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Wednesday, Sept. 15, 2010


Japan's rice dilemma

Rice prices are falling. This may be good news for consumers, but it will cause problems. Because the Democratic Party of Japan government has started the policy of income compensation for individual farmers, sharp decreases in rice prices could make operation of the compensation program difficult.

Rice farmers whose production costs constantly exceed the sale price can join the income compensation system. If they agree to reduce the area of rice paddies to grow other crops like wheat, the government will pay ¥15,000 per 10 ares (1 are equals 100 sq. meters) of rice paddies. If the rice price falls below the three-year average of rice prices, there will be an additional payment that is equal to the difference.

The farmers' average price of rice that was produced in 2009 and now has been consumed was about ¥14,000 per bale (60 kg of rice), some ¥1,000 lower than in the fall of 2009. To make matters worse, a good harvest is expected this year. Rice stockpiles by the government and farmers' cooperatives already amount to more than 3 million tons, equivalent to nearly 40 percent of rice yearly consumed. A further fall in rice prices appears inevitable.

The fiscal 2010 budget earmarks about ¥330 billion for income compensation. But the steep fall in rice prices will bloat the budget needed for compensation. Since the government plans to expand the income compensation system to cover more crops from fiscal 2011, the system will likely face even more financial difficulties. The government must hurriedly work out measures to stem the fall in rice prices.

As part of its efforts, the farm ministry has proposed that the government buy 200,000 tons of rice every year for five years and sell it as feed. But an advisory panel for the ministry is not enthusiastic about the proposal because it will cost the government some ¥50 billion a year. The government should seriously consider ways to induce people to eat more rice as a means of propping up rice prices, and thus help stabilize Japan's rice farming sector.

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