Blind Spot in Japan's Agricultural Export Strategy
Can agriculture surpass the auto industry?
Can agriculture surpass the auto industry?
Senior Writer and Editorial Writer
Looking ahead to ratification of the Trans-Pacific Partnership Agreement (TPP), the Abe administration is channeling resources into agricultural, forestry and fishing exports as one pillar of its "aggressive agriculture" policy, but more exports won't necessarily boost farmers' income. With Japan's farming population shrinking and aging, its supply capacity too is diminishing. Securing and training the next generation of farmers will therefore be essential in growing exports.
Looking ahead to the ratification and entry into force of the Trans-Pacific Partnership Agreement (TPP), the Abe administration has been channeling resources into agricultural, forestry, fishing and food exports as one pillar of its "aggressive agriculture" policy.
Exports of the above rose 21.8 percent year on year to 745.1 billion yen in 2015, achieving a record high for the third consecutive year and bringing Abe's one trillion yen target within reach. According to one TPP official within the Cabinet Office, "Just as inbound tourism numbers have doubled in barely two years, once agricultural exports reach the tipping point, they too could skyrocket. Looking long-term, even five trillion yen is not impossible." The same official suggests that agriculture might even top annual auto exports (four-wheeled vehicles), which currently stand at around 11 trillion yen (parts excluded). "Automobiles will increasingly be manufactured close to market, so finished car exports will not grow much beyond current levels. In future, agricultural products have the potential to replace automobiles as Japan's leading export industry," he argues.
An export industry is now regarded as possible even for rice, where export prospects have traditionally been deemed dim because of the huge disparity between domestic and overseas prices. The new optimism is based on the significant market potential which Japanese rice is thought to have amongst the affluent in China and elsewhere, and also the considerable cost reductions that could be achieved by expanding management scale and developing high-yield rice strains.
FY2015 Actual Exports of Agricultural, Forestry and Fishing Products and Food Products (Final)
Personally, I would love to see this dream of Japanese agricultural exports soaring up to one trillion yen realized. Travelling through rural areas, however, my sense is that, with the exception of fruit, wagyu beef and other high-end food products, as well as some marine products such as scallops, the government's export strategy still has a long way to go. In particular, rice production costs will not be easy to reduce given the limits to production expansion, the high cost of agricultural machinery and production materials, and the difficulty of securing labor. Certainly, foreign consumers seem to have become aware of the quality of Japanese rice, to the extent that Chinese tourists are even buying rice cookers to take home, but while China is regarded as one of the most promising export destinations for our rice, it is not a member of the TPP and nor does Japan have an economic partnership agreement with China.
The "over 700 billion yen" statistic is somewhat inflated to start with. It includes pearls, cigarettes, and refined sake and other forms of alcohol, without which the figure drops to around 648.6 billion yen. When confined to meat, vegetables, and fruit, the figure drops still further to 38.3 billion yen. Pearl exports are certainly booming, but reaching the one trillion yen mark without pearls, cigarettes and alcohol will be tricky. Cigarettes, which stand alongside pearls as an export driver, are made from tobacco leaf, most of which is imported. Types of alcohol such as whisky and beer, as well as candy, cup noodles and other processed foods (excluding rice crackers), are doing very well, but again, the bulk of the raw materials used in these-flour, for example-is imported, and has almost no relation to domestic agricultural production.
The export growth that we have seen is strongly correlated with foreign exchange rates, with the increase up until 2015 reflecting the weakness of the yen. With the yen beginning to rise again over the last few months, exports have in fact showed signs of slowing. Moreover, yen depreciation is a double-edged sword, in that while it might help exports, it also pushes up the import price of the raw materials for the processed foods noted above. Feed for the livestock industry represented by wagyu beef is mostly imported grain, so beef too is a type of processing trade. Chemical fertilizers, plastics and other materials used in the agricultural industry also become more expensive with a weaker yen. At the moment, the negative impact of yen depreciation is simply being offset by the calm prevailing in international product prices as a whole due to historically low crude oil prices.
Growing luxury products for export like melons and other fruit is a laborious process, and requires that even slightly damaged fruit is tossed out so as not to damage brand image. Exporting fresh foods entails hefty logistical costs for refrigerated transport, etc., and if even high prices are insufficient to counter those costs, farmers could find themselves losing money. Massive initial investment is required to open up export markets, and as seen with Fuji apples and wagyu beef, there have been cases of the strong reputation of a Japanese product creating a market only to be dragged into price competition with Chinese and Australian products, etc.
Because of these cost elements, what appears to be export growth might not actually translate into more farm income. Further, contrary to what is believed in Japan, overseas consumers do not necessarily regard Japanese agricultural products as safe. Particularly in relation to hygiene management for marine products, reasons such as cultural background have led to Japanese standards differing from those of Europe and the United States, placing Japanese exports at a disadvantage. Unfortunately, reputational damage also lingers from the Fukushima nuclear accident.
Another fundamental issue is that with the farming population shrinking and aging, the sector's supply capacity too is diminishing. This trend is particularly marked in dairy farming, and is also the reason for the butter shortfall in Japan. Formerly, even though the number of farmers in the dairy and livestock industries was declining, the rapid expansion in farm scale sustained and grew supply capacity. However, increasing that scale any further will incur both substantial investment and also risk. The 2010 foot and mouth outbreak in Miyazaki Prefecture highlighted the dangers of a further scale-up and of intensive animal farming. An export drive when supply capacity is weak will also push up domestic prices for Japanese agricultural products, which will hardly benefit domestic consumers. Even in offshore markets, there is the risk of Japanese products being replaced by similar goods produced overseas that offer the same quality at a cheaper price.
The 2013 UNESCO designation of Japanese cuisine as intangible cultural heritage and the strong interest in Japanese agricultural products and food culture evinced at the Milan Expo in Italy in 2015 have certainly provided a great opportunity to promote Japanese agricultural products in international markets. However, without an adequate supply capacity, the boom could be only temporary. Unlike attracting tourists, boosting Japan's agricultural product supply capacity is not something that can be achieved overnight.
To place exports of Japanese agricultural products on a solid trajectory, rather than being swayed by superficial figures, the government will need to clearly identify market development possibilities and draw up specific strategies for individual products, as with Hokkaido's nagaimo (yam) and scallops. A vague branding campaign will just peak out. And, above all, priority must be placed on securing and training the next generation of producers so as to maintain a solid domestic supply capacity.
(original article : Japanese)