The government and the ruling Liberal Democratic Party reached basic agreement with the Central Union of Agricultural Co-operatives (JA-Zenchu), the nation’s main agricultural lobby, on Monday, Feb. 9, on the first major reform of the organization in more than 60 years, including taking away its legal authority to audit its member co-ops.
The government’s proposed plan means a big turning point for JA-Zenchu, as its audit division, which has been conducting audits on primary JAs, will be separated from the organization. It will also give up its legally privileged status to become a general incorporated association by the end of March 2019.
The government is expected to submit a bill to the current ordinary Diet session to revise the Agricultural Co-operative Society Law.
Although JA-Zenchu will lose special legal backing as an organization, a supplementary clause will be added to the law so that it can maintain its role to function as a representative of the JA group in charge of overall coordination within the group.
The government’s Regulatory Reform Council was urging the government to restrict non-farmer members’ use of JAs’ services, but LDP lawmakers with close ties to the farm sector pushed back some of the radical proposals, while gaining concessions from JA-Zenchu.
However, it is unclear how much the reform, which is focused mainly on organizational restructuring, will contribute to meeting the government’s goal of increasing farmers’ income and how it will affect the agricultural community. It is necessary for the government to offer sufficient explanation during the process of compiling and deliberating the bill.
On Sunday, Feb. 8, LDP senior officials held last-minute talks with JA-Zenchu President Akira Banzai and on the following day JA-Zenchu executives held an extraordinary board meeting and decided to accept the plan, based on the fact that some of JA-Zenchu’s demands, such as allowing JAs to continue serving non-farmers without restrictions, were accepted.
The LDP’s project team on agricultural co-ops reform headed by Takamori Yoshikawa decided on the plan the same day. LDP’s coalition partner Komeito basically agreed, and after further discussion within the ruling bloc, the government is expected to submit a bill by the end of March to revise the law.
In response to criticisms that the JA group is given preferential treatment compared with other credit banks and credit associations, the plan states that primary JAs with savings of JPY20 billion or more will be required to have their accounts audited by certified public accountants. At the same time, JA-Zenchu’s auditing division will be separated from the organization to establish a new auditing firm under the Certified Public Accountant Law. Primary JAs, which are currently required to have audits by JA-Zenchu, will be able to choose between the new auditing firm and other auditors to conduct financial audits.
The current operational audits conducted by JA-Zenchu will continue to be offered by the new firm as a consulting service and each primary JA can decide whether to ask for it. The new firm will assign different people for financial and operational audits so that they can offer both audits to a JA at the same time when requested. JA-Zenchu’s auditors will be able to keep their job at the new firm, and are likely to be exempted from gaining an additional working experience which is usually required after one passes an exam to obtain a certified public accountant license.
Since discussion is still going on over whether the new audit firm can smoothly succeed the operations of JA-Zenchu’s audit division, the plan states the government will take measures to assure that primary JAs can have financial audits without additional burden. Officials from the agriculture ministry, the Financial Services Agency, JA-Zenchu and the Japanese Institute of Certified Public Accountants will also hold talks to cope with the issue.
In order to make sure the new system functions properly, primary JAs will be allowed to choose between the current audits by JA-Zenchu and those by outside accountants until the end of March 2019 when the organization will be turned into a general incorporated association. In the meantime, the government and the LDP will let some primary JAs have audits by outside accountants and see whether they can be conducted without problems.
JA-Zenchu will become a general incorporated association by the end of March 2019, but the government and the LDP are considering adding a supplementary clause to the Agricultural Co-operative Society Law to let the organization maintain its function as a representative and an overall coordinator of the JA group.
Prefectural unions will be turned into federations under the law to represent primary JAs and offer consulting services, as well as auditing smaller JAs with savings of less than JPY20 billion. Both the central and prefectural unions will keep their current names.
Amid strong opposition from the JA group and some LDP lawmakers, the government decided not to restrict non-farmer members’ use of JAs’ services. However, the government will review the agricultural co-ops system for five years after the law’s revision and consider the issue again. Yoshikawa told the members of the project team that restrictions on non-farmers will be discussed again in the future, but may not be adopted after all.
Akira Banzai, JA-Zenchu President answers reporter’s question at the LDP headquarters in Tokyo on Tuesday, Feb. 9.
On Monday, Feb. 9, Banzai told reporters at the LDP headquarters in Tokyo that although it is “a big change,” JA-Zenchu decided to accept the government’s plan. He also said the whole JA group will work on increasing farmers’ income, which is the goal of reform.
JA-Zenchu executives held a meeting the same day and decided to accept the plan, and Banzai conveyed the decision to the LDP later in the day.
Banzai said the plan is “by and large acceptable,” stressing that the JA group will strengthen and deepen its unity to reform itself in order to expand agricultural income and revitalize regional areas.
The JA group compiled its own self-reform plan in November last year and held discussions with the government and the LDP to reach consensus on agricultural co-ops reform.
<Gist of the government’s agricultural co-ops reform plan>
–JA-Zenchu’s auditing system
*Primary JAs with savings of JPY20 billion or more will be required to have their accounts audited by certified public accountants.
*JA-Zenchu’s auditing division will be separated from the organization to become an audit firm. Primary JAs will choose between the new firm and other auditors.
*The new firm will be able to conduct both financial and operational audits.
*The government will make sure the new firm will be established smoothly and primary JAs will not bear an extra burden.
*During the transition period, some primary JAs will go through an audit by outside accountants and see if any problems occur.
*Operational audits will become optional.
–Central and prefectural unions
*Prefectural unions will become federations by the end of March 2019 under the Agricultural Co-operative Society Law. They will represent primary JAs and offer management consulting, supervising and coordinating services.
*JA-Zenchu will be turned into a general incorporated association by the end of March 2019. A supplementary clause will be added to the law to maintain its role as a representative and an overall coordinator of the JA group.
–Restricting non-farmer members’ use of JAs’ services
*Non-farmer members’ use of services will not be restricted.
*The government will review the issue for five years after the law is revised and decide whether to restrict it or not.
(Feb. 10, 2015)