Oct. 29 (Bloomberg) -- Ganari Takahashi’s first career, making pornographic movies, made him $10 million. He hopes his second, growing fruit and vegetables, will help upend a farming system that costs Japanese taxpayers $45 billion a year.

He’s one of an increasing number of Japanese farmers who say they can make a profit by leaving the world’s most heavily subsidized agricultural industry and selling directly to consumers rather than through the national cooperative.

“Profitable farming is the same as pornography,” Takahashi, 50, said in an interview near the 3.2 hectares (7.9 acres) of farmland near Tokyo he bought in 2006. “You have to create an image and make it cool.” He sells eggplants and peppers online and at his vegetable-themed restaurants.

Farmers like Takahashi are challenging Japan Agricultural Cooperatives Group, the country’s dominant distributor of rice and vegetables, which sets the price of everything from feed to fertilizer for its members. Their initiative may help cut subsidies as Japan’s new government struggles to contain spending, as well as lower prices for consumers and make trade agreements easier, said academic Masayoshi Honma.

“This is already happening,” said Honma, a professor of agriculture at the University of Tokyo. “These farmers are smart. They’re looking at the market and making their own decisions.”

More than half the members of the JA, as the cooperative is called, expressed dissatisfaction with its distribution channels, an association survey published in May found. No details were given on the number of respondents.

Declining Membership

In the two years through 2007, farmer members of the JA declined by 100,000 to 4.9 million, the association says.

The number of people entering farming rose to 10,400 last year from 8,700 in 2006, Agriculture Ministry statistics show. Many are independent farmers growing vegetables, Honma said.

“It’s no surprise these farmers are succeeding with the least help,” Roger Martini, co-author of an Organization of Economic Cooperation and Development report on Japanese agriculture, said at a press conference in Tokyo on Oct. 21. “They’re focused on the consumer and they’ve developed their own supply chains and marketing.”

Japanese farmers typically derive 50 percent of their revenue from subsidies, price supports and restrictions on imports, compared with 12 percent for the U.S., the OECD says.

“I have no intention of taking subsidies and I don’t want people to think farming is weak,” said farmer Masaaki Saito, 30. “Farmers need to take control from production to packaging to sales.”

Very Veggie

Saito is a JA member who founded Very Veggie, a group of farmers with their own store to bypass the JA’s channels.

A 5-kilogram (11-pound) bag of rice costs about $29 in Japanese supermarkets, against $7 for a 10-pound bag in the U.S., based on the price at Tokyo-based Isetan Co. supermarkets and the online price from Pleasanton, California-based Safeway Inc. Red Fuji apples cost $2 apiece in Japan compared with 90 cents in the U.S., according to the same sources.

Japan’s agriculture system was born from food shortages after World War II as the government sought to encourage production. The OECD says Japan’s average farm size is 2.3 acres outside Hokkaido, the sparsely populated northern island, against 1,065 acres in the U.S.

The JA negotiates a price with wholesalers, then adds a 2 percent profit margin and charges as much as 30 percent for distribution.

As the association expanded into loans and insurance, it gained an interest in maintaining the number of farms and policies that prevent consolidation, said Aurelia George Mulgan, a Japanese politics professor at the University of New South Wales in Canberra, Australia.

Blame Game

The JA isn’t monolithic, said Shinichiro Kaino, general manager for policy and planning at the group’s Tokyo headquarters.

“People often blame JA for preventing large-scale farming,” Kaino said in an interview. “The reality is when Japanese farmers didn’t want to handle the distribution or storage of produce, the JA stepped in and did it for them.”

Kaino said while the JA’s share of distribution of farm produce is declining, independent farmers don’t yet have the volume to undermine the co-operative. The group has also set up direct sales channels and Internet shopping.

“Japan’s agricultural system made sense in a country recovering from war and during the economic boom,” said Yusuke Miyaji, a pork farmer south of Tokyo. “Since the economy declined, the JA hasn’t secured high prices.”

Mail-Order Pork

Miyaji, a 31 year-old graduate of Tokyo’s Keio University, returned to his family farm from a job in an information- technology company. He markets hogs with promotional barbeques and sells pork to consumers by mail order. Still a member of the JA, he said income in the two years he’s been handling distribution and marketing has doubled.

Ex-porn maker Takahashi said he turned to farming so he wouldn’t have to hide his profession from his children. He’s yet to make a profit as he waits for his white strawberries to catch on, in part because of high startup costs, he said.

“Our aim is to make eating vegetables a delicacy,” he said. “You have to provide a sensory experience.”

To contact the reporter on this story: Stuart Biggs in Tokyo at sbiggs3@bloomberg.net; Sachiko Sakamaki in Tokyo at Ssakamaki1@bloomberg.net.

Last Updated: October 28, 2009 12:25 EDT