Japanese farming: A tale of incentives and externalities

On my first trip to Japan I was astonished by the prevalence of rice paddies in dense urban areas. A friend I was visiting mentioned that he occasionally had to cycle around a rice harvest from the plot next door on his apartment driveway. Throughout the city little patches of green space were being used for some kind of vegetable farm or rice paddy.

Why is this? What is so peculiar about Japan that people would forgo higher value urban land development to grow rice?

It turns out this pattern of farming is the result of Japanese agricultural subsidies. The treatment of capital gains from farmland provides an incentive to maintain some form of agricultural use, while local planning regulations provide direct and indirect subsidies for continued agricultural use of land. Also, a key factor is the political power that can be gained from manipulating complex agricultural regulations. This research…

…explains the political dynamics whereby traditional small farming communities are powerful voting groups that prefer to maintain their political power rather than increase farm income. By exerting political pressure upon the authorities, farmers can obtain large returns through the manipulation of farmland-use regulations, even though such manipulation causes social harm by preventing efficient land use.

The research starts with the premise that inefficient small scale agriculture, rather than large scale efficient agriculture, is social burden. However, as a visitor I found that these patches of agriculture provided a social service of open space and a degree of community connectivity, with neighbours becoming involved with the harvesting and eating of produce.

Japan’s agricultural subsidies and town planning limit sprawl and encourage agricultural production, but at a cost of giving much political power to those who remain in agriculture.

On a less serious note, the rice paddy art trend in Japan provides another positive externality from small scale agriculture in urban areas (follow the link to a sequence of photos from planting to harvest).