Reform of agricultural cooperatives

Reform of the nation’s agricultural cooperative system, billed by the Abe administration as one of Japan’s “bedrock” institutions it wants to crack in its economic growth strategy, has finally begun to move forward as revision of the law governing the operation of farm cooperatives came into force in April. Both the government and leaders of the farm cooperatives should rack their brains to achieve the goal of the legal revision — boosting farmers’ income. Agricultural cooperatives need to depart from their conventional ways of thinking and try new approaches in their operations.

Agriculture in Japan is in a difficult situation. The farming population, which topped 7 million in the 1970s, fell below 3 million in 2008 and has since further declined to dip below 2 million for the first time this year — to 1.92 million, a 8.3 percent fall from 2015, and it’s now around 40 percent of the level a quarter century ago. The number of farmers aged 70 or older —who account for nearly half the farming population — fell considerably from last year, but more ominous is that the number of younger farmers, which the government seeks to increase, dropped sharply. The number of farmers under the age of 30 — who account for a mere 2.5 percent of the total — fell 24 percent. These data alone highlight the urgent need to halt the decline of the farming sector by making it a more attractive business.

One of the key measures incorporated in the revised law aims to weaken the power concentrated in the Central Union of Agricultural Cooperatives, better known as JA-Zenchu, and give more management autonomy to local cooperatives. JA-Zenchu’s mandatory audit of and management guidance for local cooperatives will be abolished. Beginning in October 2019, local cooperatives will be able to choose either an audit firm splintered off from JA-Zenchu or certified public accountants for their audit. The question is how these reforms should help farmers become more competitive.

An important point of the reform is how to reduce the cost of agricultural production, notably the prices of fertilizers and pesticides that the Central Federation of Agricultural Cooperative Associations (JA-Zen-Noh), which serves as a general trading house of sorts for the agricultural sector, sells to individual farmers through the cooperatives. Shinjiro Koizumi, head of the Liberal Democratic Party’s Agriculture and Forestry Division, points out that fertilizers and pesticides sold in Japan cost more than twice as much as those sold in South Korea.

According to a 2013 survey by the agriculture ministry, 80 percent of the farmers polled called for lowering the prices of materials used in their production. The high prices are driving some farmers out of their cooperatives. JA-Zen-Noh says it will cut the prices but has yet to make clear when and by how much. It needs to make serious efforts to find cheaper sources. Local cooperatives should also make efforts to find cheaper suppliers so that market principles will drive JA-Zen-Noh to do more to supply materials to farmers at lower prices.

An LDP project team reportedly plans to complete proposals in about a month to strengthen Japan’s agriculture and forestry sectors. There remains a possibility, however, that lawmakers with long-standing ties to the agricultural sector will resist some of the reform measures to protect vested interests. The LDP team needs to make sure the reform efforts will not be derailed.

Another key factor in achieving successful reform is how each of the local farm cooperatives — now given greater freedom of operation — will endeavor to improve their own and member farmers’ performance. Aside from reducing production costs, more efforts are needed to sell agricultural products under better terms for the farmers. Currently the cooperatives rely heavily on commissioned sales, and are only paid for the products that their buyers actually sell. This practice leads many farmers to leave the cooperatives in pursuit of more profitable avenues of selling their products. To increase profitability, the cooperatives need to find retailers willing to buy the farm products under better terms. JA-Ze-Noh, whose function includes selling farm products, should seek to build stable relationships with large-scale retailers.

Other ways to make farming more profitable will include finding suppliers of more affordable farm equipment, making transportation more efficient, cutting distribution costs and increasing farm exports. Another improvement would be to earn revenue by making facilities owned by cooperatives, such as warehouses, available to nonmembers. The LDP’s team should make concrete proposals on these items, and JA-Zenchu and JA-Zen-Noh should present counterproposals when necessary so that all parties can find a constructive way to strengthen the nation’s agricultural sector.

Reforming the farm cooperative structure alone will not save Japan’s agriculture at this critical juncture. The farming population continues to fall and is rapidly aging — with the national average at 66.4 as of last year. In two years, the government’s long-standing policy of curtailing rice production capacity to stabilize prices will be abolished, forcing farmers to judge for themselves how much to produce. The Trans-Pacific Partnership, if it comes into force, will expose Japan’s farm sector to a more competitive environment. Both the government and the sector need to work out effective steps to ensure survival and improve the conditions facing farmers.