Understanding the Japan Agricultural Cooperatives

There is a great mystery surrounding the Japan Agricultural Cooperatives group, known as the JA. It is commonly phrased in questions like: “If Japanese agriculture is in decline, why is the JA developing, and even flourishing?” and “If the number of farmers is decreasing, why does the JA have such a large political influence?”

A Japanese Financial Giant

It appears that nothing can check the steady fall of Japanese agriculture. Gross agricultural production peaked at ¥11.7 trillion in 1984 and declined to ¥8.2 trillion in 2011. In 1960 there were over 6 million farming households, representing 14.5 million people; the number of households fell by more than half, to 2.5 million, in 2010, and the agricultural workforce dropped to 2.5 million people by 2012—one-sixth of the former level.

Despite all this, the JA continues to grow. In 1960 it had 6.5 million members; by 2010, that number had grown by 50% to 9.7 million. The organization’s banking businesses commanded ¥88 trillion in funds in 2012—making JA a megabank competing for the number-two spot in the country. The total assets of its insurance arm amount to ¥47 trillion, the same level as Japan’s biggest life insurance company, Nissay, which has ¥51 trillion in assets.

On the political scene, the JA has developed the largest political movement opposing Japan’s participation in the Trans-Pacific Partnership, gathering over 10 million signatures. In the House of Representatives election at the end of 2012, many Liberal Democratic Party candidates were elected after promising that they would oppose the TPP. Over half of the LDP’s Diet members belong to the parliamentary group opposing the trade agreement.

How has the JA managed to increase its economic and political clout when agriculture has been in steady decline for so long? To answer this question, we must look at some of the peculiar characteristics of this organization.

Wide-Ranging Powers

Due to food scarcity following World War II, the government needed to take action to prevent rice from being sold on the black market for high prices. To do so, the government formed the JA by reorganizing an entity that used to regulate all aspects of farming villages during the war, from agriculture to finance.

The JA is the only body in Japan with a license from the government to operate banking, life insurance, and damage insurance businesses. In contrast to North American and European associations that have licenses for discrete activities—for example, buying agricultural materials or selling produce—the JA is an almighty organization with wide-ranging powers.

Agricultural reform after the war gave tenant farmers ownership of farmland. The socialist movement among the farmers thus retreated, with conservativism taking its place, and the JA was the organization that represented this change. While giving support to stable, conservative governments, it became the largest lobbying group in politics. Through its activities, the JA generated votes for the LDP and in return was rewarded with various subsidies and higher prices for government rice purchases.

Each time the price increased with a government purchase, the JA accrued more revenue from its fees on grain sales. Furthermore, small-scale farmers, who by all rights should have been put out of business by high production costs, found it cheaper to produce their own rice instead of buying it. As a result, they continued to farm, and the more efficient farming households did not accumulate farmland.

A lot of small-scale farmers worked full-time in factories and other jobs, engaging in farming activities only on weekends, and much farmland was sold for residential purposes, generating enormous amounts of money. Whenever farmers earned a salary or sold land, the proceeds invariably ended up in JA savings accounts. The continued existence of small-scale farmers worked to the JA’s advantage because the banking business was part of its operations.

Agriculture may have declined, but the JA has prospered.

High Rice Prices and Attractive Financial Products

All citizens can join the local JA branch as “associate” members (jun kumiai-in). They will not be able to take part in decision-making but they can make use of the JA’s businesses. The JA is the only cooperative in Japan with a system that allows this.

The JA actively recruited associate members by offering mortgages, car loans, and insurance with attractive terms. The reason that the JA’s membership has increased despite declining numbers of farmers is because of the burgeoning associate membership.

The JA supported a large number of small-scale farmers, not a small number of large-scale ones. It has secured funds by expanding the associate membership program, and through the weight of numbers thus amassed it now commands considerable political influence. It was high rice prices that allowed the cogs in this machine to keep turning.

When electoral reforms created a system of single-seat constituencies for lower house elections in 1994, this also worked in the JA’s favor. Compared with the multiseat constituency contests that had been the norm until then, this new system enabled more effective vote leverage: when two candidates compete for a single seat, shifting just 1% of the vote to the other candidate creates a difference of 2% between them. It is difficult to defend against this. As the farming population dwindles, the JA may lose the power to put its preferred candidates in office, but it retains the ability to keep the candidates it dislikes down and out.

A Crumbling Foundation?

Participation in the TPP will remove rice import tariffs—which currently stand at 778%—and lower prices, causing the JA’s revenues from fees on rice sales to decrease. This represents a serious threat to one of the foundations for the organization’s success. Abolishing import taxes on other produce will also cause the JA losses.

The JA exerted pressure on the LDP’s TPP committee, demanding that the government take rice, wheat, beef, pork, dairy products, and various crops used to make sugar and other sweeteners off of the table for any discussion of removal of import taxes. The TPP committee has stated that the government should be prepared to withdraw from negotiations if these conditions cannot be met. The Diet committees on agriculture, forestry, and fisheries of both the upper and lower houses have also adopted this stance.

But the countries participating in the TPP negotiations are searching for a serious, high-level free trade agreement and cannot accept Japan’s demands for exceptions. Naturally, the aim of the Trans-Pacific Partnership is to encourage free trade and investment. Japan cannot participate if it chooses to press ahead with these demands.

Inviting Backlash

Consider what continuing to implement import taxes would entail. Larger businesses would be able to move their factories to different parts of the TPP region and export to countries participating in the TPP without encountering import taxes. Small and medium-sized businesses, on the other hand, which cannot afford to move operations overseas, would need to keep paying tariffs when they exported their products. Such businesses would therefore suffer disadvantageous competitive conditions effectively excluding them from trade in the enormous Asia-Pacific region. We could expect to lose jobs in Japan.

In January this year the advisory committee on deregulation in the government began to consider reform that might separate the JA’s banking and insurance businesses and abolish its exemption from antitrust laws. The JA is being driven into a corner.

If the JA’s opposition to the TPP succeeds and Japan does not take part, the organization could invite the wrath of ordinary citizens, including those who work at smaller firms. This in turn could signal the beginning of the JA’s demise. If that happens, agricultural businesses and policies will probably be set free from the shackles that have bound them for so long.

(Originally written in Japanese on May 14, 2013.)