According to analysis by the Organization for Economic Cooperation and Development (OECD), a group of 31 developed and more advanced developing countries, Japanese government support programs in 2007-09 provided 47 percent of farmers’ gross income, down from 53 percent in 2004-06. That compares to 22 percent for all OECD countries and 9 percent in the U.S., but is lower than 52 percent for South Korea, 53 percent for Iceland, 58 percent for Switzerland and 61 percent for Norway. Market price supports, the most trade distorting and least effective at supporting farm income, still account for 90 percent of Japanese farm supports as measured by the OECD.
Import tariffs on some products are extremely high like polished rice at 778% and butter at 482%. Other products have high, but more reasonable, tariffs like beef at 38 percent and other dairy products at 20-40 percent. Fresh fruits and vegetables from developed countries have in season import tariffs of 3-30 percent with out-of-season tariffs generally lower. The OECD estimates Japanese consumers pay twice as much for their food as they could with free trade. In a country with relatively stagnant incomes for almost 20 years, that would be a significant improvement in the standard of living. Media polls indicate that 60 percent of the people polled favored joining the TPP talks.
According to Ministry of Agriculture, Food and Fisheries estimates for 2008 as reported by the U.S. Agricultural Attaché in Japan, Japans overall caloric food self sufficiency was 41 percent, down from 79 percent in 1960 and 50 percent in 1988 and the lowest in the industrialized world. Individual food category self sufficiency ranges from 96 percent for eggs, 95 percent for rice, 80 percent for vegetables, 70 percent for milk and dairy products, 56 percent for meats, 41 percent for fruit, 26 percent for feed grains, 14 percent for wheat and 6 percent for soybeans. The Foreign Minister has said the government will focus on diversifying sources of food.
USDA estimates that Japan imported over $40 billion of agricultural products in 2009, making it the third largest importer after the U.S. and the EU. The U.S. supplied almost 30 percent of the total, up from 25 percent three years ago, but down from an average of 35 percent in 1994-2001. The ten countries of ASEAN (Association of Southeast Asian Nations) was the next largest at 14 percent, followed by China and the EU at about 11 percent each and Australia at 7 percent. Meats account for about 20 percent of imports on a value basis, followed by cereal grains, processed foods and oilseeds and products. Japan also exports about $2.0 billion of agricultural products each year, including popular items like Fuji apples.
U.S. exports to Japan of $11.9 billion in calendar 2009 were led by coarse grains at $2.9 billion, followed by fresh, chilled and frozen red meat at $2.0 billion, with pork at over $1.4 billion and beef at about $450 million. Soybeans and products totaled $1.3 billion, followed by wheat at $0.8 billion and feeds and fodders at $0.62 billion. U.S. processed fruits and vegetable exports to Japan totaled $0.59 billion, and rice sales, required under WTO market access rules, were $0.42 billion.
Moving forward on the TPP talks would also change Japan’s position in the WTO Doha Round talks. Japan is seeking broad exceptions to reductions in agricultural tariffs to protect the status quo in agriculture. Pursuing policies more consistent with the likely outcome of the TPP talks would switch Japan from being an impediment to the agricultural negotiations to being a leader for change. The TPP also addresses “behind the border” issues which involve more uniform regulations for members, which could address supply chain issues in Japan that exporting countries have complained about for years.
Support for Japanese participation in TPP talks is centered in manufacturing and export-oriented industries such as automobiles, home appliances and heavy machinery. They often make comparisons to South Korea which has a new FTA with the EU, an unratified agreement with the U.S. and plans to start talks with China in the first half of next year. Japan has no plans for talks with the U.S. or EU. Akio Mimura, chairman of Nippon Steel Corp. said it bluntly, “Japan must be opened in order to become stronger.” Some manufacturers are currently considering plans to transfer production bases to other countries in response to a decline in competitiveness caused by the yen’s appreciation.
The Japanese government was taking commodity market risks by expecting to rely more on food imports. The slowdown in wheat exports from Ukraine this summer and stoppage of exports by Russia showed how little regard some food exporters have for their importing customers. Japanese consumers depend on farmers and ranchers in other countries to supply food just as much as do the consumers in the countries where the farms and ranches operate. At a minimum, existing contracts should be honored. Japan has modest internal stocks holding plans that combined with honoring signed contracts would give Japan some food security.
The delay of the Prime Minister’s plan to engage Japan in more free trade agreements is not the end of the story. Mr. Kan will continue “consultations” with TPP countries and have a government trade plan by June after producing a farm-reform plan. The need for trade policy reforms within the Japanese food industry will not go away. South Korea could leap frog over Japan by agreeing to the U.S.-Korea free trade agreement and achieve a similar agreement under the TPP. The trade policy world is changing and Japan and other countries that protect domestic agricultural markets must be part of those changes or lose competitive positions in other industries.