Table Speech

“Agricultural Big Bang and Trans-Pacific Partnership (TPP)- Free Trade Will Save Japanese Agriculture”

March 30, 2011

Mr. Kazuhito Yamashita
Research Director, The Canon Institute for Global Studies
Doctor, Science of Agriculture

 There are currently three major issues concerning agriculture in Japan: 1) 60% of the farmers are over 65 years old, 2) abandoned farmlands are expanding, equivalent to the size of Saitama Prefecture, and 3) farmlands, vital to food security, are disappearing. The figures show an alarming sign. Today, farmland area decreased to 4.59 million hectares from 6.09 hectares in 1961, due to either abandonment of cultivation or farmland diversion. Production output fell to 8 trillion yen in 2009 from 11.7 trillion yen in 1984.

 PSE (Producer Support Estimates) is an indicator developed by OECD to monitor and evaluate the level and composition of support given by consumers and taxpayers (public finances) to the agricultural sector. Total agricultural protection in Japan is the same level as the EU, taking into account its size of economy or population. Yet, its composition differs greatly, as 90% of the total is shouldered by the consumers in Japan. In other words, farmers in Japan are protected by imposing expensive prices to consumers. The US and the EU, on the other hand, are switching to direct payment by public finances.

 Consumers in Japan are forced to pay for expensive agricultural products protected by heavy import tariffs. That is to say, consumers are transferring their income to farmers. Some argue that “Japanese agriculture is already quite liberalized, as its average tariff level is as low as 12%, compared to 62% in South Korea or 20% in the EU. Thus, there is no need to join TPP.” But I find this logic rather incongruous, as this figure does not include 778% tariff on rice nor other products with over 100% tariff.

 Let me now explain the background to Japan’s policy of protecting its farmers at the expense of consumers. The 1961 Agricultural Basic Act was introduced to redress the income imbalance between the agricultural and industrial sectors. Income levels can be raised, either by lifting the price or production output (turnover) or reducing the cost. The idealistic theory behind the Basic Act was to raise the overall agricultural income by promoting conversion of agricultural lands from rice to dairy farming, cattle breeding, vegetables or fruit cultivation. It also aimed at cost cutting through turning farmlands into large-scale by structural reform.

 The government took an opposite course, however, and raised the rice price in the 1960s, which triggered overproduction of rice and the consequent rice acreage reduction policy which continued over 40 years. Small farmers chose to continue highly-priced rice cultivation rather than giving up their farmlands. This hampered the emergence of large-scale full-time farmers that is the key for cost cutting.

 Agricultural productions in Japan, especially the rice production, have suffered from distorted policies and mismanagement. If proper measures were taken, there would be a bright future.

 Now, let us look ahead. The agricultural sector is also affected by declining birthrate and aging population. Rice consumption per capita has halved over the past 40 years, and it will further decline in the future by dual-effects of declining birthrate and aging population. If we keep protecting our domestic market by imposing high tariff, agriculture in Japan as well as the market are destined to keep shrinking.

 How can we break through such circumstances? The answer is to get wider access to the foreign markets. Japan must get actively involved in the negotiations for trade liberalization to lower tariffs of other countries, which will eventually promote agricultural development in Japan. Free trade is essential for food security, in an era of declining population.

 There is no question that Japan must lower the prices of agricultural products, not to mention the rice price. How can we achieve this? When farmers were protected by highly-priced rice under the food control system, part-time farmers were not willing to give up their farmlands. As I mentioned earlier, this discouraged the major famers from expanding their farmlands to larger-scale. The rice price, however, has fallen by 30% in the past10 years, encouraging part-time farmers to offer their lands. If the government abolish the rice acreage reduction policy and lower the rice price, many more small part-time farmers would come forward to offer their lands. A new pricing system for rice is essential that encourages both the more efficient large-scale farmers to expand their activities and the much less efficient small-scale rice farmers to lease or sell their lands to the larger operators.

 The Great East Japan Earthquake on March 11th has suspended the discussions on structural reform of the Japanese agriculture or TPP. Yet, extensive discussions are unfolding among other countries, and they will not wait for Japan. I am convinced that if we set out to reorganize the overall agricultural sector, as part of the reconstruction process after the disastrous earthquake, we can maximize the potentiality of the Japanese agriculture to propel its structural reform.

 Free trade is the prerequisite for food security in the era of declining population. We must base our discussions on the “means and measures to be taken to protect the Japanese agriculture,” and not on the “legitimacy of agricultural protection.” We are at the crossroads, whether to opt for direct payment or to adhere to the price. I believe that time has come for us to take action, rather than just sit back and watch the Japanese agriculture to wane. We must pursue structural reform by direct payment and put an end to the small-scale farming structure of Japan.