Japan Agricultural Cooperatives (JA) is a financial institution on the scale of a megabank combined with the largest insurance company in Japan, with total deposits of about 90 trillion yen and total assets of its insurance business of around 50 trillion yen. It is a financial and distribution conglomerate that monopolizes/oligopolizes agricultural distribution. Under the post-WWII government policies to reduce rice acreage and maintain high prices for rice, Japanese agriculture has been declining, but JA alone has enjoyed continued prosperity. To strengthen the competitiveness of agriculture, it is essential to introduce the principle of competition in the distribution process.

 

1. Break Up JA’s Four Integrated Businesses of Banking, Insurance, Distribution, and Product Sales!

The Agricultural Cooperatives Act was revised in 2015 but the revision was not sufficiently committed to reform. The revised act did not include the conversion of JA into a joint stock corporation and restrictions on the use of JA by associate members (who are not farmers), which has served as a factor in JA’s disproportionate inclination toward the banking business. To make JA play its original role, it is necessary to drastically reform JA by breaking up its four businesses.

 

JA monopolizes/oligopolizes the distribution of agricultural products and oligopolizes the market for agricultural materials. It’s market share for rice, vegetables, and beef is 50%, 54%, and 63%, respectively. In the sales of agricultural materials, JA’s market share for fertilizers, agricultural chemicals, and agricultural machinery is 77%, 60%, and 55%, respectively. Furthermore, JA conducts a banking business with total deposits of around 90 trillion yen and an insurance business with total assets of about 50 trillion yen. As long as this all-too-powerful monopolizing conglomerate exists, it will be difficult to accelerate new entries into agricultural distribution. The four JA businesses – banking (deposit taking), insurance (life and non-life), distribution (of agricultural products), and product sales (sales and leasing of agricultural chemicals, agricultural materials, etc.) – should be separated to reduce the power of the monopolizing company.

 

2. Apply the Antimonopoly Act to JA!

JA is exempted from application of the Antimonopoly Act to the cooperative marketing of agricultural products and the joint purchase of materials. This exemption is applied for the purpose of mutual aid for small-scale farmers. However, JA is a distribution company with a financing function on a scale comparable to that of a megabank, putting it beyond the principle of exemption from the Antimonopoly Act. It is appropriate to apply the Antimonopoly Act to JA.

 

3. End Market Intervention by the Government, such as Adjustment of Rice Production (Reduction of Rice Acreage) and the Raw Milk Producers Organization Designation System!

The hardest of the hard bedrock regulations that have hindered the growth of agriculture is the adjustment of rice production (reduction of rice acreage). In 1995, the Staple Food Control Act was abolished and the distribution of rice basically liberalized and, from an institutional viewpoint, participation in the rice production adjustment scheme (reduction of rice acreage) was left at the discretion of the individual. The reality, however, is that the Ministry of Agriculture, Forestry and Fisheries sets a target volume of rice production every year and allocates a quota to each prefecture, and rice producers participate in the rice production adjustment scheme. There is also a system in the dairy sector under which the government allocates a quota for the production of raw milk to each designated raw milk producers’ organization.

 

Under a system where the government decides the total market production and allocates a quota to each area – and protects producers’ exclusive distribution rights – it is not possible to achieve innovation in agriculture. This system should be abolished immediately.

 

4. Reform Agricultural Distribution!

Kohei Takashima established Oisix in 2000 to promote the sale of safety-conscious food products and ingredients, such as specially cultivated agricultural products and additive-free processed foods, to general consumers via the Internet and other means. Its sales have reached almost 15 billion yen. Hirokazu Kiuchi, Representative Director of Wagoen, an agricultural union corporation, and Director of Wago, is one of the leading figures in reforming agricultural distribution. He successfully achieved “profitable agriculture” by challenging the commonly accepted notion that agriculture is not profitable. Wagoen has adopted a make-to-order production system, where production is started only after negotiating with customers, such as upscale supermarkets in the Tokyo metropolitan area, and deciding to whom the company will sell. With this method, Mr. Kiuchi has been successful in increasing profits. After achieving the liberalization of agricultural distribution, if these successful models are applied to other like-minded businesses, Japanese agriculture can be transformed into an internationally competitive industry.