What will it take to make Suga’s agricultural export policy succeed?

Published : 13 Nov 2020 08:51 PM | Updated : 14 Nov 2020 12:44 AM

Prime Minister Yoshihide Suga has been a flag-waver for the export of agricultural, forestry and fishery products since he was chief Cabinet secretary in the previous administration.

In March of this year, the administration of former Prime Minister Shinzo Abe set a goal to increase exports of such products from ¥1 trillion to ¥2 trillion by 2025, and eventually ¥5 trillion by 2030.

In April, the authority responsible for conducting negotiations and overseeing export procedures, which had been shared by both the Ministry of Agriculture, Forestry and Fisheries and the Ministry of Health, Labor and Welfare, was combined into the Ministry of Agriculture, Forestry and Fisheries. It certainly seems to be a model case for unsiloing government bureaucracy, which is gaining traction under the new administration.

But how much will an increase in exports contribute to gains in agricultural and rural incomes? Of the food products sent to foreign markets last year, the largest domestically produced agricultural exports were beef at ¥29.7 billion, sake at ¥23.4 billion, green tea at ¥14.6 billion, apples at ¥14.5 billion, rice at ¥4.6 billion and grapes at ¥3.2 billion.

Even if other domestically produced agricultural products are included, the total amount is less than ¥200 billion — representing a mere 2% of the total ¥9 trillion in agricultural production. So even a fivefold increase would barely make a difference to farmers’ incomes.

In fact, most of the value of agricultural, forestry and fishery exports is derived from processed foods using imported materials such as wheat and sugar from countries such as the United States and Australia and fishery products such as scallops and pearls. So even if Japan tries to increase its exports, it would end up doing so by processing U.S. agricultural products in Japan for shipping overseas.

What are the domestic agricultural products that can be exported? The production capacity for one such product, which has been grown for thousands of years in Japan, greatly exceeds that needed to meet domestic demand. That is rice, of which, Japanese-grown varieties are highly regarded in international markets.

However, the nation’s agricultural industry constantly warns that rice production and producers are under threat from cheaper imports and that exporting the staple commodity should be unthinkable.

But is that true? Among many people globally, there is a common belief that developing countries export agricultural products and developed countries export industrial products. A sizable number of those also assume the United States, with its large landmass arable farmland, exports more agricultural products while Japan exports industrial products. In reality, products of different qualities are exported or imported from each nation within the same industry. This is because people everywhere have different tastes and demand products of different quality.

As for automobiles, Japan imports cars and other vehicles from such companies as Mercedes, Renault and Volvo while exporting vehicles from domestic manufacturers such as Toyota, Nissan, Honda and others. The same applies to agricultural products. For wine, the United States, Germany and China are ranked among the top 10 exporters and importers in the world. For example, wines from all over the world line the shelves of American liquor stores.

As for beef, the United States, the Netherlands, France and Germany are ranked in the top 10 countries in terms of both how much they earn in exports and spend on imports. The United States imports low-priced beef for hamburger steaks from cattle fattened with grass from Australia, while high-grade beef from cattle fattened with grains such as corn is exported to Japan and other countries.

As for agricultural products, there are differences in quality, so trade is bidirectional. It is referred to as “intraindustrial trade” when there is a difference in quality. Regarding rice, there is a distinction between short- and long-grain rice, with both coming in different qualities and prices. In terms of long-grain rice, for example, there can be a price difference of three to four times between high-grade varieties such as basmati rice from Pakistan and jasmine rice from Thailand and low-grade varieties. While exporting 3.27 million tons of rice, the United States also imports 770,000 tons from Thailand and other countries, mainly jasmine rice.

As for the high reputation for Japanese rice on the international market, in Hong Kong, the same koshihikari variety is traded at 1.6 times the price of that grown in California and 2.5 times of that produced in China. The consumption of short grain rice in China was almost unheard of 15 years ago. Since then, the consumption and production of short-grain rice has increased 40%, largely due to the introduction of electronic rice cookers that were first made popular in Japan.

Most of the short- and medium-grain rice varieties produced in California are similar in quality to Japanese rice. But in California, almond farming, which competes with rice production because both require a lot of land and water resources, has been expanding, with the result that rice farming has been dwindling. Due to the dry weather in California, the water content in rice is low, causing more of it to rupture during production and affecting the taste. Rice farming comprises 1% of the state’s agricultural production.

Recently, Japanese rice exports have increased tenfold from a decade ago. However, that represents only 14,000 tons out of the about 7.5 million tons produced annually. Rice produced in Japan is of good quality, but the price is too high to be competitive. The Japanese government for some 50 years has maintained a policy of limiting the amount of farmland available for rice production to prop up the price. The land area set aside from rice production amounts to 40% of the paddy fields, with rice production decreasing to half of its peak. In order to keep the production of rice down, researchers at national and prefectural institutions were strictly prohibited from breeding new varieties to increase yields.

Today, Japan’s rice yield per hectare is 40% lower than that of California. It has also been surpassed by China, whose yield per hectare was only half that of Japan 50 years ago. The cost could be reduced by 30% through the adoption of high-yielding varieties similar to those in use in California.

The financial subsidies paid to farmers to keep production down amounts to ¥300 to ¥400 billion annually. Exports cannot be increased while the price of domestically grown rice remains high. To put it another way, if we want to increase exports, we have to increase production — yet the government continues a policy of hindering increased output.

The price of California rice imported to Japan in 2018 was ¥11,464 per 60 kilograms, while the possible export price for Japanese rice was about ¥13,000. If the government policy of reducing production is suspended, the export price will temporarily drop to about ¥7,000 (with production volume amounting to about 8 million tons). But if a trading company buys it for ¥7,000 and sells it for ¥13,000, it will definitely make a profit, so the supply of rice from the domestic market will decrease and the domestic rice price will soon rise to ¥13,000. This will greatly increase production the following year. Furthermore, if high-yielding rice is allowed to be cultivated, rice production will increase to more than 15 million tons. At this time, the amount of exports will be 7 million tons.

Rice contributes greatly to export goals. If the farmers affected by the price decline are given an extra ¥1,000 to compensate for the difference between the export price ¥13,000 and current price ¥14,000, it will cost the government roughly ¥50 billion, a significant reduction from the ¥300 to ¥400 billion currently borne by taxpayers. Consumers also benefit from lower prices.

In normal times, Japan exports rice and other food products, and imports such commodities as wheat and beef. But if imports were cut off, such as during a food crisis, people could then still eat the rice that was intended to be exported to stave off hunger. Land that was used to produce rice for export could also be converted and used to grow such things as high-calorie potatoes. Rice exports during peacetime play a role in securing food stockpiles and agricultural resources in the event of a crisis. Moreover, such stockpiling is less burdensome financially because there is no need to secure warehouses for storage. Free trade in peacetime helps ensure food security in times of crisis.

High rice prices have also been the catalyst behind the development of the agricultural cooperative system. By keeping the rice price higher than the market price, agricultural cooperatives have been able to help maintain a large number of small part-time and elderly farmers. Over time, those farmers deposited their earnings and pension with the agricultural cooperatives. The amount of funds accumulated by agricultural cooperatives exceeded ¥100 trillion, helping in the establishment of Japan’s second largest megabank, the JA Bank. 

If rice prices are slashed, the politically powerful cooperatives are not going to be happy. If we want to export in earnest, we need to go against the powerful agricultural lobby and overhaul the nation’s agricultural policy. Is the Suga administration prepared to do that?

Kazuhito Yamashita is research director of Canon Institute for Global Studies. 

Source: Japan Times