TOKYO -- At a time when the domestic rice supply-demand balance remains loose, Japan's key rice trader, the National Federation of Agricultural Cooperative Associations, is set to raise wholesale rice prices for the 2015 crop, the first increase in three years.
The move comes as the organization -- known as Zen-Noh -- has come under intense pressure from rice producers and the ruling Liberal Democratic Party, which are seeking to recover slumping rice prices.
By mid-June, Zen-Noh had notified rice wholesalers of the standard rice price for the 2015 crop. Although it will decide the official standard price through coordination with relevant parties after the harvest season, Zen-Noh has raised prices by around 5-10% for major rice brands compared with their standard prices for the 2014 crop. For instance, the Koshihikari variety grown in Niigata Prefecture -- a major rice production area -- will be sold for 15,800 yen ($126) per 60kg, up 5.3% or an 800-yen increase from the level a year earlier.
Zen-Noh trades 50% of the approximately 6 million ton annual rice distribution in Japan. The organization collects rice by paying advance payments to rice farmers, who entrust sales of the rice harvest to agricultural cooperatives, during the autumn harvest season. The fund for advance payments comes from wholesale rice prices minus distribution costs.
As for the 2014 crop, wholesale prices and advance payments fell around 20% from the previous year due to increased inventory and other factors, hitting a record low. What's more, advance payments do affect prices of rice that is not traded via Zen-Noh. As a result, rice farmers have grown increasingly frustrated and have called on the LDP to raise advance payments.
As such, the LDP has taken the initiative in hiking rice prices. At meetings since last autumn, LDP lawmakers lambasted Zen-Noh for setting advance payments at excessively low levels due to fears of making losses. Given such growing criticism, the Ministry of Agriculture, Forestry and Fisheries created a research council on stability in rice trading in December last year to encourage discussions about the issue.
At an LDP meeting on March 19, agriculture ministry officials explained the outline of the research council's report to the attendees. A ministry official in charge of rice trade referred to the report as "nearly a finalized version."
The outline states that it is desirable to set advance payments and wholesale prices based on the past average value as a benchmark. Based on average value, the wholesale price for the 2015 crop will rise nearly 20% from a year earlier. The outline clearly points to a considerable increase in wholesale rice prices for this year, piling up pressure on Zen-Noh.
Meanwhile, rice buyers have raised strong opposition to the planned hike in rice prices. "If rice prices are raised significantly, we will have to cut the amount of rice used in ready-made box lunches and put more pasta instead," warned Kosaku Fukuda, the head of an association of domestic rice promotion organizations, in his talk with Zen-Noh officials in May. Similarly, rice wholesalers worry that excessive price increases could further dampen consumer demand. When Zen-Noh raised the 2012 crop price, ready-made food producers and restaurant operators slashed the amount of rice they used. The price hike also prompted large-lot rice consumers and wholesalers to bypass Zen-Noh and start trading directly with rice producers.
Given such a market situation, Zen-Noh's decision to hike rice prices in line with the council's recommended method doesn't make much sense.
In late May, Zen-Noh decided to set the 2015 crop wholesale price based on the past average value of the market price, rather than the standard retail price, to curb the price increase. "The amount of the hike is not as big as we expected," said Fukuda.
Wholesale rice price is not necessarily determined by market principle. This is because there is no spot rice trading market -- which would provide indicators reflecting the supply-demand balance -- and there have been political interventions.
On July 1, the Japan Rice Millers and Distributors Cooperative opened a new rice trading market in which local agricultural cooperatives and rice producers can participate. By doing so, the organization aims to increase communication about its price-setting methods. Zen-Noh is also willing to utilize the market.
Japan needs to put in place a rice price-setting system that is transparent and acceptable to all parties concerned. Failure to do so could further drive consumers away from rice consumption -- and, possibly, producers out of business.