The High Cost of a Small-Scale Bias

I hear often from people who earnestly believe that small-scale and "local" farming approaches are not only superior for the environment, but for consumers. I find in situations like this, it is very helpful to look at a case study, if one is available. So it was with great interest that I read in a November 2010 Economist article that the nation of Japan protects its small-scale farmers 5 times as much as the U.S.

Japan takes protecting small, local farmers very seriously. This is mostly because Japan has a LOT of small farmers, and they wield considerable political power. How much power? Well, Japan’s foreign minister, Seiji Maehara, was quoted saying that a tiny number of farmers hold the rest of the Japanese economy hostage. Oddly, small farmer income averages higher than large farmer incomes because price supports only apply to small farmers.

One of the effects of this is that Japanese pay twice as much for their food as they should, according to the OECD. From the above mentioned Economist article:

"Japan’s farmers are a protected class, treated twice as generously as Europe’s and five times as generously as America’s. Tariffs on polished rice are as high as 778%, and on butter reach 482%. Thanks to tariffs and other distortions, Japanese pay twice as much for their food as they should, according to the OECD."

Another effect is that farm sizes have stayed small --since it is quite lucrative to farm compared to other occupations, small land-owners have a disincentive to rent their land to larger, more efficient operators.

Compounding the effect of these price supports are sky high tariffs for agricultural staples such as rice (778%)!! and butter (482%). These tariffs hurt Japan in negotiating trade between other countries for manufactured goods, and the contribution to Japan’s cost of living discourages foreign investment.

These policies came into place partially to guarantee Japan’s Food security, yet experts
insist that this internal and external protection of small farmers undermines Food Security, prevents Japan from exporting agricultural products, and taxes citizens in various direct and indirect ways. Very undemocratic ways as well I would add! I found this information from a great online article from the East Asia Forum. The article notes:

"Japanese agriculture is in a free-falling decline. In the years between 1960 and 2005, the share of agricultural output in GDP dropped from 9 per cent to 1 per cent, the food self-sufficiency ratio from 79 per cent to 41 per cent, and agricultural land, indispensable for food security, from 6.09 million hectares to 4.63 million hectares.

Meanwhile, the ratio of part-time farm households, which derive more than half their income from non-farm employment, increased from 32.1 per cent to 61.7 per cent. The percentage of farmers over 65 years old also jumped from 10 per cent to 60 per cent.

[. . . ]

If the Japanese government were to abandon the production adjustment program and bring the producer price of rice down from the current 15,000 yen to 9,500 yen per 60kg, small-scale farmers would stop farming and start lending out their land. The government could then focus its support on full-time farmers so that they could pay their land rent (the government may pay the rent directly). Such plans would help concentrate limited agricultural land resources on full-time farmers, thereby expanding farm sizes and reducing production costs. Given the narrower target, the financial burden of such support would not exceed the current expenditures of the production adjustment program.

The price for Japanese rice has come down from 20,000 yen to 15,000 yen in the past decade, while the price of Chinese rice, which Japan imports, has risen from 3,000 yen to 10,000 yen."

So, what we have here is the dream vision of many in this country: lots of people farming, supported by the government -- and yet the result is disastrous for consumers -- and not really that great for farmers!

In addition, contrary to popular belief, small farms are often worse for the environment. More labor inputs per unit output combined with pressure to get the most out of a little plot of land leads in Japan to more environmental harm from small farmers:

The structural policy promoting large-scale farms can also bring environmental

benefits. Agricultural census data indicate that large-scale rice farms tend to have a higher

adoption rate of environmentally friendly farming practices. For example, while 73% of

rice farms that cultivated 15 ha of paddy adopted environmentally friendly farming

practices, only 44% of those that cultivate less than 0.5 ha of paddy did so (Figure 2.43).

Due to the fixed week-end time available for farming, small-scale side-business rice

farms limit their total labour input by substituting other purchased inputs. Moreover,

some large-scale rice farms, that market their own products, differentiate according to

environmental characteristics and food safety. Pesticides and fertilizer purchases per unit

of land for small-scale rice farms is significantly higher than that of large-scale rice farms

(Figure 2.44). (p. 99)

We have all heard about Europe’s protected small farmers, but since they are not as protected as the Japanese small farmer, the ill effects to European society as a whole are not quite as glaring. They are visible to all who care to look, but for those who only see romantic pastoral scenes and small fields of lavender, perhaps there is an incentive to not look carefully.

Why is this relevant here? There have been efforts toward “internal” protectionism for small farms in the USA. Most famous was the attempt by the Northern California Federal District court (yes, that one) to block the planting (and did, for a while) of GMO sugar beets, for fear that it would contaminate non-GM sugar beets -- this in spite of the fact that the product, sucrose, is a chemically identical product no matter the plant of origin. In fairness, the basis for the ban was to prevent corruption of the gene pool of organic products, but one has to wonder if this was just merely disguised anti-competitiveness ideology favoring less productive farmers.

We seem to be able to recognize the value of having professionals handle things like healthcare, but we want everyone with any desire to grow a plant to be called a "farmer" and all treated alike? Bringing in a large crop at a good price for the consumer while protecting the environment takes great skill, strategic thinking and resources -- not just good intentions! Japan's example shows just how counterproductive it can be to focus on an idyllic image (small scale farming) rather than a desired outcome (cheap, abundant, safe and environmentally-conscious food production)