Japan’s agriculture - Explaining ‘craft’ farming and its hidden advantages

May 9

Japanese fresh fruits are well-known for its exquisite quality. Many visitors from Asian countries during the tourism boom in the 2010s were impressed when they discovered the taste of strawberry, melon and other fruits. Their beautiful appearance and sweetness were a sort of craft. There are problems in Japan’s agriculture sector. Productivity is very low, and the entry barrier to become a producer is high. Yet it has advantages in production control and R&D. Agriculture is a good place to observe how Japanese society shapes its business and to think how to locate hidden assets in Japan.

Large producer, mediocre exporter

Japan is not known as a major agricultural producer like the US, Australia, Brazil, China or India, nor as a competitive exporter like the Netherlands, Germany or France. Japan has actually a huge agriculture sector. It is a large country in terms of population for the first place; its current population of 126 million, slightly fewer than that of Mexico. It is the 11th most populous country in the world. Its land area is about the same as Germany, slightly larger than Vietnam and slightly smaller than the state of California. Domestic agricultural production is not insignificant. In terms of output, the country ranks the ninth in the world in terms of value.

On the other hand, as an exporting country, Japan ranks around the 60th in the world ranking and has almost no presence in the international market. This has to do with the structure of Japanese agricultural sector.

One of the most frequently cited characteristics of Japan’s agriculture is the proportion of the elderly workforce: the majority of farmers are 65 years-old and beyond. It is also known for a low food self-sufficiency rate. The entire sector consists of high proportion of rice and vegetables farming, and as for some major products, say, wheat, Japan relies 90% of its demand on import (the ongoing global shortage of wheat will be certainly affecting its Udon production in the coming months).

However, what many foreigners are surprised is that the size of average farmland. The patch of land that a single production unit (i.e. farmer) takes care is astonishingly small. According to a report by the Ministry of Agriculture, Forestry and Fisheries, the average size belong to a single production unit is only 3.0 ha [=7.4 acre] in Japan. The same figure in the US is 179.7 ha and Australia 4,442.9 ha (!). Even in European countries, which have a smaller land area than these countries, the area size is in Germany and France is 60.5 ha and 60.9 ha respectively.

*The ‘craft’ farming of Japanese agriculture produces high-quality fruits .*

Many small-sized retailers, many small-scale farmers

Mathematically speaking, 60 Japanese farmers cultivate the same area of farmland as a single production unit in the US. The time spent per hectare is significantly more in Japan. So Japanese growers work hard to prepare the soil carefully and do experiments to produce vegetables and fruits of the highest quality. This is the secret of Japan’s ‘craft’ farming. However, the productivity remains to be meagre and the price of final product high.

The size of rice farms, the staple food of Japan, is even smaller than the overall average, at 1.0 ha per production unit. The price of a kilo of rice in a supermarket in Tokyo is about JPY 440 (USD 3.40) including tax. The figures vary according to statistics, but despite rice being an essential everyday ingredient and its production heavily subsidised by the government, Japan has the highest consumer price per kg in the world.

https://www.globalproductprices.com/rankings/rice_prices/

Each production unit taking care of a small path of land means that there are many farmers around. In the previous post (#102 - Why distribution in Japan is so complicated?), I wrote that there were too many small-sized retailers operating in Japan. The same can be said in the agriculture sector.

Japan Agriculture Cooperatives (JA) – a colossal lobbyist

Farmers have always been indispensable supporters for the Liberal Democratic Party (LDP), which has controlled Japanese politics for most of the post-war period. They are organised through a local unit of the formidable Japan Agricultural Cooperatives (JA), which has more than 10 million members.

The JA is one of the strongest lobby groups in Japan and its network is inescapable for those who live in the rural area. The group operates bank, insurance broker, real estate agent, equipment leasing company, fertiliser distributer, R&D institute, supermarket, funeral hall and so on.

For lobbying, the more members it has, the more political power it can retain. During the period of rapid industrialisation in the 1960s and 70s, the number of full-time agricultural workers declined significantly. Younger people went to large cities. In this context, the concept of ‘dual-income farmers’ was established. They were qualified as farmers who were eligible for the protected, if not privileged, status even if farming was not the main source of income.

This is the main reason why there are so many small-scale farmers. Their productivity is naturally very low. However, the government, for the sake of continuous support from the JA, has chosen to maintain the number of agricultural workers. The social and political structure outside the industrialised big cities have thus been preserved.

The agriculture sector remained unproductive during the 80s and 90s, but there was little discussion to improve its international competitiveness through the implementation of large-scale farming. The Japanese economy was strong enough overall that the sector was not expected to contribute to earn foreign currency at all. Although the recent governments have made many initiatives to increase the export in the last 10 years or so, the basic structure of the sector, or society, remains the same as before.

I often feel that there is a great force in Japanese society to reject drastic changes. An initiative to consolidate companies, organisations or work units for better productivity often faces persistent resistance from those who may lose their already-earned benefits. I observe this attitude at any layer of the society.

The farmers and the produce are organised through Japan Agricultural Cooperatives (JA).

High entry barriers to own farmland and become a producer

It is very difficult to become a new member of Japan’s agriculture sector. There are high barriers to acquire the farmland. An individual wishing to start a new farming business is required to obtain an official certificate by the local authority. To do so, he or she has to undergo the official farming training. Yet in order to participate in the training, the applicant first has to get a recommendation from the local authority. If a company wants to purchase the farmland, it has to fulfil strict conditions to be qualified as a certified agricultural enterprise.

Many people understandably give up on acquiring their own land and try to farm by renting a piece of land which is classified as the farmland. However, even in such cases, permission from the local agricultural committee is required.

Sometimes people abroad ask me whether they can acquire some farmland in Japan. However, in the current circumstances it is almost impossible for non-resident individuals or companies to acquire farmland (I am almost certain, though, the situation will change in about 10 years’ time as many elderly farmers will be abandoning their farmland and the government will have to find someone to farm).

There are high barriers to acquire the farmland in Japan.

Japan’s agriculture has the edge in production control and R&D

I believe the productivity in Japanese agriculture will remain unimpressive for the foreseeable future. The costs of its produces will also stay expensive as much-needed consolidation of production unit is unlikely. On the one hand, Japanese fresh products is always interesting in the B2C sphere. The taste is good and consumers in any market would love it. However, I would not particularly encourage to start importing fresh products from Japan for B2B wholesale business.

We were actually in this trading business, dealing with fresh fruits, for several years from 2015. Yet there was not much competition back then, and China still did not produce so many high-end fruits. The quality of fruit from Korea and China, where the climate is similar to that of Japan, has definitely improved over the last several years. I think the comparative advantage of Japanese fruits and vegetables is getting smaller each year.

I think the areas where Japanese agriculture maintains a comparative advantage over neighbouring Asian countries are production control and R&D. R&D includes soil quality improvement and new variety development.

One of the hidden assets in this sector is various techniques to ameliorate the quality of soil. Japan’s agriculture practice is inevitably craft farming. Its strategy is to produce top-quality fruit carefully and patiently in a small patch of land. The effort, or experiments, to create the soil high in nutrients is made at every layer, from the R&D institute to individual producers.

The most interesting part of this knowledge is the tacit knowledge that has been accumulated in individual producers and executed as daily soil maintenance techniques. It is not easy to package such on-ground techniques and export to other countries, but I think this can fill the gap between the scientific method developed in laboratories and the actual day-to-day interaction with the soil.

The other thing is the development of new varieties. The Shine Muscat grape variety developed by the National Agriculture and Food Research Organization is now being produced in various Asian countries. The fact that the JA cooperatives are managed by Japan’s 47 prefectures may also an advantage. Because of competition at the prefectural level, new varieties suited to different micro climates are developed and introduced to the market.

(reference) Introducing grape cultivar 'Shine Muscat'

https://www.naro.go.jp/english/about-naro/recent/shine-muscat/index.html

The advantages of Japan’s agriculture are still not well known

Although huge, Japan’s agriculture sector has only considered the local players as its stakeholders until recently. Foreign observers may notice that many business practices, especially those related to marketing activities, are quite different from those in other exporting countries. As for branding, for instance, the variety itself is the basis of branding at the international fruit business. Whereas in Japan, the core branding asset is always the name of prefecture that produces the product.

As each production unit is very small and producers are often very old, there has not enough initiative to document their tacit knowledge and techniques. There is not enough communication or publicity in English about the excellence of Japan’s production management and R&D. Agricultural policy makers rarely attend international agricultural technology exhibitions. For these reasons, there are still many things that are not well known outside Japan. I am now thinking about how we can help people abroad to ‘discover’ Japan’s hidden assets.

Masato KANO