JAPAN FARM REFORM A KEY TO TRIMMING TRADE SURPLUS
Basic reform of Japan's protected farm
sector is a key to shifting its economy away from export to
domestic-led growth, a vital step if it is to trim its trade
surplus, securities analysts said.
    The farm sector, which is protected by import tariffs and
quotas, propped up by subsidies and price supports, and
sheltered by the tax system, has ample room for change, they
said.
    "In economic terms, reform would be a plus," said Christopher
Chew of brokerage firm James Capel and Co.
    The ultimate cost of the existing system is food prices
twice those in Europe and two to three times those in the U.S.,
The analysts said.
    Spending on food accounts for about one quarter of the
average household's budget and roughly 10 pct of the gross
national product (GNP), according to a study by Chew.
    Reducing these prices could increase household spending
power by five pct, his study said. The money could be spent on
products which would have a more direct impact in boosting
domestic growth, it added.
    "There's a lot of slack," a U.S. Government official in Tokyo
said. "All that money could be spent on something else."
    Direct central government subsidies to the farm sector
amount to some five billion dlrs per year. Independent
estimates put total subsidies from all sources as high as 37
billion and the analysts said much of that money is wasted.
    Changing tax laws to encourage city residents who only farm
on weekends to put their land up for sale for residential
development would also give a boost to domestic spending,
economists said.
    "Housing construction is the key strategic variable in the
expansion of domestic demand," wrote Chihiro Nakajima, professor
at Kyoto Gakuen University.
    Japanese business groups are calling for staged farm reform
to shift some of the burden of trade friction and economic
restructuring away from the manufacturing sector and onto the
farm sector. Employers groups also want change. "If you really
want to expand domestic demand, the way to do it is not to
raise wages recklessly, but to reduce commodity prices," Bumpei
Otsuki, President of the Japan Federation of Employers'
Associations told a recent press conference.
    External pressures are rising as the U.S. And Europe seek
removal of tariffs and quotas to help reduce their trade
deficits with Japan.
    But vested Japanese interests opposed to change remain well
entrenched, dimming prospects for quick reform, analysts said.
    Although the full-time farm population is falling and there
are signs the LDP is paying more attention to urban
constituencies, the ruling party remains heavily dependent on
farm votes in the rural areas. One rural vote is worth several
city votes due to the pattern of constituency borders.
    The LDP is already in political trouble over its tax reform
plan and does not want to raise another sticky issue so soon,
the analysts said.
    Consumer groups are politically weak and tend to accept the
traditional view that higher prices are a small fee to pay for
national food security, they said.
    Powerful agricultural cooperatives are fiercely opposed to
import liberalisation, but are more flexible about reforms
aimed at stepping up productivity, they said.
    Reform, when it comes, will be in response to specific
pressure rather than an all-embracing program, said Chew.
 REUTER
