Sustainable Agriculture, ~:; Poverty and Food Security ·· Agenda for Asian Economies L-F I:; I VOLUME 1 •'~ ·R- T .?

AM 0334731 Code I-E-2002286787 Vol 1

06 UNIVERSITY OF MINNESOTA Sustainable Agriculture, ~:; Poverty and Food Security ·· Agenda for Asian Economies l-f I:; i VOLUME 1 •'~ ·r- t .?

Edited by S.S. ACHARVA SURJIT SINGH VIDVA SAGAR

. ,, .,, -:- : ._. ,:: 1

:: .r·_!\ .

...... ' ~ . ' Asian Society of Agricultural Economists, Seoul ·

·~ RAWAT PUBLICATIONS ,.Jiliput and New, Oelhi ISBN 81-7033-725-9 (set) © Asian Society of Agricultural Economists, 2002

No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical including photocopying, recording or by any information storage and retrieval system without permission in writing from the Asian Society of Agricultural Economists or the Editors.

Published by Prem Rawat for Rawat Publications Satyam Apts., Sector 3, Jain Temple Road, Jawahar Nagar, Jaipur - 4 (India) Phone: 0141 651748 / 657006 Fax: 0141 651748 e-mail : [email protected] www.rawatbooks.com

Delhi Office G-4, 4832/24, Ansari Road, Daryaganj, New Delhi 110 002 Phone: 011-3263290

Typeset by Rawat Computers, Jaipur Printed at Chaman Enterprises, New Delhi 20 Dominance of Premium Varieties in the Japanese Rice Economy: Reasons and Implications

Masahiko Gemma

For most people in Japan, rice is still a staple food. Rice still allows the inhabitants there to absorb almost one-third of the daily required caloric intake. However, a gradual decline in per capita rice consumption has been observed after reaching its peak in 1962. Currently (1997), 66.7 kg is consumed annually and this is about a half the level of 1962 [Food Agency (MAFF), 1999:1]. Over the years, household consumers have become more conscious about the quality of rice. They consider taste as the most important factor when they make a purchasing decision. The consumers' willingness to pay for higher quality rice is observed in price relations at market place. In the Tokyo wholesale market, a premium rice, known for its better taste, Niigata's Uonuma Koshihikari is being sold for prices up to 50 percent higher than standard quality rice. At the retail level, the premium becomes even larger. A 10 kg package of Uonuma rice is sold even for more than ¥8,000, while a package of standard quality rice for the same weight is sold for ¥3,000. Rice is still being produced in Japan as a major agricultural product. It holds the largest share among different crops. What will happen,to this' dominance of rice in agricultural production in Japan? Although, the liberalization of the rice market in Japan will certainly result in a reduction in domestic production through lower output prices in the long run, the dominance of rice cultivation in rural areas will not be changed so soon. The rural agricultural infrastructure has been improved over time for rice cultivation. Public and private assets related with rice cultivation have been accumulated. Marketing and processing channels for rice have also been in existence for a long time. Structural changes in production and marketing systems will require new investment and time to accommodate for the agricultural sector. Although changes will occur to adjust the rice economy to new economic environments by pulling out resources which may be better utilized elsewhere, efforts to make this sector more competitive will take place at the same time. Attempts to amplify value added and to improve production and marketing efficiency have already been taken. For rice breeders in Japan, developing higher Dominance of Premium Varieties in the Japanese Rice Economy: Reasons and Implications 239

quality, tasty rice varieties has been a major objective of their activities in recent years. This is to better serve the consumers who have been shifting preferences rowa:ds tastier rice. Rice producers have benefited from the efforts with the price premmms. The purpose of this paper is to study issues related to rice quality, yields, consumption and prices and to derive policy implications for the future of the Japanese rice economy. How the recent trend of dominance of Koshihikari as a produced rice variety may have impacts on the stability in rice yields is examined. How quality makes difference in rice prices is also investigated. Determinants of rice consumption are identified too. The answers to these questions are useful when future policies are considered. Statistical tools are employed for these analyses.

Rice Yields in Japan The growth in rice production has mainly come from the increase in yields in Japan. The country has been endowed with limited supply of arable land. At the same time, population pressure has been existing. As Hayami and Ruttan (1985) argue, technological development in agriculture took place in the direction of releasing the constraints on land. Yields increased as a result of the development of biological and chemical technology along with the improvement in irrigion systems at the beginning of the development stage. Acreage increase took place in a marginal way. Some forest and mountainous areas were converted into paddy fields. As economic development has taken place, labor has become relatively scarce and the rapid development of mechanical technology has taken place. This has also contributed to the increase in rice yields. The yields have been gradually increasing, but have experienced volatility on the movement along the growth path. Not much growth has been observed since the middle of the 1980s. A decline in the relative price of rice, a setback in research and development investment in rice and an increasing emphasis on the production of 'brand' rice varieties which give a lower yield, are believed to be the contributing factors in this recent trend of the Japanese rice yields. In response to the decline in demand for rice in the national economy and the increase in rice imports, the domestic supply has to make a necessary adjustment in Japan. Acreage for rice cultivation has been reduced using land conversion and set aside programs. Economic incentives have been utilized for encouraging participation to the programs. Even punitive measures have been indirectly employed to achieve the targeted acreage reductions. Priorities in subsidies for rural development have been lowered for the areas which have not met the government imposed goals. Seeking outside employment opportunities and finding more profitable crops to grow have been critical considerations for the survival of farm operators in rural households. Enlargement in value added in rice cultivation ~as ~lso been c~ns~dered ~s a worthwhile effort. Choosing 'brand' rice for product~on 1s along this_ !me. to improve farm income in Japan. This has some drawbacks. First, th~ pro_ductio~ ~1sk may be increased. Tastier rice variety may be vulnerable to climatic condition changes. Yield drop may be larger in a bad crop year. Second, rice yields may be 240 Masahiko Gemma

reduced. The predicted profit increases from tasty rice, taking into account price premiums and changes in costs, should be greater than that derived from producing a higher yielding standard quality rice variety.

Rice Quality, Yields and Prices In 1993, the Japanese rice production sector was hit by a cold summer and the rice yield dropped to 75 percent of the level of a normal year. The severity of the damage was partly blamed on the concentration of production on a limited number of premium rice varieties. Rice blast disease was also spread under the cold climatic conditions. Koshihikari is not strongly resistant to this disease. A hypothesis testing is carried out here to see whether the deep decline in rice yields is related with mono-cultivation of premium rice varieties. The same examination is conducted using the data from 1998, too. Another test is also undertaken to see if premium rice is evaluated highly by consumers. The relationship between rice prices and quality (taste of rice) is examined. Then rice consumption equations are estimated for different rice types. These results form the basis for later arguments. First, a yield index is regressed on an index of rice variety concentration using 1993 data from 46 prefectures (all prefectures except Okinawa where the information was not available). The yield and rice variety data are obtained from Food Agency (1996 and 1999).

YI98 = 102.69***-o.02 CON-5.49... DTK-5.49 ...DKT-6.03 ...DH-5.77 ... DCB-7.05 ...DKS-5.19 .. DSK (1) (51.78) (0.55) (-3.05) (-2.77) (3.65) (-3.27) (-3.93) (-2.49) Adjusted R2 = 0.33 D.F. = 38

YI98 = 102.69'** -5.69 ...DTK-7.12 ...DKT-6.44 ... DH-5.69 ...DCB-6.86 ... DKS-4.94 .. DSK (2) (104.80) (-3.26) (-4.30) (-3.19) (-3.26) (-3.93) (-2.45) Adjusted R2 = 0.35 D.F. = 39

YI93 = 86.49'** -0.37'* CON+ 22.84 ...DKT + 26.58 ...DH + 21.82 ...DKS + 13.07*DSI + 16.60 ..DSK (3) (11.59) (-2.45) (3.75) (3.27) (3.65) (1.92) (2.21) Adjusted R2 = 0.35 D.F. = 39

*•••• 1 percent significance level,*'' 5 percent significance level, and•• 10 percent significance level, and the num bers in parentheses are t-values. Where YI: Yield Index (ratios of actual rice yields to the normal yields announced by the Food Agency (in per centages)); CON: Concentration (calculated as the share of the rice variety with the largest proportion in the to tal planting areas); DTK: Dummy variable for Tohoku; DKT: Dummy variable for Kanto; DH: Dummy vari able for Hokuriku; DCB: Dummy variable for Chubu; DKS: Dummy variable for Kansai; and DSK: Dummy variable for Shikoku.

Rice yields were found to be negatively correlated with the rate of concentration of the premium variety for the crisis year. The estimated parameter on CON is statistically significant and negative. Prefectures with higher concentrations experienced a sharper decline in rice yields, we observed here from the data of a year of cold summer in 1993. However, this was not the case for the normal year of 1998. Next, factors influencing market prices are examined. Rice quality is found to be an explanatory factor here for the data from this decade. Although rice quality is conventionally differentiated by producers with physical characteristics such as the rate of broken rice and water content, consumers tend to use a different set of quality Dominance of Premium Varieties in the Japanese Rice Economy: Reasons and Implications 241 characteristics to distinguish one rice variety from another. The latter list includes taste, appearance, easiness to cook and healthiness (Ohtsubo, 1996: 33). The government inspections conducted by Food Agency of rice quality are performed for both government rice and voluntary rice• through the examination of physical characteristics of sampled rice. Another type of quality examination is carried out by Nihon Kokumotsu Kentei Kyokai Gapan Grain Inspection Association), which is based on the appearance, smell, taste, stickiness and crunchiness of rice. Tasters scrutinize cooked white rice of major rice varieties from each prefecture every year. How the rice prices are related with rice quality is examined next using the cross section data of rice price and quality. For rice prices, average auctioned prices of voluntary rice in the wholesale markets in 1994, 1995 and 1998 are used (Food Agency, 1995, 1996 and 1999). For rice quality figures, data from Nihon Kokumotsu Kentei Kyokai (1996) which ranked rice quality in five grades are employed. Regression analyses produced the following equations.

PR98 - 13179.39°** + 1178.oJ'**T98-2420.Sf.. DI--IK + 3712.05 ...DN + 1732.09 ..'DKl + 1297.84 ..DS (4) (13 .26) (4.58) (-3.35) (5.85) (4.55) (2.09) 2 Adjusted R - 0.68 D.F. - 63

PR98 - 11986.30 ... + 1435.38 ..'T98-2256 .8i*'DHK + 2287.3 ...DH + 1044.62*DK2 + 1676.01 'os (5) (9.43) (4.27) (-2.14) (3.78) (1.69) (1.85) 2 Adjusted R - 0.47 D.F. - 63 PR98 = 12977.05 .., + 1015.20... T98-1759 .10.DHK + 2043.81' ..DH +24.03'.. K3 (6) (11.40) (3.07) (-1.79) (3.54) (3.23) 2 Adjusted R - 0.52 D.F. - 64

PR94 - 16969.ls*.. + 834.4s* ..T94 + 1248.53 ..'DKI + 1114.42'.. DS + 2598.73 ..'DN (7) (35.06) (6.46) (5.54) (2.99) (7.69) 2 Adjusted R - 0.69 D.F. - 61

PR95 = 16046.18 ... + s21.35**'T95 + 1571.65 ...DKZ + 2802.19 ... DN (8) (24.22) (4.55) (5.20) (5.82) 2 Adjusted R - 0.64 D.F. = 62

PR94 = 15792.79 ... + 946.84 ... T94 + 23 .16 ..'K3 + 1872.95 ...DN + 729.61... DH (9) (24.71) (5.42) (5.61) (4.57) (2.40) 2 Adjusted R - 0.82 D.F. - 33

PR95 - 14395.66 .., + 951.IO ..'T95 + 25.78 ..'K3 + 3217.78 ...DN (10) (11.92) (2.87) (3 .19) (4.64) 2 Adjusted R - 0.63 D.F. - 34

Where PR: Average auctioned prices for voluntary rice at the wholesale markets (yen/60 kg); T94 and T95: JAGI rice quality index (1 to 5 range, 5 shows the best quality); DKI: Dummy variable for Kosh1h1kan; DK2: ?ummy variable for Koshihikari and its relative varieties (up to 50 percent genetic linkages); DS: Dumm! vanable for Sasanishiki; DHK: Dummy variable for Hokuriku; DN: Dummy variable for Niigata and K3 : Van able showing the genetic closeness to Koshihikari (in percentage) (Azuma, 1996, Table 3-2: 70-71) was used) .

* Government rice (seifu mai) is a category of marketed rice which goes through the conventio~al government market channel. Procurement prices are set in advance by the government. Voluntary nee (jishu ryutsu mai) is another classification of marketed rice which is directly sold to wholesalers through cooperatives. The traded prices are determined at auction. 242 Masahiko Gemma

Price variations among different rice varieties from separate prefectures were accounted for in the above equations. Quality differences from the view of consumers were found to be an important explanatory factor here. The branded rice varieties such as Koshihikari and Sasanishiki were found to command price premiums. The inclusion of 28 prefecture dummy variables in the model was attempted. However, only the Niigata prefecture dummy and the Hokkaido prefecture dummy became statistically significant. This shows that wholesale rice prices are formed based on the rice varieties rather than the specific prefectural location of production. Rice produced in Niigata is an exception, which also gets a price premium in the market regardless of varieties. The above equations also show that having genetic closeness to Koshihikari helps in acquiring price premiums. The closer the genetic relationship, the higher the market prices we observe here. By the similarities in tastes characterized by low amylase and protein contents, the Koshihikari family must have been preferred by consumers (Yokoo, 1996). The determinants of rice consumption is examined next using recent data from all 47 prefectures (Shokuhin Sangyou Shinbunsha, 1999 and Management and Coordination Agency, 1998) ln(QRl) - 4.56-0.88 ..ln(PR) + 0.360ln(EX)-O. l 1•DKT -o.20•ocK (11) (1.47) (-15.52) (1.34) (-1.91) (-3.28) 2 Adjusted R - 0.84 D.F. = 42

QR2 - 12.0(.. -6.23 ...DTK-l.87'.DH (12) (41.54) (-3.39) (-2.02) 2 Adjusted R - 0.21 D.F. = 44

QR3 - 2.29'•• -4.70x10-7EX-0.99 ..DKS-l.27 ... DKT (13) (1.26) (-0.32) (-2.17) (-2.87) Adjusted R2 = 0.22 D.F. = 43

QR3 - 1.7(•• -1.00 ..DKS -l.3(.. DKT (14) (9.77) (-2 .20) (-3.08) 2 Adjusted R - 0.22 D.F. = 44

Where QR!: Rice quantity consumed (at home) per person; QR2: Rice quantity consumed (away from home) per person; QR3: Rice (standard quality) quantity consumed person; EX: Total expenditure per person; and DCK: Dummy variable for Chugoku.

Equation 11 represents the relationship among rice consumption quantity, price and income. Price was found to be a significant determinant of the level of rice consumption. One percent change in rice price was found to be influencing the rice consumption by 0.8 percent. Income was not found to be a statistically significant factor. Equation 12 shows the determinants for the rice consumption made outside home. Income was not a factor to explain the difference in rice consumption for this type of rice. Tohoku and Hokuriku regions had significantly lower rice consumption made away from home. The difference in lifestyle seems to be the factor to explain the difference in the amount of rice consumption here. Equations 13 and 14 explain the determinants of rice consumption for a non-premium rice called Dominance of Premium Varieties in the Japanese Rice Economy: Reasons and Implications 243

Hyojunmai (standard quality rice). The consumers in big cities do not consume this type of rice. Although income was not a significant determinant factor, a negative elasticity of (-)0.41 was observed. Non-premium rice might be considered as an inferior good in Japan.

Conclusions and Policy Implications Why certain rice varieties have dominated the Japanese markets has become clear in this paper. First, consumers' willingness to pay higher prices for better taste rice varieties has been proved. A positive correlation between rice quality (in terms of taste) and prices was confirmed in the data analysis. Koshihikari and Sasanishiki were verified to be the rice varieties which receive premium prices. Even the varieties which are genetically related to Koshihikari were detected to have been enjoying higher prices. The closer a variety's relation to Koshihikari, the higher the price it i£ able to command. Variety was also detected to matter more than location of production with an exception for rice grown in Niigata. Second, the rice producers' incentive for growing Koshihikari has been verified. Supply responsiveness to premium prices was the cause of allocating more land for rice cultivation. Considering the confirmed production risk of growing a limited number of rice varieties, the diversification of rice varieties grown in Japan is desirable. The concentration of varieties not only increases the potential risk for a major crop failure, but also limits improvements in the efficiency of labor and farm machinery use. Farmers in a same area now tend to replant and harvest almost at the same time because they produce the same rice variety. Harvesting equipment is utilized only for several days a year. Sharing a piece of machinery to reduce production cost is difficult under the current conditions because everyone wants to use it in a particular period. Progress in breeding efforts to develop Koshihikari varieties with different growing periods would help resolve this problem. This should be added to the research agenda of the rice breeders who are already making efforts to increase disease and stress tolerance as well as to further improve taste. So far independent efforts have been made in each prefecture to cope with these issues and to promote own prefecture-specific brand rice varieties. The rice varieties that are promoted in a prefecture receive typically a final screening in a local prefecture experimental station. Then, the information is sent to rice farmers through extension networks organized by the prefecture and local farmer cooperatives. The above economic study found that market prices have been based, not on where the rice is produced with the exception of Niigata, but on what rice variety it is and how tasty the rice is. Research and extension efforts can be combined among neighboring prefectures that share similar climatic and soil conditions. This would save public money and time, both of which are currently s~a~ce. This study also showed that price is a significant factor determmmg the amount of rice consumption. This implies that the further lowering of the rice price as a result of the gradual process of the liberalization of the dom:stic rice market_ wo~ld have a significant implication for the change in rice consumpuon. In the exammauon of the future rice demand and supply conditions, price change should be treated as a critical factor in addition to the income and life style change factors. 244 Masahiko Gemma

REFERENCES

Azuma, Masaaki, Brand Hinshu Kaihatsu no Genjyo to Tenbo (Current Situations and Prospects for the Development of Brand Rice Varieties), Chapter 3, 21 Seiki ni Muketa Oishii Kome no Kaihatsu Senryaku, N ourin Suisan Gijutsu J oho Kyokai, 1996. Food Agency, Beikoku Data Book (Rice-wheat Data Book), Mizuho Kyoukai, 1995, 1996 and 1999. Management and Coordination Agency, Annual Report on the Family Income and Expenditure Survey 1997, 1998. Nihon Kokumotsu Kentei Kyokai, Heisei 7 Nensan Kome Shokumi Ranking, 1996 and 1999. Ohtsubo, Kenichi, Komeno Oishisa wo Hakaru (Measuring Tastefulness of Rice), Chapter 2, Komeno Oishisa no Kagaku, Nourin Suisan GijutsuJoho Kyokai, 1996. Shokuhin Sangyo Shinbunsha, Wakariyasui Kome no Handbook (Handbook of Rice), 1999. Yokoo, Masao, Sekai no Kome no Hinshitsu Tokusei (Quality Characteristics of Rice in the World), Chapter 2, Sekai no Kome to Nihon no Kome, Nourin Suisan GijutsuJoho Kyokai, 1996.