Issues in the Farmland System
January 29, 2009
At his inaugural press conference in September 2008, newly appointed Minister of Agriculture, Forestry, and Fisheries Shigeru Ishiba expressed his intention to reform Japan's farmland system in the following statement.
"I recognize that the biggest problem in Japanese agriculture lies, in fact, in the farmland system. The crux of the matter, to put it in extreme terms, is that we need a mechanism in which farmland becomes concentrated in the hands of those who are ready and willing to farm it, regardless of whether they are individuals or corporations. We have to put in place a farmland system that includes effective incentives to make this happen. This may raise fears that farms could be resold for speculative purposes or used as illegal dumping grounds, but we must focus on the sickness currently afflicting agriculture and must not lose sight of the way things ought to be. Another problem is that even though there are legal guarantees in place to ensure that farmland is not used for purposes other than farming, many aspects of this mechanism are, in reality, ineffective. I do not believe that such practices as having municipal leaders make recommendations on the use of farmland are truly effective in addressing this issue."
The first half of Ishiba's statement addresses the issue of corporate entry into the agricultural sector, which farmers' organizations have claimed will lead to joint-stock companies reselling farmland for residential or other development or using it for the illegal dumping of industrial waste. The second half addresses the problem that rules empowering municipalities to forcibly transfer unused land to other farmers in order to prevent the abandonment of farmland have become dead letters and do not fulfill their intended function.
The Story of the Agricultural Land Law
This, however, does not cover all of the problems in the farmland system. Let us explore the origins of these problems in the early days of the farmland system.
The Agricultural Land Law, enacted in 1952, was designed not to build on the results of the 1946 land reforms but to fix these results in place. The United States' intention in implementing land reforms during its postwar occupation of Japan was to make rural Japan a bastion of conservative forces in the battle against communism. It was spectacularly successful in achieving this aim. By cooperating in the implementation of the land reforms, the rural socialist movement that defended the interests of tenant farmers experienced an unprecedented rise to prominence in the immediate postwar period. Ironically, however, as the land reforms made progress and the land-owning class disintegrated, the movement rapidly subsided.
The then Ministry of Agriculture and Forestry (MAF), which saw reforming Japan's micro-farming structure as the next issue to be addressed after the land reforms, opposed leaving restrictions on the ownership of tenant farmland and other frameworks of the land reforms in place as permanent systems. The United States and the ruling party, however, wanted to continue the process of entrenching conservatism in rural areas.
A System That Has Hindered Structural Reform
The Agricultural Land Law was intended to prevent the emergence of nonfarming landowners through restrictions on the ownership of tenanted farmland and to protect tenant farmers' rights through restrictions on the cancellation of leases. Fearing that they might be unable to get their land back because of the strengthened leasing rights, however, landowners stopped leasing their farmland. Lax enforcement of the restrictions on conversion of farmland for non-farm uses under the Agricultural Land Law and of the zoning of land for agricultural use under the Law Concerning the Establishment of Agricultural Promotion Areas (Agricultural Promotion Law), meanwhile, raised expectations among farming households that they would be able to convert their land for residential or other purposes, causing the price of agricultural land to rise in tandem with that of residential land. As farmland itself was worth far more than the profits that could be earned by working it, it became very difficult for farmers to expand their farm size by purchasing more land.
The Agricultural Land Law regulated farmland rents, but not farmland prices. Although the land reforms were carried out precisely to encourage the use of farmland for farming, the Agricultural Land Law did not oblige farmers to work their land. The farmland system, along with the policy of artificially high rice prices, actually made it more difficult for farmers to expand by acquiring more land and, thus, to overcome Japan's micro-farming structure.
The Agricultural Basic Law, which came into force in 1961, was aimed at structurally reforming an agricultural sector dominated by micro-farms, but the lack of political enthusiasm for structural reform meant that there was no drive to carry out fundamental revisions to the Agricultural Land Law.
In 1964, though, then Minister of Agriculture and Forestry Munenori Akagi declared: "The time has come to reform the farmland system to enable farmers to expand their operations. We should enable a public corporation to buy, sell, and lease farmland for farmers who want to expand their farm size." This sparked the ministry into life as officials gave serious consideration to drafting structural policies aimed at nurturing farmers capable of earning farm income comparable to workers in other sectors. The debate within the ministry was so free that two bureaus produced competing proposals, a phenomenon unthinkable in today's Ministry of Agriculture, Forestry, and Fisheries. The ministry submitted a bill to the Diet that would have relaxed restrictions on the purchase, sale, and lease of farmland by a public corporation, so as to enable them to expand their farm size. The ruling party was reluctant to pass the bill, however, while the opposition Japan Socialist Party fiercely opposed it, claiming it would cut impoverished farmers adrift, and agricultural cooperatives were steadfastly uncooperative. The bill was submitted twice to the Diet and scrapped on both occasions, causing a major setback to efforts to reform the farmland system.
In the wake of this setback, the MAF gave up on expanding the scale of farming by promoting the purchase and sale of farmland and opted instead to promote leasing. Revisions to the Agricultural Land Law were enacted in 1970 that included the relaxation of restrictions on the ownership of tenanted farmland and of leasing regulations, the abolition of farmland rent controls, and the establishment of a system under which public corporations known as "agricultural land-holding rationalization corporations" would lease farmland to farmers looking to expand. As there was little prospect that these measures alone would increase flows of farmland, the Agricultural Promotion Law was revised in 1975 with the aim of allaying landowners' fears that they might be unable to get their land back. The revisions established an agricultural land use promotion program providing guarantees to lenders of farmland that their land would be returned and to borrowers that they would be able to work the land. Under the program, leasing rights that expire automatically at the end of a period agreed without applying the statutory renewal under the Agricultural Land Law pass collectively to a pool of many farmers. As of 2005, however, the rights to just 160,000 hectares of farmland had been transferred under this system, and the average area of land cultivated by farmers had risen from 1.1 hectares in 1990 to just 1.3 hectares in 2005.
Losing Farmland That Is Essential to Food Security
Of the 2.5 million hectares of farmland that Japan has lost over the past 50 years-equivalent to the total area of rice paddies in Japan today-about half has been converted for residential or industrial use. The zoning of land for agricultural use under the Agricultural Promotion Law, which prohibits the conversion of designated farmland, are reviewed once every five years, in principle. It is easy to circumvent these rules, however, because the zones are reviewed almost every year if a conversion plan has been submitted by the farm owner in question. In reality, the reviews occur once every 1.6 years on average. This is because the task of designating farmland zones is left to municipal leaders. Regional development is the primary role of municipal leaders, and using the land for residential or industrial purposes is preferable, in terms of regional development, to keeping it as comparatively unproductive farmland. What is more, municipal leaders can hardly say no to conversion plans brought to them by the people on whose votes they depend.
The end result of this situation is that town halls, pachinko parlors, and other buildings are constructed in the middle of rice fields, leaving Japan's farmland riddled with holes like a moth-eaten dress. Developments like this not only do nothing to lower costs by enabling farmers to consolidate; they even block the sun from surrounding farmland.
France has secured its farmland resources by clearly delineating urban areas from agricultural areas through zoning and by limiting the benefits of agricultural policies to full-time farmers who derive at least half of their income from farming and expend at least half of their labor in farming, thus actively concentrating farmland in the hands of these farmers. These policies have enabled France to raise its food self-sufficiency ratio from 99% to 122% and the average size of its farms from 17 hectares to 52 hectares (as of 2005).
The Issue of Corporate Involvement
Farmers' groups strongly oppose the acquisition of farmland by joint stock companies, claiming that it would encourage land speculation. It is not joint stock companies but farmers themselves, however, who have profited by converting half of the 2.5 million hectares of lost farmland to other uses-equivalent to the total area of rice paddies in Japan today. If only the zoning system were effective, there would be no reason for farmers to oppose the entry of joint stock companies into the agricultural sector, because it would be impossible for any party to convert farmland to other uses. If farmers and farming organizations truly believe that farmland should not be converted, there is no reason for them to oppose the introduction of a rigid zoning system like those in Europe. The selection of farming successors from a limited pool comprised of the offspring of Japan's 3 million farmers instead of from the country's entire population of more than 100 million has precipitated the decline of Japanese agriculture. Joint stock companies will not necessarily succeed in farm management, but why should they not be regarded as potential successors to Japanese farms? We should implement a bold program of deregulation by fundamentally changing and strengthening the zoning system under the Agricultural Promotion Law, which currently entrusts the task of regulation to municipal leaders all too eager to convert farmland for other purposes, and at the same time abolishing the Agricultural Land Law.
The other half of the 2.5-million-hectare loss of farmland during the past half-century has as its cause the internal collapse in agriculture due to farmers' abandonment of crop production. The price of rice has fallen even though the area of land covered by production adjustment has increased. Micro-farmers have been relinquishing their farmland because, unlike in the old high-rice-price era, the price of rice has declined from the pre-1996 figure of over ¥20,000 ($210 at the December 2008 rate of ¥95 to the dollar) per 60 kilograms to around ¥15,000 ($158). The full-time farmers who might take over this land must also contend with anxiety about the future direction of the rice price, while increased production adjustment prevents them from taking full advantage of opportunities to reduce costs through expansion. These two factors have depleted the ability of full-time farmers to pay land rent, preventing them from taking over abandoned land. Farmland caught in limbo like this ends up abandoned. The true cause of farm abandonment is not the inadequate enforcement of regulations by municipalities but the decline in the profitability of farming. Such abandonment was unheard of in the era of high rice prices under the staple food control system. Tightening regulations under these circumstances will only increase the burden on farmers and raise the issue of compensation.
It is mistaken to imagine that Japanese agriculture can be structurally reformed simply by modifying the farmland system. Farmland abandonment is a growing phenomenon even in mountainous regions, where the lack of conversion opportunities acts as a de facto zoning system. Even if zoning restrictions are strengthened, more and more farmland will continue to be abandoned unless farming becomes more profitable. To boost farmers' profitability and ability to pay land rent, direct payments must be made to full-time farmers.
We must also introduce economic penalties for farmers who fail to use farmland for farming and abandon production because they hope to convert their land for other uses. In short, the cost of owning farmland must be raised. This could be achieved by levying real estate tax on nonproductive farmland at a similar level to that charged on residential land.
Removing Barriers to Farmland Flexibility
A distortion rooted in economic policy constitutes a further barrier to flexibility in farmland ownership. The inheritance tax deferment system, which is designed to prevent the miniaturization of farms through division into smaller plots, is flawed. The system exempts farmland from inheritance tax providing the land is not sold on for residential or other use for 20 years, but the fact that the deferment is terminated if the land is rented to another farmer discourages the owners of such land from leasing it. The system must be revised by revoking the 20-year privilege and allowing the deferment of inheritance tax to remain in force if the land is leased.
We need to have a fundamental debate about the policies outlined above. Numerous minor revisions have been made to the farmland system over the years, but these have had no effect. I hope that these bold proposals will be given genuine consideration.