Agricultural Policy Reform in the 21st Century- An Agricultural Strategy for Surviving WTO and FTA Negotiations

The greatest impediment to successful and constructive negotiations under either WTO, or FTA-related trade liberalization is extremely high tariffs on Japanese agricultural products (490% for rice, for example). Such high tariffs prevent cheaper foreign agricultural goods from penetrating into the Japanese domestic market and thus protect Japanese farm households by allowing them to sell their products at high prices at home.

If tariffs are reduced under WTO or FTA trade negotiations, such protection will disappear and farm households' income will fall. In order to cope with this problem, the government can introduce direct income payments for compensating the loss of farm households' income. Price-supporting policies place a burden directly on domestic consumers because of very high prices of domestic agricultural goods, whereas the aforementioned direct income payment imposes a tax burden directly on tax payers.

Of course, this policy shift from price-supporting policy to direct income payment mitigates the adverse impact of tariff reduction on farm households' income. However, a large problem remains. That is, direct income payment alone will not lead to improving the efficiency of the agricultural sector, unless it is accompanied by structural reform which targets relatively large farm households as eligible for direct income payments.

Under the price support policy over the past forty years, the Japanese agricultural sector has been in a constantly declining trend: the ratio of secondary part-time farm households whose income from agricultural activities is less than half of total income has increased from 30% to 70%; the ratio of farmer over the age of 65 has increased from 10% to almost 60%; the food self-sufficiency ratio decreased from 80% to 40%. Japanese consumers face a dire situation in terms of food supply safety. In the European Union, policies, structural reform has been implemented so as to increase the scale of agricultural land per farmer with resultant improvement in efficiency. In contrast, in Japan, the price support policy without adequate structural reforms simply protected small-scale farming households. Hence, Japanese agriculture remains quite inefficient.

Japan needs a direct income payment system not just to cope with tariff reductions, but the inefficiency problem by accompanying structural reform. Together with such structural reforms as strict zoning which does not allow farmland to be utilized for other non-farming purposes, it is essential that the direct income payments be targeted at rice-producing farm households with a minimum scale of farmland (eg 3 hectares). Policy shift toward direct income payments, if not accompanied by increased productivity, will simply lead to imposing a huge burden on public finance, that is, on tax-payers, and will not make Japanese agriculture competitive in the international market, nor stop the constantly declining trend of food self-sufficiency.

At this symposium, discussions will take place on the agricultural policy reform, especially a concrete design of direct income payment scheme to be introduced into Japanese agriculture. New agricultural policy will realize a stronger and more efficient agricultural sector in Japan that can meet the challenge of global competition. The discussions will draw upon experiences of the United States and the European Union as incorporated into OECD policy proposals, and also on agricultural reforms taking place worldwide.