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Farmers can’t bank on Abe

Under Prime Minister Shinzo Abe’s leadership, Japan is now a party to negotiations for the Trans-Pacific Partnership (TPP) free trade arrangement. Even though both Abe’s ruling Liberal Democratic Party (LDP) and the opposition Democratic Party of Japan (DPJ) pushed Japan’s participation in the projected scheme, they differ in their views of how Japan may benefit from the pact.

When the DPJ was in power — until late last year — successive Prime Ministers Naoto Kan and Yoshihiko Noda insisted that TPP membership would enable Japan to boost its exports and to cash in on economic growth in the Asian region.

In contrast, Abe’s call for Japan’s TPP membership is linked to his growth strategy, which constitutes the “third arrow” of his economic agenda, the other two being massive monetary easing and large fiscal stimulus. His government regards the TPP as a trigger for deregulating domestic business activities.

The DPJ’s reasoning was not persuasive for two reasons: (1) Stagnant Japanese exports were due primarily not to high tariffs imposed by trading partners but rather to a steep rise in the value of the yen currency; and (2) without the participation of either China or South Korea, the TPP can hardly be expected to enable Japan to benefit from prosperity in Asia.

It may seem to make perfect sense for Abe to place the TPP at the core of his growth strategy, but promoting “structural reform” and “readjusting vested interests” are two sides of the same coin. If any political wrangling finds its way into the picture, it’s possible that Abe’s economic policy will stop being about economics.

Take agriculture: The total output of Japan’s agriculture, forestry and fishery dwindled to a mere 1.4 percent of gross domestic product in 2010, not much higher than the United States’ 1.1 percent. One could say that structural reform in this sector has reached its limits and that further efforts to implement such reform in the farming sector would not contribute to the nation’s economic growth.

Still, agriculture is made the main pillar of the growth strategy under Abenomics. The government decided June 14 to create a new body, tentatively named the Farmland Integration Bank (FIB), that would borrow abandoned farmland lots from their owners, place them under semi-public ownership, improve and reorganize them into larger faming units and lease them to strongly motivated farmers.

This supposedly would result in concentrating low productivity farmland with the bank and necessitate huge projects for land improvement.

The true aim of the Abe administration is to use such projects as a means of reviving vested interests in agriculture-related civil engineering.

A ranking official for an agricultural cooperative in a rice-producing prefecture said that although farmers felt betrayed over Abe’s decision to join the TPP negotiations, they had no choice but to support the LDP in the Upper House election. That’s because when the DPJ won big in the 2009 Lower House election, then DPJ secretary general Ichiro Ozawa greatly reduced budgetary allocations for land improvement projects from nearly ¥600 billion in fiscal 2009 to about ¥200 billion in fiscal 2010 — apparently to punish the national federation of land improvement projects associations, which was an influential supporter of the LDP.

After regaining power in the Lower House election in December 2012, the LDP’s top priority was to fully revive those land improvement projects. It is easy to silence farmers who are angry at Abe’s decision to join the TPP talks. The LDP only has to apply silent pressure on them by hinting that if they do not support the LDP in elections, they will not be able to get rights and interests in agriculture-related civil engineering projects.

The stupid FIB scheme probably will be implemented. Three scenarios are possible for rice paddy fields integrated and enlarged under the scheme:

(1) The first is most desirable. Rice prices fall but the fall is more than offset by improved management and increased production, clearing the way for exporting inexpensive rice and eliminating the need for the policy of reducing rice acreage.

This would be ideal for “aggressive agriculture,” but it is as close to a pie in the sky as anything could be. Rice production in Japan requires proper irrigation, and the quality of farmland is affected by hours of sunlight and water-supply systems. This means that economy of scale does not necessarily lead to more efficient agricultural production in Japan. Professor Shinichi Shogenji of Nagoya University Graduate School notes that “Reduction in rice production costs levels off after rice- paddy size reaches 10 hectares.”

(2) The second scenario is more realistic than the first. FIB sells the integrated and enlarged farmland as land for building houses and commercial facilities after the land is leveled. “Camouflaged farmers” who own the land receive windfall profits. Since the selection of land for such resale would be determined through political processes mainly involving local Agricultural Affairs Committees, politicians who have exercised political power in the selection of land would be rewarded at the ballot box. This more or less revives the vested interest structure that prevailed before the LDP ceded the government reins to the DPJ in 2009.

(3) The more likely scenario is that big agricultural corporations that have obtained larger amounts of farmland go bankrupt because they cannot withstand falling rice prices. The areas would be left with older “former farmers” who have already sold off their farm machines and implements. It would be difficult to find new farmers ready to take over tracts of 100 to 200 hectares, and the sudden appearance of large tracts of abandoned farmland would make it nearly impossible to restart farming in the areas.

This nightmarish scenario may sound excessively pessimistic, but it’s not. Indeed, this type of case has already surfaced in areas where large-scale farming has been tried. For example, an agricultural corporation in Kurobe, Toyama Prefecture, has filed for bankruptcy because of falling rice prices and the burden of having invested in large agricultural machines. It was cultivating about 70 hectares of farmland after getting old farmers to entrust rice production to it.

In a number of cases, farmland is expanded after old farmers entrust rice production to younger farmers following pleas to take over production.

Because rice is in excess supply as consumers eat less rice than in the past and as much as 40 percent of arable rice paddies throughout the country are subject to the acreage reduction policy, there is no need to enlarge the size of farmland in an artificial manner.

It is no exaggeration to say that doing nothing is the best way. It would naturally lead to purchase of high-productivity lots, which would then lead to the expansion of farmland. What is needed now is to find people eager to engage in farming — not push projects to improve farmland.

Farmers should carefully listen to and analyze what Abe has to say so that they’re not deceived by him again. Earlier they were deceived by his assertion that Japan had secured a promise from the U.S. that the items of interest to farmers would be excluded from across-the-board tariff abolition under the TPP.

Abe is interested in investing huge sums of money in “farmland” but not in “farmers.” And he has never said he would protect the future of Japan’s agriculture.

This is an abridged translation of an article from the July issue of Sentaku, a monthly magazine covering Japanese political, social and economic scenes.