The power of Japan's agricultural sector is waning, but the industry will continue to exert influence over decisions on trade for many years to come. Reformers have enjoyed mixed success in curbing the influence of the agricultural lobby, but the country is likely to creep toward continued liberalization in its trade deals. U.S.-Japan bilateral trade talks on farming could hit obstacles if Washington tries to push Tokyo to open up its agricultural sector to a degree that exceeds the level that Japan permitted in other recent trade deals. Japanese lawmakers could make concessions on agriculture during trade talks with the United States if they decide that the health of the country's car industry is more important.
As an island nation with limited arable land, Japan has long feared food shortages. For this reason, the country has had little choice but to defend its agricultural sector rigorously by attempting to insulate its farmers from economic headwinds and striving for self-sufficiency in food wherever possible. This focus on shoring up agriculture, however, has generated a farming population that has enjoyed outsized political clout in successive administrations. In fact, Japan's agricultural lobby, JA-Zenchu, has served as a reliable vote bank for decades for the ruling Liberal Democratic Party (LDP), which, in turn, has sheltered farmers and guaranteed itself continued support.
The Big Picture
Japan's farmers still wield outsized political clout, but long-term demographic decline, the urgent need for structural reform and the weakening of its agricultural lobby indicate that their influence will fall over the long term. Nevertheless, their voice will continue to resound in trade deals for years to come — placing some limits on Tokyo's efforts to liberalize trade.
But Japan's rapidly shrinking and aging population portends shifts in domestic food consumption, as well as a decline in the number of workers to till the land. To sustain the sector, the Japanese government is trying to make it more efficient, competitive and integrated with international markets. And while Japanese Prime Minister Shinzo Abe has managed to curb JA-Zenchu's power — overcoming some of the lobby's resistance in the process — the group's continued political potency has slowed structural reforms and limited Japan's concessions in recent trade deals. Moderating Japan's agricultural protectionism and accelerating reforms has gained urgency since the United States threatened massive tariffs on Japan's critical automotive sector if Tokyo does not open up on agriculture. As bilateral trade talks begin in 2019, the Japanese government will need to balance the United States' strong-arm tactics against the continued importance of the agricultural vote.
An Island Unto Itself
For centuries, Japan has sought to maximize the output from its limited arable land to ensure steady food supplies for its population and livelihoods for its rural areas. Just 12 percent of Japan's mostly mountainous landscape is viable for agriculture. Today, the agricultural sector employs around 3.5 percent of the population, generating a little over 1 percent of overall gross domestic product — a far cry from the 21 percent of the manufacturing industry.
Japan has historically maintained high tariffs, non-tariff safeguards and technical barriers to protect the agricultural sector from foreign competition. Japan's farmers enjoy uniquely high levels of government support, benefiting from quotas, price stabilization measures, insurance and subsidies. All together, this support has amounted to nearly 50 percent of gross farm receipts — three times the Organization for Economic Cooperation and Development's average. The support has allowed small, inefficient farmers, part-time hobbyists and individuals whose primary income comes from other sectors to remain in the industry. In 2015, 55 percent of Japanese farms measured less than 1 hectare in size, while 70 percent of farmers worked only part-time. At the same time, limits to corporate land ownership have made consolidation difficult. Ultimately, the inefficiency means Japan's domestic agricultural production only meets around 44 percent of total domestic demand, giving it a self-sufficiency ratio of roughly 0.3, which puts it among the lowest countries in the Group of 20 major economies.
Despite Tokyo's relatively high levels of protection for its farming sector, Japan's hungry and wealthy consumers have made the country an import powerhouse. In fact, 7.7 percent of Japan's total $51.9 billion in imports are agricultural goods, making the country the world's fourth-biggest buyer of such products. The United States is the biggest source of agricultural imports at 25 percent of the total, followed by the European Union and China at 13 percent each, as well as Australia and Thailand at 8 percent each. But given Japan's growing demand for imported agricultural products — even in the midst of elevated base-level protections — access to the Japanese market is competitive, leading exporters to strive to outdo their rivals and overcome their disadvantages compared to domestic producers.
Predictably, given its internal focus and relative inefficiency, Japan's agricultural exports are anemic, accounting for just 1.1 percent of total exports in 2016. Japan has a $47 billion agricultural trade deficit with the world, which is striking in light of its $26 billion trade surplus overall. Japan's agricultural deficit with the United States is $12 billion — a stark contrast to its overall surplus of $68.9 billion.
Going Gray
But the status quo for the Japanese agricultural sector is not sustainable. Japan's overall demographic shift means the entire economy must adjust, especially as projections indicate that there will be three retirees for every working-age person by 2065. While shrinking population numbers might eventually rebalance the country's demographics with its food production, Japanese agriculture must become more efficient, undergo greater consolidation and adopt better technology such as robotics and automation to meet consumer demand. Even then, however, Japan will also require more food imports.
The rapidly aging population in Japan's rural areas, where the share of the elderly is 6-7 percent higher than in cities, is exacerbating the problem. Rural areas are also emptying out: At present, 8.5 percent of Japan's population lives in small towns or villages, down from 21.3 percent in 2000 and 36.7 percent in 1960. And Japan's farmers have even worse prospects — a full 60 percent are over 60, up from 44 percent in 2005. Agricultural employment has also dropped 60 percent since 1985, dipping below 2 million for the first time in 2016, even at a time when labor shortages have plagued the sector. In short, Japan's urban population is growing as the workforce producing food for that population is aging and shrinking. At the same time, rural areas have not yet adjusted to the changing circumstances in a way that will facilitate their continued economic productivity.
Urgent Reforms
Japan's government is pushing for urgent structural changes in the agricultural sector to consolidate farms, secure greater corporate involvement, increase automation, lower levels of support and raise efficiency. Ultimately, Japan's goal is not only to connect farmers to domestic consumers more effectively but also to cultivate more overseas markets to counterbalance the long-term shrinkage of Japan's own consumer base. This push is just one aspect of the prime minister's overall Abenomics reform package to shake Japan out of its decadeslong economic slump.
The first priority in agricultural revitalization plans is to break the "iron triangle" linking the Agriculture Ministry, the LDP and JA-Zenchu. Since World War II, JA-Zenchu has been a major force in Japanese politics, functioning as a vote-harvesting machine that unifies hundreds of local agricultural cooperatives and provides services ranging from the distribution of agricultural products and inputs to banking and insurance. JA-Zenchu has been the major obstacle to deep structural change in the sector because it has acted as a bulwark against consolidation, keeping agricultural input costs high and mobilizing voters against trade deals such as the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP).
To this end, Abe passed reforms in April 2015 to reduce JA-Zenchu's power by eliminating its right to audit local cooperatives, cutting membership fees and giving member groups greater autonomy. Abe has succeeded — even if the reforms will not take full effect until 2019 and JA-Zenchu's influence did blunt efforts to reform the lobby's massive purchasing and marketing division, Zen-Noh.
Moreover, the LDP's so-called agricultural tribe has declined in size, as have the number of lawmakers directly tied to JA-Zenchu. Abe, too, has the clout to enforce party discipline to some extent, as the influence of rank-and-file lawmakers on national policy has weakened under the prime minister's tenure, in which he has bypassed many LDP-level checks and appointed reformers to shake up ministries.
In recent years, the LDP has also undermined the influence of rural voters on elections for the Diet, the Japanese parliament, giving it some insulation from the agricultural backlash. Like their American counterparts, Japan's rural voters have long enjoyed a greater degree of representation compared to their population size — a situation that the decline in rural population has even magnified. In terms of representation, the power of a rural vote to an urban vote was five to one in 2013. In that year, however, the LDP passed a law that shrank the Diet's lower house, eliminating or consolidating rural districts; two years later, it enacted similar reforms to the upper house. In July, the LDP added upper house representatives to more fairly reflect population sizes and bolster representation for urban areas. Once the reforms go into full effect, they will decrease the rural-urban vote disparity to an estimated three to one.
Japan's next order of business will be bilateral negotiations with the United States — which has identified the agricultural sector as a major priority.
Opening Up?
Nevertheless, agricultural interests have shaped Japan's recent trade negotiations, including the CPTPP and the EU-Japan Economic Partnership Agreement, both of which will come into effect next year. JA-Zenchu did not derail the deals, but it did exert influence on members of the Diet, who passed resolutions to maintain some tariffs and quotas — at least temporarily — on sensitive agricultural products such as rice, wheat, barley, beef, pork, dairy and sweeteners. This meant that, while granting unprecedented access, the trade deals fell short of the initial hopes of exporters seeking to crack open the Japanese market.
Still, both trade deals have forced some liberalization on Japan's agricultural sector. As a concession during CPTPP talks, Japan agreed to raise rice production quotas over the next 12 years, representing the first increase since 1995. On beef, Japan will reduce tariffs to 9 percent over 15 years — marking a drop of 50 percent to 66 percent over current levels. At the same time, Tokyo also agreed to ease tariffs and quotas on sugar, dairy powder, cheese and protein powders. In the EU-Japan Economic Partnership Agreement, Tokyo succeeded in maintaining full protections for rice and partial protections on wheat, barley and sugar but agreed to halve tariffs on European Union beef to 14 percent and completely remove tariffs on cheese and wine. Japan also agreed to eliminate 60 percent of pork tariffs within 12 years — the first time it has made such a massive cut in any trade deal. More remarkably, Tokyo agreed to the cuts despite estimates that the agreement will cost the Japanese economy up to $1.02 billion in agriculture, forestry and fisheries production per year.
Lingering Influences
Japan's next order of business will be bilateral negotiations with the United States — which has identified the agricultural sector as a major priority. Japan is already the second-largest consumer of U.S. corn, as well as the largest market for U.S. beef, pork, wheat and soybeans, but Washington is aiming to secure the same degree of access to the Japanese market as its competitors who have already signed agreements. Unsurprisingly, Japan has specified that any concessions to the United States will not exceed those already granted in the CPTPP and EU trade deals, but Washington has hinted that it expects Tokyo to sweeten the pot further in their bilateral discussions.
In negotiating with the United States on trade, Japan will need to carefully weigh Washington's threats against the political risks at home. Although their influence is steadily waning, Japanese farmers remain an organized force in local politics who have a proven track record of mobilizing to vote for their interests. And while JA-Zenchu is no longer the pillar it once was, its members account for 10 percent of the electorate. (In fact, JA-Zenchu’s total membership has surprisingly risen 13 percent in the past 20 years, largely thanks to the influx of non-farmers to its ranks.) Such considerations will weigh heavily on the minds of LDP lawmakers as elections for the Diet's upper house approach in July 2019 — around the same time as Japan and the United States are expected to conclude their trade talks. If Washington attempts to push Tokyo for agricultural concessions that exceed those it granted in the CPTPP and EU deals, Japanese lawmakers might balk out of fear of vote losses. At the same time, Abe may calculate that deeper agricultural concessions to the United States are worthwhile if they guarantee Japan's critical auto sector greater access to the U.S. market, given that any harm to the car industry would pose a much bigger problem to the LDP.
Ultimately, JA-Zenchu's influence over agriculture will linger well into the next decade despite demographic turnover and efforts to consolidate farm holdings. As a result, farmers' demands for protectionism and government benefits will remain a significant, albeit waning, consideration for Japan's lawmakers for some time to come.
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