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Nobuhiko Sugiura

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Reforming of the Japan Agricultural Cooperatives

Nobuhiko Sugiura
Professor, Chuo Graduate School of Strategic Management (Business School), Chuo University
Areas of Specialization: Financial Law and IT Law

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Background and status of JA reforms

On February 9, 2015, the governing Liberal Democratic Party put together a plan to reform the Japan Agricultural Cooperatives (JA), based on changing the status of the Central Union of Agricultural Co-operatives (JA-Zenchu) to a general incorporated association. The party plans to submit a related bill to the Japanese Diet as soon as early April. The move attracted a great deal of attention in the mass media. JA is a group that people often hear of. However, not many people understand the specific nature of JA as an organization. Let us take a look at the organization of JA and what kind of reforms they are aiming for.

Japan Agricultural Cooperatives (JA) is a cooperative made up of agricultural workers and agricultural companies. JA-Zenchu is the central organization that coordinates cooperatives located around Japan, decides upon the direction for the group as a whole, and provides guidance. Other JA organizations include the National Federation of Agricultural Cooperative Associations (JA-Zennoh), which is solely responsible for the collection and sale of agricultural products, and the National Mutual Insurance Federation of Agricultural Cooperatives (JA-Kyosairen), which provides life insurance and damage insurance services. (There is also an organization called The Norinchukin, but this is an organization that aims to facilitate financing for agriculture, forestry and fisheries organizations such as forestry and fisheries cooperatives in addition to JA.)

JA was originally set up to serve the needs of agricultural workers (full members). However, it has now become a giant organization with more than 10,000 employees. JA-Zennoh could be regarded as Japan’s largest agricultural trading company, and the JA-Kyosairen could be regarded as Japan’s major life insurance and non-life insurance company. JA-Zenchu, which stands to be affected most by the recent reform proposals, could perhaps be described as the Keidanren of the JA Group.

The JA organization has contributed to the maintenance and development of Japanese agriculture by building a mechanism for small to medium-sized farmers, who are numerous in Japan, to collect reliable payment for their agricultural produce, and by using its role as a financial organization to provide financial services to farmers who have difficulty procuring the funds needed to purchase agricultural equipment. However, with Japanese agriculture experiencing a decline for a variety of reasons (including the declining numbers and increasing age of agricultural workers and price competition brought about by the liberalization of food imports), JA has reached the point at which full members have become outnumbered by associate members who are not engaged in agriculture, and the truth is that the focus of JA’s business has switched from agricultural operations to its credit business.

The Japanese central government has decided to carry out reforms with a focus on the functions of JA-Zenchu, in accordance with the three key points described in the figure below, based on the philosophy that controlling the influence of JA-Zenchu (which has the power to instruct JA cooperatives) and giving discretion to the regional JA cooperatives will lead to an increase in income of farmers.

However, this philosophy and the content of the recent proposals, including the proposal to transfer JA-Zenchu’s auditing rights to an auditing body, are somewhat different from the reality. JA-Zenchu has already split its auditing divisions among its internal organizations, and the auditing organization is already almost completely independent. JA organizations that receive an audit implement autonomous measures based on the organization’s audit results, and it is not the case that the audits are used by JA-Zenchu to restrict the independence of the regional JA cooperatives in any significant way. What’s more, in recent years individual JA cooperatives have promoted self-reform, as can be seen from the creation of brands for a variety of agricultural produce, and there are several JA cooperatives that have set out to implement measures such as entering partnerships with the distribution industry and actively seeking to export agricultural produce. Given these circumstances, it would appear that the role of JA-Zenchu has already changed over the past ten years from instructions to one of an industry organization that collects the opinions of the organizations it governs, and given that all industries possess industry groups it would appear unlikely that changing JA-Zenchu into a general incorporated association would change its current role significantly. Furthermore, the main agenda of the recent reforms only relates to the organizational reform of JA-Zenchu. Therefore, the impact of the reforms this time on the regional system of agricultural cooperatives will be limited, and there is no sign of an effective agricultural policy which should be examined alongside the JA-Zenchu reforms. It remains unclear what specific impact will be made on agricultural policy by the recent reforms, which have shifted the blame away from the Ministry of Agriculture, Forestry and Fisheries (which has responsibility for bedrock regulations) and onto the JA organization.

So what is the significance of the recent JA reforms? It appears likely that Prime Minister Abe set out to reform JA in order to provide a successful example of “Abenomics” and my own guess is that the political reasoning of wanting to secure the image of a “decisive leader who implements reform (including reform of JA)” was more important than the content of the reform itself. However, given the circumstances described above, at least it could be said that deciding upon a policy of reforming the Agricultural Cooperatives Act, which has been untouchable until now, has been an effective stimulus to reform parts of JA that had not yet actively pursued self-reform.

Genuine reform (agricultural reform) and the future of JA

In any case, if agriculture does truly aspire to create a “sixth sector” of industry, it is clear that the target of reforms needs to be elsewhere. It is true that the food control system of the past has already disappeared, but the question of what to do about the variety of price adjustments systems that remain, including rice prices, is both a tariff question and a focus for TPP negotiations. There is also the question of how to secure a minimum income for farmers. As the farming population ages, the question of how to promote the smooth transfer of agricultural land by means of trusts, etc. in order to prevent the abandonment of farming and increase the scale of agriculture is important in terms of promoting efficient agricultural management. However, the reforms have gone no further than to carry out partial reforms of the system of agricultural committees, and no decisive policy appears to have been set out.

As manufacturers move their production bases overseas, regional JA cooperatives have become a leading source of employment for talented local youngsters who have studied management or agricultural technology at university and other institutions, and there is the potential to involve a younger generation, and at the same time promote agriculture as a profit-making exercise with a business outlook, enter partnerships with a variety of private companies and other organizations, and act as a base for regional regeneration. This trend can already be observed. While the involvement of private companies in agriculture will act as a stimulant, I believe that the quickest route to restoring Japanese agriculture is for JA, which has thorough local knowledge, to promote the “sixth sector” of industry while involving as many farmers as possible, and to promote JA in competition with companies. Although in this article I have set out the problems presented by the recent reforms to the Agricultural Cooperatives Act, I agree with the view that it is essential for JA itself to undergo significant change if we are to reform agriculture.

The status quo will be maintained for the foreseeable future regarding possible restrictions of usage by associate members. However, there is a need to continue examinations particularly for JA’s credit business going forward, which forms part of the financial sector. There is a debate to be held about whether or not urban JA cooperatives (which possess almost no agricultural land and which gain the majority of their income from credit business) should even be a part of JA. On the other hand, consideration also needs to be given to the fact that these cooperatives provide a broad range of financial services to consumers in the suburbs of large cities and in the regions in place of regional financial institutions that have withdrawn from the market, and in this sense they play a role in regional finance. Given that regional financial professionals have been fostered by JA, it would be irrational to argue for these cooperatives to be merged into The Norinchukin or similar organization, and there is a need to debate the fundamental question of whether or not the current setup for regional financial institutions is acceptable.

The JA Group Self-Reform Experts Meeting, on which I serve as chairman, continues to make a variety of proposals to JA, including ways of achieving regional revitalization. The question of how to reform JA and, accordingly, how to reform the structure of Japanese agriculture affects the food that we all eat. I would ask you to continue to take a broad interest in these questions.

Nobuhiko Sugiura
Professor, Chuo Graduate School of Strategic Management (Business School), Chuo University
Areas of Specialization: Financial Law and IT Law
Professor Sugiura was born in 1966. He graduated from the Graduate School of Law, Chuo University in 1989 and joined the Hongkong and Shanghai Banking Corporation in the same year. He was appointed to current post in 2008 after serving as a researcher at the Financial Research Center of the Financial Services Agency and as a senior legal advisor at J.P. Morgan Securities. He studied at Chuo Graduate School while working for financial institutions, and completed the Doctoral Course of the Graduate School of Law, Chuo University with a major in Civil Law in 2004 and earned L.L.D. Professor Sugiura specializes in financial law, IT law, and corporate compliance theory, and is a noted expert in legal systems related to online financial transactions. He has carried out research and surveys into the overseas introduction of the system for electronically recorded claims that has been promoted over the past few years by the Financial Services Agency. His other roles include a member of the Cabinet Discussion Group on Finance for Heavily Indebted Persons and Consumers , an advisor to OpenID Foundation Japan, a special trustee of the Japan Payment Service Association, chairman of the JA Group Self-Reform Experts Meeting, and an outside director of Sundrug Co., Ltd. Publications include Innovations in Payment Services [Kessai Sabisu No Inobeshon] (Diamond, 2010), Mobile Value Business [Mobairu Baryu Bijinesu] (Chuokeizai-Sha, 2008), Innovations in Retail Finance [Riteru Kinyu No Inobeshon] (Kinzai, 2013), and Cybersecurity [Saiba-sekyuriti](NTT Publishing, 2014).