Rethinking the Growth Strategy: Competition is the Way toward Strengthening Agriculture

Japan’s dairy industry is under heavy governmental regulation. This has serious consequences; for instance, controls on the imports of butter leads to periodic butter shortages. The collection of raw milk from farmers is monopolized by agricultural cooperatives in the region, which blend the raw milk from many farmers and sell it to dairy processing firms. Therefore, there is no opportunity for farmers to save money, increase quality and reap the benefits of a higher quality product. Regarding pork, Japan’s tariffs are highly irregular. Japan imposes a specific tariff of ¥482 per kilogram on inexpensive pork parts imported at a CIF price less than ¥64.53 per kg. For imported pork at the CIF import price, which is between ¥64.53 and ¥524 per kg, Japan uses a “gate price system” in which the tariff equals the difference between the benchmark price of ¥546.53 and the CIF import price. Imported pork products that are more expensive than the ¥524 per kg (expensive pork parts) are subject to a conventional ad valorem tariff of 4.3%. This system maintains a domestic price of at least ¥524/kg regardless of quality. It also produces a huge incentive to lie about the true import price. Another incentive is to mix expensive and cheap pork parts to reduce the average import price to ¥524 per kg in order to minimize tariffs to be paid. This system discourages Japanese farmers from producing high quality pork, since expensive imports may be sold cheaper as part of the mixed pork shipment. Agricultural reform should be fundamental, not cosmetic, since the whole system needs to be overhauled. The realization of “Strengthening Agriculture” through Abenomics depends on the success or failure of these reforms. 1 This article is a translation, with some addition and modification of an article which appeared in the Nihon Keizai newspaper (Japanese) on January 23, 2015. Rethinking the Growth Strategy: Competition is the Way toward Strengthening Agriculture Takatoshi Ito and Masayoshi Honma