Japan’s Recent Rice Price Crisis

Japan’s Recent Rice Price Crisis

$30 per five kilograms – about twice 
as high as they were a year ago. Prices have gone up for over 15 weeks in a row. In response, the Japanese government 
released 600,000 tons of rice from its   emergency food stockpiles – usually stored 
for natural disasters like earthquakes. But prices remain high. Supermarkets in Japan are announcing they will   sell rice from other countries like 
South Korea and … even gasp America! Yes, I am talking about that most 
blasphemous of rice strains: Calrose. Japan is nearly 100% self sufficient in rice. 
On the surface, that is something to be proud   of. But not so much when you consider 
the system built around that number. In today’s video, we return to my favorite carb, 
and dive into Japan’s ongoing rice price crisis. ## Pineapples and Rice The economics of farming 
certain crops fascinate me. Think about a pineapple. A pineapple 
takes about two years to grow. But once   the pineapple plant gets established, 
it does not need much looking after. It is hardy and drought resistant. The fruit 
also fetches a rather high price when sold. Rice is the pineapple’s polar opposite. 
Its killer app is that it delivers a lot   of calories without using a lot of land. It grows   very fast. So fast that you can cycle 
through two crops in a single year. Economical rice farming – like semiconductor 
manufacturing – is all about scale and volume.   The issue with Japan’s rice fabs however is that 
they are not big enough to achieve those things. ## Small and Fragmented Rice Farms The average Japanese rice farm is very small. This was a deliberate industrial policy choice 
made by the government after World War II,   which emphasized that farmland should 
be owned by the people working it. For this reason, land reforms limited 
family and company farmland ownership   as well as how land-lease contracts can be 
terminated. These are all important tools   to prevent absentee landlords from 
accumulating vast tracts of land. These land reforms – which were also 
adopted in Taiwan – are widely seen as   a vital industrial policy measure in revitalizing   the ruined agricultural economy and 
blunting the appeal of Communism. The end result however is that Japan’s 2.3 
million farms are small and fragmented.   Depending on which source you most believe, 
the average Japanese farm is from 0.6   to 2 hectares large, with land 
spread across several plots. This is really tiny. To compare, the average 
American farm is roughly about 188 hectares.   This difference in scale means two things. First, 
the small size prevents the average Japanese   farm from adopting yield-boosting measures 
practiced abroad like sowing seeds via airplane. Second, it means that most Japanese 
rice farmers do the rice-farming as a   side-gig. Farming does not earn them enough 
for a living. There are 2.1 million farming   households in Japan, and 40% of them 
earn less than half a million yen or   $4,500 a year from farming. The majority 
of these “part-timers” are rice farmers. This lack of financial sustainability – 
plus the fact that the average farmer is   today 69 years old – plays a big 
role in Japan’s declining farmer   population. Why become a farmer 
if you can’t do it full time? What is interesting however is that 
Taiwan had a similar policy and land   farm distribution structure, yet Taiwanese rice 
farms produce more rice per hectare per year,   and are also more labor-efficient 
than their Japanese counterparts.   Farm size matters, but 
something else is at play here. ## Supporting the Farmers In the early 1940s, rice farmers sold 
their rice directly to the government. The government then resold the rice to the 
consumers at a set price. This was a wartime   system and essentially rationing. Immediately 
after the war, there was nowhere near enough   rice to go around – leading to widespread 
malnutrition and in some cases, starvation. US food aid at the time was mostly wheat, 
not rice. At the same time, the American   occupation authorities wanted the 
Japanese to have a more varied diet.   So they promoted cuisines that were not so 
rice dominant – one particularly successful   campaign included school lunches 
made of wheat flour bread and milk. Consumption of rice in Japan peaked in 
1962 at about 118 kilograms. Assuming   that a bowl of white rice weighs about 
60 grams, that is about 5.4 bowls a day.   Fast forward half a century to 2016, and Japanese 
ate about 2.5 bowls of rice a year. Meanwhile,   fat and oil consumption is up 2.7 times, 
milk and dairy 3.2 times, and meat 4.2 times. Throughout the same 1950s and 1960s 
time period, rice production methods,   new rice strains, fertilizers and mechanical 
equipment revolutionized rice yields. This declining demand trend entangled with 
the supply boom to leave the country with   surpluses. Rice prices were 
also perceived as too low,   concerning the politically powerful 
farming population. But the government   can not afford to buy all the rice they 
wanted to put on the market. What to do? ## Acreage Control So in 1970, the government 
instituted a policy called   the “rice acreage control 
system” or the Gentan (減反). The Ministry of Agriculture, Forestry 
and Fisheries or MAFF sets a national   rice production limit for the year based 
on some estimate of the country’s demand. The production limit is below the full capacity 
of Japan’s rice paddies. So subsidies are issued   to the rice farmers to divert some of their 
rice paddy acreage away from planting rice.   Farmers might instead plant soybeans, wheat, or 
barley on this land, or just leave it fallow. The Gentan was originally implemented as a 
temporary measure to tide the farmers over from   the surpluses. But like with so many government 
policies, it ossified into a permanent thing. Alongside the Gentan system, of course, 
is a complicated system of tariffs that   makes imports infeasible. And when 
certain trade agreements require the   country to import rice, Japan has gone to 
some measures to avoid using that rice. I recall in my last rice video 
about how Japan had to import a   “minimum access” amount of rice 
per its WTO treaty obligations,   only to store that rice in warehouses until it 
deteriorated enough to be used for animal feed. These trade protections combined with the 
gentan system has artificially made inefficient,   part-time farming sustainable. 
The rice plots are small enough   and prices just good enough to make 
it feasible for a Japanese farmer   to maintain a certain lifestyle. At 
a cost to the consumer, of course. ## The Heat Waves You might argue that one upside of 
this government-managed rice market   is that it might be able to keep prices stable. From 2022 to 2023, the prices of noodles and 
bread in Japan surged 8.1% and 11.1% – likely   due to higher oil prices in the wake of the 
Ukraine war. Meanwhile rice prices actually fell. But you can also argue that it has left 
the system brittle – apt to disruption by   supply or demand shocks. In 2023, a significant 
heat wave swept over Asia, setting temperature   records all over the continent. Japan was also 
affected with many areas making new record highs. Rice is sensitive to heat, preferring a moderate 
climate between 25 and 35 degrees Celsius – and   going out of that range causes issues. 
The plant is even more sensitive to   high heat during critical periods when the 
seedlings emerge and establish their roots. When exposed to too much heat, the rice 
plants suffer a heat shock that reduces   yields and also turns their grains chalky. The 
chalkiness affects the rice’s grade and value,   though if it is not that bad, 
the rice still tastes okay. The 2023 heatwaves caused rice 
quality in Japan to deteriorate.   It was reported that by the end of October 
2023, the proportion of first-grade rice   had fallen 16 percentage points to just 59.6%. 
In response, it seems like Japanese retailers   dipped into existing storage rather than 
sell inferior-quality rice into the market. Considering all this, what happened 
next was predictable: Rice shortages.   Shelves went empty. This sparked hoarding 
behavior from individuals and businesses,   forcing stores to limit purchases 
to one 5-kilogram bag each. People started to draw down on 
their inventories and by June 2024,   rice stores were already at a multi-year low. ## Tourism Boom At the same time, the 2023-2024 period also saw 
the end of a 10-year long decline in rice demand. Since 2014, Japan had seen annual rice demand 
declines by about 100,000 tons per year. This   is due to major demographic trends like people 
getting older and families getting smaller. This trend finally ended in the 2023-24 
season when demand “surged” up 110,000   tons or 1.6% to 7 million tons. This was 
in part blamed on Japan’s tourism boom. Post-COVID conditions and a weak yen have 
fueled unprecedented tourism numbers,   and these tourists love Japanese food like 
sushi and rice balls. Estimates of tourist   rice consumption was about 51,000 tons, 
up 2.7 fold from the prior 12 months. In addition to these record-breaking 
tourist numbers, there were the   already-low inventories of 2024, 
several typhoons in the summer,   and a major earthquake in August. The latter 
sparked panic-buying that sent prices soaring. Despite all these acting factors, the 2024 
rice harvest only increased about 180,000   tons from prior, which is not as much as you 
might expect with rice prices doubling. Again,   this is because the Japanese domestic 
rice market is not a free one. ## Rice Distribution So let us just remove the 
Gentan system, right? Easy? However, a massive bureaucracy – both 
public and private – has been built up   over the decades to manage, store and deliver 
this rice. It works hard to retain its power. Japan Agricultural Cooperatives or JA (農協) is 
the world’s single largest and most powerful   agricultural cooperative. To be precise, JA is a 
union of cooperatives at three different levels –   national, prefectural, and municipal. However, 
I will refer to them as a single organization. As described by Nicole Freiner in a fascinating 
book about rice agricultural policy in Japan,   JA has embedded itself deeply into all parts of   the agricultural sector and has 
gathered immense political power. To farmers, JA offers financial, marketing, 
insurance, welfare, real estate, travel,   and educational services. Rice farmers are 
not obligated to sell their rice to JA,   but have effectively no choice because JA 
provides all their insurance and financing. The JA’s national entity is located in Central 
Tokyo, close to the government and the ruling   political party LDP. It has deep connections 
to legislators, donors, and organizers and uses   this political clout to advocate for farmers 
– and in doing so perpetuate its own power. The Japanese government uses JA to administer 
Gentan. And the policy is a major source of   profits for the cooperative. After the government 
decides the national rice production number,   JA passes the quota down through its 
bureaucracy until it reaches individual farmers. Prefectural and local quotas are distributed 
geographically, without any recognition of   differences of efficiencies. JA local 
cooperatives then cajole and pressure   farmers into compliance – sometimes even resorting 
to collective penalties to keep people in line. ## Abolishing Gentan So the Gentan artificially limits rice 
production to keep domestic rice prices   high and presumably protect farms. But those 
same high prices suppress possible reforms. There have been attempts to reform 
the JA and the Gentan itself,   but as you might expect, this has 
not been easy. Technically speaking,   the Gentan was first reformed in the 
2000s and then “abolished” in 2017. But it is one of those things where the 
spirit of the law remains even after   its words have been stricken from the books. 
The direct government rice production quotas   and subsidies were removed, but other 
forms of agricultural support remained. For example, direct payments to 
farmers who use rice paddies for   growing “strategic crops” like wheat, 
or rice intended for animal feed. With this subsidy, it is more profitable 
for the farmers to grow feed rice than   table rice. This all feels like the 
same old acreage-reduction policy. It is estimated that the full 
removal of Gentan would reduce   domestic rice prices by as much as 40%. 
But after 2017 rice prices stayed the   same because in reality the reforms 
did little to actually dismantle the   infrastructures suppressing rice production 
and encourage more efficient rice farming. When the Japanese government first released 
its stores of stockpiled emergency rice,   it sold most of that rice at auction rather 
than directly sending it to retailers,   restaurants, or wholesalers. Who 
ended up buying 97% of the rice? JA. JA holds the distribution network, 
so I guess it kind of makes sense.   But the optics are not so great when 
JA officials have also criticized the   government releasing its rice stockpiles 
as being against “market principles”. Those officials have also remarked 
in both text and speeches that rice   prices had been historically too low. That 
those low prices had been an unsustainable   situation unfair to producers. And that 
this was all just a healthy correction. The remarks were panned in public and online 
for being somewhat tone-deaf. Particularly when   the Nagano JA chairman compared the price 
of a bowl of rice to an entire sandwich,   and that he went to a local ramen shop and still 
got a free bowl of rice so everything is okay. ## Self-sufficiency Japan has built up extensive 
infrastructure to support   its policy goal of achieving 
100% rice self-sufficiency. This infrastructure seems to have done the job 
a little too well. Now the government spends a   great deal of money and resources trying to 
balance rice supply and demand each year. That is because of rice’s “special” place 
in Japanese cuisine. But this infrastructure   largely neglects other foods with significant 
“calorie-share” of the Japanese diet. Japanese   don’t get 60% of their calories from rice 
anymore like how it was in the 1960s. In 2023, Japan’s self-sufficiency rate 
when calculated on a calorie basis was   38% – low compared to other developed 
countries. Based on 2019 numbers,   Canada was 233% self-sufficient, Australia 
169%, and the United States 121%. Okay fine, those are countries with lots of land.   But Switzerland – very mountainous and quite 
small – is at 54% per 2007 data. The UK,   58%. So Japan trails far behind its comparables, 
though it does seem to be ahead of Korea. Rice is iconic in the Japanese diet. But these 
other foods are pretty special too. Ramen for   instance is heavily dependent on food imports 
including wheat, soybeans and edible oils. Trading   a bit of rice self-sufficiency for noodle or 
vegetable self-sufficiency might be a fair trade. ## Conclusion We shall see how things go with 
trade agreements and tariffs. But I buy the arguments of a 
former Japanese agriculture   ministry (MAFF) official named Kazuhito 
Yamashita, who argues that truer food   security in terms of rice is better had 
by building a competitive rice industry. Since 1961, global production of rice has gone 
up by about 3.5 times. Some Asian countries like   Vietnam, Thailand, the People’s Republic 
of China and India are now producing two,   three, or five times as much 
rice as they were back then. Japan on the other hand today makes 35% less rice 
than the 16.1 million tons it produced in 1961.   Had it followed the same 4x multiplier – crude 
analysis but for illustrative purposes – rice   production would be 64 million tons. More 
than major exporters Vietnam or Thailand. This gap is the result of both the 
acreage reduction policy and the rice   farms’ general inefficiency. I see it as a missed 
opportunity to build up rice production capacity,   secure domestic supply, and even 
generate some export earnings. Now that this latest rice price 
crisis is so nationally prominent,   the Japanese government is focused on blunting the 
trend. I feel confident it will succeed in that,   but I have less confidence it will succeed in 
actually reforming the system behind all this.

Links:
– Patreon (Support the channel directly!): https://www.patreon.com/Asianometry
– X: https://twitter.com/asianometry
– Bluesky: https://bsky.app/profile/asianometry.bsky.social
– Newsletter & Podcast (available through Stratechery Plus): https://asianometry.passport.online/
– LinkedIn (feel free to connect): www.linkedin.com/in/jon-y-asianometry