Last updated: 09:12 / Friday, 10 April 2015
Matthews Asia column

Abenomics Leaves No Sector Unturned

Abenomics Leaves No Sector Unturned

One of Japan’s most powerful lobby groups—Japan Agriculture Group Zenchu (JA Zenchu)—has effectively controlled the country’s agricultural sector from behind the scenes along with other arms of the umbrellla group, the JA Group. The other divisions include agricultural trading company Zen-noh and financial services arm No-Chu.

JA Zenchu holds extraordinary power based on Japan’s Agricultural Cooperative Law, which has long granted it the exclusive authority to “audit and advise” local farming co-operatives. It charges such co-ops a fee for services, even though some say their advice is useless, and the funds have frequently been used in turn to peddle political influence. If you’ve ever wondered why Japan has maintained extremely high import duties for agricultural products, JA Zenchu has a lot to do with this.

For decades, JA Zenchu has been a reliable vote-gathering machine for the ruling Liberal Democratic Party (LDP), a major driving force that has kept the LDP in power for most of the post-World War II era. However, last month, Prime Minister Shinzo Abe announced that JA Zenchu (grudgingly) accepted his proposed changes to strip the group of its exclusive “audit and advise” power. Local farming co-ops will be able to hire their own audit firms, and will no longer have to pay JA Zenchu for their advice. This will effectively dismantle JA Zenchu. Why is Prime Minister Abe trying to change a winning formula for his own party? 

Japan’s agricultural sector faces a number of challenging issues like an aging farming population, and low ratio for food self-sufficiency. But the biggest problem is that the industry has been coddled for decades, protected by high import duties and government subsidies. In recent years, the percentage of products distributed through non-JA channels has increased, but still, many farmers, particularly rice and vegetable growers, have opted to sell their products exclusively through the JA Group instead of building their own brands or sales channel. In fact, in some cases JA Group has discouraged entrepreneurship as it feared that might undermine its influence and control. However, ongoing negotiations for the Trans-Pacific Partnership are expected to lower import duties for many agricultural products exposing farmers to competition that they are ill-prepared to face. Removing the shackles of JA Zenchu is the first step to liberalizing Japan’s farming sector, and allowing the sector to attract capital and talent that could drive innovation and productivity. 

Frankly, liberalizing the country’s farming industries is a daunting challenge. Agriculture is unpopular among the younger generation for its notoriously harsh labor requirements. For the same low pay, there are far easier jobs to be had. Institutionalized farming corporations account for less than 7% of total farmland area. I wouldn’t bet on a revival of Japanese farming at this point. Still, you have to start somewhere, and dismantling a major lobby group that has stood in the way of entrepreneurialism is a good place to start. At least, it shows that there are no sacred cows when it comes to structural reforms. Another third arrow has been fired.

Kenichi Amaki is portfolio manager at Matthews Asia.

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