Déjà vu in Japan’s agricultural policymaking

Author: Aurelia George Mulgan, UNSW@ADFA

The Hatoyama administration has approved a fiscal 2010 budget containing ¥561.8 billion in expenditure on a new ‘individual household income compensation system’ (kobetsu shotoku hoshō seido) for farmers, to be launched in April. This income subsidy will compensate farming households for losses incurred as a result of higher production costs and lower market prices. The scheme will begin with a ‘model project’ targeting rice farms nationally.

The process undertaken in determining the budget for the policy illustrates how little has changed in agricultural policymaking under the Democratic Party of Japan (DPJ) compared to the Liberal Democratic Party (LDP). The final decision reflected the budget amount requested by the Ministry of Agriculture, Forestry and Fisheries (MAFF). Objections from the Ministry of Finance (MOF), aimed at limiting the income subsidy to large-scale farmers or farmers in specific regions, were overridden. Political intervention from the ruling party proved decisive in this tug-of-war. In the budget request documents submitted by the DPJ last December, it lobbied for the full amount requested by the MAFF to be allocated.

The new income compensation policy was simply too important in the DPJ’s Upper House election strategy to fall victim to spending constraints. The scheme was quarantined from the budget-screening process undertaken by the Government Revitalisation Unit (GRU) last November. In insisting on all rice farmers being eligible for the scheme, the DPJ was also aiming to reduce the dependence of small-scale rice farms on the agricultural cooperative organisation (JA), because of JA’s key role as an electoral support organisation for the LDP.

MAFF Minister Akamatsu Hirotaka called the income guarantee ‘the bedrock supporting farms’.

Direct income subsidies to individual rice-farming households will be calculated in the range of ¥10-15,000 per ten ares (i.e. a 10th of a hectare) of farmland. Some DPJ politicians pushed for an even higher amount.

Because of the way in which the direct income subsidy is calculated, it will be classified as an ‘amber box’ subsidy by the WTO, owing to its potential to distort production and trade. At the same time, the government is calling the scheme ‘a safety net for trade liberalisation’ enabling it to promote FTA talks with Japan’s trading partners, even though the DPJ is divided on the issue of FTAs and agricultural trade liberalisation.

Complicating outcomes from the policy is its direct linkage to the rice acreage reduction policy (gentan), designed to reduce rice production. Only those farmers following ‘rice production quantity targets’ (i.e. rice production cuts) set by the government will receive the direct income subsidy. But even farms making a profit from their rice sales will be eligible for the compensation if they observe quantity targets. The policy linkage produces conflicting objectives: the income subsidy promotes rice production while the gentan reduces it. Reinforcing the gentan will help to keep rice prices high. This will potentially reduce the costs to the government of farm income compensation, but it will do nothing for consumers. Furthermore, the gentan is widely viewed as undermining the vitality of Japanese agriculture because it stifles incentives for producers to increase output.

The major criticism of the farm household income compensation scheme is that it will not improve the competitiveness of Japanese agriculture. It places pressure on small-scale farmers with high production costs to stay in farming, and for some of them to withdraw land that they currently lease to larger-scale ‘business’ farm households. Some DPJ politicians are defiant in the face of this criticism, arguing that ‘small-scale farms also play a role in supplying food and preserving the environment. There is no need for policies to encourage the development of large-scale farms’. Clearly they do not represent the interests of entrepreneurial farmers who want to increase their farm size and therefore their profit margins, a group that will now find it much harder to obtain land from small-scale farmers in order to expand their operations.