Thursday, March 19, 2009

Meanwhile, back in Japan...

It's not just commodity prices and government policy that is worrying the farmers.  Their bank wants to bailout money from them.
Hiroshi Yamada, a carnation grower in Shizuoka prefecture, is one of 3.2 million Japanese farmers and fishermen who depend on Norinchukin Bank for financing and support. Now the Tokyo-based bank, hit by losses on holdings backed by overseas property loans, is asking him for help.
Norinchukin has racked up at least 816 billion yen ($8.3 billion) in realized and unrealized losses on investments in securitized products, including collateralized debt obligations, making the 85-year-old cooperative bank the biggest loser in Asia from the credit contagion gripping the global economy. It wants its nationwide network of co-ops to come up with 1.9 trillion yen of financial support.
“It’s unbelievable what’s happening,” Yamada, 42, said in an interview at his farm, perched on a hill overlooking the sea on the Izu peninsula, southwest of Tokyo. “The fallout isn’t apparent yet, but this will take its toll.”
Yamada relies on his local co-op for production advice, marketing and delivery of fuel oil to heat his greenhouses. Employees haul the fuel by truck up a steep, winding road to his farm. Now, after his earnings fell 10 percent last year, he’s concerned that Norinchukin will return less profit to the co-op.
More pain may be in store: the bank, which raised its bets on securitized products even after they brought down New York- based Bear Stearns & Cos. and triggered record losses at Merrill Lynch & Co., held 6 trillion yen of such investments at the end of December. Should it need more money, members may balk, threatening its ability to serve Japan’s agricultural sector as the nation heads into its worst postwar economic slump. 
Norinchukin lost sight of its core mission of supporting and developing Japanese agriculture, he said.
“They became a social climber,” said Yamada. “They’ve got to go back to basics.”
That may not be an option, according to Yamashita, the former agriculture ministry official. The declining farm economy and a shrinking and aging rural population mean Norinchukin can’t go back to its roots, he said.
“They have no outlet in the domestic market,” he said.
The number of full-time farmers in Japan fell to 2 million last year from 3.7 million in 1985, according to the agriculture ministry. The number of fishermen was 204,330 in 2007, down from 325,000 in 1993. Another 1 million people rely on agriculture as their primary income source, according to government data.
More than half of farmers’ income in Japan is attributable to government support, including price supports and import barriers, according to the Organization for Economic Cooperation and Development.
Agricultural Reform
With the farming and fishing industries unable to count on dividends and returns from Norinchukin, pressure may build to reform agricultural policies to make them more efficient and competitive, said Yamashita, who advocates such reforms.
Reforms may include dismantling the current nationwide cooperative model in favor of smaller, independent organizations, he said.
The mere suggestion of ag policy reform in Japan is mind-boggling. If Japan finally decides their extreme protectionism and land use restrictions are simply unaffordable or worse, standing in the way of economic progress for the rest of the country, it will defang one of US producers' favorite bad actors for us to compare too.

With the EU facing similar harsh fiscal realities concerning the CAP, the next ranking ag subsidizer is the US.

For me, however, the timing of the AIG, et al bonuses could represent a powerful reform tool as the administration seeks to target farm payments to smaller farms.  The same lame, self-serving arguments used by bonus defenders - contract sanctity, we need the big guys to solve the problem they created, it's only a small portion of a trillion-dollar problem - seem remarkably like the arguments ag subsidy fans use to defend our deft looting of the Treasury.

Something might just take a bite out of our DCPs this time.

1 comment:

From Virginia said...

"Something might just take a bite out of our DCPs this time."


I am not sure if even this new administration will really try to reform ag policy. Interestingly, while talking about phasing out direct payments to so called "large" farms grossing over $500K, the Obama administration is considering requests from farm state Senators to undo two minor reforms the Bush administration enacted in their last month in office.

The first was eliminating DCP base acres on federally owned land. Since farmers were willing to bid higher for this land to get the DCP payments, the higher rent essentially transfered the subsidy to the federal agencies. Without the base acres, farmers should now be able to lease the federal land at a correspondingly lower rent.

The second change made was to the rules for determining "actively engaged" status to qualify for subsidies. The rules published for 2009 crop year stipulate that for corporations that are set up to farm rented land, (land ownership automatically qualifies one as actively engaged) all members of the corporation must contribute something in the way of active personal management or labor. In other words, passive investors won't qualify. (This is similar to the test used by IRS to determine if you can write off losses from a farming operation.)

These two relatively minor changes have really stirred things up, particularly in the southeast. It will be interesting to how Vilsack and Obama eventually respond to the Senators.