15 May Agriculture in Japan: how history and liberalisation are influencing trade
Japan Trip Report by Tamara Biffin
During the recent meat industry tour of Japan, it was difficult not to take note of the heightened level of governmental support for a range of Japanese agricultural industries and the apparent rational behind this long standing protectionism of domestic markets. Non-trade issues and the cultural values of agriculture to rural Japanese people rapidly became apparent to the group, triggering my interest in the origins of this protectionism, and the effects of reduced domestic support in the face of increased free trade between countries. Given the recent signing of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (signed 8 March 2018) by Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore and Vietnam; and focuses on advancing trade liberalisation between Japan and Australia, it is of interest to consider this value of agriculture to Japanese people and the cultural significance of food production to both Japanese producers and consumers alike. It is this cultural value that has driven traditional market access barriers and significantly contributed to the continuation of trade distorting domestic agricultural support within Japan. Therefore, the following discussion briefly considers the history of protectionism within Japanese agriculture and the effects of increased liberalisation of these markets on Japanese producers and the domestic market.
History of Agricultural Protectionism in Japan
Japanese consumers value food origins and have preferences for Japanese produced foods (Nason 2018). The true value of this certainly becomes evident when travelling in Japan, with products having been meticulously arranged, packaging exhibiting clear country of origin labelling and retailers taking extreme pride in their food and beverage displays. From the producer level, the cultural value of agricultural production is also clear to see. Through conversation with a broad range of people, whether it be every day consumers through to persons heavily involved in the agricultural and food sector, one can gain a deep appreciation for the importance of agriculture to Japan’s rural areas and people.
Japanese agricultural production has traditionally been highly subsidised under protective policy in an attempt to sustain viability of small rural areas and ensure domestic self-sufficiency. While other countries once protected their producers beyond the point of economic rational, Japanese agricultural protection under policy grew to extremes for post WWII Japan. Protection of Japanese rice producers notably (up to 800% tariff on imported rice; Fitchett, 1988), but also wheat and barley, beef and pork, dairy products, and sugar (comprising the ‘sacred 5’ commodities) have long experienced support beyond the belief of agricultural communities around the world. Whilst traveling in Japan, the tour group was amazed to discover that governmental investment in new infrastructure ventures by producers could cover up to half of the purchase and installation costs (personal communication, Oono). In addition, the group was intrigued that on-farm losses for the 5 key protected industries are averaged year on year, with average losses being rebated to producers within the respective industries (personal communication, Austrade).
It is evident that the high levels of support within Japan have arisen from a complex combination of political, historical, economic and ideological aspects. It can be noted that the development and intervention of the Japan Agricultural Cooperatives that emerged primarily to protect the domestic rice market during food shortages and rationing in the wake of WWII have played a major roll (Fitchett 1988). This entity continues to represent 9.7 million voting members (Gro Intelligence 2017) that can drive legislation for agricultural subsidies, as well as acting as wholesalers, collectors and retailers influencing commodity pricing.
Current Trends in Japanese Agriculture and Liberalisation of Markets
Protection levels have declined in the past decades, with the help of the World Trade Organisation Agricultural Agreement, yet protectionism of Japanese agriculture retains heightened regulation, with Japanese Agricultural Cooperatives continuing to present an obstacle to structural change within the Japanese agricultural sector (Gro Intelligence 2017). Despite continued protectionism, Japanese imports have increased by 40 % over the past 50 years (making it the 4th largest global importer, with Australia making up 54 % of Japan’s total beef imports; Austrade 2018) and production of traditional Japanese commodities has dropped by 32 %, with Japan’s food self-sufficiency declining to 39% in 2006 (Austrade 2018). While up to 50 % of the Japanese population was employed in agriculture immediately post WWII, post war western investment in the Japanese economy drove increased manufacturing, and employment in agriculture plummeted (7% in 1980s; Gro Intelligence 2017). Now, just 4 % of Japan’s population is employed in agriculture, with the producer population aging and urban areas encroaching on agricultural land. The cost of protectionism has exceeded the contribution of farming to the national GDP for many years, driven up costs to consumers and impeded trade agreements that have limited access to new markets for Japanese commodities. Japan currently has a 61 % import demand which is driving the need for trade liberalisation and the removal of trade inhibiting barriers (Austrade 2018). This is a necessity in order to capture multiple sustainable food supply sources.
While liberalisation of Japanese markets under free trade agreements threatens to reduce the viability of some small rural areas in Japan, there is increased opportunity for export of high quality Japanese product. This has been observed over the past 3 – 5 years as Japanese exports have lifted by 22 % with the increase in bilateral trade agreements between Japan and other countries. It has been the un-protected industries that have seen greater efficiency in the past few years with Japanese seafood representing Japan’s largest agricultural export, despite the seafood industry seeing gradual decline and depleted stocks (Gro Intelligence 2017).
Signing of the TPP-11 will see tariffs on Australian beef exports to Japan down to 9% over 15 years, with tariffs currently sitting at 29.9% and 27.2 % for chilled and frozen beef, respectively, under the current Japan- Australia Economic Partnership Agreement (Nason 2018). Notably, this will open up access for high quality Japanese Wagyu into the Australian market. This is just one example of how Japan can instantaneously reduce tariffs while increasing exports via concentrating on export of high value commodities.
Increased liberalisation of the Japanese market will potentially increase some non-trade challenges. However, the opening of markets via export of high quality products will be highly beneficial to the Japanese agricultural sector. Reduction in tariffs on Australian imported beef will be offset by Japanese export of high quality wagyu product. This, in combination with promotion of Japanese geographical indications, will grow additional external markets. The continued focus on production of high quality and clean food, along with rising incomes in East Asia will see Japanese exports into East Asia continue to rise. This continual growth of new export markets will significantly help counterbalance increases in non-trade issues within Japanese agriculture as markets are freed up from support under free trade agreements.
Austrade (2018). ‘An introduction to the Japanese food and beverage market’ (Powerpoint).
Fitchett, D. A. (1988). ‘Agricultural trade protectionism in Japan’. World Bank Discussion Papers, Washington D.C., USA. Available online: http://documents.worldbank.org/curated/en/600771468752738270/pdf/multi-page.pdf
Gro Intelligence (2017). ‘Exposing the mystery behind Japanese agricultural exports’. Gro Intelligence, available online: https://gro-intelligence.com/insights/japanese-agricultural-high-quality-exports
Nason, J (2018). ‘Beef arms race steps up in Japan’. Beef Central, available online: https://www.beefcentral.com/trade/export/beef-arms-race-steps-up-in-japan/
Andrew Cox, Meat and Livestock Australia, Regional Manager.
Kaori Shinoda, Austrade, Senior Business Development Manager, Australian Embassy.
Sachiko Stone, Department of Foreign Affairs and Trading, Research Officer (Trade and Economic), Australian Embassy Japan.
Yasuhiro Oono, Farm owner and manager Oono Farms, Oono Farms, Memuro.