In 1942, Staple Food Control Act－Food Control System－was enacted under economic control in World WarⅡ. As a result, in principle, all rice was under government control and a system was established to donate all rice produced by farmers. The food situation didn’t improve for a while after the war. Food May Day Slogan in 1946 held in front of the Imperial Palace was “Obtain rice.” Under these circumstances, the forced shipment and rationing system of rice continued with the food control system. However, majority of the people in Japan could not live on rationed rice alone, so they had no choice but to buy “black rice”that doesn’t go through the government.　Here, we look back on the food control system that rejected the creation of a futures market.

While the food control system was applied from 1942 to 1994, rice production and distribution were all under government control. In those days, rice farmers had to register the sellers with the government.

However, they could not sell their rice anywhere, so the sellers were limited to direct distributers (first distributors) that possess with a national license. The direct distributors had to meet permit requirements such as more than 30 registered farmers and more than 50 tons of rice handled, so, in fact, it was a monopoly of agricultural cooperatives. There were approximately 1,500 direct distributors other than agricultural cooperatives in the early 1990s and a group called National Staple Food Collective Cooperative Federation (Zensyuuren) was organized, but the rice handled by distributors other than agricultural cooperatives was only 5 percent of the total.

Also, sales contracts by rice farmers with multiple distributors were not allowed, and if the relationship with agricultural cooperatives broke down, the rice farmers faced with a situation where they would have nowhere to sell their rice. Therefore, rice farmers could not openly go against the agricultural cooperative’s policy, and as a result, this situation encouraged the protection of vested interests. As for a detailed explanation of the distribution of rice at that time, in early spring at first, rice farmers make a reservation for the quantity of which brand and how many bales to sell with registered direct distributors, that is agricultural cooperatives, at the time of planting. However, there was a limit to the amount that rice farmers could sell, and rice that exceeded this amount was purchased cheaply by the government as excess rice. As a result, collection of government rice didn’t go well in the latter period of the food control system, therefore, the excess amount was also purchased at the regular price.

Rice is harvested in autumn and rice farmers turn it into brown rice and ship it. As mentioned above, most of the rice are shipped to local agricultural cooperatives.

Although brown rice is shipped in bags designated by the agricultural cooperative, a rice bag was not free of charge, but rice farmers purchased it from agricultural cooperatives for around 80 yen per bag. They stacked the bagged rice on pallets and kept it in their barn before a contractor designated by the agricultural cooperative transported the packets to the agricultural cooperative’s warehouse. As a side note, shipping fee was around 70 yen per bale (60 kg)

If we shift our focus to agricultural cooperatives, after putting the collected rice into the warehouse, inspection by a food office that belongs to Food Agency begins. Its grades are rated from 1st to 3rd and outside based on the quality of rice. In addition to the growth status, origin of rice, that is brands are ranked between categories 1 to 5. As a result, the commercial value of rice is determined by grade and brand. Thus, rice collected by agriculture cooperatives is shipped divided into the following three courses after inspection.

Government rice is priced after following the prescribed procedures such as the report of the Rice Price Review Committee, an advisory body of the government, and refers to rice purchased by the government. The rice collected at agricultural cooperatives in each prefecture is collected at National Federation of Agricultural Cooperative Associations (Zennoh), the designated corporation for nationwide collection, via Economic Federations, the secondary distributors, installed in each region. The rice is usually sold by Zennoh to the government. That time, the government’s purchasing price was the same throughout the country.

However, the series of flow－first distributors～secondary distributors～Zennoh～Government－is just a transaction on a document. So, the rice itself doesn’t move during that time. It only moves after the government purchases it and the route is divided into two.

One is the route from the warehouse to the point of consumption. Based on the government’s advance plan, rice temporarily moves to government-owned or government-designated warehouses in consumption areas. Next, every time a sales contract between the government and a buyer such as wholesaler is concluded, the rice is then transported from the warehouse to wholesalers. Another is that rice is left to agricultural cooperatives and is used for local consumption. The rice starts moving after a sales contract is established with a local wholesaler, etc.

Rice passed to wholesalers is milled, and is sold to retailers, restaurant operators, etc. as“Standard price rice.” This is where it finally becomes visible to consumers.

Freely distributed rice system was introduced in 1969 and its purpose was to solve the following two problems: ⑴Surplus rice due to improved food situation, ⑵ Increased financial burden due to total purchase by the government. Just like government rice, rice farmers entrusted the sale to the designated corporation for nationwide collection, that was Zennoh, via first distributors～secondary distributors. Then, Zennoh sold the rice to wholesalers, etc. without going through the government. From the outside, the difference between government rice and freely distributed rice may be able to recognize only whether it goes through the government or not, but actually, the properties of government rice and freely distributed rice were very different. The decisive difference was pricing. While the government’s purchase price was clear at the time the farmer shipped rice in the case of government rice, the price of rice wasn’t fixed at the time of shipment in the case of freely distributed rice. Rice farmers entrusted sales to Zennoh and Economic Federations, and the selling price and buyer were determined through subsequent negotiations.

Even so, freely distributed rice was the same as government rice until it entered agricultural cooperative’s warehouse, and freely distributed rice was stored in a warehouse until the buyer was determined after having an inspection. There were two types of methods, bid and bilateral trading regarding buying and selling of freely distributed rice, and bid was introduced in 1990, at the end of the food control system. The sellers of every freely distributed rice was Zennoh and Economic Federations, and the buyers were wholesalers nationwide. As for bid, after the government established a new public interest corporation“Freely Distributed Rice Price Formation Institution”, it opened “Freely Distributed Rice Exchange”in Tokyo and Osaka. Bid on the Exchange was held five times a year by production area and brand. The price and buyer were determined there. However, freely distributed rice was also under government control, and various regulations were set for bid. For example, bid amount was up to 25 percent of each brand and bid price was limited up to 7 percent up and down from the standard price calculated based on price levels over the past three years. The purpose was to prevent price fluctuations.

Major problems hidden in the freely distributed rice bid system

Although sales of freely distributed rice had been done through bilateral trading, bid system was introduced in 1990. However, there were various problems with the bid system. At first, in principle, sellers in the bid were secondary distributors such as Economic Federations in each prefecture, and organizations under the umbrella of Zennoh were allowed exceptionally. On the other hand, buyers were also limited to officially approximately 200 licensed wholesalers nationwide. After all, farmers were not able to freely buy and sell rice.

The bid process was as follows:
A seller－Economic Federations, etc.－submitted the brand and amount of rice the seller wanted to sell to Freely Distributed Rice Price Formation Institution through Freely Distributed Rice Exchange, and the Institution published the list to buyers. Buyers viewed the list and placed bids for desired brands and amounts.

However, there were two major problems in the freely distributed rice bid. At first, as buyers had to bid based only on the list, they could not confirm actual rice to purchase. In other words, although the bid was a place for spot transactions, in reality, it had become a place where only price decisions were made. Another was many Economic Federations possessed a wholesaler’s license, so they were also buyers. For the reason, for example, as for the rice that an Economic Federation put out as a seller, the Federation also became a buyer and could command a high price that was just above the upper limit.

In the case, the bid wasn’t considered the winning bid price that was rooted in the supply and demand relationship, but it became something that didn’t reflect the reality, and it increased risk of distorted prices forming. Moreover, it could be viewed that the Economic Federation as a seller imposed the price and quantity offered on some wholesalers.

In response to these points, the Institution changed its rules since trading of rice produced in 1993. The rule after the change was that the Institution publicized the buyers’ names and bid prices immediately regarding bids that were submitted by sellers. However, in the year, there was a big bad harvest, so bid itself was abolished, and next year, the food control system came to an end.

(to be continued)

⇐【BACK】(Vol. 1)
Growing Momentum for Rice Futures to be Revived－Key is Futures Industry Backup

（Futures Tribune・issued March 19, 2024 ・no.3275）