The proposals on agricultural cooperatives, released on Friday, Nov. 11, by the government’s Regulatory Reform Promotion Council, are apparently targeted at shifting focus of debate on agricultural coops reform back to drastic dismantling of the farm coops group which hit the headlines two years before.
The key points of the proposals include abolishing the system of farmers entrusting sales of their products to the National Federation of Agricultural Cooperative Associations (ZEN-NOH) and transferring primary farm coops (JAs)’ financial business to Norinchukin Bank.
Such measures could threaten agricultural cooperatives’ businesses and do not in any way lead to realizing the initial aim of agricultural coops reform, which is to boost agricultural income.
Stripping away financial business from JAs
“(The latest proposals) have gone back to the previous discussions on agricultural cooperatives reform before we knew it,” a senior official of the agricultural cooperatives group said. The group’s officials were taken by surprise because the council, which had mainly been discussing how to reduce costs of agricultural production, all of a sudden proposed that JAs transfer their financial business to Norinchukin Bank under the target of reducing the number of JAs providing financial business by half in three years.
Transferring of JAs’ financial business was included in the draft proposal for farm coops reform which was put together by the Liberal Democratic Party in June 2014. It was aimed at letting JAs concentrate their management resources on collection and sales of agricultural products in an effort to help improve farms’ income. The plan was to let JAs function as agents for Norinchukin Bank and the Credit Federation of Agricultural Cooperatives and receive commissions from the two organizations. The two organizations were asked to come up with commission rates as soon as possible.
According to the Agriculture, Forestry and Fisheries Ministry, three JAs have so far transferred or decided to transfer their financial business to Norinchukin Bank. “Putting aside the validity of the proposal to reduce the number of JAs providing financial business by half, it seems that the transfer of financial business has been too slow,” noted one senior ministry official.
Meanwhile, concerns remain over transferring of JAs’ financial business. Many in the agricultural industry believe that it is the first step for the government’s attempt to realize the scenario of completely cutting off financial business from JAs.
As a matter of fact, in the latest proposals, the panel also asked the government to accelerate research on restricting the use of JAs’ services by non-farmer members, which virtually means separating financial business from JAs as such members mainly uses JAs’ financial services.
Abolishing consignment sales of farms products
Regarding sales of agricultural products, the panel proposed that ZEN-NOH abolish the current consignment sales system and introduce within a year a system to purchase all the agricultural products from JAs. Under the current system, JAs entrust sales to ZEN-NOH, which decides the sales channels and prices and make payments to JAs based on the sales results. The panel says ZEN-NOH should buy products from JAs by setting prices beforehand, in order to make clear that it will bear the risk and work seriously to find channels to sell the products at high prices.
“In other words, ZEN-NOH won’t be allowed to ship products to the wholesale market,” said a senior ZEN-NOH official. The wholesale market functions as a place to set the prices of collected farm products and distribute them to buyers. But if the proposed system takes effect, ZEN-NOH will have to decide sales channels and prices by itself, which means it has to function as a wholesaler.
Considering that some fruits and vegetables spoil quickly, it is questionable whether the system will really work, as ZEN-NOH will face various challenges, including whether it can sell out all the products, set appropriate prices amid changing market prices due to the bad weather or handle risks of price drops after it purchases products from JAs.
A government official called the panel’s proposals a “bean ball,” a term used in baseball to describe a ball thrown with the intention of striking an opposing player’s head. The proposals are highly likely to face strong opposition from the agricultural industry and the ruling Liberal Democratic Party.
Since JAs are cooperatives which have farmers as members, the government can’t force them to reform themselves without the consent of their members. The panel members explain they made the proposals only to indicate what kind of reform should be conducted.
Then how do the government intend to make it happen? “JAs will be pressured to say they will put the proposals into practice on their own initiative,” said an LDP lawmaker close to the agriculture industry.
The panel is already working to pin down opposition forces under the prime minister’s leadership. Prime Minister Shinzo Abe attended the council’s meeting held earlier this week and promised he would be responsible for realizing agricultural cooperatives reform.
Now the discussion will be handled by the LDP’s project team on the agriculture industry headed by Shinjiro Koizumi. But prospects are unclear on how the team will settle the issue, which has grown beyond the team’s scope.
If JAs remain reluctant to implement the proposals, Koizumi, who is known as a politician with wide support, could encourage public criticism against them to give them no other choice but to follow the proposals.
“If we let them set the pace, we will be steamrolled,” an LDP lawmaker who is opposed the proposals pointed out. “It is important to clearly state what can be done and what can’t be done.”