Abe’s ‘growth’ strategy for agriculture in Japan

Author: Aurelia George Mulgan, UNSW Canberra

The Abe administration is releasing, in stages, the last of the ‘three arrows’ of Abenomics: a growth strategy designed to lift Japan’s competitiveness through pro-growth reforms.

Prime Minister Shinzo Abe tours a tea plantation in  Kitsuski, Oita Prefecture on 18 May 2013. Abe recently pledged to revitalise the nation

 It is being done under the mantra of ‘no growth without action’ (kōdō nakushite seichō nashi), in the fashion of former Prime Minister Koizumi’s ‘no growth without reform’ slogan. Compared with bold monetary easing and massive fiscal stimulus, reforms across industries and sectors will be the hard part of Abenomics.

In a speech in Tokyo on 17 May, Abe revealed what his plan is for the agricultural sector: more than doubling exports of agricultural products and other food items from JPY450 billion in 2012 to JPY1 trillion by 2020, expanding the scale of the agricultural (sixth industrialisation) market from the current JPY1 trillion to JPY10 trillion over 10 years, and doubling agricultural and farm village income over the next 10 years. These are all policy goals for which Abe will likely never be held accountable. They are designed to win maximum political capital amongst farm voters in the short term whilst minimising the burden of actual delivery in the long term. The use of the term ‘doubling’ adds to the plan’s PR value but the Abe administration will be long gone by 2020 and 2023.

The understanding is that Abe’s growth strategy will entail reform. He offered the assurance that ‘this time we will definitely achieve structural reform of agriculture’. Yet what he has announced is an agricultural ‘reform’ plan without reform. It will mean more bureaucracy and more spending in the agricultural sector, not less. These are the same factors that have underpinned farmers’ and agricultural cooperatives’ (JA) political support for the LDP over the decades as well as high levels of intervention by the Ministry of Agriculture, Forestry and Fisheries (MAFF) in the sector.

The government plans to implement its agricultural ‘growth’ strategy by developing export strategies for each country and food item; by supporting the so-called ‘sixth industry’ dimension of agriculture where farmers not only produce agricultural commodities but also process and market them (thus raising their added value), and where they also engage in agri-tourism; and by establishing new public bodies (‘farmland accumulation banks’, or chi shūseki banku) at prefectural level.  These will lease farmland from farmers, consolidate small lots into larger ones and provide key infrastructure, and then loan parcels of farmland to ‘agricultural bearers’ such as large-scale farmers and agricultural production corporations.

Former MAFF official Kazuhito Yamashita, now Research Director at the Canon Institute of Global Studies, has compiled an item-by-item rebuttal of the Abe strategy. In his view, its offerings largely recycle past MAFF initiatives that have delivered little in the way of results.

Take the goal of JPY 1 trillion in agricultural exports. In 2007, the target was to expand exports of agricultural, forestry and fisheries products to JPY 1 trillion by 2013. The MAFF used this to justify the deployment of funds and people to promote export sales, but their value actually fell from JPY 516 billion in 2007 to JPY 449.7 billion in 2012. The MAFF has now shifted the goal post to 2020, but the reality is that most of Japan’s agricultural exports are processed goods using imported materials such as wheat, sugar, soybeans and corn. The same thing will happen again even if exports expand. Japan will end up just processing more American agricultural products and exporting these. It is difficult to see how this would benefit the domestic agricultural sector.

As Yamashita argues, the only way for Japan to expand exports of domestically produced agricultural commodities is to make them more competitive internationally. Because it is impossible for uncompetitive products to ‘win against the world’ (another Abenomics slogan), ‘developing export strategies for each country and food item’ will not succeed. What is needed is structural reform of agriculture designed to reduce production costs and agricultural prices. Abe mentions beef, fruit and rice for increased exports, but in the rice sector, for example, increasing international competitiveness will require abolition of rice acreage controls (gentan) and a reduction in prices, neither of which were mentioned in Abe’s agricultural growth strategy.

The plan for expanding the ‘sixth industry’ dimension of agriculture (something also attempted by the DPJ) is equally flawed because most farmers work part-time and do not have time to work on processing agricultural products or managing guest houses. Only a few farmers in the past have successfully progressed to running businesses in spin-off industries. Abe has proposed a public fund to provide management support through investment financing to producers who want to build new business models, but its predecessor strongly reflected JA’s interests in its management thanks to the LDP’s amendment of its establishment legislation.

Perhaps the most important proposal is to set up intermediary organisations to lease farmland and then lend it on to ‘enthusiastic “bearers” of agriculture’, including large-scale farmers, agricultural production corporations and private enterprises. This would be done after carrying out the necessary infrastructure maintenance, which would boost the MAFF’s bottom line and the government’s public works expenditure but not do a great deal for structural reform of agriculture. The proposal is a remake of the farmland ownership rationalisation project that began in 1970.  Farmland ownership rationalisation corporations currently operate in all prefectures alongside municipal governments, JA and public corporations acting in the same role. However, of the 4.5 million hectares of farmland across the country, these organisations have leased and rented out only 12,000-16,000 hectares of farmland since 2005, a miniscule amount.

According to Yamashita, the plan does not solve problems such as the lack of farmland to be sold or leased and the increase in the abandonment of cultivation. Farmers hang on to their land in order to make a profit on sales for residential and other purposes. They can do this because the enforcement of land-use regulations is lax and fixed asset taxes even on abandoned farmland are low. Moreover, even with high production costs, farmers can still make a profit on farming because of high rice prices maintained through the gentan. So, even if full-time farmers want to lease more land, there is little available. This situation will not change even if new  ‘farmland accumulation banks’ are established to facilitate the transfer of agricultural land.

Nor has there been any mention of allowing private sector companies to own farmland or take a controlling stake in agricultural production corporations (which are dominated by farmers and agricultural cooperatives) in line with recommendations from business representatives on the government’s industrial competitiveness council. This would provide the necessary certainty to encourage private capital investment in the farm sector and put it on a more commercial footing.

Abe claims, ‘By making full use of various measures based on those that I have mentioned, we will definitely be able to double agricultural income and income in farming villages’. However, it seems that this would mainly come from more government handouts, not through higher farm incomes from production, exports and spin-off industries. Also in Abe’s grab bag is a plan to expand the DPJ’s direct income subsidies to farmers and pay them a new subsidy for protecting the ‘multifunctions’ of agriculture.

Making the agricultural sector more competitive has become more urgent now that Japan has joined the TPP negotiations. Perhaps even more importantly, as a 4 March editorial in the Nikkei argued, ‘Japan’s agricultural industry will collapse if it does not change quickly, regardless of trade liberalization. The nation is running out of time to save agriculture’.

Aurelia George Mulgan is Professor at the University of New South Wales, Australian Defence Force Academy, Canberra.