[By Tetsuro Shimizu, Director of Norinchukin Research Institute’s Basic Research Division]
Tetsuro Shimizu
The recent proposals by a working group under the government’s Regulatory Reform Promotion Council are completely irrational, something that lacks understanding for the principles of joint sales and procurement which have been built up over the years by cooperatives. The proposals indicate the bargaining power could be taken away from farmers and primary agricultural coops which have organized a federation in order to gain an advantage in price negotiations.
Following the conclusion of the North American Free Trade Agreement, Mexico dismantled the National Company of Popular Substistence (CONASUPO), its state trader of agricultural products, and allowed major grain marketers from the United States to take control of the national market. Similar moves are taken in Australia and South Korea. If the National Federation of Agricultural Cooperative Associations (ZEN-NOH) becomes incorporated, Japan can be put under the same situation. We should be aware of such a risk, and the seriousness of the fact that the panel’s proposals came out as the Lower House passed a bill to ratify the Trans-Pacific Partnership agreement.
The panel proposed that ZEN-NOH abolish its consignment sales system and instead purchase all the farm products and sell them at its own risk. But this means ZEN-NOH should bear the risk of sales losses resulting from price fluctuations. Since there is no guarantee that farm products will be purchased at high prices in the market, ZEN-NOH will have to buy the products from farmers at low prices, which could lead to declining income for farmers.
The working group also suggested that ZEN-NOH’s agricultural material supply business be turned into a new organization which functions solely as a liaison for joint procurement by farmers. The group members don’t seem to be aware of ZEN-NOH’s important roles of negotiating prices, cutting transaction costs and preventing risks. Commission fees of ZEN-NOH and primary farm coops (JAs) are not high compared with retailers of agricultural materials, and supervising farmers’ business operations is considered a significant part of JAs’ supply and sales business.
If ZEN-NOH stops its transactions as a supplier, manufacturers will have to deal individually with each of the 654 JAs nationwide. That will be more inefficient than going through ZEN-NOH, and could bring about an increase in prices of production materials.
Moreover, ZEN-NOH is financially creditworthy and doing business through ZEN-NOH makes it easier for manufacturers to collect money from JAs and farmers. ZEN-NOH also works to reduce the risks concerning collecting money from buyers of farm products.
The government panel’s proposals are aimed at strengthening regulations on ZEN-NOH, not reforming it. There is no evidence of serious discussions by the working group. Reform is necessary to adapt to the changing environment, but how to reform ZEN-NOH is something that should be decided by its members and is not something ordered by a government panel. Cooperatives’ reform should be based on its own decisions and responsibilities.