This year will be important for Japan in developing policy for creating a viable agricultural sector without inviting criticism of protectionism from abroad. Among the reasons for tackling this issue is that, although the Doha Round of World Trade Organization negotiations has stalled, the liberalization of agricultural trade is inevitable.

Japan and Australia have agreed to start negotiations to work out a bilateral economic partnership agreement (EPA). Since Australia is a major agricultural producer, abolition of tariffs on farm products under the EPA would put Japanese farmers at a competitive disadvantage in terms of prices.

The Japanese people worry about the nation’s low food self-sufficiency rate, especially when considering that world population growth and global warming could someday destabilize international food exports and supplies. Agriculture is likely to become a big issue during the campaign for the Upper House election in July along with other issues such as economic inequalities and education reform. This is because agricultural villages exist in many of the 29 single-seat constituencies with election races, the results of which are expected to greatly influence the overall outcome.

The EPA between Japan and Australia would help Japan secure supplies of natural resources from Australia, such as coal and iron ore, and facilitate export of Japanese manufactured goods such as cars and machinery. But it could have a serious effect on Japan’s farmers. The agriculture ministry has estimated that abolition of import tariffs on dairy products, beef, sugar and wheat would cause Japan’s agricultural production to contract by 790 billion yen — 290 billion yen decline in dairy production, 250 billion yen in beef, 130 billion yen in sugar and 120 billion yen in wheat. The estimate is based on the hypothesis that Australian products would knock Japanese products out of the market. The ministry says that in order to cushion the damage to Japanese farmers, the government would have to spend an annual 430 billion yen in offsets for price differences between Japanese and Australian products.

Last year, the Doha round of trade negotiations was halted mainly because of a conflict on farm trade between the United States, on one hand, and the European Union and Japan, on the other. This year, the U.S. and EU have resumed talks. If they strike a compromise in agricultural trade, Japan will find itself in a difficult spot. The government, politicians, bureaucrats and the people will not be able to avoid making a tough decision on the desired level of agricultural production and the financial burden that Japan must bear to maintain it.

While Japan faces the possibility that large quantities of foreign agricultural products will penetrate its markets in the future, there is a strong public outcry for raising the nation’s food self-sufficiency rate. In fiscal 1965, Japan’s calorie-based self-sufficiency rate was 73 percent. By 1998, however, it dropped to 40 percent and remained at the level for eight consecutive years through fiscal 2005. The government seeks to raise the rate to 45 percent by the end of fiscal 2015.

In a December government poll, about 80 percent of those surveyed expressed worries about Japan’s food supply in the future because of possible changes in the world situation leading to decreased imports of food or a stoppage altogether. The largest segment of those surveyed, 49 percent, put the desirable self-sufficiency rate at 60 to 80 percent.

To help increase the size of agricultural production units in Japan and thus strengthen overall production efficiency, the government will introduce a new subsidy policy in fiscal 2007. Instead of paying subsidies to every farming household, it will subsidize farms above a certain size that grow wheat, soy beans, sugar beets or potatoes (farmed for starch) to offset price differences between Japanese and foreign products. Household farming units eligible for the scheme must be at least 4 hectares (at least 10 hectares in Hokkaido); collective farming units must be at least 20 hectares. Subsidies also will be provided whenever revenues from those crops plus rice drop steeply due to factors such as bad weather.

The opposition Democratic Party of Japan calls for attainment of full self-sufficiency in the supply of staple foods. It proposes giving subsidies to every farming household to cover the difference between the production costs of staple foods and their market prices. The Liberal Democratic Party characterizes the DPJ policy as “scattering money,” while the DPJ criticizes the government for forsaking smaller farming households and their distinctive traditions. Each political party must refine its agricultural policy and offer thorough explanations before the Upper House election.

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