Economic Policy Analysis Series (Japanese)
Agricultural Policy Reform for Japan and Its Consumers: To Better Steer WTO and FTA Negotiations
Written by YAMASHITA Kazuhito
* This publication is in Japanese. An English translation is not available.
The purpose of this book is to build on and make concrete the arguments in my previous book, WTO to Nosei Kaikaku ("WTO and Agricultural Policy Reform"), published by the Food and Agriculture Policy Research Center, 2000. The previous book, which examines the history of agricultural negotiations under the auspices of the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO) and explains how agricultural reforms can be carried out through the introduction of a direct payment scheme replacing agricultural protection through tariffs has found many readers and received a degree of recognition, especially among people involved in agriculture.
The previous book has been cited in the recommended reading list of 20 books by Fumio Egaitsu, professor emeritus at the University of Tokyo, in his book entitled Nogyo Keizaigaku ("Agricultural Economics") (2nd edition, Iwanami Shoten). It was also among the seven books nominated for the Mainichi Shimbun's Economist Award in 2001. Although it did not win the award, the book finished as runner-up in the final screening, in which reviewers said, "Although the part describing the process of WTO agricultural negotiations is interesting, the conclusion of the book, in which full-time rice growers are defined as socially vulnerable, is questionable." This commentary was quite thought-provoking.
The primary goal of the prewar agricultural policies was to free tenant farmers from poverty under the harsh landlord system. These farmers were economically and socially vulnerable and therefore, the government agricultural policies were meant to address both economic and social problems. The aforementioned commentary at the time of screening for the Economist Award, however, made me realize that in today's world, people are not sympathetic to the idea that farmers are economically and socially vulnerable.
Just then, the Ministry of Agriculture, Forestry and Fisheries (MAFF) came under fierce public criticism for giving priority to producers' interests rather than consumer concerns about food security in coping with the outbreak of bovine spongiform encephalopathy (BSE, or "mad cow disease"). This led the minister of agriculture to pledge that agricultural policies would place greater emphasis on the needs of consumers.
Today, Japan's food self-sufficiency ratio hovers around 40%, down by half from around 80% in 1960. It is thus agricultural imports, rather than domestic products, that take the primary responsibility for fulfilling the primary role in securing Japan's food supply. It may be the case that as Japan's dependence on agricultural imports increases, the government's agricultural polices have lost sight of the need for food security and consumer protection and thus have become biased in favor of the needs of producers.
The postwar agricultural administration, however, has its origin in consumer protection policy, which, as a means to restore the nation's economy, called for securing an equitable distribution and stable food supply for the people while regulating the price of food, which accounted for more than half the household expenditure, thus consisting most of the labor cost.
The postwar agricultural land reform pursued two goals: the liberation of tenant farmers and the enhancement of food production in order to supply enough food to the nation. Also, one of the principal goals of the "priority production system" - Japan's postwar industrial policy under which the government spent its limited financial resources on strategically important sectors - was to increase food production by quickly reviving the chemical fertilizer industry and boosting fertilizer output. At that time, agricultural policy was a part of broad economic policies, and thus was formulated in accordance with overall economic conditions. This prevented agricultural policy from withdrawing into the secluded world of agriculture governed by narrow vested interests.
"Gains from trade," in the context of international economics, refers to the benefits in terms of the greater consumption made possible through imports, not the opportunity to raise production through exports. The relationship between trade and the environment has been a major issue of contention with environmental non-governmental organizations (NGOs) running campaigns against globalization. Indeed, based on the mercantilist viewpoint, where gains from trade are defined as gains in exports and production, trade and the environment do conflict with each other because the greater the production and sales, the greater the benefits. However, if gains from trade are defined as gains in consumption, the question is what amount or combination of consumption of goods of wealth, whether it is tradable goods or pleasant and healthy environmental goods, consumers prefer. In other words, trade and the environment are not in a conflict caused by different decision-makers, but both become subject to an overall and consistent judgment by a single decision-maker, namely consumers, regarding a combination of consumption of goods.
Following the publication of the previous book, I served as a chief representative of MAFF in charge of matters relating to the Organisation for Economic Co-operation and Development (OECD) for one year starting in April 2002. In that capacity, I had an opportunity to learn about changes in and theories on agricultural policies in other countries. In particular, I was often able to exchange views with OECD Director for Food, Agriculture and Fisheries Stefan Tangerman, an internationally renowned agricultural economist and former vice president of the University of Gottingen, on a wide range of issues, including my ideas for the reform agricultural policy by through direct subsidization of narrowly targeted recipients.
Since September 2003, I have been engaged in research at the Research Institute of Economy, Trade and Industry. Here I have the opportunity to study various problems, including those not related to agriculture. According to RIETI Consulting Fellow Hiroki Niihara, "Many of the top managers of leading companies have had an experience of being cut off from the mainstream at certain point of their career... Compared to those who move smoothly up the ladder, managers who have gone through hard time in a peripheral post or a subsidiary, have greater chances to succeed in carrying out reform... It is because they have the opportunity to take an objective view from the outside that these managers are able to see the reality of their companies and discover absurdities that need to be corrected." Both Hiroo Wada, former minister for agriculture, forestry and fisheries, and Dr. Takekazu Ogura, key figures who led Japan's postwar agricultural reform such as land reform had gone through hardships such as imprisonment and relegation and led their peripheral career life. Fortunately or not, I now have opportunity to look at the MAFF from the outside. From this perspective, I have become aware of certain things that previously escaped my notice.
Chapter I of this book explains today's agricultural problems facing Japan and the world from the standpoint of food supply, environmental problems, and trade negotiations.
It is generally understood that the GATT/WTO regime is a system based on the theory of international economics. In reality, however, it is, in many respects, based on a mercantilist viewpoint where exports are deemed to be a good thing. This is the problem that I refer to as the "non-economics of the GATT/WTO." In Chapter II, I return to the theory of international economics, in which gains from trade are defined as gains in imports and consumption, and where I refine the arguments on food security from the viewpoint of optimizingl inter-temporal consumption, and on the multifunctionality of agriculture from the standpoint of how to seek a balance between the gains from trade and benefits in non-trade areas, i.e., "consumption" of non-economic goods such as the environment and scenery. At the same time, I analyze which of two possible policy measures used to achieve that goal, import tariffs and direct payments to farmers is more desirable.
In Chapter III, I redefine the basic philosophy of agricultural reform. Here I argue for the introduction of a direct payment scheme as a policy option toward realizing agricultural reform, and present a concrete institutional framework for the scheme. The argument in this chapter is based on my belief that agricultural policy in the 21st century should be based on the idea of consumer sovereignty and therefore the government should reform the conventional agricultural policy, under which the cost of agriculture is borne by consumers. If accumulation of farmland is promoted through the implementation of a strategically-focused direct payment scheme, full-fledged farmers who can play a significant role in the domestic food supply will emerge, and economies of scale will enable substantial cost reductions. If this happens, food prices will fall with the result that the agricultural policy, which is financed by tax payers, will benefit consumers. This should be the goal of a consumer-oriented agricultural policy.
Senior Fellow, RIETI