PRICE SUPPORTS AND EXCHANGE RATE ADJUSTMENTS; IMPLICATIONS FOR JAPANESE WHEAT AND BEEF MARKETS, 1960-83

Abstract

An agricultural protection policy is very common among industrial countries. However, there are actual pro and con arguments for it because someone must bear its cost. Even in Japan, consumers themselves do not necessarily object to increasing the importation of agricultural products. It may not be easy for today's advanced industrial countries to determine the criteria for opening their agricultural markets completely since to implement this kind of policy adjustment, many difficult political considerations must be taken into account. The number of agricultural items restricted for import in Japan was reserved at 22, in 1983. This number was the greatest among the advanced industrial countries. According to the investigation by Yujiro Hayami, the price support rate of Japanese agricultural products, which shows how much higher the Japanese prices are in comparison with the rest of the world, was inferred at 45% in 1980. This number is regarded as almost twice the EC's and is similar to the level in Switzerland where agriculture is strongly protected in order to preserve the Alps Agriculture. As general impression, people may think that agricultural protection policy in Japan must be adopted because the pressure of agricultural organizations on the government is so strong. Before World War II, the small textile or miscellaneous good industry which used labor intensive technology and cheaper labor was Japan's main industry for earning foreign exchange. For these small industries, the increase in food prices which would have forced a wage increase was a matter of life or death. Through the desperate resistance of these commercial and industrial concerns, even the political pressure of the agricultural organizations could not force the government to adopt agricultural protection policies. However, after World War Ii, especially during the High Economic Growth Period (from the 1950's), the Japanese industrial structure was transformed from a labor intensive form into a capital and knowledge intensive form. Further, owing to an increase in income of its wage-earning class, the rate of food costs against the household account was reduced and the degree of closer repercussion which had brought forth previous wage increases was also gradually reduced. In such a situation, Financial Circles and consumers began to lose their ability to resist the expansion of agricultural protectionism and the increase in prices of agricultural products as a matter of life or death. Through these political and economic processes, the level of Japanese agricultural protectionism was greatly raised during its high economic growth period. By inference, using the Agricultural Price Support Rate, at the beginning of the high economic growth period (1955) the rate was 15% and was lower then the EC's 23%. However, 10 years later, Japan's support rate exceeded that of the EC and reached that of Switzerland's. The ultimate purpose of this paper is to assess the welfare effects of price supports in Japan. However, there exists an external factor on agricultural trade, which is the effect of foreign exchange rates. Hence, another purpose is to infer Japan's benefits from the change of foreign exchange systems. The time period for these analyses is confined mainly to 1960 through 1983, and the agricultural products to be examined are limited to two - wheat and beef. Efforts will be made to answer the questions: 1) How much has Japan benefitted from the foreign exchange adjustments through the shifting of the system from a fixed to a floating exchange rate? and 2) How much have the producers benefitted and how much of the cost of the internal program have the consumers borne over this period?