Curious about the Economics of Rice Farming

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danieru
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Curious about the Economics of Rice Farming

Post by danieru »

Hey Guys,

I've looked through the entire thread list for this sub-forum but have not seen any topics related to pure rice farming. Since rice farming is the most iconic farming in Japan I can only take this to mean the economics are not even slightly appealing to "young" farmers.

Still, I have been curious for a while about the economics of rice farming in Japan.

Assuming JA sourcing and JA selling are there any public sources on the costs and revenues? How is the industry consolidating? I've seen references to corporate farms, are these sub-companies of the mega corps or locally owned families?

Daniel

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Curious about the Economics of Rice Farming

Post by Zasso Nouka »

Hi Daniel,

Welcome to Japan Simple Life and thank you for taking the time to sign up, we really do appreciate that.

I'm not a rice farmer (we grow vegetables) but most households in our village farm rice and we also help them out during planting and harvesting. Also I can't give you any figures but I can tell you very few of the farmers around here have it as their exclusive income, most have other jobs that provide the bulk of their income. Apart from at planting and harvest rice doesn't require a lot of time so they can do whatever maintenance is required at the weekend. I think their main reason for farming is to keep the family land worked. Several households who can't spare the time rent their land out to others that can more easily find time in spring and late summer.

I do know a couple of farmers than work large areas of land (over 100 acres) and they work really hard at planting and harvest time but even they farm vegetables for the rest of the year. Thing is you only get a single crop to make your entire year's income.

I personally don't get the economics of small scale rice growing, you need a fairly powerful tractor to work tanbo, my little 19 horsepower one is too small. You then need a rice planter, a conbine, a drying tower and a miller. All of those need servicing and mostly they'll only get used once a year, typical fee for servicing my small tractor is 50,000円 but can go higher if it's more than oil replacement. All inputs are bought from JA and they tell you the price they will pay you when you harvest.

You could probably make a living from rice harvesting if you went large enough but then you'd become even more beholden to JA or another large corporation that has the facilities to store that much rice as it needs to be kept in environmentally controlled conditions.

Purely from an economical point of view vegetable farming offers a far better return per square metre of soil. We get between 3 - 5 crops out of each plot of land and quick growing crops like salad and other leafy vegetables or kabu can go from seed to harvest in under two months at the right time of year. You also need less equipment to get started and don't even need a tractor as a rototiller could do most of the work a tractor does.

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Curious about the Economics of Rice Farming

Post by Zasso Nouka »

I should also add a word about supplementary grants. If you choose the right prefecture that really wants to maintain its population then you might be able to get enough subsidies to life for the rest of the year but I don't know much about subsidies as we don't receive any.

There is a village in Nagano that specialises in lettuce, the farmers there receive massive subsidies and basically only work for half a year. The rest of the year they spend relaxing and snowboarding but the village secured the subsidies so that it didn't die out with young farmers moving away to other areas where they could farm for more of the year. However I don't think that is sustainable, if the government ever changes its mind and thinks the subsidies are too much of a drain they could get cancelled.

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Curious about the Economics of Rice Farming

Post by danieru »

To be honest I am asking for personal curiosity and imagination. Figuring out what the gross margin is on rice would be interesting, then working backwards to the scale achievable and further the return on land and what the situation is with bank financing on land. Those are all things I am trying to figure out in my head.

Supposing one had the capital to scale up to "decent scale", is that 一億円?十億?Is land priced based on the work a "modern" scale farm can do or is it fire sale priced?

While I know you do not know these numbers, to be honest you are the most likely person here to have any ideas.

My guess, and it is only a guess, is that most rice farmers inherited their land and are farming it on a pure "cash flow" basis. With no relation between revenue generating capacity and land price. Thus it is quite possible land is more expensive than a large scale farm would be interested in.

Granted, what is involved in scaling rice production? Bigger tractors and equipment for lower labour inputs per hectare of course, but what is involved after harvest? Does JA offer a region wide price or do they attempt to low ball based on scale?

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Curious about the Economics of Rice Farming

Post by danieru »

Went sluthing, while JA does not appear to give much data based on reading US trade reports it appears crop diversion was a big part of the economics.

Numbers appear 10+ years out of date but based on a 50hectare farm (100acres) the numbers work out "way too good, there must be a mistake in the math" such that such a farm would return gross 25% per year just on max payments for diversion to wheat. Thus I am going to ignore the USD figures and instead based on the yen and ares figures (max payment 8.3man per 10 ares which is 1000m2) that gives a raw return of 6.4% just from diversion.

Such a return is reasonable yet so good there must be a catch. Do you know if this policy or a similar one is still in force? How has land not massively started consolidating?

Sources:
USDA, appears 20 years old: https://www.ers.usda.gov/webdocs/outloo ... f?v=9438.5
A random news article which appeared to imply LDP have ended the diversion policy.
A random real estate agent site which claimed nation average land prices were 125万円 per 1000m2. Thus 1250万円 per hectare.

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Curious about the Economics of Rice Farming

Post by Zasso Nouka »

I suspect most of the small scale farmers haven't actually worked out whether they are making a profit or not and are just farming it to keep the family land under cultivation, if they were to sit down and go through the figures they'd find out there weren't making a profit on the rice farming.

Mrs Nouka's uncle is a full time daikon and cabbage farmer and he said some years he just about breaks even dealing with JA and some years he even makes a loss. We didn't do the maths on our production for the first few years and just priced our veg inline with others, then once we did work it out we found we were losing money with every sale. I think this is a common attitude seeing how many new farmers start up and run just fine while they are receiving start-up grants then give up once the subsidies expire, they find out they aren't making a living.

I'm going to go out on a limb here and speculate the reason folk don't diversify into other crops might be because of the central role rice plays in the Japanese diet and a strong reluctance to import rice from abroad. When we were living in London Japanese rice was 4 or 5 times the cost of Californian, Italian or Turkish short grain rice probably due to how inefficient small scale cultivation is compared to large scale. Small scale farmers aren't going to diversify to other crops as they don't have the time or even inclination. Now I'm not suggesting JA or the government are fudging the figures but I suspect the only people making money is JA.

Next comes the problem of consolidating land, the only way anyone is going to be able to do that is to prize it out of the owners cold dead hands. Families hold on to the dream that their kids will one day give up their regular jobs in the city and move back to the village to take up rice farming. Possibly the only way a big company can get access to large plots of land is once the owners have passed away and kids given up inheriting their parents land could that then somehow be passed onto large farming countries but I don't know how that process might work.

Then you come to the practicalities of converting small tanbo into large ones where larger scale machinery could be used. If they are going to do wet field cultivation then it needs to be absolutely flat, so many areas just wouldn't be suitable due to the geography. Dry field cultivation might work there but I'm not sure how that would play out in some of the tiny tanbo you see up in the mountains, you are never going to fit large machinery in those tiny tanbo.

Next we come to the land zoning regulations, if you aren't a registered farmer then you can't by farmland. That's a huge hurdle for anyone wanting to get into farming. Laws and regulations can always be changed but I suspect there would be a huge amount of inertia against doing that. There are just too many interested parties that aren't going to want to see that happening. Some areas almost seem like they'd rather see the local community die out than permit newcomers to move into the area and start farming, other areas will bend over backwards to help new folk move into their area.

I don't know how JA works out prices but they basically tell you what they will pay and once you are in the JA system that's what you have to go with. In our area once you are in JA then they really don't like you buying or selling outside of JA, everything you buy will come from them and everything you sell will go to them, except for stuff that isn't up to their standard but other areas could be more flexible. Personally we stay well clear of JA and have never been involved with them.

You can be independent from JA and farm a large area and probably that is easier for a larger producer as they can fit into existing retail structures more easily and secure the necessary finance easier than a small scale farmer who's main job isn't farming.

Consolidation may well come in the future but I don't see it happening quickly. Could you as a newcomer do it ? Yes, probably, in the right location but where that would be I have no idea.

Sorry there aren't any firm figures for you there and a lot of that is pure speculation but given each prefecture and even municipality treats things differently and interprets the rules in wildly different ways it's very hard to generalise.

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Curious about the Economics of Rice Farming

Post by danieru »

Thank you for the detailed post Mr. Nouka,

Yesterday I went a did a good chunk more research. Japanese sources tend not to list numbers.

My meta theory right now is that yes, rice farming is a opportunity loss maker for most farmers. More in that they earn cash but less than minimum wage. Instead the interesting play would be for farmers who know how to leverage the subsides and automate into non-rice crops. Farming being "perfect competition" the reality world wide is for a farm to survive it must play the subsidy game.

You are right about families holding onto farm land. Even worse this means while a company could scale up planting and harvesting by operating off leased land, this is not a long term plan. The economics of land-tied subsidies dictate that the "value" of such a subsidy is captured by the land owner.

The licensing aspect of farming is not a big issue I expect. It prevents hobbyist from buying up land, realizing their mistake, and leaving the land to rot. As you also know, outside Hokkaido most plots are expensive to consolidate into larger sections. Thus labour reduction through larger machinces is out of the picture. Consider what japan considers a "large machine" might cover a 1/3 of the area compared to Brazian or American large machines there is not much hope from just larger machines.

Thus my mind jumps to how if smaller robotic machines could work? Map out a field once, run the machines over night with lights. Japan being labour poor but capital rich would compliment a capital heavy approach right?

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Curious about the Economics of Rice Farming

Post by Zasso Nouka »

Most farmers don't like to talk about subsidies but from the few that have been willing to open up I've gathered that in certain places it can be quite substantial fraction of their income. The nagano lettuce farmers basically have half the year off.

It can also be open to abuse, so you could plant a crop let it start growing have JA come around and check it then plough it under and collect your subsidy without having to do any further work. Now some places require receipts to show you actually sold the produce but not everywhere.

I think robotics or more gradual automation is one possible solution. Already Kubota produce a tractor that has basic automation and can run without an operator for certain tasks. Automating rice planters and harvesters in theory shouldn't be that difficult as the driver basically just goes up and down the fields in straight lines, the machinery to plant and harvest the rice is already there and working. Add lidar and infrared cameras and there's no reason they can't operate 24/7, already our car can drive itself quite well on it's own in a far more crowded environment so automating farming machinery where it is the only vehicle in the field should be simple. Personally I long for the day when I can order my own robot to go out into the fields and can remain on the sofa sipping Strong Zero's :lol: but we all know where that will end when the machines rise up :eek:

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Curious about the Economics of Rice Farming

Post by vapidspants »

I am curious about this as well but in a different way.

My interest is in vertical farming. Do the same restrictions apply (ie need a farmer license, have to purchase and sell to JA, etc)? Or is vertical farming a new gray area that could be exploited? I am aware of https://spread.co.jp/en/ but no other companies in Japan (besides lip service given by Rakuten or Pasona).

I personally would love to do vertical farming; cause you can regulate the process, extend the growing season, add solar panels to the top to power the system and earn feed-in tariff money, probably other subsidies, could grow high-value crops in a systematic way (ie strawberries or watermelon) and all year round without the fear of exposure or insects.

Nouka - can you expand a little bit (perhaps give some of the necessary Japanese kanji) for learning about the JA rules, license requirement, and municipality that offer susidies (like the Nagano example)?

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Curious about the Economics of Rice Farming

Post by VanillaEssence »

I’m interested to know how selling your JA actually works. Are there like centres people drop their stuff off at? Does JA collect produce?