Overview

Finding a solution to the structural problems surrounding rice production, in which 85% of commercial farmers are involved, is an extremely important task, both in terms of strengthening Japan's position as a trading nation ahead of the conclusion of the FTA and TPP and in terms of regenerating rice production, which is starting to decline, and turning agriculture into a growth industry.

Owing to the long-term policy of price maintenance and the fact that small part-time farmers accounted for the majority of production, the productivity of rice production in Japan was low for many years. However, the aging of the farming population means that rice farmers may soon be retiring in large numbers and the shortage of part-time employment opportunities as the vitality of regional economies (and hence their ability to absorb excess labor) declines means that the part-time system of rice farming is likely to be increasingly difficult to sustain. Large-scale retirement among small farmers can be seen as a threat to the continued existence of agriculture in Japan, but also as an opportunity to make faster progress in the amalgamation of small farms into larger holdings, in which progress has been extremely slow to date, and to enhance agricultural productivity.

In recent years, larger farms have seen a significant fall in production costs. Moreover, the price of rice on the international market is expected to rise. Thanks in part to the new individual farming household income indemnity system, the cost of producing rice for larger farmers is set to fall to a level on a par with the international average within a decade and it is possible that Japanese rice will soon be internationally competitive (assuming the standard scenario). Meanwhile, the gap between rice demand and supply is growing. If per capita demand continues to fall and production remains at its present level, the demand-supply gap will reach 2.4 million tons by 2020. If Japan is not to be burdened with a huge rice surplus, it is essential that policies geared to maintaining demand levels be introduced.

Large-scale retirement among small rice farmers should be seen as an opportunity for farmland amalgamation. Besides amalgamating farmland into larger holdings with higher productivity, Japan needs to reduce the price of rice and introduce measures to support farmers that take account of the need for international competitiveness.

(i) A strategy of maintaining import tariffs at a certain level:
One strategy would be to switch the individual farming household income indemnity system to fixed direct payments limited to farms with a cultivated area of 0.5 ha or more and to set up a farmland leasing grant system to promote the amalgamation of farmland into larger holdings. In particular, measures would be introduced support the entry of financially strong corporations into farming as lessees, encouraging them to lease farmland from small rice farmers and convert it to more profitable crops and formats. At the same time, measures would be introduced to foster motivated producers, support farming in mountainous regions, etc. and steps would be taken to increase demand, aiming to boost exports and domestic consumption. Under the standard scenario, these measures would make it possible for farms with a cultivated area of 0.5 ha or more to remain internationally competitive even if the import tariff were reduced, by stages from its present level of ¥341/kg to around ¥150/kg. The output of farms qualifying for the individual farming household income indemnity system would be 7 million tons and the total domestic supply of rice (including other domestic production, imports, etc.) would reach 9.3 million tons, with exports of 800,000 tons, making it possible to balance supply and demand.

(ii) A strategy of further tariff reductions through the TPP, etc.:
Under the standard scenario, even if a strategy of removing tariff barriers to rice imports (such as joining the TPP) were adopted, providing individual farming household income indemnity for farms above a certain size would make it possible to maintain the international competitiveness of rice production in Japan. The level of domestic rice production would need to be thoroughly discussed before entering into negotiations on the TPP or other treaties. Regarding surplus rice paddy, measures to encourage conversion to more profitable crops or formats should also be introduced, through further fostering of farmers and by encouraging business corporations to move into farming, etc.

Strengthening Japanese agriculture so that even full-time farmers are able to derive an adequate income and facilitating the acquisition of farmland by improving its liquidity are not only essential if Japan is to enhance the sustainability of agriculture as an industry, but will also play an important role in regional regeneration. Enhancing the productivity of individual farms and focusing on fostering farmers who are able to make a living is the first step towards the revitalization of communities in regions where there are few employment opportunities.

For more information on the content of this report, please contact Takumi Fujinami, the Japan Research Institute, Limited.

E-mail：report@jri.co.jp

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