Author: Aurelia George Mulgan, UNSW@ADFA
In the 2003 Lower House election, the DPJ, led by Kan Naoto, compiled an election manifesto that promised to create a system of direct payments to farmers. This matched the broad trend in government agricultural policy away from price supports to direct income subsidies to farmers.
Two years later, in the 2005 Lower House election, the DPJ, under Okada Katsuya, offered a ¥1 trillion direct payment system to all farm households marketing agricultural products. It also extended this offer to farm households in hill and mountainous areas and those whose agricultural production activities served environmental protection functions.
The DPJ’s political purpose here was to outflank the government’s scheme, which limited direct income support to so-called agricultural ‘bearers’. The LDP’s more restrictive approach amounted to a structural reform policy because it left small farmers out of the loop. It was designed to encourage them to sell or rent their agricultural lands to farmers wanting to expand their production scale. The DPJ’s approach, in contrast, was not a structural reform policy, because it gave no incentives to small-scale farmers to abandon agriculture. It would prop up as many inefficient, small-scale farmers as the old price support system and was condemned by one farmer in the Niigata Prefecture for ‘just throwing money at the farmers’ (Nihon Nōgyō Shinbun, 13 September 2005).
In the 2007 election, the DPJ, now under Ozawa Ichiro, reiterated the direct income proposal, now called the ‘individual farm household income support system’, inclusive of all commercial farms, large and small. It proved a real vote-winner in regional prefectural constituencies.
Ditto the 2009 election under Hatoyama Yukio. Under the direct payment scheme for farm households, the MAFF would provide financial supplementation to cover the difference between the prices farm households received for farm products and their production costs. The DPJ’s 2009 manifesto also expanded the scheme with a commitment to promote the introduction of income compensation to livestock and dairy farmers (estimated to cost another ¥200 billion) and fisheries, as well as introducing direct payments for forestry.
The DPJ’s farm income compensation policy will positively exacerbate the agricultural sector’s major structural problem – the survival of small-scale, inefficient farms. In fact, the DPJ explicitly commits itself to supporting these farms, with a direct reference to facilitating ‘the continuation of farm management, including small farms’ appearing in the DPJ’s 2009 manifesto.
A recent critique published by former MAFF official, Yamashita Kazuhito, points out the folly of the DPJ’s income compensation scheme, which will be introduced next year for rice farmers. Part-time rice farmers will have an incentive to forcibly withdraw the farmland they are currently renting to business farm households (those with agricultural income more than 50 per cent of total household income and with one or more persons engaged in farming for 60 days or more under 65 years old). This is because part-timers will be able to make more money from the direct income subsidy and from rice production adjustment (gentan) subsidies than they can from renting to business farm households. The result is that the management scale of business farm households earning their living from agriculture will decline and production costs will rise. This may, in turn, cause the financial burden of the farm household income compensation policy to snowball.
On the other hand, the scheme will offer an incentive for rice farmers to increase their production efficiency. As Professor Masayoshi Honma of Tokyo University points out, the ‘gap between the production cost and the sales price at the farm gate will be subsidised as a fixed payment. It will be calculated from the three-year average of the previous five years production costs and sales prices, excluding the highest and lowest. This will mean efficient farmers will gain more than the gap whereas less efficient farmers will not be fully compensated.’ The Japanese media reports that the agricultural cooperative organisation (JA) is already pressuring the MAFF on how it calculates labour costs as part of the production cost calculation.
What are the implications of the DPJ’s compensation scheme for agricultural trade policy?
The implications are unclear. The policy of direct income subsidies to farmers in theory protects domestic producers against price falls consequent upon increased quantities of cheaper foreign imports. It is a survival policy for inefficient, uncompetitive farmers in a liberalising environment.
Secretary-General Ozawa Ichiro reportedly conceived of agricultural trade liberalisation as coupled with the proposal for direct farm income compensation and was very angry when Hatoyama watered down the DPJ’s commitment to the FTA with the United States prior to the election.
While agricultural trade agreements theoretically become more politically feasible with a direct income support policy in place, the question is whether the DPJ will follow through on these agreements given two factors. The first is the reassurance it offered to farmers in its 2009 manifesto, which stated that any trade agreements will not come at the price of domestic agriculture including ‘the safety and stable supply of food, increasing Japan’s food self-sufficiency ratio, and the development of Japan’s agricultural industry and its farming villages’. Increasing Japan’s food self-sufficiency ratio has traditionally been synonymous with maintaining agricultural protection.
The second factor is the 2010 Upper House election scheduled for July. Prior to the election, the DPJ is unlikely to use its direct income subsidy policy to argue a pro-agricultural trade liberalisation position, but after the election, it might be a different story. This may coincide with the wind-up of the Doha Round, to which the DPJ has called for an early conclusion. The Hatoyama government is also in the process of formulating its EPA strategy with a view to aggressively promoting such agreements. But the MAFF remains the principal obstacle to inter-ministerial accord on such a strategy. Liberalising agriculture is not an issue on which the government shows any inclination to exercise ‘political leadership’. This means that the agricultural trade policy that we can expect from the DPJ administration is likely to be little different from that of previous LDP administrations – the offer of only modest concessions on agriculture. In particular, no breakthroughs can be expected with respect to FTAs where agriculture is problematic, such as with the United States, China and Australia.