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Evaluation of Agricultural Policy Reforms in Japan Evaluation of Agricultural Policy
Reforms in Japan
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© Cover illustration: Mr. Takao Sakamoto, Japan www.oecd.org
Evaluation of Agricultural
Policy Reforms in Japan
ORGANISATION FOR ECONOMIC CO-OPERATION
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Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea,
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© OECD 2009
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FOREWORD –
Foreword
This report is an analysis of the Japanese agricultural sector and Japanese agricultural
policy. It was undertaken as a part of the OECD’s continuing work on Member countries’
policies and contains evaluation and recommendations based on the principles for
agricultural policy reform as expressed by OECD Ministers. The report looks at the
evolution of Japanese agricultural policy over the last several decades, but maintains its
analytical focus on policies currently in place. In addition to reporting a wide variety of
statistics, much of which were provided by the Ministry of Agriculture, Forestry and
Fisheries (MAFF), use was made of the OECD PSE/CSE database and the OECD Policy
Evaluation Model (PEM) for some of the analytical work.
The authors of the report are Roger Martini and Shingo Kimura. Editorial and
statistical preparation was carried out by Michèle Patterson. All the authors are with the
OECD Directorate for Trade and Agriculture. The report has benefitted from input from
many different individuals, including Dr. Shogenji and Dr. Ando of University of Tokyo,
Dr. Ohga of Nihon University, and Dr. Shobayashi of Gakushuin Women's College. All
responsibility for the final work remains with the authors. This report was declassified by
the Working Party on Agricultural Policies and Markets of the Committee for Agriculture
in April 2009.
EVALUATION OF AGRICULTURAL POLICY REFORM IN JAPAN–© OECD 2009
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TABLE OF CONTENTS –
Table of contents
Executive Summary ................................................................................................................................. 9
Chapter 1. Issues and Objectives in Agriculture .................................................................................... 11
The changing face of agriculture .................................................................................................... 11
Trends in agriculture production and its role in the rural economy ................................................ 12
Trends in food consumption ........................................................................................................... 17
Farm labour and the structure of the farm enterprise ...................................................................... 20
Land use .......................................................................................................................................... 25
Agricultural trade ............................................................................................................................ 27
Chapter 2. Agricultural Policy in Japan ................................................................................................. 31
Overview of agricultural support .................................................................................................... 33
Food security and trade policy ........................................................................................................ 43
Policies for upland crops ................................................................................................................ 71
Land policy ..................................................................................................................................... 74
Policies in the livestock sector ........................................................................................................ 86
Fruit and vegetables policy ............................................................................................................. 93
Rural and environmental policies ................................................................................................... 95
Chapter 3. Future Directions of Japanese Agriculture and Policy Reform .......................................... 101
Evaluation of agricultural policies ................................................................................................ 101
Recommendations for future policy reform .................................................................................. 103
Conclusion .................................................................................................................................... 108
Annex 1. The Japan PEM Module ....................................................................................................... 111
References ............................................................................................................................................ 119
Tables
Table 1.1. Farm size, 1965-2005 ..................................................................................................... 14
Table 1.2. Comparison of net product per worker .......................................................................... 23
Table 1.3. Comparison of labour productivity growth .................................................................... 24
Table 1.4. Comparison of household income between non-farm and farm household ................... 24
Table 1.5. Change in land use 1960-2005 ....................................................................................... 26
Table 1.6. Self sufficiency in food production, 1960-2005 ............................................................ 28
Table 1.7. Main imports and exports of agricultural goods, 2004-06 ............................................. 29
Table 1.8. Major trade partners, 2004-06 ........................................................................................ 29
EVALUATION OF AGRICULTURAL POLICY REFORM IN JAPAN–© OECD 2009
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– TABLE OF CONTENTS
Table 2.1. PSE Classification of selected agricultural policies .................................................. 34
Table 2.2. NAC and NPC, Japan and OECD average ................................................................ 36
Table 2.3. Explaining the change in the PSE between 1986-88 and 2004-06 ............................ 37
Table 2.4. Reforming the production adjustment programme
combined with a larger direct payment ..................................................................... 39
Table 2.5. Drivers of change in MPS 1986-88 to 2005-07 ......................................................... 41
Table 2.6. Emergency responses specified in the Food Security manual ................................... 46
Table 2.7. Trends in consumption 2006-2012 ............................................................................ 46
Table 2.8. Estimated impact of trends in consumer demand ...................................................... 47
Table 2.9. Applied MFN tariff protection in agriculture, FY2006 ............................................. 51
Table 2.10. Agricultural goods subject to tariff rate quota ........................................................... 52
Table 2.11. Estimated impact of production adjustment programme on production and price .... 69
Table 2.12. Average number of animals on farm, 1960-2005 ...................................................... 87
Table 2.13. Payments to manufacturing milk ............................................................................... 92
Table 2.14. Existence of a natural fluid milk price premium ........................................................ 93
Table A.1. Factor Cost Shares ................................................................................................... 112
Figures
Figure 1.1. Contribution of agriculture to the economy, 1960-2005 ............................................ 12
Figure 1.2. Value of production, 1960 vs. 2005 ........................................................................... 13
Figure 1.3. Composition of agricultural production in Hokkaido and other regions in 2005 ...... 13
Figure 1.4. Proportion of farmland cultivated by different size of farm, 2005 ............................ 15
Figure 1.5. Agricultural production by farm types ....................................................................... 15
Figure 1.6. Share of food consumption in household consumption expenditure ......................... 18
Figure 1.7. Evolution of per capita food supply, 1960-2005 ........................................................ 18
Figure 1.8. Changes in daily calorie intake, 1960-2000 ............................................................... 19
Figure 1.9. Trends in obesity rate by age group ........................................................................... 19
Figure 1.10. Projection of future population .................................................................................. 20
Figure 1.11. Size and age structure of agricultural labour force, 1960-2005 ................................. 21
Figure 1.12. Number of farm households by type .......................................................................... 22
Figure 1.13. Sources of household income, 2005 .......................................................................... 23
Figure 1.14. Land use ..................................................................................................................... 25
Figure 1.15. Yearly loss of farmland by cause 1970-2006 ............................................................. 26
Figure 1.16. Trend in land abandonment, 1975-2005 .................................................................... 27
Figure 1.16. Value and volume of agricultural imports, 1960-2005 .............................................. 28
Figure 2.1. Nominal PSE and %PSE, 1986-2006 ........................................................................ 34
Figure 2.2. %PSE in OECD countries, 1986-88 and 2004-06 ..................................................... 35
Figure 2.3. PSE level and composition by support categories, 1986-2006 .................................. 36
Figure 2.4. PSE Composition, Japan and OECD average, 2004-07 ............................................. 37
Figure 2.5. Producer SCT by commodity, 1986-88 and 2004-06 ................................................ 40
Figure 2.6. Percentage CSE, Japan and OECD average, 1986-88 and 2004-06 .......................... 41
Figure 2.7. Evolution of GSSE ..................................................................................................... 42
Figure 2.8. Total Support Estimate by country ............................................................................ 43
Figure 2.9. Target rate of food self-sufficiency ............................................................................ 44
Figure 2.10. Commodity-specific target rate of self-sufficiency.................................................... 45
Figure 2.11. Applied MFN tariff rate for agricultural goods, 1998-2006 ...................................... 50
Figure 2.12. Per capita rice consumption, 1960-2006 .................................................................... 56
Figure 2.13. Rice production, consumption and public stocks ....................................................... 56
EVALUATION OF AGRICULTURAL POLICY REFORM IN JAPAN–© OECD 2009
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TABLE OF CONTENTS –
Figure 2.14. Paddy area and planted area of rice, 1970-2006 ........................................................ 57
Figure 2.15. Rice price and market price support, 1986-2006 ....................................................... 59
Figure 2.16. %SCT for rice ............................................................................................................ 59
Figure 2.17. Production cost of rice by farm size (Non-Hokkaido) ............................................... 60
Figure 2.18. Composition of income by types of rice farms .......................................................... 63
Figure 2.19. Farm income from rice farming by farm size ............................................................ 63
Figure 2.20. Labour input by rice farms, 1960-2005 ..................................................................... 64
Figure 2.21. Off-farm employment of part-time farmers ............................................................... 65
Figure 2.22. Age of rice farmers, 2005 .......................................................................................... 66
Figure 2.23. Maintenance cost of paddy and upland per 0.1 ha ..................................................... 68
Figure 2.24. Single Commodity Transfer to selected crops, 1986-88 and 2004-06 ....................... 72
Figure 2.25. Agricultural production corporations by type, 1970-2005 ......................................... 77
Figure 2.26. Land tenure, 1965-2005 ............................................................................................. 78
Figure 2.27. Area of farmland cultivated by core farmer, 2005 ..................................................... 79
Figure 2.28. Farm income and profit, other than Hokkaido ........................................................... 80
Figure 2.29. Paddy price outside urban planning zone, 2005......................................................... 81
Figure 2.30. Example of fragmented farmland .............................................................................. 83
Figure 2.31. Reasons cited for discontinuous land rental ............................................................... 83
Figure 2.32. Non-farm household's share in farmland ownership and abandoned land ................. 84
Figure 2.33. Single Commodity Transfers for livestock products ................................................. 87
Figure 2.34. Domestic beef production and imports, 1990-2006 ................................................... 88
Figure 2.35. The deficiency payment scheme for calves ............................................................... 89
Figure 2.36. Milk consumption and prices, 1986-2006 .................................................................. 90
Figure 2.37. Regional composition of milk production ................................................................. 91
Figure 2.38. Milk production by type, 1975-2006 ......................................................................... 91
Figure 2.39. Producer Nominal Protection Coefficient .................................................................. 94
Figure 2.40. Comparison of retail prices of imported and domestic vegetables ............................ 94
Figure 2.41. Number of farmers certified as Eco-Farmers, 2000-2008 ......................................... 98
Figure 2.42. Estimated amount of chemical fertilizer and pesticide application ........................... 99
Figure 2.43. Adoption of environmentally friendly farming practice for rice farms ................... 100
Figure 2.44. Fertilizer and pesticide purchases by rice farms ...................................................... 100
Figure A.1. Land markets under the Production Adjustment Programme .................................. 113
Figure A.2. Welfare changes in the market for land for rice production .................................... 114
Boxes
Box 1.1. Rural communities in Japan ................................................................................................ 16
Box 1.2. Definition of the farm household in Japanese agricultural statistics .................................. 22
Box 2.1. New Basic Law on Food, Agriculture and Rural Areas ..................................................... 32
Box 2.2. Policy Evaluation Model .................................................................................................... 38
Box 2.3. Evolution of food labelling policy ...................................................................................... 54
Box 2.4. What is a core farmer? ........................................................................................................ 61
Box 2.5. Agricultural co-operatives in Japan .................................................................................... 65
Box 2.6. Forecast of agricultural structure and farm management ................................................... 73
Box 2.7. Farmland ownership regulations and the Agricultural Land Act ........................................ 76
Box 2.8. Farmland use by hobby farmers ......................................................................................... 86
Box 2.9. Multi-functionality of paddy fields ..................................................................................... 96
EVALUATION OF AGRICULTURAL POLICY REFORM IN JAPAN–© OECD 2009
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EXECUTIVE SUMMARY –
Executive Summary
Agriculture faces many challenges as it seeks its role in 21st century Japan. For rice, a
major staple product and for many the defining product of Japanese agriculture, these
challenges are particularly acute. Small average farm sizes and small and fragmented
plots of land are farmed by a work force that is older than average and aging more rapidly
than the general population. A history of support and protection have resulted in a sector
that many feel is uncompetitive and ill-equipped to participate on a level playing field,
either with other sectors of the economy or internationally.
At the same time, many parts of Japanese agriculture are thriving. Production of
livestock products, beef in particular, has grown strongly, and there is evidence to suggest
that producers of fruits and vegetables have been successful at using their comparative
advantages to prosper in the marketplace. These products are produced by business-
oriented farms that are less susceptible to the scale problems faced by the rice sector.
Exports of these products have increased by 60% in recent years, and this growth is
expected to continue. Nevertheless, many agricultural products continue to receive high
levels of support and protection by OECD standards.
Recently, policy-makers in Japan have focussed their attention on improving the
competitiveness of the agricultural sector by directing some important payment
programmes to larger farms, as well as reforming land regulations to make it easier for
farms to increase in size. These efforts are a good start in the process of putting
agriculture in Japan on a competitive footing, but to be successful, this approach will
need to be reinforced by additional reforms that address the market distortions that
adversely affect the efficiency and competitiveness of the sector. Barriers to competition
will need to be lowered, first among farmers themselves, and ultimately with other
economic sectors and internationally.
While the amount of market price support has declined by more than 39% since 1986,
this type of support, considered among the most market-distorting and least effective
means of improving farm income, continues to amount for more than 90% of all support
as measured by the PSE. Steps taken to date to reform the marketing of rice have laid the
groundwork to improve market-orientation, and the next step is to scale back policies that
have the effect of limiting the domestic supply of rice. Ultimately, moving from price-
based support such as tariffs to payments based on land can improve farm incomes more
effectively than the current policy set. Such a move also holds the potential to increase
the share of paddy land actually used to produce rice and improve the environmental
performance of the sector by promoting more extensive production.
The price of land is an important signal for the allocation of resources; currently this
signal is confused by speculation and by disincentives that keep land from being utilised
by the most efficient producers. The objective to preserve agricultural land is rooted in
the many roles paddy land plays — as part of the social landscape, as a buffer for water
flows and as a contributor to food security. Policies aimed at preserving land have also
EVALUATION OF AGRICULTURAL POLICY REFORM IN JAPAN–© OECD 2009
