The Influence of the Increase in International Cereal Prices on Japanese Agriculture

Abstract

International prices of cereals increased rapidly from 2006 through to the summer of 2008. Prices plummeted after summer 2008, but remain high relative to the level of 1997. The partial equilibrium model states that price increases spur an increase in crop production. This paper examines the influence of the increase in international cereal prices on Japanese agriculture, based on a single country computable general equilibrium model. The main results are as follows. First, an increase in international cereal prices increases agricultural output and farm labor input. It promotes production of wheat, soybean and feed crops with low self-sufficiency rates, and reduces production of other agricultural enterprises. Agricultural output prices and quantities are raised for all products. Farm labor in the livestock sector is decreased due to the great reduction in livestock production caused by the increase in feed prices, but farm labor is increased in the agricultural sectors as a whole, despite the decrease in labor input in livestock production. Second, the welfare level of consumers deteriorates. Consumption of food and nonalcoholic drinks declines and the level of GDP decreases a little. Third, productivity growth in agriculture mitigates the damage caused by price increases on lowered welfare levels for consumers and the fall in GDP.