Archive for the ‘Economy’ Category

When protecting farmers hurts consumers — and farmers

Monday, October 27th, 2014

Sign in dairy case telling shoppers they are limited to only one package of butter per person

Sign in dairy case telling shoppers they are limited to only one package of butter per person

Butter isn’t as essential in Japanese cuisine as it is in certain other countries’ national styles of cooking, but it does have its place, most commonly in white sauces and baking, and anyone here who uses it regularly has had to pay premium prices for it. Lately, they’ve been paying even more.

In a recent Asahi Shimbun feature a housewife shopping in Minato Ward, Tokyo, is tempted to pick up a package of “luxury brand” butter because all the regular butter is sold out, but in the end she leaves the store without it because she just can’t see spending that much money. The article doesn’t say what that price is, but regular butter right now is said to cost “¥400 or more” for 200 grams, and the luxury butter is “twice as expensive.”

The implication is that ¥400 is already too much to pay, but in any case wherever you go, regular butter tends to be sold out, and many supermarkets now limit customers to only one package per trip. More significantly, businesses such as ramen restaurants and bakeries, which rely on butter as an essential ingredient, are also suffering from the price increase. That’s because there is an acute butter shortage.

And the reason there’s a butter shortage is that there’s a milk shortage and butter is the least prioritized of dairy products. Most milk that’s produced in Japan is sold as milk, and only when there is milk left over after being channeled into by-products like cheese and yogurt does butter get made. Unlike most other dairy products, butter can be frozen and stored for a long period of time.

But why is there a shortage of milk, especially since milk is fiercely protected by the government, making it one of the most contentious items on the table for the Trans-Pacific Partnership negotiations? Japanese dairy farmers insist that if the market is opened to imports of milk products they will be underpriced out of existence, but as it stands the dairy industy in Japan is dying anyway due to attrition. According to the National Federation of Agricultural Cooperative Associations (JA), Hokkaido, which contains the bulk of Japan’s dairy farmers, is seeing a shortage of labor in the dairy field, but more importantly the price of feed has gone up greatly in the last year due to the drop in value of the yen. Three-quarters of livestock feed in Japan is imported. One Hokkaido dairy farmer told the Asahi that production has dropped 10 percent since spring and he doesn’t expect it to return to “normal” since he’s already reduced the number of cows on his farm.

Dairy prices are basically controlled by the three large food manufacturers, Meiji, Snow Brand (Yukijirushi), and Morinaga, all of which have enjoyed healthy profits due to the natural price increase brought about by their own control of shipments starting last winter. The ostensible explanation for the shortage was the unusually hot summers of 2012 and 2013. In hot weather, cows are less likely to become pregnant and thus milk production decreases. But a longer view shows that milk production has been steadily declining for almost 20 years. Total milk production in 2014 is expected to be 7.32 million tons, which is 15 percent less than the amount produced in the industry’s peak year of 1996.

Technically, all the butter sold in Japan is supposed to be domestically produced, but even during so-called normal years there is never enough for demand, so food companies make up the difference by buying foreign butter, which comes with a heavy tariff. But during particularly bad years the agricultural ministry will implement “emergency imports” of butter to meet demand, and such stopgap purchases have become more frequent as the number of dairy farms decrease and production drops.

There were emergency imports in 2008, 2011 and 2012. This year, however, there have already been two emergency imports —  7,000 tons in May and 3,000 tons in September. It’s the first time there has been more than one emergency import order in a given year. For purposes of reference, 10,000 tons of butter typically fulfills demand in Japan for 1.5 months.

Consequently, the situation will continue as it is, and will probably worsen, especially for consumers, unless real structural change is implemented, and not necessarily through TPP. What’s needed is internal structural change. Recently, a joint program began in Hokkaido to transfer dairy production technology from New Zealand. Twenty years ago Japan and New Zealand produced roughly about the same amount of milk, about 8.6 million tons each. In 2013 Japan’s output was 7.45 million tons, while New Zealand’s was 20 million.

The difference, as pointed out in a different Asahi article, is that New Zealand did away with subsidies and government support, forcing dairy farmers to rationalize production methods, while Japan’s dairy industry continues to fall under the sway of the agricultural ministry, whose main priority is maintaining influence, and JA, whose importance with regard to dairy farmers is tied to the fact that JA is their exclusive source for feed. The New Zealand protocol doesn’t use feed or factory methods.

It stresses pastures, short grass that is more nutritious than grain, and “seasonal reproduction,” meaning planned pregnancies that make it easier for farmers to plan their years. One reason young people don’t want to go into dairy farming is because the Japan method is time-intensive: year round and round-the-clock. With the New Zealand  method, work stops at dusk, and in the winter both farmers and cows get to take a break.

The irony is that despite all the work Japanese dairy farmers perform, they produce less than half of the milk New Zealand  dairy farmers do, and New Zealand’s population is smaller than Japan’s. Granted, milk products don’t have the traditional traction in the Japanese diet that they do in New Zealand’s, but that is because domestic dairy products or, at least, the kind sold by the three big food companies, aren’t appealing. T

These companies, JA and the agricultural ministry, in order to protect their own interests, have kept high quality imported cheese and butter outside the reach of average consumers, and as a result the domestic dairy industry is now suffering. Farmers are quitting because they think there is no future. They assume tariffs will fall and put them out of business. It doesn’t have to happen that way, but bureaucratic and corporate myopia seems to guarantee that it will.

Rice is nice when the price is right

Wednesday, October 1st, 2014

Early birds: Harvesting rice crop in northern Chiba prefecture in September

Early birds: Harvesting rice crop in northern Chiba Prefecture in September

The main rallying cry of those opposed to the Trans-Pacific Partnership negotations, such as JA (National Federation of Agricultural Cooperative Associations), is that Japan can no long feed itself with the food it produces, since its self-sufficiency rate is a meager 39 percent. But as attorney Colin P.A. Jones recently pointed out in his Japan Times “Law of the Land” column, this figure is misleading since it measures food consumed in calories.

In terms of production, Japan’s self-sufficiency rate is 65 percent. Moreover, in terms of total volume of food produced, Japan is fifth in the world. The point is, Japan produces plenty of food for itself, and it also imports lots of food. It is a wealthy country by any measure. However, its agricultural sector is lopsided in that it doesn’t produce food in a way that matches demand.

Rice is the culprit. Even without American threatening their livelihood with shiploads at the ready of cheap short-grained rice, farmers in Japan are already seeing prices drop precipitously. There is just too much rice being produced, despite the fact that the government still pays farmers not to produce so much.

According to Tokyo Shimbun the problem started in 2011 after the Great East Japan Earthquake destroyed much of the crop in the Tohoku region, a major rice-producing region. Consequently, rice stocks became low and the price skyrocketed. This situation lasted through the 2012 harvest. As a result, restaurants and prepared food makers cut back on the amount of rice they used. But by the middle of 2013, stocks of rice had increased to the point of a surplus, and a bumper crop was produced in the fall. But demand didn’t follow suit and the surplus grew considerably. Again, the situation remained unchanged and the price has been dropping steadily since then to the point where it’s lower than it was before the earthquake.

CONTINUE READING about domestic vs. foreign rice →

Casino tax study exposes pachinko to greater scrutiny

Monday, September 8th, 2014

Where's the money? Pachinko patrons at an off-site exchange booth

Where’s the money? Pachinko patrons at an off-site exchange booth

In line with plans to make casino gambling legal in Japan, the government needs to come up with some sort of scheme to tax gambling receipts, but even before they do that they have to address another problematic potential revenue source: pachinko. As it stands, pachinko winnings are not taxed and pro-casino forces are thinking of implementing a 1 percent levy on those winnings, so they went to the National Police Agency and asked for figures to see what kind of tax revenues they could expect. An NPA representative told them, seemingly with a straight face, that they don’t keep such statistics since there are no winnings.

Classic pachinko is like pinball in that the player earns points by being able to send balls into certain holes, which gives him more balls to play with. In gambling terms, a player wins when he ends up with more balls than what he started with. However, pachinko parlors cannot reimburse the player for the balls he wins. Instead they give him tokushu keihin (special premiums) — ball point pens, lighter flints, etc. — in exchange for balls. Then, he can take those premiums to an off-site, unaffiliated shop that buys them with cash. The shop then sells the premiums back to a wholesaler, which, in turn, redistributes tham back to pachinko parlors.

This “three-shop exchange system” (santen kokan hoshiki) bypasses anti-gambling laws because the venue where the customer plays the game does not offer cash rewards. Everyone understands this system and how it works, but the police representative told the group of lawmakers that they don’t have figures because “we don’t know anything about places” where pachinko players exchange prizes for money.

According to the Asahi Shimbun, the lawmakers were “disgusted” with this ingenuous display of “tatemae” (official principle). The group, established last February, believes a 1 percent tax on pachinko winnings would generate ¥200 billion a year in revenues for the government, which is important since the present administration has decided to reduce the amount of corporate tax it collects and has to make up the shortfall somehow. Consequently, according to the Asahi, these lawmakers have to “destroy” the illusion that people don’t exchange pachinko balls for cash, which means they have to publicize the three-shop system and explain it for what it is, which is gambling by indirection.

The system was devised in Osaka in the 1960s. At the time, players exchanged the premiums they won for cash directly from organized crime members. Later, the police forced underworld elements out of the business and entrusted the exchange system to local chapters of the Japan War-Bereaved Families Association, which consists of people who lost heads-of-household and other loved ones on the front lines in World War II.

It was a form of public welfare, and at this point the NPA acknowledged, albeit tacitly, that pachinko exchanges weren’t strictly illegal any more. Eventually, they set up their own bureaucratic organization, the Pachinko Gyokai Dantai (Pachinko Industry Group), and staffed it with retired NPA officials to administer the exchange system. Some media have said that profits from the system go into the police pension fund and other NPA-related schemes. In any case, the police have never allowed anyone outside this organization to have anything to do with the system.

CONTINUE READING about gambling in Japan →

Prep schools succumbing to more than economic reality

Monday, September 1st, 2014

In recent weeks the yobiko Yoyogi Seminar announced that it would be closing 20 of its 27 schools nationwide by March of next year. The reason is clear and has been for years: enrollment is dropping with no bottom in sight.

Yoyogi Seminar in Tsudanuma, Chiba Prefecture, which is one of the branches scheduled to close

Yoyogi Seminar in Tsudanuma, Chiba Prefecture, one of the branches scheduled to close

The term “yobiko” is sometimes translated as “cram school” and sometimes as “prep school,” and so they tend to be mixed up with juku, another education-related term translated as “cram school.” Practically speaking there is no real difference, since both forms of enterprise prepare students to take entrance tests for higher institutions of learning. But juku tend to be associated with elementary school and junior high school students, while yobiko are more often attended by high school students who want to get into name universities.

Just as often they are used by high school graduates who are doing the same. Since these grads are not attending a for-credit school at the time, they are referred to as ronin, the word that described masterless samurai in the past. And in a sense it is the loss of ronin that made Yoyogi Seminar realize its future was in jeopardy. This past spring, according to the education ministry, 80,000 ronin took college entrance tests. In 1994, the number was 280,000.

The obvious reason for the loss of ronin is that the so-called “narrow gate” for entering universities has widened over the years. As the birthrate continues to remain low the number of available students has dwindled, and at the same time the number of universities has actually increased, from 552 20 years ago to 781 as of the beginning of this year. Schools, especially those lower on the prestige scale, are desperate for paying students and thus have eased requirements for admission. Some don’t even require tests any more, but accept recommendations or school performance records. And without the entrance testing system most yobiko have no reason to exist.

CONTINUE READING about cram schools and ronin →

Local municipalities vie for your ‘hometown tax’

Monday, August 11th, 2014

Screen shot of web portal site for products being offered as gifts in exchange for "hometown tax" donations

Screen shot of web portal site for products being offered as gifts in exchange for “hometown tax” donations

The ruling Liberal Democratic Party is already thinking about next year’s local government elections and in order to help their candidates is studying a possible increase in the maximum tax deduction afforded to people who contribute “hometown taxes” (furusato nozei), a system that was implemented in 2008 to help regional municipalities struggling with budget shortfalls.

Because an increasing portion of the population is concentrated in large metropolitan areas, local government tax bases are eroding. The hometown tax diverts some of the money people pay to big city governments to these smaller municipalities in the form of donations. In order to make the system attractive to taxpayers, the central government offered deductions not only for national income taxes, but also for local income taxes.

Taxpayers can donate funds to a local government that is different from the one where they live, and despite the name of the system it doesn’t have to be their hometown. It can be any locality. Say you live in Tokyo but you want to help out a town in Fukushima devastated in the disaster of 2011, something that many people have used the furusato nozei to do. If you donate 20,000 to that town in Fukushima through the hometown tax system you can get a deduction off your national tax bill this year, and since local income taxes are based on national income taxes, this deduction, as well as a separate deduction for charitable donations, is reflected in your local tax bill the following year, which will be lower that it would have been otherwise as a result. So for the ¥20,000 donation, the taxpayer ends up with an ¥18,000 tax savings (¥20,000 minus a ¥2,000 handling fee).

CONTINUE READING about hometown tax →

What the government doesn’t pay in pensions it will have to make up for with welfare

Monday, July 7th, 2014

One of the biggest fiscal issues — if not the biggest fiscal issue — facing the government is the expected steep increase in the number of seniors who will require welfare benefits after retirement. Everyone assumes that the various national pension systems by themselves are not enough to sustain a minimum standard of living for the people who receive them, and so they will need additional income, either in terms of savings, returns from investments or wages.

Back to work?

Back to work?

In a recent survey conducted by the prime minister’s office and whose target respondents were people between the ages of 35 and 64, nearly 70 percent said that they are not now, nor do they think they will be, financially prepared for retirement. The government, anticipating this reality, several years ago passed a law to ensure that people who wish to work after their designated retirement age will be able to do so, though, as is often the case with socially-minded legislation, there is no compulsion toward employers to make this happen or any penalties if they don’t. It’s up to the employee and the employer working together.

In any case, when asked if they want to work after “retirement,” 31.4 percent of the respondents said they would after the age of 65, and 20.9 percent said they would want to do so after the age of 70. That means more than 52 percent want to work after the age of 60, which is still the standard retirement age at most companies. When asked why they want to work, 77 percent said “to make a living.”

As far as people who are trying to save money for their old age, only 1.6 percent admitted to having “more than enough,” with 21.7 percent saying they have saved or expect to have saved “the minimum necessary.” Of those who answered that they haven’t saved enough, half admit that their savings is “almost nothing,” with 74 percent in the 35-39 age bracket saying their savings is “insufficient,” which probably means nothing so far.

But perception of what they need is also an important consideration. In a survey conducted in June of 2013, the Ministry of Internal Affairs found that the average household whose head is between 60 and 69 spent ¥259,695 a month. This amount dropped to ¥196,500 for households whose head was over 70. According to another survey conducted by the Central Council for Financial Services Information, respondents who are currently working believe, on average, that a retired person needs ¥260,000 a month to live off of.

The government organ, Japan Pension Service, says that the monthly pension income of a retired “model household” is ¥230,000 a month, which comes down to ¥100,000 for a husband who was enrolled in the company sponsored koseinenkin system, ¥65,000 for the same husband’s basic pension (kiso nenkin), and his wife’s own basic pension of ¥65,000. The model assumes that the husband and his employer paid into both pension systems for a full 40 years, and since the dependent wife, as the spouse of a full-time regular employee, is categorized as a “number 3″ national pension subscriber, she is assumed to have paid her fair share, even though, in reality, she paid nothing.

This model household, however, represents a minority. Many other households have heads who are non-regular workers or who were not consistent in terms of payment schedules over the years. And there are other factors that can reduce what a household can expect. The JPS survey found in July 2013 that the average retired household of a former regular employee who paid into the koseinenkin system was ¥215,780. The monthly benefit for people who paid into the basic pension system for a full forty years is now ¥65,541 a month, but the average payout is ¥49,947. Households whose heads are between 60 and 69 said on average that their pension income was 44,000 less than what they needed.

This latter point is important because payments for the basic pension don’t start until age 65 for both spouses, so even for a model household, that means if the breadwinner retires at 60, their pension income is only ¥100,000 for five years. That means they would need another ¥160,000 to reach the level that most people now think you need when you retire. So for those five years, the couple will be short about ¥9 million in total.

In addition, the government is trying to extend the starting age for koseinenkin payments. Right now it starts at 61, but eventually the government wants it to start at 65, or even later, so that limit will rise gradually in the future, further reducing the pension amounts that people receive if they retire at 60. That’s why the government is trying to encourage employers to retain employees even after their mandatory retirement age. According to Asahi Shimbun, employees who are retained after retirement are essentially let go and then rehired at one-fourth to one-third their former salaries. There is nothing in the new law that guarantees a minimum wage for these workers.

And with boomer retirement increasing through to the middle of the next decade, it’s assumed that senior welfare rolls will just keep increasing as well. In 2011, 46.4 percent of the 2 million people on welfare were over 65. The majority of these people are seniors who only receive basic pensions and have no other income or property. The only bright spot is that many boomers already own their homes, so at least they won’t end up on the streets.

Does an increase in summer bonuses mean a healthier economy?

Saturday, June 21st, 2014

It’s that time of year again, the season when employers, both public and private, hand out their summer bonuses. In recent years the recession has kept the amounts down despite the fact that regular employees tend to consider them as an integral part of their annual salaries. In fact, society in general thinks that, as proven by the practice of incorporating bonuses into repayment schedules for home loans. Technically, however, bonuses are literally bonuses: Employers are not obliged to pay them, and actually use them as a kind of safety valve to adjust personnel expenditures twice a year.

Josei Jishin lists 35 of the  top 55 major corporations in terms of size of summer bonus for 35-year-old regular employees

Josei Jishin lists 55 major corporations in terms of size of summer bonus for 35-year-old regular employees

This summer the news sounds good. Bonuses are, on average, higher than they were last year, by about 8.8 percent, according to a survey of 74 companies carried out by Keidanren, Japan’s biggest business lobby. The average bonus for a 35-year-old regular worker will be ¥1.5 million, while that for a manager in his 40s or 50s is above ¥3 million. It’s the highest year-on-year increase on record.

According to Josei Jishin magazine, the biggest bonuses are being given out by trading companies, which makes sense. Trading companies, who do all their business overseas, enjoyed a huge windfall after the government’s monetary easing policy forced down the value of the yen.

Export-oriented manufacturers also did well for the same reason. Toyota’s average summer bonus for a 35-year-old employee is ¥1.23 million, though that sounds sort of stingy considering that the company saw a 73 percent rise in profits. Securities companies, which also benefited from Abenomics, were high on the list (Daiwa Shoken ¥1.35 million), but their employees’ compensations tend to be based more on personal accomplishments rather than corporate achievement, which is the classic definition of a bonus.

In 13th place on the Josei Jishin list is NTT DoCoMo, at ¥935,000, the highest company to record a drop in average bonus pay compared to last year. In fact, only two companies on the list of 55 companies announced a decrease.

What’s notable about the list is that all the companies are big. Smaller firms, it should be noted, aren’t doing as well in the recovery, and while average bonuses have gone up, the actual number of bonuses given out has gone down, from 38.6 million in 2013 to a projected 37.4 million this year.

Economist Hiroko Ogiwara pointed out to the magazine that while automobile makers did really well, their suppliers barely kept up and so didn’t give out much in the way of bonuses. NTT didn’t do as well as last year because it has no export-related business. And domestic companies that rely on imports, like processed food manufacturers, have suffered due to higher costs for ingredients. Moreover, the labor shortage in the retail and service industries pushed up personnel costs. Sukiya, the largest gyudon (beef bowl) chain in Japan, could only afford an average ¥350,000 to its regular employees (meaning not to restaurant staff). Power companies also were cheap with bonuses because of their continuing reliance on imported fuel. Kyushu Power’s average was only ¥300,000.

CONTINUE READING about summer bonuses →

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