Japanese Agriculture and California Opportunities
by Mike Campbell, Assistant Dean for Relations, College of Agricultural and Environmental Sciences, UC Davis
Japan's agricultural system is undergoing a transition unequaled since the end of World War II. Some agricultural leaders within the country are calling it a "revolution." Some are warning that without reform, their "agriculture will die."
Indeed, the problems faced by the country's agricultural system are many--among them the small size of the country and its individual farms, its aging farm population and its ineffective agricultural research. All of this is compounded by Japan's economic problems and political changes that are making reforms imperative, but difficult.
Japan is slightly smaller than California, but its population of nearly 127 million people is more than four times larger. More than two-thirds of its land area is mountainous, with minimal adaptability for agricultural production. This means that nearly all of Japan's population is located on 30 percent of the land area, sharing this scarce resource with commercial, industrial and agricultural activities.
Furthermore, the farms are small. At the end of World War II, the Occupation Forces and the Japanese government worked together to transfer ownership of approximately 5 million acres of Japan's agricultural land from non-farming landlords to the former peasant tenants. This reorganization of Japanese agriculture created, with the existing farmer-owned land, over 6 million small farms. This was designed to significantly increase food production and to prevent the emerging Japan Communist Party from organizing dissatisfied and militant peasant tenants. Both objectives were achieved. Now, nearly 50 years later, farm numbers have decreased to 3.7 million, while farm size has increased only slightly, averaging approximately 3.25 acres.
Purchasing land for expansion is impossible in most cases. Farmers are very reluctant to sell their land because this ends long family traditions and eliminates the next generation's ability to farm, and because they feel their land will continue to increase in value. Land rental arrangements are currently the only feasible method for farm expansion.
A major challenge facing Japan's agriculture is the aging of its farmers. Today, over half of Japan's farmers are 65 years of age or older. The country's agriculture is labor intensive and human productivity continues to decline as farmers grow older. For example, some vegetable farmers have stopped growing crops like watermelons and pumpkins because of the strength required to harvest and handle these heavy crops.
The farm work force is supplied primarily by family members, but last year only 1,600 young people entered full-time employment on Japan's 3.7 million farms. Young people prefer to move to cities and work in less physically demanding and more lucrative jobs. Since 88 percent of farmers also work in off-the-farm jobs, women are depended upon to make a significant contribution of the agricultural labor force. It is difficult for a young farmer looking for a wife to find a woman interested in the rigorous labor of farm life. Some are marrying women from other Asian countries who are willing to work on farms. It is also difficult to hire a non-family member to work on the farms because most prefer to work in a more industrialized occupation.
While very large amounts of money are invested in agricultural research in Japan, the results have not been impressive. Two reasons stand out as primary causes for these disappointing results. First, farmers are not directly involved with funding research or setting research priorities. These decisions are made by officials in the national and prefectural governments, university administrators and leaders within the agricultural cooperative system. Second, it is difficult to incorporate new technologies on a small and static farming operation, especially if the operator is only a part-time farmer. This situation will not change until farm size increases and innovative farmers have a greater voice in research priorities.
Reform is needed, but working against it is Japan's giant agricultural cooperative system, which exercises tremendous control over its farmer members. Representing nearly all Japan's farmers, cooperatives provide most of the inputs used to farmers and market the bulk of all farm production. Cooperatives implement government set-aside and price support programs, and they are the primary source of all lending and insurance for farm households. This powerful position obviously provides a strong incentive for the cooperative system to fight to maintain the status quo.
Japan experienced tremendous economic growth for three decades beginning in the early 1960s. However, economic conditions have changed radically since the high flying bubble economy ended in 1991. Gone are the days when the Japanese consumer's philosophy was "the more something costs, the better it is." Currently, Japan is experiencing its highest unemployment since the end of World War II. Economic growth is stalled and the nation is mired in a recession.
Consumers, long ignored by industry and government, are making it clear that, given these recessionary times, they want greater value and increased availability of food products. Bowing to domestic and foreign pressure, the government has responded by easing restrictions on the importation of agricultural products and by allowing supermarkets to expand to provide consumers with greater access to cheaper products and greater variety.
The government has agreed to spend the equivalent of $72 billion over the next five years to increase the efficiency and competitiveness of Japan's farmers and to compensate them for the increased foreign competition they will face following the implementation of the latest amendment to the General Agreement on Tariffs and Trade (GATT). These funds will be used to promote the transfer of farmland to increase the size and efficiency of farming operations; to encourage young people to enter farming; to fund the research and development of new crops for mountainous farms expected to be particularly adversely affected by GATT; and to provide a new financing plan that will reduce the current large annual loan payments and high interest rates facing farmers.
The government also plans to support commodities that will be adversely affected by import competition by funding promotional advertising and research into new produce uses to increase consumption. Furthermore, in a decision viewed by many as better for the construction industry than agriculture, the government has agreed to spend one-half of the $72 billion to modernize roads and water and sewage systems to make rural life more comfortable.
But these reforms will not be implemented by a government necessarily friendly to agriculture, since agriculture's longtime political ally, the Liberal Democratic party, no longer controls Japanese politics. The situation is further complicated by a redistricting plan than will skirt political power from rural areas and farmers to urban areas and consumers.
Consequently, many experts are not optimistic about the outcome of the country's agricultural reform strategy.
Japan's total rate of caloric self-sufficiency has declined drastically, from 73 percent in 1965 to 48 percent in 1990. This is the lowest rate of food self-sufficiency of any developed country in the world. To meet these increasing food demands and to force its own agriculture to become more competitive, Japan will continue to increase its imports. The United States currently provides approximately 30 percent of Japan's import requirements, and California leads all other states in export value.
At the same time, Japanese supermarkets are meeting consumer demands for cheaper food and greater variety and, in doing so, are earning greater market share. Supermarkets are lowering their costs by diminishing their long associations with wholesale markets and trading companies. At one time, the powerful trading companies were the only private entities allowed by the government to do business outside Japan. Large food retailers are now sidestepping the trading companies and dealing directly with foreign suppliers. As a result, imported agricultural products are becoming less expensive and more available in Japan.
While imported agricultural products are now more acceptable than ever before, accusations of excessive chemical use by American agriculture are constantly used to place doubts in the minds of Japanese consumers regarding the safety of American exports. This has been especially damaging to California products because of the commodities and export volume that the state ships to Japan. What Japanese consumers are not told is that the use of agricultural chemicals is significantly greater per unit of production in Japan than in America. Japan's hot, humid and rainy growing conditions and the consumer's desire for a perfect-looking product require the continual use of chemicals during the growing season. California agriculture can expect that these accusations will continue to be used as invisible trade barriers. As Japanese consumers become better informed, however, this strategy of misinformation will no longer be effective.
Overall, the future looks bright for California agricultural products in Japan. The demand for California products by Japan--already California agriculture's largest export customer-- is greater than at any time in our trading history. In 1993, 8 percent of California agricultural production was exported to Japan. Japan's consumers are accustomed to paying high prices, currently about 20 percent of their income, for excellent quality food. California agriculture is well positioned to expand agricultural exports to Japan at lower prices than Japanese domestic production. The current strength of the yen against the dollar also encourages agricultural exports to Japan.
It can be expected that our current exports including fruits, nuts, alfalfa and sudan grass, beef and cotton, will remain strong. At the same time, considerable growth can be expected for rice and vegetables Under GATT, Japan will begin importing 4 percent of its rice consumption next year. This will increase to 8 percent by the year 2000. Four percent represents about 400,000 metric tons of rice or approximately 25 percent of California's current production. California rice should be on the top of Japan's shopping list because it most closely matches their own medium-grain Japonica rice.
California food exporters must take a lesson from the detailed research that Japanese exporters do in their analyses of foreign markets. New California exporters will need to spend considerable time and money to understand Japanese markets and product demand, and to develop the relationships that will be so important for success in the future.
The road to market penetration will not always be a smooth one, but not to be on the road is to miss an important opportunity.