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Business

Japan farm co-op group kicks off long-awaited reforms

Tie-up with sushi chain to be test case for direct-sales model

From farm to table: Shortening the supply chain is designed to boost growers' productivity and stabilize retail prices.

TOKYO -- The umbrella group for Japan's farm cooperatives plans to invest up to 4 billion yen ($35.7 million) in Sushiro Global Holdings as early as this month, kicking off efforts to increase direct sales of rice to retailers and eateries.

The National Federation of Agricultural Cooperative Associations, or Zen-Noh, will invest in the parent of Akindo Sushiro, Japan's largest operator of conveyor belt sushi restaurants. Sushiro is set to relist on the Tokyo Stock Exchange as soon as late March after having left the bourse nearly eight years ago. A portion of the offering will be set aside for Zen-Noh, which is seen taking a voting stake of several percent.

This will be the co-op group's first investment in a major restaurant operator. Zen-Noh already supplies Sushiro with rice. A capital partnership is seen tightening ties and enabling more in-depth sharing of information. While the 20,000 tons of rice consumed by Sushiro's 455 Japanese stores each year accounts for less than 1% of what Zen-Noh handles, the alliance is a test case for the organization's future business model focused on the direct sale of farm products.

The tie-up could also help Zen-Noh expand rice exports. Sushiro has seven stores in South Korea and is planning other forays abroad. The restaurant operator would benefit from a stable supply of high-quality Japanese rice.

Zen-Noh has been selling rice collected from farmers to wholesalers, pocketing service fees. But the growing complexity of the distribution business led to higher prices for consumers and sapped farmers' drive to innovate. The government highlighted management issues at Zen-Noh as part of an agricultural reform plan this past November, urging the group to scale back involvement in fertilizer and pesticide sales to farmers and to focus on peddling produce.

As a private entity, Zen-Noh is not bound by the government's recommendations. But the group aims to draw up an action plan by the end of March, with the Sushiro partnership as the first concrete step toward reform.

The goal is to raise the share of rice Zen-Noh sells directly to retailers and eateries, as opposed to through wholesalers, from 40% in fiscal 2016, which ends March 31, to 90% in fiscal 2024. Linking farmers with restaurants will help growers more reliably estimate their income and needed acreage, boosting motivation and productivity. The cost of getting rice to consumers will also fall, meaning stabler prices at the store.

The challenge now is setting up a workable system that links farmers to eateries using their products. Acquisitions are set to play an important role in reform. Zen-Noh and Norinchukin Bank, which serves agricultural cooperatives, teamed up last autumn to buy U.K. food distributor SFG Holdings, for example. But as Zen-Noh takes on the role of investor, it will need to learn how to pick targets wisely.

(Nikkei)

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