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Analysis: Will Koizumi’s agricultural reform efforts produce results?

  • 2016-02-03 15:00:00
  • , Nikkei
  • Translation

(Nikkei: February 3, 2016 – p. 2)

 

 Shinjiro Koizumi, who has been heading the Liberal Democratic Party’s Agriculture and Forestry Division since autumn, is stepping up his presence in agricultural reform initiatives following the conclusion of the Trans-Pacific Partnership free trade negotiations. At the beginning of the year, he rejected the necessity of Norinchukin Bank. He has also raised questions about the costly procurement of domestic farm materials. Politicians who lobby for the interests of farmers and agricultural cooperatives are eyeing him coldly and closely watching whether he will be able to produce results.

 

 “Norinchukin Bank amasses 96 trillion yen, of which a paltry 0.1% is being spent to finance farmers,” said Koizumi before reporters in Ibaraki Prefecture on Jan. 13. “If that is the case, I don’t think that institution is necessary.”

 

 The remarks came out of the blue, as he was on a tour to a distribution site for farm materials. But the following day, he again denied the raison d’etre of Norinchukin Bank. “Let me repeat. If Norinchukin Bank does not serve the benefits of farmers, it is not necessary.” This time, he knew the remarks would cause a stir. Nonetheless, he dropped the bomb.

 

 Norinchukin Bank, commonly known as Nochu, is widely known in the international financial market. It taps money that JA agricultural cooperatives collect and invest it into equities and bonds for asset management.

 

 The bank receives preferential tax treatment as part of the JA group, but its farming-related lending amounts to as little as 23.4 billion yen. “Many farms are run by families so there is little demand for funds for capital investment,” said Yoshio Kono, the bank’s president.

 

 Nochu is a lucrative client for the financial sector, as it pays huge commissions for transactions. That money keeps other financial institutions quiet, even though they cannot compete on a level playing field.

 

 Koizumi sets his sights on this gigantic anomaly as an obstruction to his reform drive. But he is not just targeting Nochu. He is also looking to give a face-lift to financing operations at local JA agricultural cooperatives, as their farm lending accounts for only 5% of the total and the rest goes to housing mortgages and automobile loans.

 

 Koizumi also wants to rectify the costly procurement of domestic farm materials. Fertilizer and farm equipment are said to be more expensive in Japan than overseas. One data shows that Japanese fertilizer is twice as expensive as South Korean. There are also cases in which it is cheaper to import Japanese farm equipment from overseas.

 

 On Jan. 18, the LDP convened the first meeting of a task force on a farm reform project. All of the farmers who attended complained about the high prices for equipment and materials they procure through JA. Rice farmers, for example, spend an average of 40% of their income on equipment and materials. If this can be lowered, they will be able to retain more income for themselves. It is costly for farmers to procure equipment and materials because of the oligopoly of a handful of makers, detailed regulations on fertilizers and livestock feed, and the distribution market in which JA wields a strong influence. These problems have been left unaddressed for a long time.

 

 By redressing the cost issue, Koizumi wants to overhaul the inefficiency in production, distribution and process. “Namely, I want to carry out structural reforms,” he said. The task force is planning to come up with a proposal in autumn. His father, Junichiro Koizumi, also worked out a reform proposal every year during his tenure as prime minister.

 

 Meanwhile, the LDP views Koizumi’s reform drive coldly, as it rejects the farm policies the party has built up over many years. “To fully understand agriculture, it takes a few years,” said a farm lobbyist politician. “He should refrain from making bold moves now.” A senior official with the Central Union of Agricultural Cooperatives, known as JA-Zenchu, is not supportive of him either. “I don’t know what he is trying to achieve.”

 

 The Ministry of Agriculture, Forestry and Fisheries, who backs Koizumi, is unpredictable. One division director said he expects Koizumi’s initiative to provide a one-in-a-million chance to change Japan’s agriculture, but the ministry is under a lot of pressure on account of the requests he makes one after another.

 

 His reform drive has been moving at top speed from the beginning. LDP politicians who lobby for the interests of farmers do not want to openly confront him before the House of Councillors election, as his popularity will surely help win many votes. Can he maintain the momentum? He will face a real test after the election. (Abridged)

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