Japan Agriculture Policy Review

An Expert's View about Agriculture and Animal Husbandry in Japan

Posted on: 25 Mar 2010

One in a series of policy notes on countries of interest to Canada. This policy note first provides an overview of the policies that Japan has traditionally used to support its agricultural sector. Following this, new policy developments that seem to signal a shift towards a more decoupled framework are described. Finally, some possible changes in the structure of Japanese agriculture resulting from demographic drivers are outlined.

Japan Agriculture Policy Review One in a series of policy notes on countries of interest to Canada. This note draws on analysis from several institutions, listed on page 5. Overview Japan, with a population of about 125 Figure 1: Producer Support Estimates by Country, million, is a major importer of agricultural 2003-2005 products. Japan's mountainous topography limits the area available for farming, with a 70 60 total cultivated land area of around 4.8 50 million hectares. Farm holdings are small, 40 averaging just over 1.5 hectares. 30 20 10 0 Japan EU OECD Canada USA Australia New Zealand Source: OECD (2006) Domestic Agri-Food Policies Japan's commodity policies fall into several categories: producer quotas; income stabilization policies; deficiency payments; the rice diversion program; hazard insurance subsidies; and stockholding policies. Brief Japan has producer support levels among descriptions of these policies follow below. the highest in OECD (Figure 1), driven in part by food security concerns and Producer quotas exist for fluid and memories of food shortages during World manufacturing milk. The Japan Dairy War II and its aftermath. The Ministry of Council administers the fluid milk quota. The Agriculture, Forestry, and Fisheries (MAFF) quota's purpose is to control milk production has used a combination of border measures, to stabilize market prices. The Agriculture domestic policies including direct budgetary and Livestock Industries Corporation (ALIC), payments, regulation and mandated a state trading enterprise, administers the administrative processes to support manufacturing milk quota for milk destined domestic production. to be made into butter and milk powder. Participating farmers are paid a direct This policy note first provides an overview of payment per litre for milk within their quota. the policies that Japan has traditionally used Separate quotas are maintained for milk to support its agricultural sector. Following used in cheese and cream production. this, new policy developments that seem to signal a shift towards a more decoupled Japan introduced commodity-based framework are described. Finally, some stabilization policies in the late 1990s based possible changes in the structure of on pre-existing programs for vegetables and Japanese agriculture resulting from fruits. These policies compensate farmers demographic drivers are outlined %% ooff aaddjjuusstteedd vvaalluuee ooff pprroodduuccttiioonn 2 for part of the losses they incur if current- State trading enterprises maintain stocks of year market prices are lower than a moving certain foods and feeds, notably rice. Other average of historical prices. Stabilization stocks include butter, skim milk powder, policies are in place for fruits, vegetables wheat, soybeans, and corn for feeding. The rice, soybeans, milk, and other products. As stocks are supposed to be sold and agricultural prices have been falling for replenished in an orderly way for food some time, the moving averages of historical security purposes. In addition, interventions prices also trend downward. in dairy markets are sometimes made to bolster prices. Deficiency payments pay all, or part of, the difference between a target price and the Trade and Border Measures actual market price in the current year. Such programs exist for beef calves, soybeans, Japan is the world?s largest net importer of and pork. agri-food products with Canada accounting for 5.6% of the $68 billion in Japanese Agri- Static rice demand and high, policy- food imports in 2005 (Figure 2). supported, returns to rice farming have meant that production threatens to exceed consumption in most years. To counteract Figure 2: Country Shares of Japan?s agri-food imports (CAD $68 billion in 2005) this and to avoid problems with surplus rice disposal, Japan?s rice diversion program USA 25.9% pays farmers to use rice fields for purposes other than growing rice for food. Diversion Others 45.2% payments vary according to the crop or land use that the farmer chooses. The payments China can be substantial, with a $6,933-per- 15.3% hectare maximum payment for farms above Au s t r a l i a Canada 8.0% 5.6% a minimum size. These annual payments are in addition to other subsidies received Source: World Trade Atlas for crops other than rice. Many paddies are planted to rice but get diversion payments because farmers do not harvest rice grains Japan uses tariff-rate quotas (TRQs) to for the food market, but instead harvest the protect its most sensitive commodities, such fields for green manure or feed, grow special as rice and rice flour, wheat and wheat flour, rice for industrial use, or other special butter and milk powder, and sugar. The purposes. quota is a fixed volume of product. Imports brought in within the quota pay a lower tariff, Many crop and livestock activities benefit while imports in excess of the TRQ face from government-subsidized insurance much higher tariffs, almost all so high that programs, which pay an indemnity when they prohibit trade. The government gains crops fail or livestock are hit by disease. The even more control by allocating a number of programs are voluntary, and details of important quotas to one of two state trading coverage vary by crop/livestock activity. The enterprises. government typically pays part of the premium and also provides reinsurance in The Food Department within Japan?s MAFF case indemnity requests overwhelm local has the exclusive right to import rice, wheat, insurance funds. and barley within those TRQs and the Agriculture and Livestock Industry Most government-set prices have been Corporation (ALIC) has exclusive importing eliminated, except for sugarcane, sugar rights to two of the biggest dairy TRQs. The beets, potatoes and sweet potatoes for government, through the state trading starch manufacture still exist. A production enterprises, decides how much to import, quota remains in place for sweeteners made when to import, and at what price to resell from corn and potato starch. the imports into Japan's market. Within some of the quotas, government owned corporations have the sole right to import, 3 and the imported commodities are resold farm. As this information has become more domestically with sizable markups. widely understood by the electorate, they have pressured for changes to policies In recent years, Japan has converted part of which use their tax dollars to make transfers its TRQs to operate under Simultaneous- to relatively affluent farming households. Buy-Sell (SBS) programs. Under SBS rules, companies interested in selling to Japan and In March 2005, a new Basic Plan for Food, companies interested in importing can jointly Agriculture and Rural Areas was make a bid to import a specified amount. announced. One of its most important The joint bid proposes a purchase price elements is a transition towards a flexible (from the exporter) and a sales price (to commodity policy. The government is internal markets). The state trading reducing its involvement in price formation of enterprise (STE) chooses the bids that have agricultural products. The administered price the biggest difference between the purchase for rice was abolished in 2004 and and sales price and awards them the administered prices for wheat and barley in requested import volume, provided other 2007. However, there are still several criteria are met. The STE then retains the commodities for which administered prices difference between the prices as a mark-up. are set. The Agriculture and Livestock While SBS systems do not avoid mark-ups, Industries Corporation continues to operate they do allow more direct contact between price stabilization systems for beef and pork. sellers and buyers. SBS systems are in place for rice, feed wheat, and feed barley. A new Farm Management Stabilization Programme came into effect on April 1, Japan?s border policies also protect certain 2007 that provides new direct payments. In processing industries. Strict government part, these payments are intended to control over wheat, rice, dairy, and sugar compensate for part of the loss of income products encourages processing of foods compared with the average income of the made from those commodities. Tariffs on preceding years and to mitigate income vegetable oils make crushing margins high instabilities caused by price fluctuations. enough to sustain Japan?s soybean and The gradual shift from government canola crushing industry. Despite border involvement in price formation to more measures which protect flour milling, sugar decoupled direct payments might in time refining, and butter and powder production, result in Japan following policies similar to Japan's imports of processed foods and those of the EU. beverages have grown. Figure 3: Producer Nominal Assistance Coefficient New Policy Developments (PNAC) for Selected Agricultural Commodities in Japan, 2004 In the post-war era, farm subsidies in Japan Total Agriculture have had two defining features: 1) different Wheat amounts are paid based on the commodities Rice produced; and 2) all farmers, regardless of Milk size, qualify as eligible recipients. Previous Pig Meat policy programs provided a degree of social Be e f security to rural communities in that they aimed to fill the income gap between 01234567 farming households and urban dwellers. Source: OECD This approach to policy is now being Regardless of recent policy announcements, challenged. The historical rationale behind Japan?s domestic policy and border such transfers has been eroded: the measures still provide its farmers with average annual farm household income is considerable assistance. The figure above now somewhat greater than the national shows relative support to selected average (by 25-30 percent); almost 80 commodities in Japan. The producer percent of farmers are part-time, with about nominal assistance coefficient for rice was two-thirds of their income earned off the 4 almost six in 2004; this means that Japan?s producers received prices equivalent to six Figure 4: Japan: Core Farmers Engaged in Farming times world prices, after considering all 15 - 2 9 y r s o l d 30-49 yrs old 1,600 means of support and protection. 50-59 yrs old 60-64 yrs old 1,400 65 and over 1,200 Demographics Will Drive Change 1,000 800 In 2005, Japan counted roughly 2.2 million 600 commercial farms. Over 8 million people live 400 on these farms. Despite having some of the 200 0 highest levels of agricultural support in the 1985 1990 1995 2000 2005 world, 5.6 million farmers rely more on non- Source: Personal calculations, based on information from: Ministry of Internal Affairs and Communications (MIAC) 2006 Population Census, Statistics Bureau, Tokyo,and Statistics farm economic activities than farming. Only Department, Minister's Secretariat, Ministry of Agriculture, Forestry and Fisheries. about 30% of Japanese farmers are full-time farmers. Summary The main threat to Japan?s traditional agricultural sector now is a shortage of Japan?s key agri-food sectors have high successors in younger generations. About tariffs, which have contributed to higher food 2.0 million of the 8 million farmers are prices. The most heavily protected products considered "core farmers" because they are are rice, wheat and milk, with Japanese actively involved in the management of the producer prices being roughly six times farm. Almost 1.4 million core farmers are world prices for wheat and rice. Despite high over the age of 65 and almost 300,000 are levels of protection and support, Japan?s between 60 and 64. Within the next 10 to 15 rate of self-sufficiency has been declining years, most of these individuals will leave and now sits at under 40 % on a caloric farming due to their age or health reasons. basis; agri-food imports were CAD $68 There are roughly 700,000 ?core? farmers billion in 2005. under the age of 60, with around 400,000 that derive the majority of their income from Recent policy discussions have touched on farming activities. some of the challenges currently facing Japan?s agri-food sector. Most land holdings Given the age distribution, it is likely that are quite small and many farmers major adjustments are imminent that will supplement their incomes with off-farm involve rationalization and consolidation into income. Measures put in place to assist one larger farm sizes. The average farm size is generation of farmers have slowed likely to gradually grow from 1.5 hectares adjustment and unintentionally discriminated currently to as much as 8 or 13 hectares as against subsequent generations of would-be this process of intergenerational transfer farmers. takes place. The speed of adjustment will depend on the decisions of elderly, part-time The government is gradually reducing its farmers and hobby farmers to exit the involvement in the price formation of industry. agricultural products. Although there are still high levels of border protection for many While historical policies assisted one commodities, administered prices were generation of farmers (those of the 1960s abolished for rice in 2004 and for wheat and and 1970s), they may have impeded barley in 2007. New direct payments were adjustment and been a factor in the age introduced in 2007 to compensate for a distribution of farmers in Japan today. more flexible commodity policy and to concentrate support on more efficient and stable farmers. ((''000000ss ooff ccoorree ffaarrmmeerrss 5 Sources Asian Productivity Organization (1998) Agricultural Price Policy in Asia and the Pacific, APO, Tokyo. Ministry of Agriculture, Forestry and Fisheries (MAFF). 2005. Key Points in the Basic Plan for Food, Agriculture and Rural Areas, Tokyo, Japan Ministry of Internal Affairs and Communications (MIAC) 2006 Population Census, Statistics Bureau, Japan. http://www.maff.go.jp/english_p/basicplan.pdf OECD, Agricultural Policies 2006: At a Glance, Paris. PECC (2003) Where demographics will take the food system, Pacific Food System Outlook,Singapore. Roberts, I, Warr, S., and G Rodriguez 2006. Japanese agriculture ? forces driving change. ABARE research report 06.24. Canberra, Australia. World Trade Atlas, 2006. For further information regarding this paper, contact: Brad Gilmour (gilmourb@agr.gc.ca, 613-759-7404) Rajendra Gurung (gurungr@agr.gc.ca, 613-694-2451) For further information regarding this series, contact: Cameron Short, Director, Policy Analysis Division (shortc@agr.gc.ca, 613-759-7426) May 2007 Project No. 07-041-b
Posted: 25 March 2010

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