The Journal The Authority on Global Business in Japan

On April 3, the Japanese government announced laws designed to curtail the power of the Central Union of Agricultural Cooperatives—better known as JA-Zenchu, or JA—to audit local cooperatives, putting Prime Minister Shinzo Abe in control with a reformist agenda that echoes that of his former boss and past leader of the Liberal Democratic Party (LDP), Junichiro Koizumi.

Japan’s agricultural cooperatives have essentially controlled who could plant what, where, and with what equipment for over 60 years, and breaking this power could have far-reaching implications for the world’s second-largest capitalist economy.

For many, “it’s the economy, stupid,” is often used as the decider on all reform initiatives.

Speaking at a September 2014 event hosted by the Weatherhead East Asian Institute at Columbia University, Richard Katz, editor-in-chief of The Oriental Economist, summed up many observers’ frustrations with Japan’s agriculture system by noting, “Japan would have higher GDP by paying all its farmers to retire and importing its food and/or stopping Japan Agriculture internal protectionism.”

In the wake of the 2012 lower house election victory for the LDP and New Komeito coalition, agricultural reform became a priority item for Abe.

However, as Patricia Maclachan, associate professor of government and Asian studies at the University of Texas at Austin, and Kay Shimizu, assistant professor of political science, Columbia University, point out, despite many of Abe’s policies being bundled together under the label of “Abenomics,” in the case of agriculture, boosting GDP was not necessarily the primary concern.

“At best, comprehensive agricultural reforms will probably increase GDP growth rates by less than one percent,” according to Maclachan and Shimizu in a yet-to-be published academic paper titled: “The Kantei vs. the LDP: Agricultural Reform, the Organized Vote, and the 2014 Election.”

“Abe’s reformist impulses are more likely motivated by a deepening crisis in the agricultural sector. Japan’s rapidly aging farmers face a pressing shortage of successors in the context of rural depopulation.

Farm household incomes are declining as a result of rising input costs and decreasing rice prices, and scarce farmland is mismanaged to the point where an area roughly one-and-a-half times the size of metropolitan Tokyo is now lying fallow.

Solving these and related problems is widely perceived as key to the long-term revitalization of rural areas and the alleviation more generally of socio-economic inequality in Japan,” they say.

Rooted in politics
For Robert Feldman, Ph.D., the issue is political in nature. “Japanese agriculture has been underperforming, because the distribution and bureaucratic system for overseeing and regulating the farmers is geared towards a political, and not an economic objective,” he says.

These political roots can be traced to the land policy of the US occupying forces following World War II, which was designed to establish a conservative base in the countryside to offset the rise in leftwing agricultural unions. The resultant JA system is “the institutionalized form of the Macarthur land policy,” Feldman notes.

The LDP later granted the JA virtual monopoly rights over agricultural distribution, in return for votes. “In Japan, agriculture has been a form of welfare and not an economic activity,” he says.

Although the role of the JA may seem monolithic in nature, some have chosen to step outside the system. This has reduced the influence of the organization, which until now has maintained a tight grip on farmers by dictating both their market outlets, and at the same time selling seeds, fertilizer, and machinery—sometimes at inflated costs.

Shuji Yazaki is responsible for fruit and vegetables at Ichiyama mart, a supermarket based in Chuo City, Yamanashi Prefecture, that contracts directly with local farmers and bypasses the JA to bring vegetables direct to the consumer.

“We help our producers reduce the transaction fees and costs that the JA adds on top of prices, and by directly sourcing from farmers we can provide the consumer with fresher produce,” he says.

With vegetable sales of around ¥700 million per year, Yazaki considers the company to be a major distributor of mushrooms in his area. Ichiyama mart is affiliated with Bimianshin, an Internet company that supplies produce sourced outside the JA network to consumers throughout Japan.

Outfits such as Yazaki’s are seen likely to force the JA to operate with more of a market orientation, while at the same time reducing the group’s ability to deliver votes.

“When the new organization is up and running, the individual JA organizations around the country will have the incentive to operate much more efficiently,” Feldman says. “Because, if they don’t, somebody else is going to come in and undercut their prices.”

Trading companies may have the expertise to influence the future of the Japanese and global agricultural markets, given their distribution and marketing ability, Feldman suggests. “JA [bodies] don’t know that stuff, because the organization has been a perennial underperformer,” he says.

Dutch inspiration
Exports are clearly a market to be targeted, and Holland might serve as a model for Japan. According to Feldman, Holland exports about 90 times more agricultural products per unit of arable land than Japan does.

It is also interesting to note that Holland’s Rabobank serves a purpose similar to that of Japan’s Norinchukin Bank—operating as a de facto central bank for agricultural organizations throughout the country.

“But, the management orientation is totally different in Holland,” he says. “They are in business. And they are trying to find the highest-value-added products they can produce as they use their land.”

Nevertheless, there is no denying that the JA remains a formidable vote-gathering machine, and many candidates in rural areas are unable to cut the umbilical cord connecting them to the organization.

Third

“Although we will never know exactly how many votes JA musters in any given election, the fact that 162 (84 percent) of 194 LDP Diet members were elected in the 2012 general election had prefectural league endorsements underscores just how seriously the party continues to take them,” Maclachan and Shimizu say in their paper.

While Abe appears to have the upper hand, there are signs that he may not have been totally successful in defanging the serpent. In January, in what was seen as a direct contest of wills between the government and the farmers, Yoshinori Yamaguchi, a candidate supported by the JA, beat out Keisuke Hiwatashi, the LDP candidate for governor in Saga Prefecture.

At the end of the day, maybe it truly is a case of “the economy, stupid!”

“Why would an organization like the JA—which has continually underperformed over a 60-year period to the detriment of their members—be able to survive in any rational economic environment? The answer is: it can’t,” Feldman says. “No company that performed like that would still be in existence.”

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Martin Foster is a bilingual writer who has lived in Tokyo since 1977. Martin spent much of his career in financial journalism, and now focuses on various aspects of business and the economy.

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“Japan would have higher GDP by paying all its farmers to retire and importing its food . . . ”