Feb. 27 (Bloomberg) -- Convenience store chains Lawson Inc. and Seven & I Holdings Co. are so sure Japan’s aging farmers can’t meet demand for fresh vegetables that they’re investing in cropland and training young people to work the fields.
Takeshi Niinami, who heads an agricultural reform committee advising Prime Minister Shinzo Abe and is the chief executive officer of Lawson, the nation’s second-largest operator, started 12 farming joint ventures since 2010 and plans 28 more.
He’s expanding as Abe cuts subsidy payments to food-rice growers and creates land banks to consolidate small holdings into large tracts that can be leased by companies as older farmers put down their plows. The prime minister has also floated the idea of establishing special economic zones this year, which could test majority corporate ownership of farmland, something that’s blocked by current laws.
“Farm output will keep falling unless we take action,” said Yayoi Sugihara, a spokesman for Lawson in Tokyo. “We want to bring on young farmers to become professional producers.”
For Lawson, Seven & I’s 7-Eleven outlets and Itochu Corp.’s partly owned FamilyMart Co., a growing appetite for fresh fruit and vegetables means more frequent customer visits. Lawson estimates shoppers who drop in to buy perishable items visit its stores about twice as often as others and spend 20 percent more.
Their challenge is to satisfy this demand in a country where agricultural land shrank 36 percent over the past five decades. The typical farmer in Japan today is a man in his mid 60s whose heirs have abandoned rural industry.
The number of farming corporations rose by 1,732 to 13,561 in the three years after rules were relaxed in December 2009 allowing companies to take stakes of almost 50 percent in agricultural ventures, from less than 10 percent previously, the latest government data show. At the last count in 2010, companies held stakes in 7 percent of farmland in Japan, according to the agriculture ministry.
Seven & I started farming in 2008 by establishing a joint venture with an agricultural cooperative in Tomisato city, in Chiba prefecture east of Tokyo. That two-hectare farm has been joined by nine more, mostly producing vegetables.
The company has more than 15,000 7-Eleven convenience stores in Japan and another 215 outlets under the Ito-Yokado supermarket brand, said Hirotake Henmi, a company spokesman. Lawson has about 11,500 convenience stores.
Aeon Co., owner of Japan’s largest supermarket chain, became the country’s biggest vegetable grower in less than five years. It has 14 farming ventures covering 230 hectares and plans to more than double this by early 2016, said Norihito Ikkai, a spokesman for the Chiba-based company.
These ventures grow mostly cabbage and spinach and account for just 1 percent of the fresh produce sold by Aeon, leaving much room for expansion, according to Ikkai.
Easing restrictions on companies owning farmland risks turning rice paddies into real estate investments, bringing further losses in cultivation, said Wataru Yukitomo, a researcher at Norinchukin Research Institute in Tokyo. The institute and its namesake bank are part of JA Group, the farm lobby that both serves and draws its revenue from 9.8 million members across Japan.
The proliferation of family farms is partly the result of a postwar restructuring under General Douglas MacArthur during the U.S. occupation, which broke the power of the landlord class and allocated plots to tenants who tilled the land.
It also reflects mountainous geography and densely populated coastal plains that prevent the accumulation of land on the scale of grain farms in the U.S. Midwest.
“Agriculture is the most difficult sector to reform,” Abe said in a Dec. 6 interview. He added that the land banks, due to open in April, mean farmland will “be consolidated and taken over by those who are really motivated.”
That’s critical for the prime minister as his government negotiates to enter free-trade pacts that are likely to reduce tariff barriers protecting local growers.
Perishables including fruit, vegetables, bread and pastries accounted for more than 14 percent of total sales for Lawson in the 12 months through February 2013. The gross profit margin for perishables was more than 34 percent, according to the company’s annual report.
Shares of Lawson advanced 5.5 percent over the past 12 months while Seven & I surged 47 percent. The benchmark Topix stock index rose 28 percent over the same period.
Food processors, construction companies and even Toyota Motor Corp. have entered farming. Nishimatsu Construction Co. started raising leaf lettuce last year from a vegetable factory farm it built and fitted with LED lights.
The Tokyo-based contractor, which sells the produce through the Odakyu Electric Railway Co.’s supermarket chain, can harvest 15 days after planting, compared with two to three months for leaf lettuce grown outside, said Shintaro Takemoto, a spokesman for Nishimatsu.
Capacity will be increased almost sevenfold to 3,900 lettuce a day by the end of this year and Nishimatsu will start selling its production system to other factory farms, he said.
Toyota joined a project in Miyagi prefecture to grow bell peppers in greenhouses that draw heat from a power generator at one of its manufacturing plants, it said in a statement. The 1.8-hectare farm started last year and aims to produce 315 metric tons of bell peppers annually.
Niigata on the west coast, Japan’s second largest rice-producing prefecture, is lobbying the national government to be the site of a special economic zone and wants to expand beyond rice.
“We’d let companies own more than 50 percent of farming ventures,” said Yoshiko Saito, a policy-planning official in Niigata city. “We’d also look to start duty-free imports of farm produce that could be processed in our city for re-export.”
Toru Wakui, who manages a farming and food processing company that employs 130 people on the northern tip of Japan’s main island, said change is needed because a generation of growers is nearing retirement without enough successors.
“We need a new model that will replace family farming,” said Wakui, 66. “To create a new model, we need new blood.”
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