectare.
Investment and innovative technologies areindispensable in this regard.
8

What is needed for food security
 Food storage saved for a rainy day or

expansion of world food production is abetter way to manage the situation. The
maintenance of agricultural resources
such as water and land serves thepurpose of food security in the world.

9

Improvements for the Food Supply
 Now, only a few countries are exporters. More and morecountries are dependent on them.
 Some exporting countries, however, suffer fromproduction negative externalities such as soil erosion,salinization, or depletion of groundwater. Soil and waterin exporting countries are international commons in theinterdependent world.
 Without internalizing those negative externalities orproperly managing resources, agriculture might not besustainable and the food security of importers would bejeopardized. Water and soil (land) should be properlypriced and conserved.
10

From GATT to WTO
 Three basic principles of GATT

1. most favored nation( article 1 )2. tariff bindings( article 2 )3. national treatment( article 3 ) The WTO’s Agreement on Agriculture
1.domestic support
2.tariffication
3.export subsidies
11Tariffication
 Only tariffs are allowed.
 Quantity import restrictions, variable

import levies and any other non-tradebarriers are prohibited. ( article 4.2 inAoA) SPS measures should not be used as
disguised import restrictions and basedon scientific evidence.( SPS agreement )12

Subsidies
 Domestic support

Green box ( general services, some direct
payments in Annex 2 of AoA)~no reduction isrequired
Blue box (direct payments under production
limiting programs in article 6.5 of AoA)~noreduction is required
Amber box ( AMS ) ~reduction is required Export subsidies ~reduction is requiredin terms of amount and quantity
13

The US Policy
 Shift from price support to deficiency

payments in 1960s
 Elimination of deficiency payments andintroduction of decoupled payments in 1996
 Reintroduction of deficiency payments(counter-cyclical payments) in 2002
 Introduction of crop insurance in 2008 andelimination of decoupled and otherpayments in 2014
14

The EU Policy
 Price support in 1980s caused serious

glut. Subsidised exports for its disposal
caused trade dispute with the US. → UR
negotiations
 Reduced cereal price support by 29 %and introduced area payments to offset
the loss of farmers in 1993. →reduction ofsubsidised exports
 Single payment scheme from 2003
15

Comparison of agricultural policies
CountryJapan

US

EU

Decoupled direct payments

NoYes

Yes

Environmental directpayments

PartialYes

Yes

Direct payments for lessfavourable regionsYesNoYes

Production restriction
programme for pricemaintenance

Yes

NoNo

Tariffs* 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.

16Some Japan’s tariffs areprohibitively high17

Change from Price Support to Direct Payment
eliminates Consumer Burden. But TPP is disappointing
Price

Domestic
agricultural
price

Pricesupport↓
Directpayment

Tariff↓Tariffelimination

Importprice

Quantity

Domestic production

Imports

Price Support backed by Tariffs
vs. Direct Payments
 Price support higher than an international pricedecreases demand for its own agriculturalindustry. Thus, Japan’s farmland indispensable
for food security severely declined from 6.1
million hectares to 4.5 million hectares from1960 to 2005.
 Direct payments to farmers do not distort themarket. They will directly address and target thereal needs, such as the farmer’s income andfood security.
19

Quiz
US is the largest exporter of agriculturalproducts. Then which country is the largest
importer of agricultural products?
2. The largest beef exporters are India, Brazil,US, Australia. Then which country is thelargest importer of beef?
3. 6 countries of the top 10 largest exporters
belong to the same region. What is it? How isAustralia ranked in terms of an exporter?
1.

20

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.
21

Scale is not everything Even the average farm size in U.S., theworld's largest exporter of farm products,
is only 1/18th 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.
22Quality as well as Price Matters!
 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 inferior
quality because it is so much more expensive.
23

Japanese rice is highly evaluatedJapaneseKoshihikari

Rice Price in Hong Kong (/kg)

380 yen

California
Koshihikari
240 yenChineseKoshihikari
150 yenChinese japonica
rice
100 yenWhat has the Japanese
government done for the farmers?
 After World War Ⅱ farmers were better offthan workers. Around 1955 when the industry
fully recovered from the war damages, farmers
turned out to be worse off than workers.
 The Japanese government increased therice price for farmers. This caused theglut of rice. The government introduced
the acreage reduction or set-aside
program in 1970 by giving farmers
subsidies for reducing rice production.
25

What has the Japanese
government done for the farmers?
 The government also enticed industries

by subsidies or tax exemptions to installfactories in rural areas so that people
who stopped farming could work for
those factories.
 The high rice price and industrialization of rural

areas has made great contributions to theincrease of farmers’ income and bridged thegap of the income level between urban andrural areas. This sharply contrasts with China.
26

Farmers are better off（ten thousand yen）

1000
900
800
700
600
500
400
300
200
100
0160%
140%
120%
100%

80%
60%
40%
20%
0%
1960

1965
1970
1975
1980
1985
1990
1995
2000
Farm-household gross income
Agriculutural income
Farm-household gross income / Worker's household actual income

source:MAFF, Ministry of Internal Affairs and Communications "Household economy survey"

27

How inefficient the Japanese riceindustry is!
The number of farmers

The value of production

Farming income is small for rice farmers（2014）（Thousand yen）
18000

Pension
16000
Income derived from non-farming activities
14000
Farming income
12000
10000
8000
6000
4000
2000
0rice

fruitsvegetables

beef

dairy

bloilerpig29

Non-farming income and pension is much greater thanfarming income in the farm sector as a whole
Farmers’ income in real terms(1955-2003)(thousand yen)

7000

6000

Non-farming income

5000

4000

3000

2000

1000

Pension/subsidies, etc.

Farming income

030

Who blocks TPP negotiations and agricultural
policy reform?
 JA (agricultural cooperatives) is the only legal

person in Japan which can make any kind of
business including sales of farm inputs andproducts, insurance, and banking.
 By pegging the rice price high with tariffs, JA
could maintain a lot of small-scale part-time
farmers who have been the sources of JA’s
political power and have deposited their earned
income or pension in JA. JA is the second largest
bank in Japan.
 JA collected 11 million signatures against TPP.
This triggered the embarkation on the Abeadministration’s JA reform. But it is a partialreform.
31

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.
32

Free Trade damages Food Security?
 We would have no other way to expand ourfood production in food crisis. This, however,needs agricultural resources for production.
 The increase of imports may reduce thoseresources. This is why Japan has used “foodsecurity” as a pretext for maintenance of hightariffs and resisted tariff cuts.
 On the other hand, Japan’s set-aside programof rice production in order to peg a high pricehas resulted in the loss of 30 percent of thepaddy fields in the last 40 years.
33

Overview of rice policy
One trillion JPY burden
on consumers

Reduced supply fromacreage reduction
400 billion JPY fiscal burden
300 billion JPY acreage reduction
subsidies
100 billion JPY direct payments
for rice with acreage reduction
as a condition

High cost structure of rice・High rice price encourages small
part-time famers, the scale of fulltime farming does not increase・The yield by area does not increase(60% less than yield in California)

High price of rice
600 billion JPY consumer
burdenNegative influence on foodsecurity assurance
Reduction in paddy field area34

The rice paddy set-aside program While paying the subsidy of 400 billion yen toentice rice farmers to join the program, thegovernment forces consumers to pay anadditional amount of 600 billion yen for theprice artificially inflated by limiting supply
through the program. It’s doubly wasteful.
 The high price has reduced rice consumption.
 Japan must have eliminated tariffs on allproducts, rice in particular. Without tariffs
we cannot maintain any domestic cartel prices.
35

The program increased costs
The cost of agricultural product per ton equals toproduction cost per unit area divided by tonnage ofagricultural 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 60% smaller than that inCalifornia.
36

Income=sales (price×amountproduced) - costs

Cost per tonne

Cost/hectare＝Harvest/hectare
37

The larger the size, the more
farm income（income : thousand yen)（cost ： yen/６０kg）

18,00015,00016,00013,00014,00011,00012,0009,000

10,000

7,000

8,000

5,000

6,000

more than２０．０（Income）

１５．０～２０．０（Income）
１５．０～（Cost）

the Cost of Production

１０．０～１５．０

Rice Farming Income５．０～１０．０(1,000)

３．０～５．０0

２．０～３．０

1,000
１．０～２．０

2,000
０．５～１．０

3,000

less than ０．５

4,000

size(ha)38

Stagnation of yield by area due to acreage
reduction(kg/10a)900
800

カリフォルニア
California
日本
Japan

700

中国

China

600
500
400
300
200
100

2012

2009

2006

2003

2000

1997

1994

1991

1988

1985

1982

1979

1976

1973

1970

1967

1964

1961

1958

1955

1952

1949

1946

1943

1940

039

Price differential between internal and external
rice disappears(¥/60kg unpolished rice)
25,00020,000Japanese

15,00010,0005,000

ChineseCalifornian

02001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

40A Desirable Policy
The elimination ofrice set-aside policy

Direct payment

FarmlandPart-time farmers

Full-time farmers
RentMore production

World foodsecurity

Full use ofPaddy field

Multi functionality

Lower rice priceConsumers

41

Safety or Brand matters
 We have to meet the increasing demand

for the quality control in the international
food market. Safety as well as tastematters
 Traceability, HACCP(Hazard Analysis
and Critical Control Point System), GAP（Good Agricultural Practice）,
 Brand-name such as GI(GeographicalIndication)
42

Mega-FTAｓ
TTIPEUUSChinaRCEPJapanAustralia
India

CanadaMexicoTPP
43

The relationship between WTO and TPP

FTA(TPP)WTO

SCM(Subsidies)

Trade and LaborTariffs
Trade and Environment
Service
Trade facilitation
SPS
competition
TBT
State owned enterprises
TRIP
Government (SOE)
Procurement Investment

Many Misunderstandings on TPP
 TPP will not replace WTO; TPP will notchange the basic structure of WTO’s SPS
agreement but require more transparency forthe establishment of SPS measures.
 ISDS clause will not damage any regulatory
measures such as those on food safety orenvironment as long as those measures treat
domestic and foreign entities alike.

45

Market Access improves Tariffs on both agricultural and industrial

goods will be reduced or eliminated.
 Service trade will be more liberalized
because commitments were made on
not positive list but negative list basis.
 More shops and bank branches can be
operated in other TPP countries.
 More access to government procurement46

New trade and investment rules
 Export taxes will be banned.
 Race to the bottom by manipulating laborand environmental regulations will bedisciplined.
 ISDS protects overseas investment fromdiscriminatory measures.
 Level playing field between SOEs andprivate companies. New disciplines onChina.
47

TPP will expand or accelerate other FTAs
 The essence of FTA is discrimination: it

is disadvantageous not to join it.
 Mega-FTA has domino effects: Korea,Taiwan, Philippine, Thailand andIndonesia show their interest to join TPP.
 China is also interested in TPP. RCEP isaccelerated by TPP to say the least.
 EU become more eager to have FTAwith Japan.
48

The TPP and Japan’s agriculture Tariffs on rice, wheat, sugar, butter andsmp will be maintained + increased tariff
rate quota of rice, wheat, butter and smp;
decreased surcharges on wheat within
quota; decreased tariffs on beef, pork,whey and cheese + safeguards

The TPP and rice
 70,000 tonnes TRQ for US, 8,400 tonnes TRQ forAustralia for direct human consumption.
 The Japanese Government buys up thesame amount of Japanese rice. Thus,
additional import will not change the total
amount of supply in the domestic rice market
at the cost of Japanese taxpayers. It will notdecrease domestic rice price. Farmers areas well-off as before.
50Free Trade helps Food Security
 The elimination of the set-aside programme or

price support coupled with the introduction of
direct payments will lead to lower prices.
 Japan will no longer need tariffs. It will export
rice while importing wheat or beef under free
trade. This will keep our farmland fromdeteriorating or vanishing.
 Fully making use of resources will expand
Japan’s agricultural production. This will
increase world supply and contribute to thefood security of the world.
51

Free Trade is a basis for Food Security
 In case of a food crisis wherein Japan can nolonger import wheat and beef due to thedisrupted transportation, Japan will stop
exporting rice and rather start consuming it inorder to survive.
 Free trade does not help an importing country
during such a crisis, but exporting someproducts in normal times under free trademaintains agricultural resources in case ofneed.
 Free trade is indeed a basis of food security.
52