Japan: Policy

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Commodity Policies

A variety of domestic policies in Japan affect and support producers of certain commodities. In addition, Japan imposes tariffs on imports of many agricultural products, and other trade policies protect domestic production. ERS publications describe Japan's domestic and trade policies for the following commodities:

• Dairy
• Wheat and Barley
• Rice
• Pork
• Oilseeds
• Vegetables
• Sweeteners

In general, Japan's commodity policies fall into several categories, including producer quotas, income stabilization policies, deficiency payments, the rice diversion program, hazard insurance subsidies, and stockholding policies. Brief descriptions of these policies follow, with more detail available in the commodity policy publications above.

Producer quotas exist for drinking and manufacturing milk. The Japan Dairy Council administers the drinking milk quota, in which producer participation is voluntary. The quota's purpose is to limit milk production to keep market prices stable. The Agriculture and Livestock Industries Corporation (ALIC), a state-trading enterprise owned by the government, administers the manufacturing milk quota, which applies to milk that is to be made into butter and milk powder. Participating farmers get a direct payment per liter for milk within their quota. Separate quotas are maintained for milk used in cheese and cream production.

Japan introduced income stabilization policies in the late 1990s, based on an older program for vegetables and fruits. These policies compensate farmers for part of the losses they incur if current-year market prices are lower than a historical average price. Besides covering vegetables and fruits, income stabilization policies exist for rice, soybeans, milk, and other products. In general, agricultural prices have been falling in Japan for some time, so the historical average of prices also tends to fall (unlike the target prices under the deficiency payment programs, discussed below).

Deficiency payments pay farmers all or part of the difference between a fixed target price and the actual market price in the current year. These programs exist for beef calves, soybeans, and pork.

The rice diversion program paid farmers to use rice paddy fields for purposes other than growing rice to harvest for food. Declining rice consumption and high returns to rice farming have meant that production has threatened to exceed consumption in most years since the 1960s. In recent years, about 40 percent of Japan's rice paddy area has been diverted. Diversion payments varied according to the crop or land use that the farmer chose. The payments were substantial, with $920 per hectare the base payment for converting to wheat, barley, or soybean production and a $6,933-per-hectare maximum payment if the farm operation was above a minimum size. These annual payments were in addition to other subsidies received for crops other than rice. Many paddies planted in rice also received diversion payments because the farmers did not harvest rice grains for the food market, but instead cut the fields when they were green (for green manure or feed), grew special rices for industrial use, or farmed rice for other special purposes.

In fiscal year 2008 (beginning April 1, 2008), Japan's government implemented a new set of policies that put the responsibility for controlling rice production into the hands of local groups. While the diversion payments had been made to all participating farmers, these new subsidies are designed to go only to larger farm operations. In general, these policies offer incentives to plant wheat, barley, soybeans, potatoes for starch production, and sugar beets. Large farm operations are defined as 4 hectares or more in the case of individual farm operations or 20 hectares or more for farmer organizations that operate collectively. (In Hokkaido, the minimum size for an individual operation is 10 hectares.) There are a number of exceptions that allow some smaller farms to participate, but the government seeks to direct the subsidies that it offers just to farmers that have a more competitive, business-like orientation. The motivations for this switch are to encourage consolidation of farm operations and to avoid ever-larger diversion payments as the gap between falling rice consumption and rice production increases.

Payments in the new program are of three types. One subsidy is a direct payment based on area farmed in 2004-06 (i.e., a historical period) of wheat, barley, soybeans, sugar beets, and potatoes for starch. A second subsidy is related to the current year's volume and quality of these same crops. The third payment is an income stabilization program related to current prices. In case a crop's price falls, the program gives the farmer 90 percent of the reduction in income suffered. Current prices are compared to the average price of the previous 5 years, with the lowest and highest prices removed. The income stabilization price applies to rice, as well as to wheat, soybeans, sugar beets, and potatoes for starch. All three programs are restricted to larger sized operations, as defined above. For more information, consult Japan's New Farm Subsidy Scheme (appendix of GAIN Report JA8012) and Japan's Proposed Rice Reforms (GAIN Report JA3012), reports from USDA's Foreign Agricultural Service from which this information was taken.

Many crops and livestock activities benefit from government-subsidized insurance programs, which pay an indemnity when crops fail or livestock are hit by disease. The programs are voluntary, and details of coverage vary by crop/livestock activity. The government typically pays part of the farmer's premium and also provides reinsurance in case indemnity requests overwhelm local insurance funds.

In 1987, the government began to gradually lower government-set prices in a number of commodity markets and, in the late 1990s, eliminated most set prices. A major exception to this policy shift was the sweeteners market where farm prices of sugarcane, sugar beets, and potatoes and sweet potatoes for starch manufacture. These policies were abolished in October 2007 and replaced with direct subsidy payments.

The government's state-trading enterprises maintain stocks of certain foods and feeds, notably rice. Other stocks include butter, skim milk powder, wheat, soybeans, and corn for feeding. The stocks are supposed to be sold and replenished in an orderly way for food security purposes. In addition, interventions in dairy markets are sometimes made in order to bolster prices.

Food safety and quality have become increasingly important issues for Japan, in the wake of disease and labeling scandals in the last decade. In 2003, the cabinet-level Food Safety Commission was formed to assess and address safety risks related to food, animal feed, and agricultural chemicals.

Japan's Trade Barriers

Japan's agriculture is heavily protected. Producer subsidy estimates (PSEs), calculated by the Organisation for Economic Co-operation and Development (OECD), show that over 50 percent of the value of Japan's farm production comes from trade barriers or domestic subsidies. This is very high by world standards.

The degree of protection varies widely across commodities. Some parts of Japan's agriculture are not heavily protected; some segments have developed interesting technical solutions to deal with the high price of labor, and some produce is of higher quality than in any other country. These industries can compete with imports without heavy protection. However, much of Japan's agriculture is inefficient compared to production in exporting countries and shelters behind very high barriers and subsidies.

The following table shows the main barriers to trade for some major commodities. Japan uses tariff-rate quotas (TRQs) to protect its most sensitive commodities, such as rice and dairy products. The quota is a fixed volume of product. Imports brought in within the quota pay a lower tariff, while imports outside the quota face much higher tariffs, almost all so high that they prohibit trade. Japan's government gains even more control by reserving the right to trade within most major quotas to one of two state-trading enterprises. The Food Department of the Ministry of Agriculture, Forestry, and Fisheries has the exclusive right to import rice, wheat, and barley within those TRQs, and the ALIC has exclusive importing rights to two of the biggest dairy TRQs. The government, through the state-trading enterprises, decides how much to import, when to import, and at what price to resell the imports into Japan's market.

In recent years, Japan has converted part of the TRQs to operate under Simultaneous-Buy-Sell (SBS) programs. Under SBS rules, companies that are interested in selling to Japan and companies interested in importing can jointly make a bid to import a specified quantity. The joint bid proposes a purchase price (from the exporter) and a sales price (to internal Japanese markets). The state trading agency chooses the bids that have the biggest difference between the purchase and sales price and awards them the requested import volume, provided other criteria are met. The state-trading enterprise then retains the difference between the prices as a markup. While SBS systems do not avoid markups, they do allow for more direct communication between sellers and buyers than a simple state-trading system. Currently, SBS systems are in place for rice, wheat, and barley.

In addition to tariffs and TRQs, Japan has phytosanitary and sanitary rules that preclude imports of some important fresh vegetables (e.g., cucumbers) and make imports of other vegetables and fruits difficult and expensive. While some phytosanitary regulations protect Japan against diseases that are not present or under control in Japan, others have been challenged as unnecessary for plant health. For example, lettuce is fumigated whenever inspectors see an insect—whether or not the insect is a pest already endemic in Japan. Fumigation lowers the quality of the produce. Some phytosanitary and sanitary rules about horticultural-product imports (notably, apples) have been successfully challenged in the World Trade Organization Dispute Settlement system (see Issues and Analysis).

ERS publications address Japan's policies for certain agricultural commodities. For more information on policy, see the References section.