Japan to Take Small Significant Step toward Structural Reforms

Japan’s ruling party has decided to take an important step toward freeing the nation from the economic tyranny of its small, inefficient farmers by limiting agricultural subsidies to large-scale farms in an effort to prepare the nation for entering the US-led Trans-Pacific Partnership free trade zone.

Small farmers are being subsidized under a scheme to cut rice output to prevent prices from plunging due to declining rice consumption. A move to cut those subsidies is a sharp departure from past administrations’ slavish devotion to coddling small farmers.

The government plans to submit the bill to limit subsidies to the Diet next year.

“It is not wrong to integrate farms to reduce production costs and raise profit for farmers,” said Finance Minister Taro Aso at a Friday press conference. “The direction of reducing subsidies is not wrong for this country.”

Members of the ruling party are also proposing the creation of mechanisms to encourage the merging of small farms to improve productivity.

The decision to limit rice subsidies to only farms with sufficient acreage to achieve a degree of efficiency is a bold step made possible by the LDP’s surging support after recent successes with Abenomics combined with a national sense of urgency about the need to join the TPP to avoid being left out of what may become the world’s largest trading bloc. Japan is obliged to show progress toward structural reforms in order to meet the loose yearend deadline set for TPP membership. The most challenging of these involve subsidies and protectionist tariffs that favor the nation’s abysmally inefficient agricultural sector.

Until now Japan’s estimated 25 million small rice farmers have held the long-ruling LDP in their stubborn grip thanks to their disproportionate voting power under an anachronistic electoral districting scheme. Under their influence Japan has not only been granting hefty subsidies meant to keep the farms afloat but has also maintained a 788% protectionist tariff on imported rice and other agricultural products.

Combined with strict zoning regulations that prevent farmland from being developed for housing or commercial use, these structural impediments have kept Japanese trapped for the past half century in a consumer hell of overpriced food, cramped housing and limited access to the big-box retailers that sell low-priced consumer goods. These impediments have acted as practical barriers that prevent Japan’s trading partners like the US, the Eu and S. Korea from getting free access to Japanese consumers.

True structural reforms by Japan would have big consequences not only for its own consumers but for its trading partners. Liberalizing its agricultural sector would save Japanese consumers an estimated $4,000 per person annually in food costs alone while giving trading partners like its trading partners full access to a $400 billion market for agricultural products. In the long term, it would also help open up other sectors like retail and construction.