Rice market reforms big step towards free trade

Agriculture has been a large stumbling block in free trade deals with Japan but that is about to change:

NOT even the most ardent reformers around Shinzo Abe, Japan’s prime minister, believed that he would dare to scrap the policy, known as gentan, under which the government has paid farmers to reduce rice crops since 1971. But on November 26th the agriculture ministry said the system would be phased out by 2018. Rice growers, said Mr Abe, will be able to produce crops “based on their own management decisions”.

Allowing a free market for rice, the country’s sacred staple food, will not by itself transform Japan’s inefficient agricultural sector, which has declined precipitously in recent years. But it is an unavoidable and welcome first step. The gentan system was originally designed to shield the country’s cosseted farmers from short-term fluctuations in prices. By 2010 the policy kept roughly a third of Japan’s paddy fields out of rice production, costing vast sums each year in compensation to farmers for lost income. . .

Subsidies almost always start with good intentions but they have unexpected consequences, distorting markets at great cost to consumers, producers and tax payers.

The country’s millions of small rice-growers have thrived on the handout for decades, along with Japan Agriculture (JA), a giant network of local farm co-operatives. Many landowners pocket the government’s money while growing nothing at all. About two-fifths of the land taken out of rice production is left entirely idle. Unused land prompts regular public hand-wringing about the abandonment of the life-giving soil to weeds and rubbish.

Japanese agriculture’s biggest problem is that all but 2% of farms are smaller than five hectares and many comprise just a few fields, a fragmentation preserved by the gentan system and by other regulations. Tiny, often part-time farmers, with few economies of scale, antiquated methods and old equipment hobble the industry. The sticky rice favoured by Japanese consumers ends up costing twice or more what rice does in other countries.

To protect its wildly uncompetitive farmers, Japan has erected one of the world’s highest tariffs: the duty on imported polished rice is 777.7%. Mr Abe’s surprise decision in March to bring Japan into talks on the Trans-Pacific Partnership (TPP), a free-trade grouping, has brought these duties under pressure. Even though a final deal on TPP is far from certain, the talks are still a powerful force for change. . .

This is a significant move and an important step towards free trade.

It will involve some short term pain but Japanese producers and consumers, and exporters in other countries, including New Zealand, which want to trade there will have a lot to gain in the medium to longer term.

We’re not going to be trying to sell the Japanese rice, but will benefit from the reduction in tariffs on other products we do sell there.

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