Agricultural trade policy reform in Japan
Masayoshi Honma
Introduction
The Japanese economy is under restructuring to cope with globalization. Agriculture is not exempt
from this process. Rather, agricultural reform should be encouraged because it has lagged behind
other sectors that have been liberalized relying on international trade. Japanese agriculture, in
particular rice farming, has been protected by border measures and domestic price supports, but
Japan is one of the largest agricultural importers in the world. Despite the high level of agricultural
protection in Japan, the Japanese food self-sufficiency ratio declined to 39 percent on a calorie basis
in 2006. It appears that the protection policy has played no role in strengthening Japanese
agriculture and has impeded inter-sectoral adjustment.
According to the Basic Law on Food, Agriculture and Rural Area established in 1999, which
replaced the 1961 Agricultural Basic Law, the Japanese government revised the New Basic Plan of
Food, Agriculture and Rural Areas in March 2005. This indicates guidelines for agricultural policies
ten years from now. The Plan contains, among other things, the target level for Japan’s food selfsufficiency ratio, policies for structural reform, stabilization schemes for agricultural income, and
ideas for promoting effective use of agricultural land.
In 2007 a new agricultural policy scheme was launched in Japan to introduce a direct payment for
land-extensive farming under the Farm Management Stabilization Programme. This aims to
guarantee large-scale farmers a certain level of income, regardless of the commodities produced.
Unlike previous policies, which gave support to all farmers indiscriminately, the direct payment in
this newly implemented scheme is limited to those farmers whose operational farms are larger than
a certain size. Those who are targeted are termed “principal farmers” and are expected to become
the core of Japanese agriculture.
This paper discusses the new direction of Japanese agriculture and policy in the globalizing
economy. Agricultural reform is inevitable to make Japanese agriculture viable. The objective of
this paper is to provide trade negotiators, policy-makers and other stakeholders with an
understanding of agricultural policy reform in Japan and, more specifically, of efforts to decouple
support from production. The paper aims to shed light on agricultural policy reform in the recent
past, and the likely progress of decoupling efforts in the future, in the context of World Trade
Organisation (WTO) negotiations on subsidies. The analysis is based on an understanding of the
political economy of agricultural policy-making in Japan.
1 Structure of Japanese agriculture
Before discussing agricultural policy, it is useful to look at the structure of Japanese agriculture.
Japanese agricultural production creates farm-gate sales of 8.7 trillion yen and value-added of 5.3
trillion yen.1 As shown in Table 1, in 2005 there were 2.52 million workers engaged mainly in
agricultural activities and 2.85 million farm households. The weight in total economy, however, is
declining. The share is 1.1 percent of gross domestic product (GDP) and 4.0 percent of the labour
force. It is noted that the number of workers engaged mainly in agriculture is less than the number
of farm households. This means that in some farm households there are no workers engaged mainly
in agriculture. The numbers depend on the definition of “farm household”, which covers many
small part-time farm households.
1
Japan’s Agricultural Census defines a farm household as one that operates on 10 acres (0.1 hectare)
or more of farmland, or with annual sales of agricultural products of 150 000 yen or more. Thus, the
term “farm household” includes very small units of farm operations in which there are no full-time
farm workers. Indeed, full-time farm households in which there are no workers engaged in other
employment account for only 16 percent of total farm households. On the other hand, noncommercial farm households, which operate on less than 30 acres of farmland, or with annual sales
of less than 500 000 yen, account for 31 percent of total farm households. In addition, among parttime farm households, the majority are type II part-time farm households whose income from nonagricultural sources exceeds agricultural income;2 these account for 42 percent of total farm
households.
As indicated in Table 1, the number of agricultural workers declined from 12.0 million in 1960 to
2.5 million in 2005, but the number of farm households in 2005 is about half of that in 1960.
Together with the decreases in agricultural land, a small decline in the number of farm households
resulted in just a small increase in agricultural land per farm from 1.00 hectare in 1960 to 1.65
hectares in 2005. The amount of agricultural land per farm in Japan is small compared with other
developed countries. For example, it is only 1/120 of that in the United States (US) and between
1/45 and 1/20 of that in European countries. This information is indispensable when considering the
competitiveness of Japanese agriculture in terms of comparative advantage, particularly landintensive sectors.
It is true that Japanese farms are very small and do not take advantage of scale economy, but this
does not mean that Japanese farm households are poor. In reality, in 2003 the total income of an
average Japanese farm household was 7.7 million yen – greater than that of an urban worker
household. Income from agricultural activities accounts for only 14 percent of the average total
income in a farm household.
Part-time farm households have tended to concentrate on rice farming because rice is a staple crop
offering a high return on only intermittent labour. Because rice marketing was carried out through
the channels determined by the Japanese government until the former Food Control Law was
abolished in 1995, rice farmers were guaranteed a high price and could easily sell their harvest
through agricultural cooperatives. In addition, agricultural research and extension services have
traditionally concentrated on the rice crop, to the extent that rice cultivation has become highly
standardized and there is relatively little difference in productivity between part-time and full-time
farmers. The fact that the production of Japan’s staple crop has been geared to part-time farming in
this way is a major factor encouraging part-time farming and impeding the consolidation of farms.
2 Recent development of agricultural policy reform
Recent agricultural policy reform is based on the Basic Law on Food, Agriculture and Rural Areas
(hereinafter referred to as “the Basic Law”) established in 1999, which replaced the 1961
Agricultural Basic Law. The objective of the Basic Law is to stabilize and improve lifestyle and to
develop the national economy through comprehensively and systematically implementing policies
on food, agriculture and rural areas by means of establishing basic principles and basic matters for
realizing them and clarifying the responsibilities of the state and local governments (Article 1). The
Basic Law has four pillar policies: (1) securing stable food supply, (2) fulfilment of multifunctional
roles, (3) sustainable agricultural development, and (4) development of rural areas. The Basic Law
is expected to change Japanese agriculture and make it more efficient in a global economy.
2
The Basic Law provides that the government shall establish a Basic Plan for Food, Agriculture and
Rural Areas (hereinafter referred to as “the Basic Plan”) for the promotion of the comprehensive
and systematic implementation of policies on food, agriculture and rural areas (Article 15). The
Basic Plan is subject to a process of review and revision roughly every five years. (The previous
Basic Plan was approved by the cabinet and submitted to the Diet on 24 March 2000.)
The Basic Law stipulates that the Basic Plan shall include: (1) basic directions in formulating
policies on food, agriculture and rural areas, (2) targets for food self-sufficiency ratios, (3) policies
implemented comprehensively and systematically by the government with regard to food,
agriculture and rural areas, and (4) matters required to comprehensively and systematically promote
policies on food, agriculture and rural areas.
Among the important contents of the Basic Plan in 2005 are the following:





It is proposed that targets for food self-sufficiency ratios are established at 45 percent of the
supplied-calorie basis in 2015 (the ratio in 2006 was 39 percent). In order to properly
evaluate domestic production activities of relatively low-calorie vegetables and livestock
that are dependent on imported grains, it is also proposed that food self-sufficiency ratios are
presented in monetary values in addition to ratios on the supplied-calorie basis. (Ratios in
monetary value are as follows: in 2015, 76 percent; in 2006, 68 percent.)
In addition to setting up targets for peacetime food-sufficiency ratios, the Basic Plan
emphasizes the importance of ensuring the domestic food supply capacity through the
maintenance of such areas as farmland, irrigation and drainage systems, as well as the
fostering of workforces and agricultural technologies.
The Basic Plan provides a shift to non-product-specific measures focusing on providing
farm management support for principal farmers and the promotion of intensive use of
farmland by principal farmers.
The Basic Plan promotes measures to take into account environmental consequences,
including the establishment of conservation measures for the environment, farmland, water
and other resources.
The Basic Plan makes and manages the work schedules that specify the processes of
implementing measures, time periods, methods of implementation and performance goals.
It should be recognized that the food self-sufficiency ratio is not a policy variable because it
depends not only on domestic production but also on consumers’ preferences. The food selfsufficiency ratio in Japan has dropped to 39 percent on a calorie basis in 2006, which is the lowest
among developed countries. Some Japanese people are very concerned about this low level of selfsufficiency from a food security viewpoint. Raising this ratio cannot be achieved by policy alone,
however. The maintenance and improvement of the ratio require the understanding and active
efforts of the agencies concerned, including farmers, food industries and consumers.
The issue that attracted much attention in the discussions on the Basic Plan was the introduction of
non-product-specific measures for farm management support. To support farm income, it was once
very common to use price policy by commodity. However, most measures used to intervene in the
markets are now considered amber box policy in the WTO Agreement on Agricultural (AoA) and
are supposed to be faded out. Instead, farm income support measures are shifting to those that do
not affect the decision on production, such as direct payments. Such payments are made only to
targeted principal farmers who satisfy certain conditions and are expected to become the core of
Japanese agriculture.
This kind of direct payment sounds desirable in the light of the WTO discipline. However, it should
be recognized that the direct payment may delay the structural reform in agriculture because it
3
works as if the fixed costs were decreased for the recipients. It means that less efficient recipient
farmers can stand against the lower product prices, allowing them to stay in farming, which
impedes structural reform. Thus, it is important to limit the payment to efficient farmers, and it is
desirable to cease the payment within a limited time period.
The debate of decoupled direct payment is not new in Japan, but price polices have been dominant
as measures to protect farmers since the 1960s. Correspondingly, border measures have also been
essential for agricultural protection policy. The decoupled direct payment was introduced in policy
proposals as a means of maintaining the multi-functionality of agriculture after the Uruguay Round
Agreement on Agriculture. The importance of multi-functionality has been recognized since the
early 1990s, but it has been discussed for maintaining the border measures. Farmers also hesitated
in the early stages of the debate to agree to receive direct payments, and they preferred price
supports to direct payments.
It is necessary for Japan to shift policy measures to direct payment from price policy. At the same
time, Japan has to undergo structural reform in the agricultural sector. Thus, direct payment policy
is supposed to achieve two purposes: to support farmers in a less distorted manner, and to promote
increases in productivity and efficiency in agriculture. This means that Japan has to seek a Japanese
style of decoupled direct payment, different from that of the European Union (EU) or the US, in
order to achieve the two policy purposes.
3 Domestic support in decoupling policy
The WTO AoA sets rules for reducing domestic agricultural support policies. Domestic support
policies are divided into three boxes – amber, blue and green – depending on the effects on
production and trade. Non-trade-distorting policies are put into the green box and were exempt from
reduction during the implementation period of 1995–2000. Further exemptions fall into the blue box,
including the use by the US and the EU of direct payments based on fixed area and yield. All other
trade-distorting support policies are put in the amber box. Developed countries committed to reduce
the total value of these policies as measured by the Aggregate Measurement of Support (AMS) by
20 percent during the implementation period. However, product-specific domestic support that does
not exceed 5 percent of the total value of production of a basic agricultural product and nonproduct-specific domestic support that does not exceed 5 percent of the value of the total production
are not required to be included in the AMS (de minimis).
Table 2 shows the recent level of domestic support in Japan by box in comparison with the US and
the EU. Japan’s level of AMS was 641.8 billion yen in 2003; this is much lower in monetary value
than that of the US or the EU, but it is comparable in terms of percentage of the domestic value of
production, which is in the range 30–36 percent. Japan’s level of AMS in the base period 1986–88
was 4966 billion yen, but it was reduced drastically from 3171 billion yen in 1997 to 767 billion
yen in 1998.
This happened because the role of the government in purchasing rice was applied strictly in order to
maintain the grain reserve for shortage in the new rice policy implemented in 1998. The role of the
government is provided in the Staple Food Law of 1995 to limit the purchasing of rice for grain
reserve operations. However, the government was forced to purchase rice to support the market
price of rice with rich harvests in the following years. In the new rice policy, the government limits
purchasing rice for the reserve purpose alone and limits the amount of rice purchasing by variety.
Thus, the government deleted the amount of the market price support for rice from the amber box
when calculating the AMS. The market price support for rice was considered to be abolished
because there was no administered price to maintain the market price of rice, although the gap
4
between the domestic and the international rice price is maintained. The administered price of rice
itself was maintained until 2003; thereafter, auction became a common method to purchase
government rice, and the administered price of rice was officially abolished.
In addition, the Japanese government classified the rice farm management stabilization scheme that
was introduced in 1998 in the blue box. It was a policy of direct payment under production-limiting
programmes that was made on 85 percent or less of the base level of production. In the rice farm
management stabilization scheme, both the government and the producers contributed to the fund
by which producers were compensated for a part of the difference between the reference price and
the market price when the rice price declined. This scheme was integrated into the non-productspecific measures for farm management support in 2007.
The Japanese government classifies in the green box the expenses for research and development,
quarantine control, technology diffusion, guidance for agricultural cooperatives, infrastructure in
rural areas, restructuring of wholesale markets, public grain reserve programmes, school lunches,
agricultural disaster compensation, agricultural pension programmes, agricultural finance, subsidies
for converting production from rice to other crops, and direct payments for handicapped areas.3
Table 3 shows the details of expenditure of the green box in Japan since 1995. Japanese expenditure
on the green box was 2.09 trillion yen in 2003, which was down from 3.17 trillion yen in 1995. A
major part of expenditure is general services, which accounted for 77 percent of the green box in
2003. General services consist of (a) research, (b) facilitation of management of agricultural
organisations, (c) general services for livestock industry, including extension and infrastructure, (d)
infrastructural services for agricultural sectors and rural areas, (e) personnel expenses for
government officials, and others. Above all, expenditure on infrastructural services for agricultural
sectors and rural areas dominates expenditure on general services: 71 percent in 1995 and 59
percent in 2003.
The major components of infrastructure services for the agricultural sectors and rural areas are
construction of irrigation/drainage facilities and rural roads, and land consolidation. These are very
important in order for Japanese agriculture to increase productivity. In particular, land consolidation
to enlarge a unit of paddy field for efficient use of agricultural machinery is essential, and so this
has been conducted as a public investment activity. The costs of land consolidation are usually
shared by the national government (50 percent of the total), prefecture government (25 percent),
municipal government (12.5 percent) and farmland owner (12.5 percent).
The decline in expenditure on infrastructure services for the agricultural sectors and rural areas is
the main source of the decline in green box expenditure in Japan. The decline resulted from ending
up the special budgets introduced in 1995 for six years in order to make measures to cope with
increasing the market access based on the Uruguay Round AoA, most of which were spent for the
infrastructural services for agricultural sector and rural area.
Among the other measures in the green box in Japan, the structural adjustment through producer
retirement programme and the environmental programme are important. The former spent 158
billion yen and the latter 195 billion yen in 2003. The contents of the structural adjustment through
producer retirement programme are farmers’ pension programmes, which pay pensions to retired
farmers on condition of transfer of the ownership of farm management. The environmental
programmes consist of two parts: one is payment for conversion from rice production, maintaining
paddy fields in an environmentally good condition by growing any plants other than rice or other
appropriate management; the other is the support programme introduced in 1999 for reduction of
environmental burden due to dairy farming, paying dairy farmers who practise appropriate
management to tackle environmental problems.
5
The last item on the list of measure types of the green box in Table 3, regional assistance
programmes, is given special attention here. Introduced in 2000, this was the first direct payment in
Japan. The expenditure was relatively small, at 23 billion yen in 2003. Direct payments are made to
farmers who are based in hilly and mountainous areas, and who continue farming activities for at
least five years under the community agreements in a group or individually promote multifunctionality of agricultural land in a unit of at least 1 hectare of farmland in designated areas.
Activities in an agreement include such items as making a master plan for the future land use of the
village or hamlet, cultivating and maintaining farm land, keeping water channels and agricultural
roads in good condition and avoiding soil erosion. Payments depend on the degree of slope of the
land, the crops to be produced and the activities to be conducted. The payments cannot exceed one
million yen per farm household.
The programme was extended to the second period. The total direct payments were 51.35 billion
yen in 2006, made for 28 515 agreements on 663 000 hectares in 1804 cities. The average number
of participants was 23 for 23 hectares receiving 1.82 million yen per agreement in 2006.
4 Major policy change and its political economy
The major change in supporting measure for farmers from price policy to direct payment appeared
in the recent non-product-specific measures of the Farm Management Stabilization Programme.
This was designed to support farm income by stabilizing the total value of sales, regardless of the
commodities produced. The programme consists of two components of payments. First is the
payment to compensate the gap in productivity between foreign exporting counties and domestic
producers. This applies to commodities whose tariffs are already low and are not protecting
domestic producers if the price support policy is abolished. The programme is currently applied to
farmers who have produced wheat, barley, soybeans, sugar beets or potatoes for starch. The direct
payments are made on the basis not of commodity specific income but of the total income from
producing one or a combination of these commodities.
Further, this payment for compensating the gap consists of two parts. One is a lump sum based on
the past production and shipment, and the other is a variable payment based on the current quantity
of production. The former is decoupled from production and is classified in the green box, but the
latter is not decoupled and is classified in the amber box. Farmers receive the sum of the payments
of the unit value converted in value per hectare multiplied by the average acreage during the base
period, 2004–06, in addition to the payments of unit subsidy per kilogram multiplied by the quantity
of production.
The payment for compensating the gap is applied to relatively large farmers. Those eligible to
participate in the programme are farmers designated by the local government and operating farms
with a size of at least 4 hectares (10 hectares in Hokkaido). If small farmers join a farming
collective in a hamlet whose operating size is at least 20 hectares, then the unit of collective farming
is also eligible to join the programme if it satisfies certain other conditions.
The second component of payments in the non-product-specific measures of the Farm Management
Stabilization Programme is the payment to stabilize the annual sales value of products. A fund was
created with contributions of the government (75 percent) and producers (25 percent). Producers are
compensated by the fund for the gap between the value of sales in the base period and the sales
value in the current year if the latter declines less than the former. The programme is currently
applied to those farmers who have produced rice, wheat, barley, soybeans, sugar beets or potatoes
6
for starch. The payments are made on the basis of the total income from producing one or a
combination of these commodities.
The number of applicants for non-product-specific measures for farm management support was 72
431 as of August 2007, and the budget for this programme is about 195 billion yen. Traditionally,
Japanese rural villages have been characterized by strong community solidarity, as they consist of
small family farms that are largely homogeneous in terms of land holdings and income levels. They
tend to repel policies to disproportionately increase an individual’s wealth and income relative to
others in the village, seeing this as something that could weaken their community solidarity and
harmony. Leaders of agricultural associations and cooperatives consider this community solidarity
as an asset for enhancing their organizing power. From the standpoint of politicians, this solid
farming community represents an attractive group with which to develop and maintain a close
alliance for collecting votes. Thus, all the stakeholders of agricultural policies hesitate to install
institutions and policies that may promote polarization of rural communities between a small
number of efficient large-scale farmers and the majority of marginal farmers.
In this regard, the scheme has met strong resistance and been forced to make a compromise from
the beginning. Originally, the programme was designed to target mainly individual large farmers.
Japanese agricultural cooperatives (JAs), however, were strongly against such policies targeted at
only a small number of large farmers. JAs needed to maintain the number of family farms in order
to keep their political influence, particularly on the ruling Liberal Democratic Party (LDP). In the
end, the political pressures by JAs opened the door of the direct payment to small part-time farmers
by allowing them to participate in the programme if they organized themselves into collective
farming units. Inclusion of participants of collective farming erodes the original intention of the
programme (to promote structural changes by consolidating farmland into the hands of efficient
farmers and letting them pursue large-scale farming to boost the nation’s overall agricultural
productivity) because a large number of small part-time farmers may form collective farming units
in order to become eligible for direct payments.
5 Concluding remarks
The new scheme of the targeted direct payment was initially considered a better measure than price
policy for strengthening agricultural production base, so that Japanese agriculture could survive
without resorting to heavy agricultural protection. Although the direct payment was designed as a
less distorting alternative to border protection, the new scheme originally planned to incorporate the
mechanism inducing agricultural structural reform. By limiting direct payments to large-scale
farmers, it was expected to encourage smaller farmers not eligible to the programme to leave their
village communities when they found their income was insufficient to make a living in the village.
Despite the introduction of such a targeted direct payment programme, the structure of Japanese
agriculture may not change much in the short run, since JA members can benefit from this
programme as members of collective farms, which are eligible for the programme as a
compromised solution.
Nevertheless, under strong external and internal pressures, Japan has to promote structural reform in
agriculture in order to cope with globalization more positively. We may expect changes in
agriculture in two aspects. One aspect is that the direct payments decoupled from production will
lead to declines in extremely high tariffs, such as on rice. It is expected that the direct payments
may be bargained against a decline in such high tariff as 778 percent for rice. The other aspect to be
expected is a decline in the power of JAs due to large farmers leaving the cooperatives. This means
7
that inclusion of collective farms in the direct payment programme may be challenged in the future
as the political power of JAs declines.
8
Notes
1 Figures are for 2004.
2 Type I part-time farm households are farm households whose income from farming exceeds income from nonagricultural sources.
3 In addition, the de minimis is applied to expenses for stabilizing prices of vegetables and chicken eggs, which are not
counted in the AMS.
9