The Agricultural Cooperatives and Farming Reform in Japan (1)
January 20, 2009
For the past half century, Japan's powerful organization of agricultural cooperatives has used its tremendous political clout, backed by the nation's rural communities, to block agricultural reform in Japan. It succeeded in keeping rice prices artificially high during the years when the government set rice prices under the staple food control system, achieving average annual increases of almost 10% during the 1960s, in particular.
And since the passage of the Agricultural Basic Law in 1961, it has opposed all policies to reform the industry structurally through the creation of large-scale farms and the encouragement corporate-style farming.
Food Control, High Prices, and the Rise of JAJapan's nationwide organization of farm cooperatives, now commonly referred to as JA (short for Japan agricultural cooperative associations), expanded its reach and influence by capitalizing on the government's system for controlling distribution and pricing of staple foods. Rice, wheat, and barley accounted for 70% of all produce marketed by JA by sales volume at the outset, and the system for controlling these foods was integral to JA's activities from the beginning.
The ancestors of the JA cooperatives were "industrial cooperatives". Originally these were organizations formed voluntarily by landowners and wealthy farmers, and their role was limited to the realm of credit, that is, financial services. After the depression hit rural communities in the early 1930s, however, the then Ministry of Agriculture and Forestry established cooperatives around the nation, and these organizations, which covered all the nation's farmers, were endowed with various functions not merely as credit unions but as comprehensive agricultural service cooperatives that handled procurement of supplies, marketing of produce, and so forth. During World War II, the government integrated these industrial cooperatives with the political groups representing rural landowners to create "agricultural associations" that maintained control over all the households in a given area. Just after the war, when food shortages made government collection and distribution of rice and other foodstuffs an urgent priority, the government turned those agricultural associations into agricultural cooperatives known as nokyo, which it used to collect rice, wheat, and barley from farmers. Although taking the superficial form of a voluntary grass-roots farmers' organization, the nokyo system differed from agricultural cooperatives in most parts of the world in that it was established by the government, encompassed all farmers throughout the country, and was comprehensive in its role, taking control of most of the economic activities of Japan's farming communities.
At one point during the era of postwar construction, the price of rice sold under the staple food control system was pegged cheaper than rice on the black market so that the government might sell rice to the poor and prevent them from starving. Japan's ruling parties called for the staple food control system to be dismantled to allow rice prices to rise, but JA, which supplied the government with rice for distribution under the staple food control system, opposed the change, thus taking a position that benefited the organization but not the farmers.
Later, however, the government raised rice prices to boost production, output recovered, and prices on the black market dropped. From this point on the interests of JA coincided with those of the farmers. As the vast majority of those organized under the JA system were rice farmers, the lobbying activities of JA became intensely focused on raising rice prices high, setting the scene for a series of fierce struggles against the government.
JA's development into a powerful organization and farm lobby was inextricably tied to inflated rice prices. Demand for staple foods like rice is inelastic, which means that-over the short term, at least-higher prices simply boost net sales, translating into higher commissions for JA. Under the staple food control system, moreover, any surplus rice produced as a result of these increases in prices was disposed of at the government's expense. In addition, the government's rice payments to farmers were automatically transferred into JA accounts, putting these ballooning deposits at the organization's disposal. Furthermore, the Norinchukin Bank, the nationwide organization of JA financial services, where the government deposited the advance payments, was able to make huge profits by managing the funds on the call money market before the time came to forward payment to the local JA cooperatives.
Higher produce prices also make it possible for farmers to pay more for the supplies they buy from their local JA cooperatives, such as chemical fertilizer, pesticides, and machinery. The idea behind supply cooperatives is to increase farmers' collective bargaining power on the market vis-à-vis merchant capital; cooperatives can purchase supplies at lower cost and sell them to members cheaply. Instead, JA made bigger profits by selling to members at inflated prices. Moreover, since administered rice prices under the staple food control system were set on the basis of the costs borne by producers, the inflated price of fertilizer, pesticides, machinery, and other production supplies was automatically reflected in higher rice prices. Furthermore, since JA provided loans to the fertilizer industry using members' bank deposits, high fertilizer prices helped secure high interest rates on those deposits. It is no accident that the amount of fertilizer and pesticides used by Japanese farmers began to increase sharply around the 1960s. In this way the system allowed JA to stay in the farmers' good graces even when otherwise its behavior might have put it in conflict with the farmers' interests. Even as the farm industry as a whole declined, high rice prices enabled JA to flourish in production supply, marketing of produce, and financial services, capitalizing on a comprehensive farm cooperative system the likes of which are rarely seen in other countries.
Even after the staple food control system was abandoned in 1995, the Akita prefectural chapter of Zen-Noh (National Federation of Agricultural Cooperative Associations) was found to have manipulated the public bidding system to inflate rice prices by arranging for subsidiaries and wholesalers in its network to tender high bids. In 2006 the Ministry of Agriculture, Forestry, and Fisheries (MAFF) rejected applications by the Tokyo Grain Exchange and the Kansai Commodities Exchange to list rice futures, caving in to pressure from the JA organization, which feared that trading in rice futures would make it harder to keep rice prices intentionally high through manipulation of the spot trading market. The basic mechanism whereby JA profits from high rice prices has not changed.
Blocking Structural ReformToday, when the difference between full-time and part-time farming is growing increasingly pronounced, JA's longstanding tradition of "one person, one vote" is causing organizational dysfunction and impeding the development of corporate-style farming. The system made sense in the years immediately following the postwar agricultural land reforms, when Japanese farms were relatively homogeneous in the scale and intensity of their operations. But that situation has changed markedly over the years. In 1950, with a total of 6.18 million farming households, 3.09 million of them-exactly half-were engaged in agriculture full-time. By 1961, when the Agricultural Basic Law was passed, full-time farmers accounted for only a third of the total, with the other two thirds divided equally between "type-1 part-time" farmers (primarily farming) and "type-2 part-time" farmers (primarily non-farming). In 1970, type-2 part-time farmers made up the majority for the first time, with 51%, as compared with 34% for type-1 part-time and only 16% for full-time. Today (as of 2005) the shares are 23% full-time, 16% type-1 part-time, and 62% type-2 part-time. Furthermore, today the overwhelming majority of those in the full-time category are elderly farmers who graduated from the type-2 class when they lost their other sources of income due to their retirement. Thus, males less than 65 years of age who farm full time represent only 9.5% of the total.
Part-time farmers who attend to their farms only on the weekends have little time to worry over ways to lower production costs or increase their marketing advantage. They welcome the convenience of JA's all-in-one supply packages of inputs and of having JA handle all aspects of marketing their produce.
Because part-time farmers overwhelmingly outnumber full-timers, JA's longstanding "one person, one vote" system favors the part-timers, giving them a disproportionately strong voice in the organization. JA, for its part, understands that maintaining a large number of farms is the key to its political clout. From the organization's standpoint, having 1,000 part-time farmers is far preferable to having 10 full-time farmers. Among other things, the organization's business benefits from all those part-timers' deposits, which include earnings from non-farming sources and profits from sale of farmland converted to other uses.
JA and part-time farmers are bound by a host of common interests that are tied up with rice cultivation, rice pricing, politics, and the general movement away from farming. With part-time farmers making up a large and ever-growing majority of its membership, JA has maintained a consistent stance, ever since the passage of the Agricultural Basic Law in 1961, of opposing all reforms aimed at nurturing a corporate model of farming and increasing the scale of farms. In addition, it excludes organic farms that dispense with the chemical pesticides and fertilizers JA wants to sell, as well as progressive farm operations that bypass JA and sell direct to markets and consumers. The reason, of course, is that such operations deprive JA of handling fees and commissions.
These are the reasons for JA's consistent opposition to structural reforms that would consolidate farms and winnow out inefficient farmers, which stands in stark contrast to its own policy of merging local cooperatives into larger organizational units for greater efficiency. And the consequences are clear to see. Although rice accounts for only 20% of the total value of Japan's agricultural output today, 70% of the nation's commercial farmers are rice farmers. This disparity reflects both the overall inefficiency of rice farming and the large number of part-time and small-holding farmers in the rice-farming sector compared with the rest of the farm industry.
Not all JA officials have opposed reform. Beginning in the 1980s, some forward-looking leaders, alarmed by the state of Japanese farming, launched a movement to foster sustainable farm management through the creation of "local farm management collectives," sometimes referred to as community farming organizations. The idea was to make use of existing rural communities but consolidate farmland under these management entities as a way of restructuring the industry. However, in the organizing process, these plans became mixed up with efforts to preserve the status quo by accepting part-time farmers as members of the local farming collectives. Furthermore, although these cooperatives are conceived as bottom-up organizations, interest in this movement remained low. In 1987 a survey found that only 35.5% of local JA cooperatives were involved in creating local farm management collectives, and in a preponderance of cases (44.9%) the focus was on co-ownership of machinery, while only 2.4% were working to consolidate farmland under professional management. By 1993, the share of JA cooperatives involved in the movement had increased to 62.8%, but in 61.8% of those cases, less than 20% of the local communities were involved. A 1996 survey found that only 15.1% of local JA cooperatives had an organization dedicated to coordinating use of farmland and were working toward the goal of one farm per community. While JA gives plenty of lip service to the idea of nurturing professional farm management and encouraging the development of community farming collectives, there is no evidence that it has made any serious attempt to make these goals a reality (see Naomi Saeki, Nokyo kaikaku [Nokyo Reform], Ie-no-Hikari Association, 1993, pp. 199-225; "Chiiki nogyo saihen to nokyo no yakuwari" [Local Reorganization of Agriculture and the Role of Nokyo], Norin Kin'yu, May 2000).
In fiscal 2007, when MAFF was considering the system of direct-payment subsidies under the farm income stabilization policy, JA opposed the ministry's proposal to restrict the subsidies to farms at least 4 hectares in scale, arguing that part-time farmers play an important role in community farming. As a result, the government decided to include community farming collectives of more than 20 hectares, even if they consisted primarily of part-time farmers. As a consequence, some part-time farmers who were renting their land to full-time farmers terminated the leases in order to meet those conditions. Moreover, at the end of 2007, after its defeat in the House of Councillors election the preceding summer, the ruling Liberal Democratic Party dramatically relaxed the 4-hectare minimum by allowing each municipality to approve exceptions.
Attitudes Among the Rank and FileIn a study group established by MAFF to review the system of rice production adjustment, a local JA president submitted the following opinion:
I would like to express my disagreement with the position of Zenchu (Central Union of Agricultural Cooperatives) and Zen-Noh. To preserve Japan's agricultural production, we need to focus on nurturing full-time farmers. Say you have two farmers with the same size plots, one a local government employee as well as a part-time farmer and the other a dedicated farmer. It makes no sense that they both have to divert the same amount of acreage and pay the same input price. At this rate the full-time farmers are the ones who will be forced to abandon farming because of falling rice prices. Perhaps as a local JA president I shouldn't express this view, but full-time farmers and part-time farmers should not be treated equally.
Dissent was also apparent in the comments that a group of full-time farmers directed at a Zenchu official, as reported in a Japanese agricultural journal ("21-seiki no Nihon o kangaeru" [Japan in the 21st Century], no. 27, Rural Culture Association, November 2004):
"You're pushing to reform the coops, but inside JA nothing is changing."
"I hope reforms really come, but the way things are going, I think the organization could collapse."
"If JA really wants to rationalize farm management, it needs to actively nurture large-scale farm operations."
"Even micro-farmers are going to end up buying their supplies not from JA but from big-box home-supply stores."
Seiichi Tobata, a leading disciple of the great economist Joseph Schumpeter, stated, "There is an economic solution to the problems of Japan's rural communities if we can reduce the relative numbers of those who depend on farming for a living. The agrarianism that lingers tenaciously in the hearts of our politicians is the very reason they cannot make agriculture the foundation of the national economy." To this, Takekazu Ogura, father of the Agricultural Basic Law, added the following: "Agrarianism lives on even today. This is not because farmers are the foundation of the state but because they form the base of the JA organization and the electoral base of Japan's rural Diet members."