Momentum on completing negotiating the Trans-Pacific Partnership (TPP) free trade agreement (FTA) has been slowed partly due to Japan’s concern about the impact on its agriculture. A recent analysis by the Economic Research Service (ERS) of USDA, Japan’s Agri-Food Sector and the Trans-Pacific Partnership, by John Dyck and Shawn S. Arita provides helpful background information.

The authors concluded, “Comprehensive liberalization under the proposed TPP agreement would break new ground.” Japan’s current system of price and income supports began in the 1960s as the farm income for rural households did not match the rising standard of living provided by off-farm incomes. The Japanese government responded the same way as the U.S. and EU. In international negotiation at GATT and the WTO, Japan lowered many tariffs and replaced quotas with tariff rate quotas (TRQs), but left its domestic price and income supports largely untouched.

The authors then concluded, “TPP membership may be a step in the transition of Japan’s agriculture from full protection to full, global liberalization.” That is substantially at odds with the official Japanese government view of what may happen. It estimates that a comprehensive agreement would reduce agricultural output by an equivalent of U.S. $25 billion per year, or 42 percent of Japan’s agricultural, forestry, and fishery products. The estimates range from a 17 percent decline in egg production to a 100 percent decline in sugar and starch materials. The authors believe the Japanese ignore supply constraints of the other TPP countries, particularly for meat, and that most of Japan’s agricultural sector could become competitive within a TPP zone. Also, Japanese consumers prefer ‘local food’ and labeling allow those items to be identified.

Recent modeling at USDA/ERS examined a scenario in which TPP partners phase out tariffs and TRQs on imports from each other in 2015-2025. This is less aggressive for a timeline and not as comprehensive as proposed by some, but may be more realistic. Beef imports to Japan would increase by 31 percent in value, worth about $1 billion per year. Rice imports would increase by 111 percent, $570 million per year, and wheat 14 percent, $340 million per year. Butter imports would go up 52 percent in value, skim milk powder 41 percent and cheese 5 percent. Pork imports would go up only 3 percent because the 4.3 percent tariff would be eliminated, but not the gate price which sets a minimum import price.

Japan’s agricultural and food industries are the second largest among the 12 TPP countries. Its agriculture is inward looking, while its food industry is increasingly outward oriented and operating in TPP partners’ economies. Japan’s agriculture sector is 15 percent of the total agricultural value added within the TPP economies, partly because of high prices for some protected products. In 2011, rice accounted for 22 percent of Japanese agricultural output, animal products 31 percent, vegetables 26 percent, and fruits and all other products for 21 percent.

Food prices in Japan have been basically flat for 20 years, while trade in agricultural products has been relatively stable. The other 11 TPP countries share of Japan’s imports has been declining from 57 percent in 1997 to 47 percent in 2013. The U.S. had 52 percent of the TPP countries agricultural exports to Japan in 2011-13, followed by Australia at 16 percent and Canada at 15 percent and New Zealand at 5 percent. The three NAFTA countries collectively have 70 percent of the market. Imports have shifted to developing countries and countries which Japan has Economic Partnership Agreements, both groups have lower tariffs.   The developed countries in the TPP are attempting to regain market share by receiving equal or preferential tariff treatment.

The U.S. has been a large agricultural supplier with Japan partly because of the size and diversity of U.S. agricultural output. Other factors have also been important. Quality and consistent availability of U.S. product are important to Japanese buyers who are in the market year-after-year. Transportation networks have been established to serve the Japanese market and personal relationships have built-up over decades. National and international companies in both countries have invested in the other country. Canada, Australia and New Zealand have developed similar strengths. The Japanese could developed these with other countries, and have to some extent, but it is to their advantage to further improve existing economic relationships.

TPP countries have particularly lost market shares in processed foods, one of the fastest growing trade categories for Japan. Pet food is another area of decline. Vegetable trade has also moved to countries like China and Thailand with lower transportation and labor costs.

Even with a new TPP trade agreement that significantly lowers import barriers and continues existing trade relations, challenges and opportunities will remain. The food market in Japan is not likely to grow much and consumers have concerns about food safety, quality, healthfulness, and production methods. Consumers will have lower prices and more choices. Significantly lower prices could develop for imported beef, oranges, rice, cheese, skim and whole milk powder, and butter. Pork could be added to this list if the gate price system was removed. Lower prices for imported beef and oranges may result in higher overall consumption. Some imported items will compete directly with domestic products that are not perceived as being higher in quality.

The analysis clearly shows that the TPP trade agreement is a great opportunity for Japanese consumers and producers in TPP countries, without the devastating hit to Japanese producers so often portrayed in Japan. That does not mean that agriculture will not change in Japan. Some of those changes should have happened years ago, while others would occur anyway in the immediate years ahead due to trade agreements between Japan and other countries.

The U.S. agricultural negotiators need to continue to hang tough to get the best possible agreement that provides for meaningful market access and fundamental long-term reforms in trade policies. Walking away without a deal is not an option for the Japanese government or for the governments of the developed countries of the TPP.

Ross Korves is a Trade and Economic Policy Analyst with Truth About Trade &Technology (www.truthabouttrade.org). Follow us: @TruthAboutTrade and @World_Farmers on Twitter | Truth About Trade & Technology on Facebook.