The Pros and Cons of Japan's Rice Acreage-Reduction Policy
October 07, 2008
What Was the Aim of the Acreage-Reduction Policy?
The Liberal Democratic Party (LDP), which has ruled Japan almost continuously since 1955 and relies on the votes of farmers, began raising the price of rice under the staple food control system1 in the late 1950s. High rice prices spurred a reduction in rice consumption while acting as an incentive to production, causing a rice glut. The policy of trimming rice production by reducing rice acreage, which began in 1970 and continued even after the abolition of the staple food control system in 1995, is a supply-restriction cartel arrangement that aims to keep surplus rice off the market to prevent prices from falling. Some 40% of the nation's 2.55 million hectares of rice paddies are currently subject to acreage reduction.
Acreage reduction was carried out during the time of the staple food control system because it cost the government less to have farmers grow wheat or soybeans in place of rice and then make up for the difference in price through agricultural subsidies than it did to buy up the surplus rice under the staple food control system and then dispose of it as animal fodder or use it for food aid operations; the government spent ¥3 trillion ($28.6 billion)2 on the latter policy. At this time, agricultural cooperatives were opposed to acreage reduction, as they were keen to sell as much rice as possible to the government at a high price. As far as they were concerned, the government should buy up the lot.
Since 1995, however, when the staple food control system was abolished and the government's purchases of rice were limited to the amounts necessary for emergency reserves, the price of rice has been maintained by acreage reduction. There is currently no financial advantage to the government in carrying out acreage reduction. Now that acreage reduction has become essential to maintaining the price of rice, however, the agricultural cooperatives, once such fierce opponents of acreage reduction, are all in favor of it. One thing has not changed: during both periods the consumer has had to bear the cost of protecting the agricultural sector by paying a high price for rice.
The Downside to Acreage Reduction
It is not only the consumer that has to pay for acreage reduction; money also comes out of the public coffers. Generally speaking, to the cost of the members of a cartel who keep the price of a product high, outsiders who sell at the price stipulated by the cartel without any production restrictions are able to profit from this. In order to prevent this, the benefit has to be sufficient to ensure that nothing is to be gained by breaking the cartel. In the case of the acreage-reduction policy, it is the subsidies paid out by the government that have provided this benefit. These subsidies amount to ¥200 billion ($1.9 billion) a year, which adds up to a cumulative total of ¥7 trillion ($66.7 billion).
Some areas reap especially high incomes from rice production, such as Ogata Village in Akita Prefecture, where the large scale of production has kept costs down, and Niigata Prefecture, whose reputation for producing high-quality rice enables producers to charge premium prices. These areas did not make any attempt to cooperate with the acreage-reduction policy. Their cooperation could, of course, have been ensured by increasing the subsidies, but the state of Japan's public finances has necessitated continual cuts in the subsidies. They amounted to ¥361.1 billion ($3.44 billion) for an area of 630,000 hectares in 1982, and even though the area presently eligible for subsidies has increased to 1.1 million hectares, the subsidies have shrunk to ¥180.1 billion ($1.72 billion) (2008 figures). Prefectural and municipal authorities have gone to great lengths to try to achieve the required area of acreage reduction; officials in charge of acreage reduction even go along to local meetings in agricultural communities, which are usually held after normal office hours because there are a great many part-time farmers with regular jobs, to persuade farmers to cooperate. Many highly capable people who would otherwise be leading the efforts of local authorities to promote agriculture have been assigned to the most retrogressive administrative task of acreage reduction.
Among the rice producers, it is the full-time rice farmers selling large crops of rice that have been most affected by acreage reduction. If Japan is to produce rice at a low cost, the crop should be produced by farmers with large-scale farms and the rice acreage of micro-sized plots should be reduced. The vast majority of farmers are part-timers working micro-sized plots, however, and these small farmers make up the political base of the agricultural cooperatives; politically speaking, forcing the bulk of the acreage reduction onto these farmers was never an option. In the end, a uniform allotment of acreage reduction based on the area of paddy fields in operation was carried out. The full-time farmers who were forced to bear the burden of much of the acreage reduction are now unable to take advantage of economies of scale, because they are unable to expand their rice crops sufficiently. They have suffered as their inability to reduce costs has prevented them from increasing their incomes.
The Political Showdown of 2007
Even though the rice crop situation index for 2007 was 99 with the rice crop of an average year taken to be 100, acreage reduction was not fully achieved and rice was overplanted on 4.5% of farmland; the price of rice fell by about ¥1,000 ($9.50) from its level of around at ¥15,000 ($143) for 60 kilograms. Under reforms to the government's rice policy, in 2007 the government entrusted the task of acreage reduction to the agricultural cooperatives; however, as these organizations account for only 50%-60% of harvested rice, they can hardly be expected to carry out a cartel arrangement. Not surprisingly, the acreage reduction for 2007 did not reach the anticipated level. In the spring, the Ministry of Agriculture, Forestry, and Fisheries (MAFF) received information that the distribution of seed rice had been brisk, and rice had been overplanted. MAFF lacked a clear grasp of the crop situation, however, the Ministry of Finance would have rejected any request for funding to address the problem, leaving it unable to take countermeasures. The feeling was that even if there had been overplanting, the situation would resolve itself without the need for countermeasures if there was a poor crop. However, anticipating a drop in the price of rice, the agricultural cooperatives forestalled by slashing the provisional price they paid to farmers from the 2006 level of ¥12,000 ($114) for 60 kilograms to ¥7,000 ($66.70). This move-known as the "7,000-yen shock" in the rice-growing world-was likely intended as a message to farmers that the agricultural cooperatives wanted to avoid dealing with rice as much as possible, as they would have to shoulder the interest and storage costs of rice that they were unable to sell.
In a related development, the LDP suffered a humiliating defeat in the House of Councillors election in July 2007, losing control of the upper house to the Democratic Party of Japan (DPJ). The DPJ won as a result of its policy of a subsidy for every farming household, which was criticized as tantamount to buying farmers' votes with promises of subsidies. With the House of Representatives election drawing near, the defeat sent waves of alarm throughout the LDP. The slump in rice prices at the start of the autumn was the final blow. The agricultural cooperatives flexed their political muscle, and rather than buying and storing rice themselves, they forced the government to buy 340,000 tons as a rice reserve, bringing rice prices back up. They also made the government earmark ¥50 billion ($476 million) in the supplementary budget for increasing the acreage-reduction target for the 2008 crop by 100,000 hectares from the initial figure of 1 million hectares.
Having reformed its rice policy so that acreage reduction was left to the agricultural cooperatives, the government backed down in the first year of implementation. There was a return to the original system under which MAFF and prefectural and municipal authorities carry out acreage reduction. Moreover, a four-point agreement, which included the stipulation that "All conceivable measures will be taken to ensure that production adjustment targets are met," was signed at national level by the director-general of MAFF's General Food Policy Bureau and the heads of eight relevant organizations, such as agricultural cooperatives, and at prefectural level by the heads of the Regional Agricultural Administration Offices and related organizations. This agreement was unprecedented in the 40-year history of acreage reduction. Senior MAFF officials used their collective clout to direct the implementation of the acreage reduction: one Regional Agricultural Administration Office distributed a poster with slogans such as "Overproduction of rice is a waste. Overplanting is a misuse of resources," provoking protests from rice farmers.
Forecast for 2008
It looks as if there will be a bumper rice harvest this year; the rice-growing world is forecasting a rice crop situation index of 102 this year. Moreover, despite the joint efforts of the government and the private sector, only 70% of the extra 100,000 hectares of acreage reduction had been carried out as of July, when all rice planting was completed. If production adjustments and acreage reduction are not fully achieved and there is a bumper rice crop, the price of rice will fall this year as well. The government has already purchased reserves of rice right up to the maximum of 1 million tons, so this year it will be unable to act to raise the price of rice by purchasing reserves.
What will the agricultural cooperatives and the government do? One option is for the agricultural cooperatives to keep rice off the market through adjustment storage; this means that they store the surplus rice, while the government pays for the interest and storage charges through subsidies. The rice will, of course, have to be released onto the market at some stage. This means that next year's acreage reduction will have to be further increased to make up for the extra rice coming on top of the existing excess caused by the original trend toward less rice consumption. The government's attempt to temporarily evade the burden on the public finances will merely have increased it.
Acreage Reduction from a Food Security Perspective
Food security cannot be achieved without farmland. At the end of World War II there were 3 million hectares of rice paddies for a population of 70 million, and people went hungry. Despite the fact that there was insufficient farmland to feed the entire nation, the perception that there was farmland to spare became entrenched because of rice acreage reduction. The total area of rice paddies grew consistently until 1969, when it reached 3.44 million hectares, but the introduction of acreage reduction in 1970 marked the beginning of a steady decline up until the present day, and there are now 2.55 million hectares. This is because a large portion of the acreage reduction consists not of shifting to different crops such as wheat but of simply not planting anything, which leads to the abandonment of agricultural land. Increased acreage reduction will cause the further abandonment of cultivated land, currently 390,000 hectares, an area 1.8 times the size of metropolitan Tokyo.
Despite the increase in acreage reduction, however, the price of rice is falling. Japan's population has so far risen almost continuously, but in the future it will age and decline; overall rice consumption will be hit by the double whammy of a decrease in the amount of rice consumed per person coupled with a decrease in the population. As shown by events in 2007 and 2008, if the aim is to maintain the price of rice, a further ratcheting up of acreage reduction will be unavoidable. If per capita consumption of rice in 40 years' time is half that of today, the area covered by acreage reduction will be increased to 2.1 million hectares and that used for rice production will be something in the area of 500,000 hectares, further shrinking the area of rice paddies. Such will be the effects of the acreage reduction policy, which is jeopardizing Japan's food security.
1The staple food control system, by which the government controlled the price and supply of staple foods such as rice and barley, played a major role in stabilizing rice demand and prices and, thus, people's lives. After World War II, however, improved productivity and other factors increased the supply of rice, while consumption of this staple declined; these trends meant that government rice controls reached their limit, and in 1995 the system was abolished.
2Dollar amounts, calculated at the 2008 rate of ¥105 to the dollar, are provided for reference.