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Commodities

Japan's appetite for rice takes biggest plunge in 7 years

Besides tax hike and economic downturn, Tokyo's farm policy also blamed for drop

Children scoop rice into their bowls during lunch time at a Japanese nursery school.   © Reuters

TOKYO -- Demand for Japan's signature crop, rice, has wilted under the triple whammy of the consumption tax hike, the pandemic-induced economic downturn, and high prices due to government policies that have restrained production.

The country's demand for domestically produced rice has plunged by 220,000 tons during the agricultural year that ended in June, according to government statistics, a far steeper decrease than previously estimated.

The sharpest drop in seven years comes as Japan raised its consumption tax last fall and consumers tighten spending during an economic downturn brought about by the coronavirus pandemic. Rising prices for rice also seem to have depressed demand.

"The fact that [rice] prices have been relatively high for about three years could have impacted consumer behavior," an official at the agriculture ministry reluctantly admitted during a ministry meeting in July.

Demand for rice stood at 7.13 million tons in the 12 months through June, down 220,000 tons. The industry had anticipated demand sinking by 100,000 tons per year.

For the year ended June, the average wholesale price for rice was 15,725 yen ($148) for a 60 kg sack, rising for five straight years to its second-highest point in the past decade, industry data indicates.

The higher prices were mainly driven by generous government subsidies to farmers to diversify production implemented after the policy to reduce the amount of land under cultivation was scrapped. As a result, farmers enjoyed more income, but because they produced less rice, retail prices rose and there were shortages of cheap rice for commercial use.

The agriculture ministry has rarely considered the relationship between rice price and demand. But the steep drop in demand -- which undershot last fall's projections by 140,000 tons -- forced it to take a look, and now says demand does fall when prices rise.

A consumption tax hike and a coronavirus-hit economy hurt Japan's demand for rice. (Photo by Keita Takano)

The Central Union of Agricultural Co-operatives, also known as JA-Zenchu, was quick to object to the findings. A representative of the group told the agriculture ministry that the drop in demand can be explained by several factors, such as the graying population or the shift in eating habits to meat.

The assumption that rice consumption would drop by 100,000 tons a year is based on the shrinking population and changing eating habits. Low-carb diets have also been cited as a factor.

However, "the rise in rice prices and the consumption tax increase last fall have dampened consumer sentiment, and the novel coronavirus added further downward pressure," said Mitsuo Fujio, president of Shinmei, Japan's largest rice wholesaler.

That the consumption tax was raised to 10% from 8% in October, during peak selling season of new rice, also dealt a blow, said an industry source.

Rice purchases by volume decreased 11% in October 2019 compared with a year earlier, according to an official household survey. At the same time, purchases of bread and noodles climbed 2%. Consumers tend to feel that purchasing rice is more expensive than buying other foods.

Amid the coronavirus pandemic, people are eating more meals at home. But fewer people eat out.

Agriculture ministry data shows that between March and June, purchases of rice for household use jumped 77,000 tons on the year, but sales of rice for commercial use dropped 86,000 tons during the same period.

The types of rice that have become strong sellers have also shifted, said Fujio. Blended rice, which costs 20% to 30% less than single-variety rice, have grown in sales. Because of the rise in costs, some operators that cook rice for commercial establishments have closed up shop.

Japan has upheld a policy of acreage reduction in one form or another until 2018. But both the ruling Liberal Democratic Party and the farm lobby remain wary of falling rice prices. Farmers continue to collect subsidies to plant other crops, and financial support is set to increase in fiscal 2020.

The restraints placed on farming staple rice will lead to an increase in prices, producing a vicious cycle of decreased demand.

Demand for rice this growing year "could fall below 7 million tons," said Fujio. The subsidy program is poised to make the situation worse.

"Forcibly maintaining rice prices through crop diversification subsidies is no longer feasible," said Shoichi Fukuhara, president of agribusiness Fukuhara Farm. The company's main product is rice for commercial use.

"If the government is going to think about farmers, they should seriously think about who wants what type of rice," Fukuhara said. "Large farmers will be the ones who will take the biggest brunt from the shift away from rice."

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