Innovation, Agricultural Productivity and Sustainability in Japan

agriculture policy brief

Innovation, Agricultural Productivity and Sustainability in Japan

May 2019

Japan’s agro-food sector has a bright future, if policies can embrace innovation, entrepreneurship, and sustainable resource use. istorically, agriculture policies in Japan had kept farmers in uncompetitive and low-income H activities, isolating small-scale farms from markets and drivers of innovation.

Japan could benefit from shifting focus towards high value-added food products and services to exploit the economy-wide innovation system and global technological developments.

What’s the issue?

Until recently, Japan’s agricultural sector has shown a long period of contraction. Notwithstanding a shrinking domestic market, rapid economic growth in East Asia is opening up market opportunities for Japanese agrofood products. The concentration of land into large, professional farms has accelerated in the last two decades.

Furthermore, agriculture has become more technologyand data-intensive, incorporating a diversity of services into value generation. Japan is well-positioned to develop a more technology intensive agriculture domestically, and to potentially expand its production networks for high value agro-food products regionally and globally.

In Japan, agriculture has long been treated differently from other parts of the economy, based on the implicit assumption that the government needed to support small-scale, resource poor family farms. The evolution of the agricultural structure in Japan (and the global trend) towards more integrated value chains requires a shift in policy paradigm towards measures that are more conducive to innovation, entrepreneurship, and sustainable resource use.

Composition of support to agriculture, 2015-17 (Share in Total Support Estimate) Market price support 0

Payments to producers 10

20

Expenditure for knowledge and innovation system 30

40

50

60

Expenditure for Infrastructure 70

80

Korea Japan China Canada Switzerland OECD EU28 United States Australia Source: OECD (2018), “Agricultural support estimates (Edition 2018)”, OECD Agriculture Statistics (database), https://doi.org/10.1787/a195b18a-en.

www.oecd.org/agriculture

tad.contact@oecd.org

@OECDagriculture

Other expenditures 90

100

Innovation, Agricultural Productivity and Sustainability in Japan Although Japan has increased the role of non-commodity specific payments since the 2000s, most support to producers still requires the production of certain commodities. While a large share of support is directed to infrastructure investment, in particular for irrigation, Japan’s share of support to innovation and knowledge systems is low. Agricultural policy should shift away from directive policies that keep farmers in uncompetitive and low-income activities to a more demand-oriented framework that would create more incentive for innovation and provide a greater engagement for producers to participate in research and development (R&D) and human capital development.

Innovation in agriculture increasingly depends on technologies developed outside the sector. Further integration of agriculture with other parts of the economy could enable Japan’s agriculture to benefit more from competitive technology and skills prevalent in other sectors. The role of private input and service suppliers will need to increase to better meet the specialised needs of professional farmers and promote the integration of agriculture with other sectors. Competition between agricultural co-operatives and other players, however, could facilitate the development of alternative farm input and service providers.

Improving the environmental performance of agriculture and increasing preparedness for more frequent natural disasters associated with climate change are critical to ensure long-term growth of agriculture. However, progress in reducing the environmental pressure from agriculture has been limited thus far. Japan should develop an integrated agri-environmental policy framework in which all the producers commit to the improvement of environmental performance. Agricultural policy programmes provide consistent incentives to adopt sustainable production practices.

What should policy makers do?

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Reduce government credit support and increase the role of commercial banks.

•

Increase the linkage between farm management policy and a wider SME policy to address the entrepreneurial needs of farms.

•

Provide farmers more freedom to make production decisions by phasing out commodity-specific support and progressively opening to international markets.

•

Enhance the role of farmers in managing normal business risk by lowering the threshold of revenue loss covered by policy programmes.

Fully integrate environmental policy objectives in an agricultural policy framework •

Define agri-environmental policy targets, both at national and regional levels, based on a systemic performance assessment.

•

Expand the scope of environmental reference levels to a wider set of environmental issues, adapt targets and reference levels to the local ecological conditions, and make producer support contingent to wider sustainable production practices.

Establish a more collaborative agricultural innovation system •

Focus public agricultural R&D on pre-competitive research areas and on areas not specifically tied to commercial production.

•

Strengthen co-operation with the agro-food industry on R&D and human capital development, including co-funding schemes with producer organisations.

•

Expand the role of private advisory services and focus the role of prefectural extension services on areas of public interest such as promoting sustainable production practices.

Policy makers should focus their attention on fostering a policy environment that allows and encourages agricultural producers to implement and benefit from the latest technologies, while motivating continued innovation by farmers and non-farmers alike. Such an enabling environment entails three key aspects: entrepreneurship, environmental sustainability, and engagement with innovation ecosystems.

• OECD (2019), Innovation, Agricultural Productivity and Sustainability in Japan, OECD Food and Agricultural Reviews, OECD Publishing, Paris, https://doi.org/10.1787/92b8dff7-en.

Develop policy and market environments more conducive to innovation and entrepreneurship in agriculture

• OECD (2018), Agricultural Policy Monitoring and Evaluation 2018, OECD Publishing, Paris, https:// doi.org/10.1787/agr_pol-2018-en.

•

Develop a more demand-oriented approach to overseas markets and international expansion of local production networks.

•

Ensure a level playing field between Agricultural Cooperatives (JA groups) and other agricultural input and service providers by enforcing the Anti-monopoly Act, and limiting cross-subsidies between financial and agricultural businesses within local JAs.

www.oecd.org/agriculture

tad.contact@oecd.org

Further reading

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