Agricultural Policy Monitoring and Evaluation 2018

Chapter 13. Japan

Support to agriculture

Japan has gradually reduced its support to agriculture but the change has been relatively moderate. Producer support as a percentage of gross farm receipts (%PSE) is about 46% in 2015-17, down from 63% in 1986-88 but still much higher than the OECD average. Market price support (MPS) remains the main element of PSE and is mainly sustained by trade barriers, especially for rice, pork and milk. Prices received by producers are on average 72% above world market prices.

While the share of potentially most distorting support (MPS, support based on output and variable input use – without input constraints) has declined, it still accounts for 85% of producer support. The share of direct payments in the PSE increased in recent years, particularly in the form of area and income based payments.

The total support estimate to agriculture (TSE) represents 1.0% of Japan’s GDP in 2015-2017. Support for producers (PSE) represents 82% of TSE in 2015-2017, while another 18% is the support for general services provided to agriculture (GSSE). Around 85% of the GSSE is directed to the development and maintenance of infrastructure such as irrigation facilities and disaster prevention, while 11% of the GSSE finances the agricultural knowledge and innovation system.

Main policy changes

Government administered rice production quota are abolished in 2018. The end of the quota system, which has been in place since the 1970s, will enable farmers to plan their production in response to market demand without relying on government quota allocation. To support farmers’ decision making and facilitate the transition towards more market orientation, the government provides detailed market information on rice such as demand forecasts. The income support payment for rice to those who meet the rice production target, is also abolished in 2018.

Japan finalised negotiations for the Economic Partnership Agreement with the European Union in December 2017. Under the agreement, access to the Japanese market for EU agricultural products, including dairy, pork, beef, and wheat are to be improved, while rice is excluded from any tariff commitment.

In March 2018, Japan and ten other Pacific Rim nations signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Under the agreement, market access of agricultural products, including sensitive products such as rice, pork, dairy products, beef, wheat, barley, and sugar, is to be improved by various measures which include tariff cuts.

Assessment and recommendations

• Phasing out of the administrative allocation of rice production is an important step to give farmers more freedom to respond to market signals and lower rice prices, yet the remaining trade barriers will keep the price of rice high. A gradual reduction of these measures will help to generate benefits for consumers through lower prices and for farmers through increased flexibility in production decisions.

• Japan has made significant efforts to promote land consolidation to “business farmers” certified by authorities. The establishment of farmland banks and various types of support for which only business farms are eligible could contribute to farm size growth and lower production costs. However, farmers may be reluctant to release their farmland if there is a chance of selling their farmland for non-farm usage (such as construction of industry and service facilities, or private housing) at much higher prices. Reducing the incentive for farmland owners to speculate in such a way, for instance by taxing the price differential between agriculture and non-agriculture land, would further help structural change and land consolidation.

• Japan’s agricultural productivity (measured by total factor productivity) has grown at a faster pace than the world average. In order to maintain this trend, shifting away from market price support towards the support for agricultural innovation and promotion of private research and development (R&D) activities is important. The current agricultural innovation system is characterised by a traditional top-down approach, where scientists in the public sector develop new technologies that are disseminated by extension officers to farmers. A greater involvement of the private sector, including by public-private partnerships in the area of research, could unleash additional potential for innovation and productivity growth.

• Lowering GHG emissions from agricultural sources is an important step to achieve Japan’s commitment in the context of the United Nations Framework Convention on Climate Change (UNFCCC) and specifically the 2016 Paris Agreement on Climate Change. R&D activities will play key role in mitigating GHG emissions and helping adaptation to climate change through, for instance, development of low-emission agricultural practices and heat-tolerant varieties.

• Japan intends to pursue economic partnerships with other countries and to promote agro-food exports. While this signals a move towards a more market-oriented agricultural sector, the reduction of border measures on agricultural products would contribute to structural change and further productivity growth of the Japanese agro-food sector through competition with foreign products.

Figure 13.1. Japan: Development of support to agriculture

Source: OECD (2018), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Support to farmers (%PSE) has declined gradually over the long term. During 2015-17, farm support represented around 46% of gross farm receipts, but remains high compared to the OECD average. The share of potentially most distorting support (MPS and support based on output and variable input use – without input constraints) has decreased slightly in recent years, but still accounts for 85% of the PSE (Figure 13.1). Market price support continues to be the main element of that support. The level of support has increased in 2017 due to an increase in the gap between domestic and border prices, in particular for rice (Figure 13.2): while the domestic rice price increased by 6%, the import price decreased by 17% from 2016 to 2017. The level and structure of the Single Commodity Transfers (SCT) vary greatly by commodity. SCTs above 50% of commodity gross farm receipts are maintained for barley, rice, sugar, milk, pork, cabbage and grapes (Figure 13.3). Expenditures for general services (GSSE) were equivalent to 18% of agricultural value added in 2015-17 and mainly focused on the development and maintenance of infrastructure such as irrigation facility. Total support to agriculture (TSE) was 1.0% of GDP in 2015-17, reduced by more than half since 1986-1988.

Figure 13.2. Japan: Decomposition of change in PSE, 2016 to 2017

Source: OECD (2018), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Figure 13.3. Japan: Transfer to specific commodities (SCT), 2015-17

Source: OECD (2018), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Table 13.1. Japan: Estimates of support to agriculture

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Contextual information

Japan is the world’s third largest economy, after the United States and China, with relatively small land and a highly dense population. Agriculture constitutes a relatively small share in the economy (1.1% of GDP and 3.4% of employment). The most important crop is rice, which is a staple food for Japanese citizens. In value terms, rice alone accounts for about one-fifth of total agricultural production while in terms of land-use, rice accounts for about one-third of agricultural area. Livestock, vegetables, and fruits account for 35%, 27%, and 9% of total production value as covered in the PSE/CSE database. The food self-sufficiency ratio, calculated as the ratio of domestic production to total food supply, was 38% in 2016 on a calorie basis, meaning that more than 60% of calorie intake depends on imports from foreign countries. On a value basis, the self-sufficiency ratio is 68%, having reflected recent proportional increase of domestic vegetables, fruits and livestock products, which have relatively higher unit price and added values per calorie.

Japan is a mountainous country and forest accounts for about two-thirds of total land, and the total agricultural area consists of only 12 % of total land. The agricultural area has decreased by more than 10% over the past two decades, due to farmland abandonment and conversion to non-farm uses (e.g. residential or commercial uses). About half of farmland is irrigated paddy field used for rice production, while the rest is upland (dryland) for non-rice production such as wheat and soybeans. The average farm size has been increasing (1.9 ha in 2005 to 2.5 ha in 2015), yet is still much smaller than in other OECD countries (Bokusheva and Kimura, 2016).

Table 13.2. Japan: Contextual indicators

	Japan		International comparison
	1995	2016*	1995	2016*
Economic context			Share in total of all countries
GDP (billion USD in PPPs)	2 936	5 360	10.6%	6.3%
Population (million)	125	127	4.4%	3.7%
Land area (thousand km2)	365	365	0.5%	0.5%
Agricultural area (AA) (thousand ha)	5 038	4 471	0.2%	0.2%
			All countries analysed1
Population density (inhabitants/km2)	336	340	38	45
GDP per capita (USD in PPPs)	23 404	42 269	9 650	24 866
Trade as % of GDP	7	13	10.2	14.3
Agriculture in the economy			All countries analysed1
Agriculture in GDP (%)	1.7	1.1	3.0	3.1
Agriculture share in employment (%)	5.7	3.4	-	-
Agro-food exports (% of total exports)	0.4	0.7	7.7	7.3
Agro-food imports (% of total imports)	12.3	8.8	7.8	6.7
Characteristics of the agricultural sector			All countries analysed1
Crop in total agricultural production (%)	76	65	-	-
Livestock in total agricultural production (%)	24	35	-	-
Share of arable land in AA (%)	92	93	30	30

Note: *or latest available year. 1. Average of all countries covered in this report. EU treated as one.

Source: OECD statistical databases, UN Comtrade, World Development Indicators and national data.

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Japan is the world’s fourth-largest importer of agro-food products, after the United States, China, and Germany (UN Comtrade, 2015). Japan imports a wide range of agricultural products such as meats, cereals, fruits and vegetables, and agro-food imports have been gradually increasing. About half of Japan’s agro-food imports are primary and processed products for consumption, while another half for further processing by domestic industry. In contrast, most agro-food exports are directed to consumers, rather than to industry usages. Export of agricultural products is much smaller than import, but export value has doubled in the last two decades. The main export products are processed food such as alcohol, green tea, sauces and seasonings, and snacks, while large increase in exports are observed for beef, green tea and strawberry in recent years.

Figure 13.4. Japan: Main economic indicators, 1995 to 2017

Source: OECD statistical databases.

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Figure 13.5. Japan: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

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With labour leaving the sector, production levels were sustained by a relatively high productivity growth. Recent TFP growth averaged 2.4% a year, nearly 50% above the world average. Agriculture’s share in energy use is below the OECD average, as is its share in greenhouse gas (GHG) emissions. The main source of GHG emissions from agriculture is methane (CH4) emissions from rice cultivation. Nitrogen and phosphorus balances are higher than OECD averages, probably reflecting land-use patterns (e.g. low share of pastureland) and usage of livestock manure as compost (Shindo, 2012). Water usage as percentage of total resources (water stress indicator) is higher than the OECD average, probably due to rice production, but Japan is water-rich country where annual precipitation exceeds 1 000 mm in most regions.

Figure 13.6. Japan: Composition of agricultural output growth, 2005-14

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database. Available at: www.ers.usda.gov/data-products/international-agricultural-productivity/documentation-and-methods.aspx#excel.

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Table 13.3. Japan: Productivity and environmental indicators

	Japan		International comparison
	1991-2000	2005-2014	1991-2000	2005-2014
			World
TFP annual growth rate (%)	1.64%	2.45%	1.60%	1.63%
			OECD average
Environmental indicators	1995	2016*	1995	2016*
Nitrogen balance, kg/ha	166	178	33	30
Phosphorus balance, kg/ha	69.9	62.1	3.7	2.4
Agriculture share of total energy use (%)	0.1	0.2	1.8	1.9
Agriculture share of GHG emissions (%)	3	3	8.5	8.5
Share of irrigated land in AA (%)	54.5	54.4	-	-
Share of agriculture in water abstractions (%)	66	67	45	43
Water stress indicator	21.5	19.5	10	10

Note: * or latest available year. EU treated as one.

Source: USDA Economic Research Service. OECD statistical databases, UN Comtrade, World Development Indicators and national data.

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Description of policy developments

Main policy instruments

Market price support accounts for most of the PSE in Japan. Tariff-rate quota systems with high out-of-quota tariffs are applied to major commodities such as rice, wheat, barley and dairy products. For example, the out-of-quota tariff-rate of rice is JPY 341 (USD 3.0) per kg, the tariff-quota for rice is 682 200 tonnes (milled rice), and the maximum mark-up for rice imports is set at JPY 292 (USD 2.6) per kg. Administered prices are applied to pig meat, beef and calves, together with an import tariff. Rice import is conducted through state trading under Japan’s WTO Agreement on Agriculture minimum-access commitment.

For upland-field farming, the income support payment for upland crops (wheat, barley, soybean, sugar beet, starch potato, buckwheat and rapeseed) are provided through area- and output-based payments. The area-based payments are based on the current year’s area planted, while the output-based payments are based on the volume of sales, but the subsidy rate varies by quality and variety. For paddy-field farming, a crop diversification payment, which is conditioned to conserve a favourable environment of paddy fields, is paid to farmers who switch their use of paddy fields from table rice to others (e.g. wheat, soybean)

Crop insurance is available for a wide range of products. It mainly covers yield losses due to natural disaster but deterioration of crop quality and input losses (e.g. livestock or agricultural greenhouse) are also insured for some products. Participation in the crop insurance programme is basically voluntary but compulsory for those who cultivate rice, wheat or barley above certain scales. The government support covers around 50% of the premium. The income based payment compensates farmers when the revenue is lower than a historical average. Specifically, when the total revenue of programme crops (rice, wheat, barley, soybean, sugar beet, and starch potato) falls, the programme compensates 90% of the reduction in revenue suffered to the extent this exceeds crop insurance payments. Current revenues are compared to the Olympic average revenue of the previous 5 years, with the lowest and highest revenues removed; current and historical revenues are calculated from regional average yields and prices. The payment is paid from the fund which is contributed by farmers (25%) and the government (75%).

The income support payment for upland crops (both area- and output-based payments) and the income based payment are available for so called “business farmers (Ninaite)”, defined as a farm management unit which is, or aims to be, an efficient and stable farm. There are three types of business farmers: Certified farmers and certified new farmers are those whose farm management plans are approved by the authorities; and Community-based farm co-operatives are groups of farm households which conduct farm management collectively. To attract younger generations, Japan provides a subsidy to new young farmers during a training period (maximum of two years) and the initial operation period (maximum of five years). Up to JPY 1.5 million (USD 13 369) is paid annually to eligible trainees or farmers. The farmland banks (Public Corporations for Farmland Consolidation to Core Farmers through Renting and Subleasing) have been established since 2014 aiming at farmland consolidation. These banks improve farmland conditions and infrastructure if necessary, and then lease the consolidated farmland to business farmers. Subsidies are provided to land owners who lease their lands to the farmland banks.

Public investment has long been implemented to improve rural infrastructure, such as farmland, agricultural road, and irrigation and drainage facilities. The government supports local co-operative activities which conserve and improve the quality of local resources such as canal maintenance through the program called multifunctional payment. A direct payment for environmentally friendly agriculture is provided to those who reduce chemical fertilisers and chemical pesticides, and those who adopt farming practices that contribute to prevent global warming and/or conserve biodiversity. Direct payments to farmers in hilly and mountainous areas aim to prevent the abandonment of agricultural land and to ensure the role of agriculture for example for environmental protection and landscape preservation.

In ratifying the Paris Agreement on Climate Change, Japan has committed through its Nationally Determined Contribution (NDC) to reducing its emissions on an economy-wide basis to 26.0% below 2013 levels by 2030. Agriculture, forestry, and fishery sectors contribute more than one tenth of the overall reductions by promoting energy-saving equipment, organic fertiliser, fertiliser optimization, carbon sequestration in farmland, and forest management. On climate change adaptation, the government has established the adaptation plan to look at how to build resilience to the effects of climate change.

Japan has fifteen Economic Partnership Agreements (EPAs) in force (Singapore, Mexico, Malaysia, Chile, Thailand, Indonesia, Brunei Darussalam, ASEAN, Philippines, Switzerland, Viet Nam, India, Peru, Australia, and Mongolia). Trades with these partner countries account for 25% of Japan’s agro-food imports, and 21% of its export (2015-2017 average). Japan is currently engaged in several other EPA negotiations such as bilateral negotiations with Colombia and Turkey, and multilateral negotiations including the Japan-China-Korea FTA, the Regional Comprehensive Economic Partnership (RCEP).

Domestic policy developments in 2017-18

From 2018, the government administered rice production quota is abolished. The end of the quota system which had been in place since the 1970s will enable farmers to plan their production in response to market demand. The government provides detailed market information on rice such as supply and demand forecasts to support farmers’ decision making. The income support payment for rice, offering JPY 75 000 (USD 668) per hectare to those who meet the rice production target, is also abolished in 2018.

The floor level of price stabilization bands for pork has remained unchanged in 2018 (JPY 440 or USD 4.0 per kg), while that for beef increased from JPY 900 (USD 8.0) to JPY 925 (USD 8.2) per kg. Similarly, all guaranteed prices per head of calves have increased marginally. The maximum payment rate for manufacturing milk was marginally increased to JPY 10 660 (USD 95) per tonne in 2018 from JPY 10 560 (USD 94) in 2017. As production costs have increased recently due to higher calf prices, the coverage rate of the income stabilization programme for beef, which normally covers 80% of the gap between average production cost and average gross revenue, was temporarily increased to 90% for the period from April 2018 to March 2019.

A number of changes are being made based on the Basic Plan for Food, Agriculture and Rural Areas 2015 (OECD, 2016a) and the Plan to Create Vitality for the Industry and Regional Communities (OECD, 2017). These changes include, among others:

• A new revenue insurance programme will be introduced in January 2019. The current crop insurance programme mainly covers yield losses of specific commodities, while the revenue insurance insures total farm revenue and thus covers both price and yield fluctuations. The revenue will be calculated at farm level rather than regional level as in the ongoing income based payment scheme. The participation to revenue insurance is voluntary. Similarly, the compulsory participation requirement for rice, wheat or barley under the crop insurance programme will be eliminated in favour of a voluntary participation.

• In order to consolidate more farmland to business farmers, the government revised the related law (land improvement law) to allow farmland banks to improve farmland quality and related infrastructure (e.g. expansion of plot size and investment in drainage facility) without consent and cost sharing of land owners. The background of this revision is that even though business farmers want productive farmland, land owners who rent their land to farmland banks are generally not willing to invest in farmland, as they are going to retire from agriculture.

Trade policy developments in 2017-18

Japan’s tariff-rate-quotas continued to be under-filled in FY2017 for some products, including butter and butter oil, prepared whey for infant formula, skimmed milk powder for school lunches and other purposes, and ground nuts. Japan issued special safeguard measures in FY2017 for some products, including buttermilk and pigeon peas. In 2017, Japan decided to import up to 13 000 tonnes of butter under state trading in order to meet domestic demand.

Japan finalised negotiations for the Economic Partnership Agreement with the European Union in December 2017. Under the agreement, access to the Japanese market for EU agricultural products, including dairy, pork, beef, and wheat will be improved, while rice is excluded from any market access commitment. Import tariffs on hard cheese will be gradually eliminated over a 15 years period, while a tariff rate quota for soft cheese is to be created: The quota is set to be 20 000 tonnes in the first year and to be increased to 31 000 tonnes in the 16^th year, while the in-quota tariff should be phased out over 15 years. Tariffs on pasta, biscuits, and chocolate are set to be phased out in 5 or 10 years. Tariffs on beef and pork are also to be reduced.

In March 2018, Japan and ten other Pacific Rim countries signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).1 The CPTPP incorporates many (though not all) of the provision of the original Trans-Pacific Partnership (TPP) from which the United States had withdrawn in early 2017. Under the CPTPP agreement, market access of agricultural products, including sensitive products such as rice, pork, dairy products, beef, wheat, barley, and sugar, is set to be improved by various measures, including tariff cuts.

In November 2017, the Japanese government announced various plans to cushion the expected effects of CPTPP and Japan-EU EPA on domestic markets. For example, under the CPTPP the country specific tariff rate quota for rice from Australia would reach a total of 8 400 tonnes in the 13^th year. This amount is approximately equivalent to 1% of the current total import quota or 0.1% of total rice consumption in Japan. The Japanese government plans to purchase the same amount of domestically grown rice as public stocks every year. The reduction of import tariffs for beef and pork would be accompanied by an amendment of the income stabilization programme: the existing programme coverage up to 80% of the gap between average production cost and average gross revenues would be increased to 90% for both sectors. Farmers’ premium (contribution rate) for the pork income stabilisation programme will be reduced from the current 50% to 25%. For sugar products, the current price adjustment scheme will be revised to cover imported sugar preparations (e.g. cocoa powder). Following the improved access to the Japanese market for EU agricultural products such as cheese, pasta, and biscuits under the Japan-EU EPA, the Japanese government plans to support domestic cheese producers by providing subsidies for high-quality cheese production, investments in cheese production facilities, and training and promotion activities, in order to increase competitiveness. The Japanese government also intends substantially eliminate or reduce the import tariff (mark-up) on wheat for the production of pasta and biscuits, which could improve the competitiveness of domestic pasta and biscuit producers.

The government has set an export target of JPY 1 trillion (USD 9 billion) by 2019. The value of agro-food exports has increased consecutively since 2012. In 2017, the value of exports of agricultural, forestry and fishery products and foods increased by 8% from 2016 and marked a record high of JPY 807 billion (USD 7.2 billion), reflecting increasing demand for Japanese products and public and private efforts in export promotion. Exports were expanded for a wide range of agricultural products such as rice, beef, strawberry, green tea, alcohol drink (sake), and garden trees (bonsai). Under CPTPP and EPA with the European Union, most import tariffs on agricultural products imposed by partner countries are set to be abolished. The government plans to facilitate export by promoting production according to international standards such as HACCP and GAP, protection of intellectual property rights, and strengthening promotion activities on Japanese cuisine and Japan’s own food standards (JAS labelling).

References

Bokusheva, R. and S. Kimura (2016), “Cross-Country Comparison of Farm Size Distribution”, OECD Food, Agriculture and Fisheries Papers, No. 94, OECD Publishing, Paris, http://dx.doi.org/10.1787/5jlv81sclr35-en.

Japan Meteorological Agency (2018), Annual average precipitation (1981-2010 average), available at http://www.data.jma.go.jp/obd/stats/data/mdrr/atlas/precipitation_13.png (accessed on 8 March 2018).

OECD (2016a), “Japan”, in Agricultural Policy Monitoring and Evaluation 2016, OECD Publishing, Paris, http://dx.doi.org/10.1787/agr_pol-2016-16-en.

OECD (2016b), “OECD’s Producer Support Estimate and Related Indicators of Agricultural Support: Concepts, Calculations, Interpretation and Use (The PSE Manual)”, March 2016.

OECD (2017), “Japan”, in Agricultural Policy Monitoring and Evaluation 2017, OECD Publishing, Paris, http://dx.doi.org/10.1787/agr_pol-2017-17-en.

OECD (2018) “Japan: Estimates of support to agriculture”, available under “Definitions and sources” at PSE portal site, http://www.oecd.org/tad/agricultural-policies/producerandconsumersupportestimatesdatabase.htm.

Shindo, J. (2012), “Changes in the nitrogen balance in agricultural land in Japan and 12 other Asian Countries based on a nitrogen-flow model”, Nutrient Cycling in Agroecosystems, 94(1), 47-61.

Revisions in Japan’s PSE database in 2018

Japan’s PSE database covers nine fruits and vegetables (apples, grapes, mandarins, pears, strawberries, cabbage, cucumbers, spinach, and welsh onions), which account for 13% of the country’s total production value, and 15% of its total market price support of covered products. Thus, precise estimates for fruits and vegetables are crucial. Following the established methodology (OECD, 2016b), the measurement of market price support for Japanese fruits and vegetables has been improved in two aspects for this edition of the report.

First, marketing margins were adjusted for the nine products based on wholesale price data, instead of using incomplete margin data. Margin data are unavailable for many years, and for some products, no margin data are available at all. In addition, the representativeness of the margin data seems low as margins are derived from questionnaire information from only 10 to 20 sellers. In contrast, wholesale price data are available for all products and years, and sample coverage is high.

Second, quality adjustments have been made for vegetables (cabbage, cucumbers, spinach, and welsh onion) using price gaps observed at the wholesale market (due to lacking data availability, this was not possible for fruits). The wholesale price statistics report wholesale price of domestic products and imported products. As prices are measured at the same market level, if two products are exactly the same in quality, prices should be the same as well. Any price gaps can therefore be interpreted as an indication of quality differences.

As a result of these two revisions, the estimated total market price support of fruits and vegetables and %PSE are reduced relative to previous estimates, by 8 and 1.4 percentage points on average respectively. The details of these revisions are fully discussed in the Japan cookbook (OECD, 2018).

Note

← 1.  CPTPP countries are Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Viet Nam.