RICE’S STICKY SIT­U­A­TION

Cal­i­for­nia farm­ers want to boost ex­ports to Ja­pan but find the na­tion’s trade ne­go­tia­tors too protective

Los Angeles Times - - BUSINESS - By Don Lee :: re­port­ing from marysville, calif.

For years Charley Mathews Jr. has ex­ported tons of his best Sacra­mento Val­ley-grown rice to Ja­pan, but it grates on him that very lit­tle of that has ever ended up on the ta­bles of sushi restau­rants or Ja­panese house­holds. In­stead, the Ja­panese gov­ern­ment, which con­trols rice im­ports un­der a 2-decade-old quota sys­tem, has given away most of his and other for­eign rice as food aid or sold it do­mes­ti­cally as an­i­mal feed and an in­gre­di­ent for rice crack­ers.

“We want recog­ni­tion,” said Mathews, 48, a fifth-gen­er­a­tion Cal­i­for­nia farmer whose great-grand­fa­ther be­gan plant­ing rice 80 years ago. He in­sists that Cal­i­for­nia rice is as good as Ja­pan’s, if only Ja­panese con­sumers had a chance to try it.

Ex­pand­ing U.S. rice ship­ments to Ja­pan is one of the most con­tentious and last re­main­ing is­sues in talks over the sweep­ing Trans-Pa­cific Part­ner­ship trade ac­cord. The 12-na­tion deal is ex­pected to be con­cluded this sum­mer if Amer­i­can law­mak­ers give Pres­i­dent Obama author­ity to speed pas­sage of trade agree­ments.

The leg­is­la­tion cleared the Se­nate last month. And although a clutch of House Repub­li­cans has joined many wary Democrats in op­pos­ing the bill, the GOP lead­er­ship in the House has in­di­cated it could take a vote on the mea­sure Fri­day, sug­gest­ing that it be­lieves there is enough sup­port to hand Obama an im­por­tant and rare leg­isla­tive victory.

Rice grow­ers and oth­ers in the U.S. agri­cul­tural in­dus­try stand to be among the big­gest win­ners should the Pa­cific trade ac­cord go through. Amer­i­can providers of phar­ma­ceu­ti­cals, soft­ware, films and other in­ter­na­tion­ally traded ser­vices also would ben­e­fit.

On the other hand, U.S. mak­ers of cars, tex­tiles and other light industrial goods could lose more mar­ket share to im­ports from Ja­pan as well as Viet­nam and pos­si­bly oth­ers.

Yet even as Cal­i­for­nia farm­ers eye what could be a lu­cra­tive ex­pan­sion into the world’s most dis­crim­i­nat­ing rice mar­ket in Ja­pan, their am­bi­tions have been com­pli­cated by the state’s se­vere drought and the surge in the dollar.

The U.S. last year ex­ported $269 mil­lion worth of rice to Ja­pan, most of that com­ing from Cal­i­for­nia. The state’s rice plant­ing this year, how­ever, is ex­pected to be the small­est in about a quar­ter cen-

tury. Over­all, U.S. farm goods rep­re­sented $13.2 bil­lion of the $67 bil­lion in to­tal mer­chan­dise ex­ports to Ja­pan in 2014.

De­spite their rel­a­tively small value, rice and some other agri­cul­tural goods are usu­ally among the most sen­si­tive in trade talks be­cause of their in­dus­try’s enor­mous po­lit­i­cal clout in many coun­tries. The U.S. and Ja­pan locked horns over beef and pork last year, and the fight over rice is even more del­i­cate in Ja­pan, where po­lit­i­cal and de­mo­graphic forces are push­ing against a fur­ther open­ing of that mar­ket.

Given the size of the Cal­i­for­nia con­gres­sional del­e­ga­tion and the po­ten­tial im­por­tance of their votes to the trade pact’s ap­proval, the state’s 2,000 rice farm­ers may have an out­sized in­flu­ence on the out­come.

In ad­di­tion to the sym­bol­ism of the small fam­ily farm that is part of Amer­ica’s his­tory, “rice has be­come an iconic im­age of Amer­ica’s prob­lems of open­ing up over­seas mar­kets,” said Jock O’Con­nell, a trade econ­o­mist at Bea­con Eco­nomics in Sacra­mento.

And that’s true es­pe­cially in trade re­la­tions with Ja­pan, where the U.S. has long com­plained about non-tar­iff bar­ri­ers for for­eign cars, elec­tron­ics and other goods.

With more than 2 mil­lion farm­ers work­ing on mostly small pad­dies, Ja­panese rice farm­ing is widely con­sid­ered in­ef­fi­cient. But farm­ers rep­re­sent a core con­stituency for Prime Min­is­ter Shinzo Abe and his Lib­eral Demo­cratic Party, and Ja­panese ne­go­tia­tors have been re­luc­tant to give much ground when rice con­sump­tion con­tin­ues to shrink with the na­tion’s aging pop­u­la­tion.

It’s a hot-but­ton is­sue in the U.S. too. The lack of ac­cess to Ja­panese mar­kets for U.S. rice and other farm goods, as well as for au­to­mo­biles, has long been seen by many Amer­i­cans as em­blem­atic of Ja­pan’s re­luc­tance to open trade.

Ja­pan al­lows im­ports of 770,000 met­ric tons of rice, about 9% of an­nual con­sump­tion. Cal­i­for­nia farm­ers ac­count for the lion’s share of that amount, and many of them want Ja­pan to in­crease its rice im­ports by 200,000 met­ric tons or so. The Ja­panese have been re­ported to be of­fer­ing 50,000, which is less than 1% of the to­tal con­sump­tion.

“From the be­gin­ning, we never sought a to­tal open­ing be­cause of the sen­si­tiv­i­ties,” said Bob Cum­mings, chief op­er­at­ing of­fi­cer at the USA Rice Fed­er­a­tion in Ar­ling­ton, Va. “But when you’re look­ing at less than 1%, that’s un­ac­cept­able.”

The high end of that range could add tens of mil­lions of dol­lars to Cal­i­for­nia’s an­nual rice ex­ports, val­ued at more than $600 mil­lion last year. About a third of that goes to Ja­pan. But ex­perts warn that even a sig­nif­i­cant in­crease in the im­port quota may not help Cal­i­for­nia farm­ers as much as they hope.

One big stum­bling block now is the Cal­i­for­nia drought, which has re­duced the acreage of rice planted in the last two years about 25%, ac­cord­ing to the Cal­i­for­nia Rice Com­mis­sion. Given the past and likely fu­ture wa­ter con­straints, econ­o­mists on both sides of the Pa­cific won­der whether Cal­i­for­nia farm­ers can ramp up pro­duc­tion even if Amer­i­can of- fi­cials suc­ceed in break­ing open Ja­pan’s rice mar­ket.

“Un­less farm­ers fig­ure out more in­ge­nious ways to ir­ri­gate their lands, we may not be able to take full ad­van­tage” of the trade deal, said O’Con­nell, the trade ex­pert in Sacra­mento.

In nearby Yuba City, Jon Munger, op­er­a­tions manager at Montna Farms, hops into his red pickup and drives along the dirt road that bi­sects a large field. On one side are lush green pad­dies, in­un­dated with wa­ter from the nearby Feather River. A white-faced ibis, stilts and other birds dance on the sur­face. On the other side, the square plots are bone dry, cov­ered with brown­ing weeds.

“Peo­ple from the high­way think we’ve got wall-towall wa­tered fields,” he said, al­lud­ing to the sen­si­tiv­i­ties stirred by drought-in­duced or­di­nances for con­sumers to ratchet back wa­ter use. But he said about 40% of Montna’s en­tire 4,000-acre farm­land was left un­planted this spring for the sec­ond year in a row be­cause of wa­ter re­stric­tions and costs.

“It’s the most they’ve ever fal­lowed,” said the 38-yearold. “It’s def­i­nitely not sus­tain­able. We need some help from Mother Na­ture.”

Sure, Munger said, in­creas­ing the Ja­panese rice mar­ket would be great for Cal­i­for­nia farm­ers, es­pe­cially for op­er­a­tions such as his that spe­cial­ize in pre­mium short-grain rice used for sushi. But at the mo­ment, he isn’t think­ing about that po­ten­tial ben­e­fit.

An­other chal­lenge is that the price of Ja­pan’s do­mes­ti­cally grown rice has fallen sharply in re­cent years as pro­duc­tion and sup­plies have out­stripped con­sump­tion.

At the same time, the value of the Ja­panese yen has plunged against the dollar, largely ref lect­ing the weak­ness of Ja­pan’s econ­omy ver­sus Amer­ica’s, mak­ing U.S. ex­ports much more ex­pen­sive. Since fall 2012, the yen has lost nearly 60% of its value against the dollar.

The up­shot is that Cal­i­for­nia ex­porters of short­grain rice, the sticky va­ri­ety fa­vored in Ja­pan, have lost prac­ti­cally all of the price ad­van­tage they once en­joyed in Ja­pan, said Kazuhito Yama- shita, an agri­cul­tural pol­icy ex­pert at the Canon In­sti­tute for Global Stud­ies in Tokyo.

Ten years ago, he noted, Ja­panese rice was triple the cost of Cal­i­for­nia’s, and even two years ago, it was 50% more.

With the price gap now gone, Ya­mashita said, some Ja­panese trad­ing com­pa­nies are even think­ing about ex­port­ing Ja­panese rice to Cal­i­for­nia. “It’s very amaz­ing,” he said.

Many Ja­panese also ques­tion whether Cal­i­for­nia rice can com­pete on qual­ity. For­eign rice gen­er­ally doesn’t have a good rep­u­ta­tion among Ja­panese con­sumers.

“If I eat Cal­i­for­nia rice im­me­di­ately af­ter it’s cooked, I can’t tell the dif­fer­ence,” said a Ja­panese gov­ern­ment of­fi­cial, who asked for anonymity given the sen­si­tiv­ity of the trade talks.

“But if I taste it af­ter long hours, I can tell the dif­fer­ence,” he said. A col­league nod­ded in agree­ment. “The Ja­panese rice, even af­ter long hours, is still sticky.”

Don Lee Los An­ge­les Times

CHARLEY MATHEWS JR., a fifth-gen­er­a­tion rice farmer in Marysville, Calif., isn’t pleased that his ex­ports to Ja­pan never end up on the ta­bles of sushi restau­rants or Ja­panese house­holds.

Don Lee Los An­ge­les Times

U.S. RICE farm­ers, in­clud­ing Charley Mathews Jr., seek a 200,000-met­ric-ton boost in Ja­pan’s rice im­ports.

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