Will the core entity of Japan’s monster agricultural conglomerate survive mounting public criticism of its huge vested interests?

That question remained unanswered Friday as a deregulation panel submitted a policy recommendation to Prime Minister Shinzo Abe that includes a call to reform the Central Union of Agricultural Co-operatives, better known as JA-Zenchu.

JA-Zenchu has long been criticized as a roadblock to reforming the heavily protected agricultural sector, in particular rice farming.

In its initial draft, the panel’s working group called for the “abolishment” of JA-Zenchu.

But the report submitted Friday only recommends that JA-Zenchu “voluntarily transform itself into a new system” that would allow local agricultural co-ops to operate with more autonomy.

However, the specific functions and powers in this “new system” were left unclear. The report was revised under political pressure from the conservative ruling Liberal Democratic Party, whose Diet ranks hail from rural areas and have cozy relations with the JA group.

Abe’s Cabinet favored the initial draft because farm reforms are often a test case for his oft-touted deregulation vows, the essence of his “third arrow” of economic growth.

The next round in the battle will come at the end of the year, when the Cabinet will draw up bills with the specific steps to reform JA, a senior official at the prime minister’s office said. The bills are now planned for submission to the Diet after it opens in January.

“Opinions from the LDP Diet members carry much weight. Without their consent, any (reform) bill won’t pass the Diet,” the anonymous official said, adding that he is still optimistic about the proposals.

The panel report proposes several drastic recommendations and the LDP has reportedly dropped its resistance to some of them. Among them is a call to transform the National Federation of Agricultural Cooperative Associations, or JA Zen-noh, into a stock company.

JA Zen-noh markets the agricultural products of the JA group, and converting it into a stock company is expected to help local co-ops become more market-oriented.

Experts have long called for a major overhaul of the JA group, particularly JA-Zenchu.

Kazunuki Oizumi, a noted agricultural scholar and former professor at Miyagi University, argued that the JA group is no longer an “agricultural cooperative” group. The vast majority of JA union members are part-time farmers or not farmers at all, and the primary interest of JA’s executives has shifted to its banking and insurance arms, not improving the competitiveness of Japanese agriculture, he said.

As Oizumi points out, the JA conglomerate barely resembles an agricultural cooperative, which is supposed to aid farming and improve farmers’ living standards.

JA’s banking business boasts ¥92.5 trillion in deposits, technically making it one of the nation’s largest banks, rivaling the Mitsubishi UFJ Financial Group, which has ¥125.1 trillion in deposits.

“In a sense, the JA group has become a financial institution. It’s no longer an organization designed to increase agricultural productivity as defined by the Agricultural Cooperative Law,” Oizumi said.

After World War II, the JA group became part of a government-based system for tightly controlling rice production, and thus prices, as well as distribution to keep the food supply stable.

In the 1960s, rice production surpassed consumption and urban wages exceeded farming income. The rice control system morphed into a program to subsidize farmers and provide cover for farming groups and rural politicians.

JA-Zenchu has long used its political clout to protect domestic rice farmers by pressing the government to keep prices artificially high and maintain tariffs on foreign rice.

But despite all its protective measures, the JA group has failed to stop the decline of Japanse agriculture because domestic rice consumption keeps dropping and young people in rural areas keep migrating to the cities.

According to the government, the average age of agricultural workers in 2012 was 65.8 years. The average age of rice farmers in 2010 was even higher at 69.9 years, leaving bleak prospects for the future of Japanese agriculture.

LDP lawmakers who have close relations with JA succeeded in revising the earlier draft of Friday’s report. But their ability these days to fight back appears relatively weak compared with the harsh anti-reform moves orchestrated by their powerful predecessors in and before the 1990s.

Oizumi said many of those LDP lawmakers now understand that they can’t stop the decline of agriculture if the JA system is left intact.

“They should be feeling emptiness. They well know that agriculture won’t grow even if the postwar regime is maintained,” Oizumi said.