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2012.09.06

The Impact of Higher Prices of This Year's New Rice

English translated version of "Business Prospect" on NHK Radio Channel 1 on August 7, 2012

1. Rice produced in Japan this year has reportedly been priced higher than in usual years.

 In Japan, some rice has been harvested and put on the market before the year's normal rice crop hit the market. It is called "hayaba-mai" (early-harvested new rice). One kind of "hayaba-mai" this year, the popular brand "Koshihikari" produced in Miyazaki Prefecture, is priced 20-30% higher in the retail market than it was last year. Although rice production has not decreased year-on-year, its supply on the market has diminished since the country was hit by the Great East Japan Earthquake and the nuclear accident last year. So since that time the market has begun to favor sellers, while producers have significantly increased the shipping price of this year's "hayaba-mai." The high retail price of this rice reflects current distribution in the market and the higher producer price.

 

2. Under these conditions, some supermarkets and catering businesses have started handling foreign-grown rice despite the high import duty imposed on it. How do they import foreign rice?

 In Japan, there are about 2.5 million hectares of paddies for rice farming, while people consume approximately 8 million tons of rice each year. If rice were cultivated in all of these paddies, too much rice would be produced, driving down the price. Therefore, 40% of paddies, or 1 million hectares, has been "set aside" and is not planted. This is a sort of cartel arrangement in which rice farmers agree to restrict supply to maintain a higher price.

There is no doubt that the domestic cartel price could not be maintained if cheaper foreign rice were to be imported without restrictions. That is why a high import duty is imposed to prevent foreign rice from flowing into the domestic market at a low price. However, an excessively high import duty which effectively prevents any imports would contradict the spirit of free trade promoted by the World Trade Organization (WTO). Therefore, under the WTO agreement member countries are obliged to import a certain quantity of goods in exchange for the right to maintain high import duties on those goods. In accordance with this obligation, the Japanese government imports 770,000 tons of rice every year. This scheme is what is referred to as "minimum access" opportunities.

 A major part of the 770,000 tons of foreign rice imports is used for processed food, such as "arare" or "senbei" (cubic or flat rice crackers). To produce these finished products, long-grain rice (i.e. indica variety) - but not short-and-small-grain rice like that harvested in Japan (i.e. japonica variety) - is imported mainly from Thailand. Out of 770,000 tons of imported rice, 100,000 tons of foreign rice is to be consumed as a staple food. The same kind of rice as the Japanese one (i.e. japonica variety), produced mainly in China and California, is imported for this purpose. In 2010, the price of domestic rice was low, so only 37,000 tons were imported within the 100,000-ton limit. At that time there was no significant price difference between domestic and foreign-grown rice. Thus, it is not profitable to import rice from China or California. However, the price of domestic rice has jumped since last year, so foreign rice has been imported up to the maximum limit of 100,000 tons. The foreign rice appearing in some supermarkets and catering businesses has been imported under this "minimum access" scheme.

 

3. Does anybody want to increase the maximum limit of rice imports since the price of domestic rice is increasing?

 Although the food service industry requested an increase, the Japanese government rejected it. If more foreign rice were to be imported into the domestic market, domestic rice production would be reduced by an amount equal to the incremental volume of imports. This implies that the "set aside" program for rice fields would be increased, which would meet with strong opposition from domestic rice producers. So the Japanese government announced that no more rice fields would be "set aside" in order to meet "minimum access" obligations when it allowed import of rice under "minimum access" in 1993.

 How can the Japanese government import a certain volume of foreign rice without reducing domestic rice production? It is because the government purchases a volume of domestic rice equal to the volume of imported rice and then exports it as foreign aid or supplies it as feed for livestock. This imposes an extremely heavy financial burden on the government as it buys domestic rice at a higher price and then practically gives it away. Indeed, the government spends around 30-35 billion yen of taxpayers' money in this way every year to fulfill the "minimum access" requirement. If the "minimum access" quota of 100,000 tons of rice as a staple food were to be increased, the government would spend more to purchase and get rid of domestic rice, something the government abhors doing. This is the reason why Japan's Ministry of Agriculture, Forestry and Fisheries announced on July 31st that they will not increase rice imports under the "minimum access" obligations.

 

4. Do you think that a hike in the retail price of rice has influenced demand?

 In the short run, rice farmers profit from a price increase. However, a rise in prices tends to reduce consumption. Indeed, annual rice consumption has decreased from a peak of 14 million tons to a little less than 8 million tons today. One of the reasons for this decline is because the government increased the price of rice to improve farmers' income, while the price of wheat, most of which is imported, has remained stable, as a result of which Japanese have come to consume more wheat as a substitute for rice. In other words, the policy to protect rice farmers has actually shifted consumption from domestically-produced rice to imported wheat. Consequently, Japan's rice industry has been suffering from a downturn in consumption while the country's food self-sufficiency ratio has meanwhile dropped. The "set aside" program was devised partly as a countermeasure to deal with this consequence, i.e. a decline of demand.

 Although confined to a maximum of 100,000 tons, imported rice has been increasingly utilized. The problem is that once the demand of industries, including the food service industry, has shifted to foreign-grown rice, recovering demand for domestic rice will be very difficult. We have seen this in the case of "udon," or noodles made from wheat flour. As domestic wheat production was continuously declining, producers of "udon" in Japan inevitably started using foreign-grown wheat to cover the shortfall in Japanese wheat. Nowadays Japan's traditional and most popular "Sanuki-udon" ("udon" produced in Kagawa Prefecture, which used to be called Sanuki Province) is made almost entirely from Australian wheat. Ironically, the characteristic whiteness and resilience of "Sanuki-udon" comes only from Australian wheat - not Japanese wheat. There seems to be a general conception that rice is mainly consumed at home, but in reality half of the 6 million tons of rice distributed in the domestic market is consumed by restaurants and food-processing industries. Some people say that the current higher price of rice will drop considerably over time as production volume remains stable. However, it will be important for the rice industry that higher prices are brought back to normal as soon as possible to maintain an appropriate level of consumer demand for rice.

 



(This article was translated from the Japanese transcript of Mr. Yamashita's speech in the "Business Prospect" session of the radio program "First in the Morning News" broadcast by NHK Radio Channel1 on August 7, 2012 with a slight change to update.)

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