Gross agricultural output in 2006 was 8.5 trillion yen, less than the sales volume of Panasonic which stood at 9.1 trillion yen in the same year. Total agricultural GDP in 2006 was 4.7 trillion yen, but this was largely thanks to tariff and price support protection. According to the Organization for Economic Co-operation and Development (OECD), the amount of money Japan spent for agricultural protection was nearly 5 trillion yen. This means that, without agricultural protection, Japan’s agricultural GDP could have been nil.

The Impacts of Globalisation and a Shrinking Japanese Population

In the World Trade Organization (WTO) negotiations, the Japanese government is demanding broad exceptions to tariff reductions, while being pressed in return to increase the volume of imports subject to a relatively low tariff rate (the ‘minimum access’ quota). If agreed, this could increase the minimum access quota of rice from the current 0.77 million tons to 1.2 million tons (Japan’s domestic rice production currently stands at 8.5 million tons), thereby further reducing the current low food self-sufficiency ratio. What the Japanese government is trying to defend with these efforts are its high tariff rates, as represented by the 778 per cent rate imposed on rice, as well as the resulting high prices of agricultural products.

Rice consumption per person in Japan has dropped as much as 50 per cent in the past 40 years, even while the population has been growing. From now on, the level of rice consumption will be influenced by the double impact of an aging society, which will push down per-capita consumption, and a shrinking population.

If aggregate rice consumption falls from the current level of 8.5 million tons to 3.5 million tons by around 2050, Japan will need only some 0.5 million hectares of land for rice production. This means that some 2 million hectares of rice fields must be diverted to other purposes. For comparison, the population of Japan in the wake of World War II was only 70 million people, far less than the current 130 million, but they owned a total of more than 5 million hectares of farm land, more than the current total of 4.6 million hectares, although some Japanese were starving to death at the time. The decline in Japanese agriculture will diminish the agricultural land resources that are indispensable for the nation’s food security.

Since the 1960s, the Japanese government has kept the producer price of rice at a comparably high level by purchasing rice from producers at a support price. This policy has encouraged small-scale part-time farmers, who often shoulder high production costs, to continue rice production because it is cheaper for them to grow rice than to buy it. Rice production costs will decline if farm sizes become bigger. The retention of farmland by small-scale part-time farmers has prevented full-time farmers from expanding their farmland in Japan, thereby keeping production costs at a relatively high level and leaving full-time farmers unable to improve their profits. Thus the government is currently maintaining the rice price by encouraging farmers to divert their land for the cultivation of other crops. In order to encourage farmers to participate in the production adjustment program designed to curtail rice production, the government annually spends 200 billion yen in subsidies. The cumulative amount of these subsidies has now topped 7 trillion yen.

The ruling Democratic Party of Japan (DPJ), which came to power in September 2009, plans to bolster the production adjustment by introducing a new income-support system. The system will provide farmers who take part in the production adjustment program of rice with subsidies that cover the difference between the production cost of rice, including labor expenses, and the farm gate price of rice. This support will be provided regardless of the type of farmer – full-time and part-time, including those who earn more than the average worker – in addition to the subsidies that have been provided hitherto for land diverted from rice production. Unlike the European Union’s income-support system, which was introduced after a reduction in agricultural prices, the DPJ plan will add these new subsidies while maintaining the current price through the existing production adjustment program. Given that high prices, which have not been addressed by this plan, will unavoidably require high tariffs, how will the Japanese government cope in the WTO and FTA (free trade agreement) negotiations?

If the government guarantees more than what the current price offers to small-scale part-time farmers, it will encourage them to continue farming, and might even make it more profitable for retired small-scale farmers to take back land lent to full-time farmers and start farming again. Forced to farm smaller plots, full-time farmers will have to bear higher production costs, which will eventually result in a higher financial burden on the government to cover income-support subsidies.

What is needed?

If the Japanese government were to abandon the production adjustment program and bring the producer price of rice down from the current 15,000 yen to 9,500 yen per 60kg, small-scale farmers would stop farming and start lending out their land. The government could then focus its support on full-time farmers so that they could pay their land rent (the government may pay the rent directly). Such plans would help concentrate limited agricultural land resources on full-time farmers, thereby expanding farm sizes and reducing production costs. Given the narrower target, the financial burden of such support would not exceed the current expenditures of the production adjustment program.

The price for Japanese rice has come down from 20,000 yen to 15,000 yen in the past decade, while the price of Chinese rice, which Japan imports, has risen from 3,000 yen to 10,000 yen. There is a growing demand for Japonica rice rather than Thai/Indica rice. If Japan stops production adjustment and brings down the domestic price to less than the Chinese price, Japan will no longer have to worry about the minimum access quota and the quality of imported rice, because there will be no need for Japan to import rice. Further, Japan may even be able to export its rice! Despite the prospects of a shrinking population and declining food consumption at home, exports (free trade) will provide Japan with excellent opportunities to manage agricultural land resources and ensure food security. Japan will be able to export rice and import wheat or beef in normal times, while in times of crisis with no importation of food, Japan can stop exporting rice and eat it. So far Japan has used the notion of food security as a pretext for defending high tariffs on farm products. In an era of decreasing population, it is free trade that will ensure food security for Japan.

Kazuhito Yamashita is Senior Fellow at the Research Institute of Economy, Trade & Industry (RIETI). He served in the Ministry of Agriculture, Forestry and Fisheries for more than 30 years until his retirement in 2008.

This article was originally published in AJISS-Commentary, an online publication of The Association of the Japanese Institute of Strategic Studies consisting of three leading Japanese think tanks: Institute for International Policy Studies (IIPS), The Japan Institute of International Affairs (JIIA), and Research Institute for Peace and Security (RIPS).