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Japan still the top customer for U.S. farm products.

U.S.-Japanese farm trade represents the largest flow of agricultural products between any two nations in the world.

That's sometimes easy to forget in the face of the often testy trade relationship between the two nations.

But despite some difficult issues (in agriculture and other sectors), "the importance of Japan to American farmers has been a fact for many years," says economist William Coyle of USDA's Economic Research Service.

"Agriculture is also one area of trade in which the United States runs a consistent surplus with Japan, helping to offset deficits in other sectors," Coyle notes in a recent issue of the Agriculture Department's FARMLINE magazine.

For the 1992 fiscal year, he says, USDA estimates that Japan will buy $8 billion worth of U.S. agricultural exports. This compares with a projected $6.9 billion for the 12 nations of the European Community, $4.7 billion for Canada, $3 billion for Mexico, and $2 billion for the former Soviet republics.

"In fact, one-fifth of all our agricultural exports go to Japan, and Japan is a leading market for many U.S. commodities--taking 51 percent of citrus exports, 29 percent of feed grain exports, and 34 percent of meat exports in 1991," says Coyle.

Moreover, about one-fifth of Japan's food supply comes from the United States.

"Ours is an important, complementary relationship," says Coyle. 'We're talking about food, sustenance, and the fact that 125 million Japanese depend on us every day for a part of their diet."

Said another way, the average Japanese relies on U.S. farmers for about 500 calories of the 2,600 calories in his or her daily diet."

"This trade has arisen because of our comparative advantage in agriculture," says Coyle. "The United States exports those goods which make intensive use of its abundant resources--and arable land is such a resource."

History Important

Of course, he adds, there is an important historical dimension to our agricultural trade relationship that is sometimes overlooked.

Right after World War II, the loss of Japan's colonial empire, plus the forced repatriation of Japanese nationals formerly living abroad, created large food shortages: Per capital food consumption averaged 1,700 calories from 1946 to 1950 and dropped as low as 1,448 calories in 1946.

The United States helped with sizable shipments of food aid, and also had an important role through the Occupation Administration in promoting land reform (Japanese officials of the nation's Ministry of Agriculture and Fisheries had drafted a land redistribution measure in the early years of the war). Reforms carried out from 1946 to 1950 led to large transfers of land from absentee owners to producers and the emergence of an agriculture dominated by the small owner-operated farms that predominate today (the average farm is 2.5 acres).

"These reforms enfranchised landless farmers in the interests of assuring political stability in rural areas and also led to a rise in agricultural productivity in the 1950's which helped improve Japan's food supply situation," says Coyle. "The irony now is that the small owner-operated farm structure that the United States helped promote more than 40 years ago is the root cause of Japan's agricultural inefficiency and the main reason for its protectionist policies."

Today, according to the Organization for Economic Cooperation and Development (an international group that monitors global economic issues), the Japanese agricultural sector is one of the most heavily protected in the world. Not surprisingly, many U.S. farmers (and other foreign producers) maintain that this protectionism limits export opportunities in the Japanese market.

Some of the specific problems in U.S. agricultural trade with Japan include access to Japan's rice market, the reform of certain policies that limit U.S. grain sales to Japan, and food safety and animal and plant health regulations that are considered too strict by exporters.

Japan protects its rice producers by banning imports and supporting producer prices at a level five to six times the world price. American rice industry groups filed two "section 301 cases" under the Trade Act of 1974--one in 1986 and another in 1988--with the U.S. Government against Japan, calling for the lifting of Japan's ban on rice imports. (Under the 1974 Trade Act, such petitions seek redress for action taken by a foreign country that is "unjustifiable, unreasonable, or discriminatory," and burdens or restricts U.S. commerce.)

Both cases were rejected by the U.S. Government on grounds that Japan's rice ban should be discussed at meetings of the General Agreement on Tariffs and Trade (GATT), an international organization that governs most global trade. (GATT Article 11, one of 38 articles that make up the GATT "treaty" among member nations, does not provide for exceptions that eliminate foreign competition--only ones that limit foreign competition.)

The Dunkel Proposal

Currently, a proposal drafted by Arthur Dunkel, Director-General of the GATT, would require that Japan import 300,000 tons of rice in 1994 and expand that to 500,000 tons by 1999. In addition, Japan would have to replace its ban on rice imports with a tariff of about 500 percent that would be reduced by at least 15 percent over a 6-year period.

"U.S. rice interests feel strongly that they could sell in a liberalized Japanese market," says Coyle. "According to studies done in and outside of USDA, no controls at all on the Japanese rice market eventually could lead to an increase in Japanese rice imports of 4 to 5 million tons."

This would be worth $1 to $2 billion overall each year, with a goodly share going to California rice growers who produce japonica rice, a variety popular with Japanese consumers.

"Japan has resisted lifting its ban on rice on food security grounds, since rice is a staple in the Japanese diet," says Coyle. "The Japanese say they are also acting to protect their rural communities because rice production is a mainstay of Japanese agriculture."

Certainly, says Coyle, the United States needs to respect Japan's concern for food security--a concern rooted in the suffering and privation that the Japanese people experienced during and immediately after World War II.

"We overlooked Japanese concerns in 1973 when we embargoed shipments of soybeans for about a week and restricted exports for a longer period," says Coyle. "While Japan imported a record volume of soybeans in 1973, the incident had an enduring psychological effect on Japan--as have instances where food has been used as a tool of foreign diplomacy."

Since then the United States has tried to ensure that such a supply disruption will never happen again. The two countries signed a supply/purchase agreement (the Butz-Abe agreement of 1976-78) for grains and oilseeds, initiated bilateral consultations on agriculture (the Carter and Ohira communique of 1979), and announced a long-term policy on farm exports in 1982. This policy provides for no restrictions on the exportation of farm products in the case of rising domestic prices and a commitment not to use an embargo of agricultural products as an instrument of foreign policy except in extreme situations and as part of a broader embargo.

Japanese politicians, on the other hand, have used legitimate public concern about food security to galvanize support for protectionist agricultural policies, Coyle says.

"This is a tactic which may serve farmers and those who serve them, but not necessarily the broader public in providing low cost food security," he says. "And there are flaws in the argument that rice self-sufficiency equals food security."

A More Varied Diet

For one thing, he says, it puts too much emphasis on rice, which is much less important in the Japanese diet than it was 30 years ago. It represents just over one-fourth of per capita caloric intake today, compared with about 50 percent in 1960: The average Japanese diet has become much more diversified.

The argument about self-sufficiency also overemphasizes production. Can rice self-sufficiency really provide true food security for Japan?

"In the unlikely event that Japan were cut off from trade and put all available land into rice production, it could not produce enough total calories to sustain human activity," says Coyle. "And if imported inputs were unavailable, that production would be even less. The fact is that trade--not domestic production--is the key to Japanese food security."

Protecting Japanese rice producers on food security grounds, he says, has negative consequences for other segments of Japan's population by taking away land (and water resources) from more financially rewarding economic activities.

In addition to the food security rationale, protecting Japan's rice market is defended as a way of preserving rural communities: High rice prices help keep resources and people in agriculture.

"But this notion is misleading also," Coyle says. "Most producers of rice and other commodities in Japan are part-time farmers who derive most of their household income--85 percent--from off-farm employment."

The stability of rural Japanese communities is no longer tied to rice prices the way it once was, he says. Instead, rural industrialization and the availability of nonfarm employment sustain rural communities.

"It is a myth that elimination of agricultural price supports for rice and other farm activities would lead to massive social and economic dislocation in rural Japan," says Coyle. "Many farm households could adjust to the loss of the farm component of their income. They could not, however, adjust to the loss of the non-farm component.

"It is in Japan's interest to advocate global liberalization of agricultural trade, and to invest in agricultural development in the Third World and elsewhere to expand the world's food producing capacity," he adds.

Feed Sector Issue

The feed sector issue is a complicated one involving regulations, high Japanese feed prices, and constraints on Japanese livestock producers, who are major buyers of U.S. grain.

"This issue is very different from rice," says Coyle. "While Japan imposes a near ban on rice, it is the world's leading importer of feed grain."

So what's the problem? According to the U.S. Feed Grains Council--an organization that promotes U.S. grain exports--future growth in the Japanese market is threatened by a web of regulations that raises feed prices, hurts Japanese livestock producers' ability to compete with meat imports and limits their use of feed.

The Japanese policies that are being criticized include:

* mill licensing which has led to a feed industry dominated by the farm cooperative organization Zennoh,

* restrictions on direct on-farm feeding of corn,

* a 15-percent tariff on imported mixed feed,

* monopoly control of feed barley imports by the Food Agency, and

* a tariff quota on industrial corn with a prohibitively high tariff on imports that exceed the quota.

"The official justification for many of these restrictions is to prevent the illegal flow of imported corn into Japan's starch industry," says Coyle. "The Government is trying to protect a few Japanese potato and sweet potato producers by ensuring that their higher priced products are used in starch production."

While the U.S. Feed Grains Council has been concerned about the lack of growth in Japan's feed grain imports over the past 5 years, Japanese meat imports have risen sharply due to market opening measures in the 1980's--among them the Beef and Citrus Understanding of 1988, which allowed for greatly expanded Japanese imports between 1989 and 1991, and tariff reductions for poultry meat and other livestock products.

"The United States has done quite well in expanding meat exports, capturing 44 percent of Japan's beef imports, 85 percent of its beef offal imports, and 33 percent of its poultry meat imports," says Coyle. "From a different perspective, while we are having problems expanding the grain sales, we are succeeding in exporting meats, or 'processed grain.'"

Coyle adds that Japan might well consider the benefits that could accrue to its livestock industry from removal of some of the impediments that increase producers' feed costs. "Such a course could help sustain the livestock industry over the long run, in the face of increasing competition from imported meat and poultry," he says. "The United States would like to expand its sales of both grains and meat to Japan, but let the market--not government intervention--decide what the appropriate balance between the two should be."

Food Safety

A third major issue in agricultural trade involves restrictive food safety regulations.

"The Japanese are very concerned about food safety--as all consumers should be," says Coyle. "But their regulations on food additives and chemical residues, as well as on phytosanitary requirements, make access difficult for some processed products and fresh produce."

Then, too, negative campaigns about the safety of imported foods periodically surface in Japan, posing a potential threat to U.S. exports.

"For example, in 1988 the leading Japanese farm organization, Zenchu, produced and distributed a video about imported agricultural products that featured pictures of such things as spoiled lemons," Coyle says. "Yet despite Japan's expressed concern about additives and other food safety issues, Japanese agriculture is far more chemically intensive than ours." According to the United Nations' Food and Agriculture Organization, fertilizer use per acre in Japan is about five times that of the United States, and pesticide use is seven times as high.

The responsibility on both sides, he says, is to ensure that legitimate concerns about food safety and sanitary matters be dealt with on a scientific basis and remain outside of the political arena. This is the objective of the U.S.-Japan Food Safety Subcommittee which meets regularly throughout the year. The subcommittee is an official bilateral group, and is composed of government officials and scientists from both nations.

These problems shouldn't affect the overall agricultural trade relationship, Coyle says.

"What we must not overlook is the profound and vital trade link in farm products between our two nations," he says. "This relationship will continue because it is mutually beneficial."

Coyle also says the focus over the next 10 years should shift from the irritants in the trade relationship to the changes in the Japanese economy and market.

"Economic growth in Japan will have an important influence on the Japanese diet and the growth in consumption of livestock products," he says. "The United States will continue to supply Japan's growing demand--either for feedstuffs to support local livestock production or the finished livestock products themselves."

The outlook for the further opening of Japan's agricultural market continues to be promising.

"Policy reform in Japan will result more from internal forces than external pressure," Coyle says. Changes in agricultural policy, for example, will be nudged along by the emergence of an equity issue regarding the heavy Government subsidies that go to farmers and not to city dwellers. "City dwellers must cope with cramped living conditions and a more frenetic lifestyle and will increasingly ask why farm households should continue to get Government subsidies when average farm household income surpassed urban household income some time ago," he explains.

The part-time farming phenomenon will reduce the political cost of agricultural reform, Coyle says, by assuring that producers and rural areas will have an "income buffer" allowing them to adjust more easily to farm sector changes. And the food security argument used to justify protection of Japan's rice sector will resonate less among the Japanese as the number of people who can remember the food shortages of the 1940's declines.

"Finally, there is the matter of environmental constraints in Japan," Coyle says. "High population density and animal inventories are putting a great deal of stress on the land base, and raise the question of how much Japan can continue to expand livestock production."
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Publication:Frozen Food Digest
Article Type:Industry Overview
Date:Oct 1, 1992
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