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Japan: Is the DPJ the party of economic reform?

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In Brief

The DPJ’s recent policy positions on agriculture raise doubts that it can be the party of economic reform. Not only has it backtracked on its own reform proposals; it has also actively undermined reforms being attempted by the LDP-led government since 2007.

As one of Japan’s chief laggard industries, agriculture is ripe for reform. Greater efficiency at home combined with more imports would lower food prices, thereby raising the real income of consumers. At the same time, agricultural reform has important implications for trade policy, particularly for a WTO agreement as well as for Japan’s Free Trade Agreements (FTAs) with Asia-Pacific partners.


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Retrograde influence

The DPJ’s search for the rural votes indispensable to a Lower House majority has guided its stance on farming. As in 2007, its 2009 election manifesto proposes ¥1 trillion (US$10 billion) in direct income subsidies to all commercial farm households regardless of size. The government’s more selective plan had excluded small farms in order to increase farm size and achieve economies of scale. Outbidding the government was part of a strategy to buy farm votes and undermine rural support for the LDP. The LDP criticised the DPJ plan as baramaki (scattering money), but it got the DPJ what it wanted: votes. The LDP’s rural losses were primarily responsible for its defeat in the 2007 Upper House election. The DPJ’s successful tactic directly led the LDP government to backtrack on its own modest steps toward reform. In the wake of the election, the government’s own direct subsidy scheme was dramatically revised to make more farmers eligible to receive direct income subsidies, including small-scale farmers.

Sabotaging land use reform

The DPJ also directly sabotaged the government’s efforts to reform the agricultural land system. A former official of the Ministry of Agriculture, Forestry and Fisheries (MAFF), Kazuhito Yamashita, spelled out the impact of the DPJ’s meddling in The original draft amendment to the Agricultural Land Law had permitted corporations (private firms, agricultural cooperatives, and non-profit organisations) to lease and use farmland. It was hoped that the entry of private firms into agriculture would substitute for the lack of successors in farm households, provide employment in rural areas, promote more efficient use of farmland, and make agriculture a more viable and productive industry. However, thanks to DPJ intervention, the leasing of land to corporations is now subject to a range of conditions including, “at least one member of must be engaged in farming activities full-time.” This will continue to block the emergence of large-scale corporate investment in the agricultural sector.

A pivotal issue for whole economy

Why is agricultural reform vital for Japan’s economy? Professor Masayoshi Honma of Tokyo University, who headed up a task force making recommendations to Prime Minister Aso, argues that agriculture is a core sector in many regional economies. A revitalised agricultural industry could, therefore, breathe new life into many local economies. It could even become a mainstay industry for the country according to Kazumasa Iwata, head of the Cabinet Office’s Economic and Social Research Institute. One way would be to form stronger connections between farming and the industrial and commercial sectors and to make more agricultural land available to highly skilled, full-time professional farmers to expand their output and become more efficient producers by exploiting economies of scale.

This would require, among other things, land use reform as well as reform of the rice acreage reduction scheme (gentan), which is a de facto production cartel that elevates the producer rice price and helps to keep small-scale rice farmers in business. Would a DPJ administration reform the gentan? Its original agricultural policy reform package included abolition of the gentan but now it is proposing to retain it, steering direct income subsidies to participating farmers. Because small-scale farmers would still be compensated, the measure would not assist structural reform of the industry.

Room for hope

So far, as an opposition party seeking farm votes, the DPJ has put up roadblocks to reform. Would it act any better if it comes to power? The overall picture is far from clear-cut. On the one hand, it is highly likely that the DPJ will once again become a more urban-oriented party. The DPJ is going to have to retake most of the urban seats it lost in 2005 in order to win. These are the true swing seats. Displacing LDP farm politicians from their long-held, single-member rural districts will be a much taller order for DPJ candidates than displacing the “Koizumi children” from their urban/metropolitan seats.

Besides, the farm lobby in the DPJ is much weaker than in the LDP. Among the DPJ’s current Lower House membership of 112, only 14 could be called representatives of local farming interests (almost exclusively from Hokkaido) and/or agricultural policy experts. The majority are relative newcomers; hence, they do not carry ideological baggage from previous party connections that favoured support for small farmers. In the Upper House, the addition of new DPJ members in 2007, including former MAFF officials, has increased the DPJ’s agricultural representation, in some cases displacing influential veteran LDP agricultural “tribe” politicians (norin zoku) from their prefectural seats. It is possible that the forthcoming Lower House election could see an expansion of this group. However, it is highly unlikely that the DPJ will replace the LDP as the dominant party representing agricultural interests, or that the farm lobby will become as prominent within the DPJ as within the LDP.

A DPJ victory might promote agricultural reform in three ways. First, loss of LDP power will potentially open the door to more dramatic policy change because the norin zoku have been a powerful veto point on agricultural reform.

Secondly, the DPJ will attempt to break the political and economic power of JA (the farmers’ co-op) because it forms the organisational support base of the LDP in the countryside. In April, the DPJ submitted a bill to the Upper House to revise the JA Law in order to prohibit the “political utilization of farmers’ (and fisheries’) associations—that are under the administrative control of the MAFF—for a particular political party(ies).” During election campaigns, the local co-ops become “voting machines” for LDP candidates. The DPJ’s bill aimed to stop this practice, and it will be revived under a DPJ-led government, along with removing many of JA’s soft policy concessions in agriculture-related and financial businesses.

Thirdly, the DPJ’s direct income subsidy scheme, while not directly facilitating structural reform, could also theoretically make trade liberalisation agreements easier because farmers can be compensated for income declines stemming from cheaper imports. Nevertheless, DPJ leader Yukio Hatoyama has rushed to reassure farmers that rice will be exempt from any proposed FTA with the United States, making it a non-starter for Washington.

Limited prospects

On balance, the prospects for agricultural reform under a DPJ government are only limited. The DPJ’s recent record has clearly shown that its stances on structural reform are driven by vote-seeking, not economic reform principles. The DPJ’s offer of direct income subsidies to each commercial farm household will not only lock in its electoral debt to farm voters, but it will also, in itself, become an obstacle to structural reform of the agricultural sector.

Adapted from ‘Placating the farm lobby: Litmus test for DPJ reform’, THE ORIENTAL ECONOMIST, AUGUST 2009, pp. 10-11.

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