BMI View: The government's plans to diminish the influence of the once-powerful Central Union Agricultural Cooperative (JA-Zenchu) are a strong indication to us that much-needed structural reform of the agriculture industry is underway. Indeed, by 2019 , the JA Zenchu is supposed to become a general incorporated association with co-ops having the option of engaging independent auditors instead of working with those associated to the JA Zenchu. By reducing the power of the Union, the government is sending out a clear sign that it is serious about the reforms, as further reflected in the increased openness towards a compromise for the Trans-Pacific Partnership . Other structural issues that should be addressed are the ageing farmer population (the average age of a Japanese farmer is close to 70) coupled with highly inefficient farming methods - usually constrained by the small plots of family - run farms . I t is no wonder why agricultural employment is shrinking so rapidly. According to official figures, people engaged in farming in Japan fell by 22.3% from 2005 to 2010 to reach 747,000. T he Japanese agriculture industry faces a bleak future if it does not reinvent itself.
Rice production growth to 2018/2019: 5.5% to 8.9mn tonnes. With the latest policy to do away with the four decade-long gentan policy, which restricts output of the grain to prevent overproduction, we believe this will herald a new season for the backward and ageing industry, as consolidation will begin to take place.
Beef production growth to 2018/19: 3.0% to 517,000 tonnes. Livestock production is expected to be stable on the back of changes in the animal feed compensation program for farmers, as well as muted consumption growth.
Soybean production growth to 2018/19: 16.2% to 230,000 tonnes. Despite its double-digit growth, soybean production still remains a fraction of total consumption. It is mainly used for animal feed.
2015 real GDP growth: 0.8% (up from 0.0% in 2014).
2015 consumer price inflation: 1.8% average (down from 2.7% in 2014).
BMI universe agribusiness market value: USD73.3bn in 2015 (down 0.1% from USD73.4bn in 2014; forecast to grow annually by 1.7% on average from 2015 to 2019).
Rice is one of the few agricultural products for which Japan is self-sufficient. Rice production growth has suffered over the past several years as high stocks have kept domestic prices low. We expect this to remain the case for the coming years, though we expect growth to moderately accelerate towards the end of our forecast period. We expect rice output to come in at 8.9mn tonnes in 2018/19, an increase of 5.5% on the 2013/14 level.
Livestock production growth in 2014/15 is expected to be unexciting owing to a sluggish economic outlook. Poultry production growth will be flat year-on-year (y-o-y), while beef output will decline owing to a lack of cattle for slaughter. Pork production will grow the strongest out of the livestock complex, as the domestic industry recovers from an outbreak of the PEDv virus last year.
Should Japan's offer to reduce its current tariff on imported beef from 38.5% to 9% over 15 years be effectively implemented, this should be a big boost to exporters such as the US and Australia. The plan, proposed during Trans-Pacific Partnership (TPP) Talks, also entailed a safeguard system which would allow Japan to impose incremental tariffs should import volumes exceed a certain level. To be sure, the Japan-Australia Free Trade Agreement that took effect on January 15 2015 is still in effect (tariffs on Australian beef will be halved from the current 38.5%) but should this new round of negotiation come through, new lower tariff rates will also be applicable to Australia, which is also part of the TPP talks.
A new strain of Japan's popular Koshihikari rice will start to be produced and sold by Toyota Tsusho. This low cost 'kaizen' or 'improvement' rice will be sold to bento producers and restaurants which cater to the growing number of consumers who eat out. According to Toyota Tsusho, this new low-cost strain increases yields by 30-50%. Toyota's foray into agriculture was sparked when it started investing in farmed Bluefin tuna, as reported last year. Given the increased emphasis on developing the country's agriculture industry, we believe that this is just the start of more agriculture-related investments for the automobile company.