JAPAN AGRICULTURAL COOPERATIVES (JA): ITS POWER, PROBLEMS, FINANCIAL ARMS AND EFFORTS TO REFORM IT

JAPAN AGRICULTURAL COOPERATIVES (JA)

The Japan Agricultural Cooperatives (JA) Group was set up as an ordinary agricultural cooperative to sells products made by its members instead of the members selling on their own and provide production materials and agricultural chemicals to its member farming households. Many people in Japan believe it is a gathering of small-scale farmers mainly in rural villages. But in reality it is very powerful political organization and self-protecting bureaucracy that embraces many more people than Japan’s 2.6 million farmers. [Source: Yomiuri Shimbun]

The JA group has 9.57 million regular and associate members. Diet members from constituencies in farming regions have to show it respect or suffer the consequences. With a powerful vote-generating organization in farming villages, the JA holds a good deal of influence over political parties, and has exercised its political clout whenever the government makes important trade decisions. [Ibid]

The JA is a gigantic organization. It has 224,000 salaried personnel, on par with the Japan Post group companies. The outstanding balance of the JA group's financial businesses has reached 82 trillion yen. Its life and nonlife insurance policy contracts are worth 330 trillion yen, among the largest in the world's insurance services. The JA group's marketing of farm goods and other products totals about 4.3 trillion yen a year, and it purchases fertilizer, agricultural chemicals and other items worth 3.3 trillion yen. In every corner of the country, the JA network offers financing services for members' businesses and housing loans, as well as shipment of farm produce. It provides farming households with a range of commodities. [Source: Yomiuri Shimbun, January 18, 2011]

Naohisa Ishida wrote in the Yomiuri Shimbun, “the JA is actually an enormous trading house, not a mere federation of farming cooperatives. It is also a huge financial organization’so big it could be called a megabank.” JA takes in agricultural produce whose sales top 4 trillion yen annually and distributes them to more than 700 regional organizations. The total volume of deposits at the JA bank is 83 trillion yen, which surpasses Mizuho Financial Group (66 trillion yen) and Sumitomo Mitsui Banking Corp. (70 trillion yen), falling below only Bank of Tokyo-Mitsubishi UFJ (103 trillion yen). [Source: Naohisa Ishida, Yomiuri Shimbun, January 16, 2011]

JA includes Central Union of Agricultural Cooperatives (JA-Zenchu), which can be regarded as JA headquarters and representative of the JA groups; the National Federation of Agricultural Cooperative Associations (JA-Zen-Noh), which engages in business undertakings of the JA groups and runs the JA distribution system; the National Mutual Insurance Federation of Agricultural Cooperatives (JA-Kyosairen) in charge of JA members' mutual aid activities, including insurance services; and Norinchukin Bank, the JA group's banking arm, which also is known as JA Bank; as well as more than 700 agricultural cooperatives across the nation. [Ibid]

Farm Policy Triangle and the Rise of JA Political Power

“Since the 1980s, reforming JA has been discussed frequently in and outside the government. Every time the issue came to a head, however, JA stopped any kind of reform with its potent political clout.” the Yomiuri Shimbun reported. “The source of JA's political influence derives from what is referred to as a “farm policy triangle,” politicians acting on behalf of farmers, the Agriculture, Forestry and Fisheries Ministry and JA. [Source: Yomiuri Shimbun January 22, 2011]

“Agricultural cooperatives were initially established to protect farmers from big businesses trying to force them to sell produce at unreasonably low prices and buy agricultural materials at high prices. Under the postwar food control system that put production and supply of rice entirely under government supervision, JA worked for years as an auxiliary organ to collect rice shipments for purchase by the government. From the 1970s, JA was a key coordinator of the government policy to reduce rice paddy acreage. In those days, JA was essentially an arm of the farm ministry.” [Ibid]

“But over time by extending its web of influence throughout the country, JA built up an enormously successful vote-garnering capability in both national and local elections, and formed close ties to political parties in power...JA groups have wielded strong influence over the government's trade policy. In the 1990s, the group stiffly resisted proposed trade liberalization of rice, as well as government plans to conclude free trade agreements with Australia and the United States.” [Ibid]

“JA, politicians with vested interests and the farm ministry had one interest in common: protecting small farm households. On many occasions, the government called for JA reform because the protectionist measures were delaying structural improvements to the nation's agriculture. However, all efforts to break up the "farm policy triangle" ended in failure. In the meantime JA has failed to adapt itself to moves toward trade liberalization or to modernize distribution systems.” [Ibid]

JA’s Financial Arms

The JA group's credit business has three tiers: Norinchukin Bank, which is the heart of the national agricultural federation; the Credit Federation of Agricultural Cooperatives (Shinren), which comprises financial service entities organized by prefecture, including Tokyo and Hokkaido, under the Norinchukin umbrella; and individual agricultural cooperatives all over the country. [Source: Yomiuri Shimbun, January 20, 2010]

“Credit businesses undertaken by Norinchukin Bank, Shinren and local agricultural cooperatives are referred to collectively as JA Bank. "Nochu," the common abbreviation for Norinchukin Bank, is understood in every financial center in the world,” the Yomiuri Shimbun reports. “More than half of Norinchukin's funds for market operations have been invested in foreign currency-denominated securities.Its capital for foreign currency-denominated securities investments comes from the savings of the nationwide network of agricultural cooperatives. Of the estimated 83 trillion yen in savings held by the cooperatives, about 28 trillion yen has been poured into Norinchukin Bank.” [Ibid]

“Usually banks and other financial institutions are prohibited from engaging in other kinds of business to prevent them from coercing their customers into buying goods and services from certain firms by taking advantage of their position as moneylender,” Naohisa Ishida wrote in Yomiuri Shimbun. “Allowing banks to dabble in other businesses could put borrowers at a serious disadvantage. Also, if their nonbanking ventures got into trouble with debt or unprofitability, they might choose to dip into the profits from their banking operations, which should basically be reserved for depositors or stabilizing management. This puts the security of depositors' assets and the stability of the financial system at risk. [Source: Naohisa Ishida, Yomiuri Shimbun, January 16, 2011]

“JA, however, is allowed to engage in both banking and other businesses. The range of its other businesses is so wide that it is unique in the nation. JA's consumer goods divisions, whose customers are farming households, deal not only with agricultural production materials such as fertilizers and pesticides, but with nearly all the necessities of life, including fuel, food, clothes and cars. The organization runs hospitals, nursing care businesses and even a funeral service. Unique in Japan? This kind of financial institution would be rare anywhere in the world. [Ibid]

JA’s Financial Arms and Farmers

“JA financial groups have made handsome profits from the sale and leasing of land to housing development projects,” Naohisa Ishida wrote in the Yomiuri Shimbun. “Many members of JA Midori--- an organization that is supposed to protect farmland members---have converted plots of farmland into apartments that they rent out. This extra income has fattened many farming households' wallets and pushed up the outstanding balance of savings with JA Midori to 150 billion yen, according to its officials. This means that huge sums of money obtained by doing away with farmland have flowed into JA for investments such as purchases of foreign currency-denominated securities.” [Source: Naohisa Ishida, Yomiuri Shimbun, January 16, 2011]

Although this might seem slightly odd for an organization which is supposed to help preserve farmland, Koichi Kakumu, executive director of JA Midori, told the Yomiuri Shimbun he is not bothered. "As far as effective use of land is concerned, there's no difference between cultivating crops such as radishes and carrots and building apartments," he said. "We're just serving the interests of our members." [Ibid]

“In contrast to JA Midori's aggressive savings-collecting operations, its outstanding loan balance to farming households is no more than 1.77 trillion yen,” Ishida wrote. “The lending ratio to farmers by the parent body, Norinchukin Bank, is low at 33 percent of its outstanding deposits. This low ratio is said to be partly behind the rise in the bank's unrealized losses as a result of its investments in high-risk financial instruments. Potential losses peaked at about 2 trillion yen at one time after Lehman Brothers collapsed in September 2008.” [Ibid]

Problems with JA

The JA group has been criticized in recent years for focusing more on maintaining its bloated organization than on helping farmers. A report issued in 2003 by the Study Council on How Agricultural Cooperatives Should Be Changed---a panel of the Agriculture, Forestry and Fisheries Ministry---accused JA of being an "organization existing only to maintain itself," and pressed the group to change its structure and operations. [Source: Yomiuri Shimbun]

The JA group has been accused to be an obstacle to reform not only within agriculture but in regards to the economy as a whole. JA, for example, has been criticized by some for not doing enough to nurture large-scale farmers, and instead has placed priority on protecting small farming households that engage in farming but also have other jobs on the side. As a result, the JA group apparently felt it had no option but to urge the government to adopt a policy that encouraged farmers to shrink their acreage, while keeping high tariffs on farm products, the critics say. [Ibid]

JA is major opponent to the TPP and other free trade agreements. See TPP

Farmers Unhappy with JA

“In February 2011, about 300 farmers from all over Japan gathered in Yamagata Prefecture to hold a rally demanding agricultural cooperative reform and revisions to the Agricultural Land Law” the Yomiuri Shimbun reported. “In addition to individual farmers trying to break away from JA, new organizations seeking their own sales routes have recently entered the farm produce market. One such firm, Tokyo-based Japan Brand Agricultural Corp., which is a composition of 37 agricultural firms, said it is looking for sales avenues apart from the traditional JA network.” [Source: Yomiuri Shimbun January 21, 2011]

“The thing these new organizations have in common with disgruntled farmers is the view that an ideal agricultural cooperative is much different than the existing reality. According to an Agriculture, Forestry and Fisheries Ministry survey, what farmers want most from a cooperative is instruction in farmland management, with 40 percent of respondents expressing this opinion. But the number of farm business instructors at agricultural cooperatives was 14,324 in 2008, a reduction of 26 percent from 20 years ago.” [Ibid]

While cooperatives have been criticized for neglecting to nurture large-scale farms, their response to the requests and needs of small farmers also seems to have been insufficient. Tome, Miyagi Prefecture, farmer Kazuto Sasaki, 37, told the Yomiuri Shimbun he was surprised when he asked a local cooperative for advice on getting rid of a massive weed infestation. Sasaki, who only began farming last year, grows rice without using agricultural chemicals. "I heard that if you stroke rice plants with work gloves after they've been sprayed with herbicide, the chemicals won't remain," someone at the cooperative apparently told Sasaki, who was flabbergasted at the suggestion. [Ibid]

“When planning to take out a loan from a local agricultural cooperative, many farmers are afraid they will be pressured to make shipments to and purchase agriculture-related goods from the cooperative in return,” Naohisa wrote. “Kagoshima Prefecture is one of Japan's top producers of agricultural products. The regional Kagoshima Bank's loans to farmers have risen by 8 billion yen in the past three years. One well-informed source said this increase is primarily due to "an increase in loan applications by livestock and other farmers who want to sever ties with JA." [Source: Naohisa Ishida, Yomiuri Shimbun, January 16, 2011]

Problems with JA Distribution

“As distribution routes have diversified nowadays, highly motivated farmers tend to develop their own sales routes. Under such circumstances, the interests of agricultural cooperatives and farming households can conflict,” the Yomiuri Shimbun reported. “In the past, there were cases of agricultural cooperatives refusing use of cooling warehouses and packaging facilities to farmers who directly sold vegetables outside JA sales routes. The control exercised by the centralized JA distribution system is very strong. The JA said it has been instructing organizations under its umbrella to strictly operate in accordance with the law, however, quite a few cases can be regarded as JA institutions abusing their dominant position. [Source: Yomiuri Shimbun, January 19, 2011]

“The JA-controlled distribution system had seen no rivals for a long time, as regional monopolies by JAs were authorized by law. Exempting JA businesses from the Antimonopoly Law in the supply of agricultural production materials and daily goods, and applying reduced corporate tax rates have made JA "the strong man" in the market. More market competition should be introduced to prevent the powerful JA force from hampering fair competition and becoming an obstacle to individual farmers who are trying to run their businesses in a sustainable manner. That could be an important step toward the liberalization of agricultural trade.” [Ibid]

“Naganumacho, western Hokkaido, is dominated by a vast agricultural field, with onions one of its specialties. JA Naganuma, the local agricultural cooperative, changed its main sales route from the traditional distribution system to direct-to-consumer sales at supermarkets five years ago. It was the idea of Nobuyuki Komatani, 68, the then chief of JA Naganuma, who thought farm products could be sold at higher prices than those sold through the Hokuren Federation of Agricultural Cooperatives (Hokuren), the top JA organization in Hokkaido. This prompted Naganumacho farmers to reduce by one-third the amount of onions sent to Hokuren.” [Ibid]

“Hokuren then sent copies of a document titled, "Cooperation for Appropriate Seed Supply," to JA Naganuma's seed and plant suppliers. Hokuren used the paper to detail an onion production adjustment program and ask for their cooperation. Komatani thought Hokuren's action was a de facto interference in the supply chain for onion seeds outside of those sent to Hokuren. He immediately filed a complaint with the local Fair Trade Commission office, which later issued a warning to Hokuren. Hokuren argued that it never exerted pressure on the seed suppliers. However, many of the suppliers said they felt they were asked "not to sell onion seeds" to JA Naganuma. The supply of seeds resumed shortly thereafter, but Komatani still distrusts Hokuren even now. “

Bullying Tactics by JA

“The JA bullies politicians,” the Yomiuri Shimbun reported. “The political arm of JA, the National League of Farmers' Agricultural Policy Campaign Organizations (Zenkoku Noseiren), has been using support for or opposition to the TPP---Trans-Pacific Partnership trade agreement--- as a litmus test in selecting candidates it will back or not back. [Source: Yomiuri Shimbun January 21, 2011]

The JA also bullies farmers. Koichi Sato, 61, who runs Masuho Farm in Sakata, Yamagata Prefecture, told the Yomiuri Shimbun what happened after he refused to cooperate with a request from his area's agricultural cooperative. "After I refused to join a community-based farmland management project the co-op was promoting, I was ignored by other farmers when I asked for help in disinfecting fields and harvesting soybeans through the JA," Sato said recently in the snow-covered city. He has been a member of the local JA for more than 40 years, but this made him decide to leave the organization. He said he planned to submit a letter withdrawing his membership shortly. [Ibid]

Shigeaki Okamoto, 49, of Tahara, Aichi Prefecture, left his local JA in 2001. He now runs an agricultural corporation called Shinsen-gumi, which he set up in 1993 and now has annual sales of 130 million yen. "When I bought a cheaper tractor from another JA, staff from the local co-op came to complain about it. A cooperative shouldn't exist if it's only there to feed its staff, not help farmers," Okamoto told the Yomiuri Shimbun. [Ibid]

In July 2010, JA Shin-Hakodate Flowering Plant Production and Shipment Association in Hokkaido was warned by the Fair Trade Commission for forcing its members to make shipments to the local agricultural cooperative in violation of the Antimonopoly Law. In December 2009, the JA branch in Oyamamachi, Oita Prefecture, was found to have tried to coerce several farmers to stop shipping produce to a JA rival firm, a practice the FTC ordered be eliminated. [Ibid]

Problems with JA’s Financial Arms

Naohisa Ishida wrote in the Yomiuri Shimbun, “The ill effects of a financial institution engaging in other businesses already have been observed. One JA terminal institution was warned by the Fair Trade Commission over a violation of the Antimonopoly Law after it required members who borrowed money from the institution to also buy production materials from it. [Source: Naohisa Ishida, Yomiuri Shimbun, January 16, 2011]

“Surpluses at JA's two financial businesses, banking and mutual insurance, stand out among JA Group companies. In fiscal 2008, for instance, they were 340 billion yen in the black and compensated for the deficits and low profits of other group companies. JA is making ends meet by having money-losing farm-related operations covered by surpluses in its credit businesses. Many analysts have raised doubts about what JA calls “integrated management” of different categories of activities that depend heavily on credit businesses.” [Ibid]

“The JA group also has been criticized for failing to fully disclose information. Agricultural cooperatives' balance sheets do not separately show assets and liabilities for each sector of their diversified business activities. "The JA group doesn't give enough information for depositors to accurately assess the health of the group's credit businesses," one analyst said. Because financial services provided by JA were until recently under the exclusive jurisdiction of the Agriculture, Forestry and Fisheries Ministry, agricultural cooperatives have been immune from inspections by the Financial Services Agency. [Ibid]

JA Reforms

At the end of 2010 the Kan government’s Government Revitalization Unit proposed that JA's credit business and mutual aid segment---the financial branch of JA--- be separated from the rest of the organization and called for a review of agricultural cooperatives' exemption from the Antimonopoly Law. Kohei Otsuka, then vice minister of the Cabinet Office, said, "Agricultural cooperatives' exemption from the Antimonopoly Law is a kind of vested right that hampers the development of farming and related industries." [Source: Yomiuri Shimbun January 21, 2011]

The JA is in the process of drawing up a vision of its future and a set of policy proposals to strengthen the nation's farming sector. Depending on how JA tackles issues related to the TPP, however, discussions in and outside the government could lead to a drastic review of the entire JA organization. A Miyagi Prefecture farmer recently told The Yomiuri Shimbun, "We're deeply concerned about what lies ahead if JA continues to cling to the status quo." [Ibid]

Despite the widespread problems, there are some cooperatives truly trying to serve the farmer. JA Tomisatoshi in Chiba Prefecture, earns about 2.7 billion yen annually through direct sales of produce to supermarkets and trading houses. "Using a production-by-order method, we can decide on prices during negotiations with our customers," a JA Tomisatoshi executive told the Yomiuri Shimbun. The cooperative says the method has contributed to an increase in farmer income. JA Soo Kagoshima in Kagoshima Prefecture added staff trained at a certified tax accountant office as part of its program to support large-scale farms, and keeps them separate from regular instructors in its farm business education division. [Ibid]

“Some have argued that competition between agricultural cooperatives should be encouraged to better serve farmers' needs,”Yomiuri Shimbun reported. “But Article 60 of the Agricultural Cooperatives Law stipulates that several conditions must be met before a new cooperative that competes with an existing one is established, including consulting with the central union of agricultural cooperatives in Tokyo, Hokkaido or the relevant prefecture. Critics have said this rule is an obstacle to new cooperative-type organizations.” [Ibid]

The farm ministry has reportedly been looking into removing the prior consultation rule."Each agricultural cooperative should have its own management strategy to support farmers in its specific region," Prof. Kazunuki Oizumi, a specialist in agricultural economics at Miyagi University, told the Yomiuri Shimbun . "To do so, it's necessary to allow competition among cooperatives." Many farm experts support his view as a way to improve the nation's farm sector. [Ibid]

Under the administration of Prime Minister Naoto Kan, the Government Revitalization Unit has been considering spinning off JA's credit services from its other operations. An executive of the Central Union of Agricultural Cooperatives (JA-Zenchu) told the Yomiuri Shimbun that if the profitable credit service arms were cut off from deficit-ridden operations, "We'd be unable to maintain our services that help farmers, such as informing them about new farming techniques."Akishi Hoshikawa, who runs an agricultural corporation in Mitoyo, Kagawa Prefecture, was skeptical about this claim. "We've never seen a farming technique instructor come here during the past seven years," he said.

JA needs to ensure it remains healthy as a financial institution and stays faithful to accomplishing its principal mission by expanding loans to farmers to help them boost their operations. The JA group's credit services need to address the task that should naturally be performed by the group---making the best use of its colossal funds to strengthen the nation's farming sector.

Image Sources:

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Yomiuri Shimbun, Daily Yomiuri, Japan Times, Mainichi Shimbun, The Guardian, National Geographic, The New Yorker, Time, Newsweek, Reuters, AP, Lonely Planet Guides, Compton’s Encyclopedia and various books and other publications.

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© 2008 Jeffrey Hays

Last updated August 2011

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