Editorial: Japan gov't rice buyback must not be used as tool to distort market

The Japanese government plans to repurchase 210,000 metric tons of the 590,000 tons of rice reserve it released last year. While this move is essential for food security, it must not be allowed to distort the market. Experts believe a reserve of 1 million tons would be appropriate. The government's decision to release rice following high prices reduced the stockpile to 320,000 tons, so replenishing reserves in stages is reasonable.

However, private-sector inventories of rice hit a record high as of the end of June, suggesting supply-demand conditions have eased. This scenario should limit the impact on rice prices. The concern lies in political movements that seem to view government rice reserves as a tool to influence prices. Given that this year's rice harvest is expected to be good, downward pressure on rice prices has been building.

Consequently, some members of the ruling Liberal Democratic Party (LDP) have called for early government buyback to tighten supplies and demand and stabilize prices. Despite the cautious stance of the prime minister's office, emphasizing that continued high prices could counteract inflation-easing measures, the reserve system is meant solely to prepare for emergencies such as poor harvests, disasters, and food import disruptions.

While releases and buybacks inevitably impact prices, they should not be used to create government-set prices, as this could maintain elevated prices or result in insufficient rice in emergencies. The high rice prices witnessed since last year were primarily a man-made crisis. Despite a stable harvest, wholesalers competed to buy rice at high prices, driven by previous year's shortages, which led to increased retail prices and reduced consumption.

Consequently, a massive buildup of inventories occurred. The situation has swung from a shortage to one where people fear a price collapse, leading to growing distrust of the government's agricultural policy. The government should seriously consider this and thoroughly examine potential issues with rice distribution and price formation.

Procurement prices this year have decreased by 20-40% compared to last year. However, production costs, including fertilizer and fuel, are rising. Small-scale farmers have expressed their concerns, and adjustments for higher costs are likely necessary. Despite this, rice prices remain high compared to pre- "Rice Crisis" era levels, when nationwide shortages caused prices to surge.

When retail prices skyrocketed last year, private-sector rice imports surged to 95 times the previous year's level, indicating that imports were profitable even with high tariffs imposed. To address these issues, farmland consolidation among motivated farmers is essential to strengthen the production base and competitiveness. This should be the primary lesson learned from the ongoing disruptions.