What Japan’s Farmers Really Need Is Freedom

The administration of Prime Minister Abe Shinzō, in addition to deciding to participate in the Trans-Pacific Partnership free trade negotiations, is seeking to expand Japan’s exports of agricultural products. This is a welcome posture. Even so, our country’s agricultural policies have taken a turn for the worse since the Liberal Democratic Party returned to power and Abe took the helm in December 2012 following three years of rule by the Democratic Party of Japan. Let me review the problems.

Much of the farm-related budget for fiscal 2013 (April 2013 to March 2014) consists of direct income-support payments to farming households under the income-support program established by the DPJ (though the name of the system has been changed to “Farm Income Stabilization Program”). These payments come to ¥720 billion. This is basically a program under which the government supplements farmers’ incomes on the assumption that farming is unprofitable. The LDP criticized the program severely when the DPJ-led government adopted it, but now the Abe administration says it will keep it in force through next fiscal year.

The Folly of the Income-Doubling Strategy

Meanwhile, Abe has espoused a “10-year strategy to double the income of farmers and of farming communities”—a strategy that is contradictory to the income-support program. This is a prime example of a policy worse than those of the DPJ. There are two reasons for this assessment. First of all, even if the government adopts the goal of doubling farming incomes in total, there is no chance that it will be achieved. This is evident from the historical record of socialist states that have attempted to run industries by government fiat: All of them have ended up collapsing. Also, while the countries of the old Communist bloc used five-year plans for their economic policies, Abe’s income-doubling strategy is a plan for a 10-year period, double the span of the Communist plans. In a world of rapidly changing consumer needs, the very idea of drawing up a 10-year plan is worse than socialism. And the administration is touting the idea of a “general mobilization” of policy. The devil is whispering in farmers’ ears that if politicians and bureaucrats marshal every policy tool at their disposal and farmers follow their directions, they will see their incomes double.

Second, the indicator of “income” adopted as a policy objective is meaningless. When people hear talk of income doubling, they are liable to take it to mean that individual farmers’ incomes are to become twice their current level, but the actual target is something completely different, namely net agricultural production.

The prime minister has declared that farming income fell by half, from ¥6 trillion to ¥3 trillion, over the past 20 years. This basis for the income-doubling policy is actually a government misconception. The breakdown of national income by industry changes over time. In terms of its share of gross domestic product, the agricultural sector (including fisheries and forestry) declined by 0.6 percentage points from 1991 to 2011, and the manufacturing sector has declined 4.5 points, with the service sector achieving a corresponding gain over the same two decades (according to my calculations based on UN statistics on GDP breakdowns at current prices). Does this mean that those working in the service sector are rolling in money? Of course not. There is no direct correlation between the changes in each sector’s gross income and the incomes of individuals working in it. In the case of farming, income levels change differently depending on the farm and the person managing it.

By way of reference, the agricultural sector in Japan accounts for 1.1% of GDP, which is the same as the figure for the United States; the share is 0.7% in Britain, 0.8% in Germany, and 2% in France (according to the 2012 World Factbook issued by the US Central Intelligence Agency). In this context, small numbers of elite farmers have been responding sensitively to the advancing and diversifying demands of the food market and enhancing their technology and productivity. In this way the farmers of advanced nations have been increasing the added value of their production. What is essential in every age is the raising of per capita productivity, which depends on the efforts of managers and their staff members.

In order to provide an accurate picture of the situation, I checked the movements in agricultural productivity. Figures from the Japan Productivity Center indicate that the sector’s productivity rose by about 20% from 1998 to 2008, an average annual increase of 1.8%. Meanwhile, the number of people employed in agriculture fell at an average rate of 1.6% a year. The number of farming households has declined, while yields and the size of farms have increased, and a growing number of farming households are enhancing their productivity by adding workers, adopting new technologies, and increasing their inputs of capital.

Underlying the income-doubling policy is the idea that the incomes of individuals should move in tandem with the earnings of the whole (total farming income). This is what is called “totalitarianism.” It is a new form of intervention and compulsion joining all the other policies that rob farmers of their freedom, like the acreage-reduction program for rice that has been in force for more than 40 years.

The Deceptive Claim of Demographic Demise

Some people suggest that Japanese agriculture has no future because the farming population is growing old, but the facts do not support this assertion. It is said that over 60% of farmers are 65 or over. But it is a little-known fact that only 10% of the domestically produced food that people buy in stores is grown by these older farmers (according to my calculations using statistics from the Ministry of Agriculture, Forestry, and Fisheries).

This is only natural. More than half of these older farmers are 75 or over. Even if they are still in good health, there is a limit to what they can achieve in terms of increasing productivity. Furthermore, we should note that people who own more than a certain amount of farmland are counted as “farmers” even if they are not growing any crops at all.

Meanwhile, the number of employees, including young people, working on farms and at agricultural corporations is steadily increasing. The total employed farming workforce has been reported to be 2.32 million (2010 World Census of Agriculture and Forestry in Japan). MAFF statistics do not count these people as “farmers” because they do not own farmland. This is a statistical ruse aimed at fanning fears of a demographic crisis in Japanese agriculture.

A Five-Point Program to Free Japanese Farming

What Japanese agriculture really needs is neither the income-support program introduced by the DPJ nor the income-doubling strategy espoused by the LDP. It needs an approach that will allow farms around the country to operate profitably without depending on the government. And how can this be accomplished? I have come up with the following set of recommendations, which I call “A Five-Point Program to Free Japanese Farming”:

(1) Eliminate policies favoring particular crops

Japan’s current agricultural policy provides subsidies (income support) in proportion to the size of farming plots for those who grow government-designated crops, such as rice, wheat, soybeans, buckwheat, and sugarcane. This policy has been implemented for many years in order to promote farming, but it is counterproductive. The more the government subsidizes a crop, the lower its price falls, with the result that growers face greater losses. This is the actual outcome.

I propose ending this program and introducing a system that pays farmers a flat-rate subsidy per unit area regardless of what they grow. Under the law for this system, the amount of the subsidy would be cut by 5% of the original figure each year, reaching zero after 20 years. This would remove the incentive to grow particular crops that are more highly subsidized; the important decision of what to plant would be up to each farmer’s own judgment. This would lead to independent moves by farmers to develop new techniques and capabilities, along with efforts to make up for the subsidy reductions and make profits by cutting costs and working at sales and marketing, which would become established as standard elements of farm management. By creating more added value, this would cause real incomes from farming to rise.

(2) Completely eliminate the acreage-reduction program

In order to implement the previous item successfully, it will be necessary to assure farmers total freedom to grow what they want to. And the most important policy shift in this connection is the complete elimination of the rice acreage-reduction program. Under this program, the government is currently making more than 40% of Japan’s paddies unavailable for rice growing. If it were eliminated, farmers could use 100% of their land. By allowing each farm to make full use of its limited resources, this would finally set the state for farm management aimed at increased production and higher earnings.

(3) Price farmland in line with yields

The price of farmland in Japan is artificially propped up through government intervention, and this hinders moves by farmers seeking to increase their earnings by expanding the scale of their operations. Prices should be reduced by applying the capitalization method (earnings-based valuation) and setting ceilings. This would give rise to a market for farmland to be sold not for its asset value as real estate but in line with the earnings from the crops grown on it.

(4) Clear away farmers’ debts for land improvement

Farmers have incurred a portion of the cost even for superfluous improvements to farmland carried out to serve the interests of agricultural engineering enterprises, and this has impaired their balance sheets. In return for implementation of the above three items, they should have the relevant debts forgiven. Policy should be shifted so as to improve farmers’ cash flow and enhance their ability to make investments in line with their own plans for their farms’ futures.

(5) Encourage new entrants by promoting the withdrawal of retired farmers and absentee owners

Those who do not keep farming should be encouraged to give up their farms, and the land and assets should be sold as a set under a private-sector-led bidding system. Some farmers would like to profit from the sale of all their farm assets, including barns, equipment, and even their houses, but under the existing system, such sales are handled through local agriculture committees (municipal government organs), which only sound out other farmers in the same community, and often no buyer is found. The key is to find buyers who can derive greater value from farm assets than the present owner. In other words, the existing closed market for farms, which gives priority to local farmers, should be opened up to encourage new entrants.

If these five measures were implemented, farmers could choose crops to match customers’ needs and lay the foundations for profitable farm management. In every age, the only farmers who endure are the ones who keep up profitable operations. What Japan’s ambitious farmers seek at this point is liberalization of domestic agriculture before the sector is opened up internationally. Some people wail that participation in the TPP free trade pact will destroy Japanese agriculture, but what is important is the way individual farms are managed.

Open Up the “Sacred” Food Categories to Imports

The Abe administration is talking about promoting exports of Japanese farm products, but it needs to make a major policy shift to accomplish this. Before he came back to power, Abe proclaimed that the future of Japanese agriculture required increased competitive strength and exports of farm products. However, there is a prerequisite to increasing exports, namely, the opening up of Japan’s market and reduction of tariffs on imports of basic foodstuffs (such as rice, wheat, butter and other dairy products, starch, sugar, and meats like beef and pork).

Companies in the Japanese food industry are now buying these basic foodstuffs at prices inflated by tariffs that amount to substantial multiples of their international price levels. This is similar to the situation for domestic manufacturing firms, which pay twice or three times as much as their foreign counterparts for oil, steel, and other supplies. Under such conditions Japan’s food products cannot compete in international markets, however high their quality may be. As a result, many food makers have been forced to set up operations overseas. The high tariffs that are supposed to be protecting domestic farmers have thus driven away the food-processing firms that account for 70% of the commercial demand for their crops.

In an advanced country like Japan where food-processing technology is highly developed, if it were possible for food companies to acquire raw materials at international price levels, the processing industry would gain competitive strength, and exports of processed farm products would increase. This would also mean increased demand for the domestic farm products used as materials for exports, and it would encourage the growers to enhance their competitiveness. So even without farmers being directly involved in exporting, the market for domestic materials to be used in processing for export would grow, and this would push up domestic agricultural production.

Countries that are major agricultural exporters are also major agricultural importers. For example, the United States, which is the world’s top exporter of farm products, is also the biggest importer of them. Germany is number three by both measures, and France, the fourth-largest exporter, is the fifth-largest importer. Also, the Netherlands, which is in second place as an agricultural exporter, is in seventh place as an importer even though its population is only fifty-eighth in the global ranking. It has expanded its exports through innovative agricultural technology and a focus on production of highly competitive vegetables and flowers, and it is also importing high-quality raw materials at international prices, processing them, and exporting them as food products.

A Golden Opportunity for Agricultural Reform

In sharp contrast to the liberal approach of the Netherlands, the LDP has promised to protect five basic foodstuffs, namely, rice, wheat, beef and pork, sugar, and dairy products, as sensitive items to be exempted from import liberalization under the TPP free trade talks. If Prime Minister Abe is serious about expanding exports of Japan’s farm products through free trade, he should move without delay to retract this LDP pledge. (In that sense, Japan will actually win to the extent that it “loses” in the TPP talks on agricultural tariffs.)

Also, the Abe administration, while proclaiming the idea of doubling Japan’s agricultural exports, has appropriated a meager ¥1.1 billion to promote this agenda in the budget for fiscal 2013. As matters stand, the amount Japan is spending on agricultural export expansion is less than 0.2% of what it is spending on income support for farmers.

Eliminating the high tariffs on farm products through the TPP is the only strategy by which we can achieve long-term growth for Japanese agriculture without wasteful use of tax revenues. The proposed TPP framework will allow a period of 10–20 years for the lowering or elimination of current tariffs. By matching the period of reduction for domestic subsidies to the period for reduction of tariffs, we can enjoy the benefits of domestic agricultural liberalization and of the internationalization of agriculture at the same time.

To sum up what I have written so far, what Japan’s farming and food industries lack are three freedoms: freedom to buy without paying tariffs, freedom to grow crops without government direction, and freedom for anybody to farm (freedom of entry).

For the Abe administration, which talks about “taking Japan back,” the main mission of agricultural policy should be to let farmers be independent and stop getting in the way of development of the food industry. The only people who will lose from growth in the numbers of farmers and food producers who are independent and do not rely on the government are the members of the agriculture “tribe” in the National Diet, whose prospects for reelection are liable to weaken. The biggest problem is that the most recent elections for the two houses of the Diet have brought the return of many such legislators, whose only way of winning votes is by doling out subsidies to the farming sector.

Prime Minister Abe must not hesitate to undertake reform even in the face of fierce resistance from the farming tribe in the Diet. His coalition is now on a solid footing, with majorities in both houses of the Diet. This offers him a golden opportunity to exercise leadership in reforming the agricultural sector so as to let Japan’s farmers regain their freedom.

(Originally written in Japanese on September 10, 2013.)