Nov. 26 (Bloomberg) -- Japanese Prime Minister Shinzo Abe’s government approved a plan to end a four-decade long policy that has helped to sustain the nation’s 1.2 million rice farms.
The gentan system, which has paid landowners to reduce crops since 1970, will be be dismantled by the end of the fiscal year through March 31, 2019, Agriculture Minister Yoshimasa Hayashi told reporters in Tokyo today.
The change may spur consolidation of small paddies into larger fields as Abe seeks to increase agricultural efficiency and remove hurdles to his pursuit of free-trade pacts including the Trans-Pacific Partnership. The subsidies support a typical Japanese farmer who is a 70-year-old man living off pension payments, part-time work and sales of the grain, data from the Norinchukin Research Institute show.
“I expect more deregulation to follow that is consistent with changing agriculture into an industry,” Economy Minister Akira Amari said at a separate briefing. Amari, who is spearheading Abe’s plans for economic revitalization, said the changes announced today would see agricultural resources shift to “capable producers.”
The government didn’t announce any changes to import tariffs, which are as high as 778 percent for rice. Sugar has a 328 percent duty while tariffs for beef and pork are 38.5 percent and 4.3 percent. The Agriculture Ministry said some subsidies for rice used as animal feed will increase.
Manufacturers from Toshiba Corp. to Toyota Motor Corp. would benefit from Abe’s push to reach a TPP agreement. A government estimate in March found that joining the pact and cutting tariffs would boost Japan’s gross domestic product by 3.2 trillion yen, even as farm and fisheries production was forecast to drop by 3 trillion yen.
As many as 72 percent of Japanese rice farmers work on one hectare or less, with 42 percent on half of that, according to Norinchukin.
The average U.S. rice farm is 180 hectares and yields more than 50 percent as much grain per hectare as Japanese paddies, based on calculations using data from Norinchukin, Japan’s Agriculture Ministry and the U.S. Department of Agriculture.
Rice futures on Japan’s Osaka-Dojima Commodity Exchange fell 0.2 percent to 12,760 yen a bag today, or 212.7 yen a kilogram. They’ve fallen 20 percent this year.
Rough-rice futures on the Chicago Board of Trade fell 0.4 percent to $15.745 per 100 pounds at 4:04 p.m. Tokyo time, trimming their gains for 2013 to 3.8 percent.
Japan and 11 other nations including the U.S., Australia and Vietnam are in talks for the TPP. The U.S. and Australia are ranked first and seventh for coarse-grain exports while Vietnam is the second-largest rice shipper, U.S. Department of Agriculture data show.
The Agriculture Ministry will halve gentan subsidies starting in the fiscal year from April 1, 2014, and end all payments by March 31, 2019, said Takashi Amou, a director of the policy planning division. Farmers who grow rice for livestock feed will receive subsidies that increase by as much as 31 percent under the changes announced today, according to Amou.
“Ending the gentan policy is a first step in making Japanese rice farming efficient,” said Takaki Shigemoto, a commodity analyst at research company JSC Corp. in Tokyo. “The government has more to do if it wants Japanese farmers to be competitive against agricultural exporting countries.”
Wholesale prices of the locally grown cereal averaged 276 yen a kilogram in the nine months through May, compared with 181 yen paid for milled short-grain rice from the U.S. and 152 yen for the same variety from Australia in import tenders last month. These prices included shipping and inspection costs.
The gentan system was originally devised to support prices by setting annual output targets that matched demand estimates. As Japan grew richer and people ate less rice, the targets shrank and the state paid subsidies to farmers who agreed to sow less grain.
This year’s target was a record-low 7.91 million metric tons, compared with estimated demand of 7.86 million tons. Consumption peaked at 13.4 million tons in 1963.
Farmers who plant less in line with the plan currently receive about 150,000 yen ($1,477) for each 1 hectare (2.5 acres) under cultivation and become eligible for other benefits.
Japan, self-sufficient in rice, is the world’s largest importer of corn. It also depends on overseas shipments for almost 90 percent of its wheat.
It has capped food-rice imports at 100,000 tons a year since 2001. Total inbound shipments, including feed grain for animals, were 770,000 tons in 2012.
The Agriculture Ministry has previously outlined plans to create land banks in every prefecture to connect small holdings into larger tracts. They would pool mostly small lots from farmers ready to give up working their fields and consolidate them to lease as larger areas.
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