Falling Rice Prices

Ichiro Suzuki

Having been afflicted with falling prices for a generation, the Japanese economy is witnessing rising prices the last several years even though the government remains reluctant to declare that deflation is over. Higher prices are now taken for granted, unfortunately for consumers. This October, as many as 2,720 food items are scheduled for price hikes. There is, however, one food item whose prices are falling  precipitously. It is rice.                

Rice prices began to rise in the summer of 2024, as rice bags began to disappear from supermarket shelves. Initially, it was believed that it was triggered by consumers’ responses to an alert of a mega earthquake that had been expected to take place in the next few decades. A tiny amount of excess inventory could make a profound impact if such inventory was built at every house. Then, it was said that increasing number of inbound tourists is adding to demand, affecting prices on the upside. The Ministry of Agriculture, Forestry and Fishery tried to talk down a newly emerging trend of rice prices, with a statement that prices would stabilize and would be lower slightly once the 2024 crops hit supermarket shelves in September. New crops arrived at the shelves but a rising trend remained in place firmly. That set the tone for the next twelve months. There were many anecdotes of men knocking at the door of rice farmers and paid decent prices in cash for their crops. They were a kind of people who normally didn’t buy rice in the wholesale market but tried to profit from an emerging trend. These people pushed up prices at the margin. As empty shelves at supermarkets became common, households were driven to stock more bags when they see them at stores. Behind the scene, the Japan Agricultural Cooperatives (JA) was building up their inventory in the hope of selling rice at higher prices. JA continues to wield immense power over rice even though large farmers are bypassing them to sell their crops. After all, the vast majority of rice farmers are part time small farmers whose age is almost seventy. They simply grow rice on a small lot and are highly dependent on JA to sell their rice. As is the case in many other countries, farmers, through JA, are politically powerful, and farm land is over-represented in the Diet as opposed to large cities. This magnifies their political influence, making rice policies driven toward producers, not consumers in cities. They resist change intensely, not surprisingly. They especially oppose entry of large capital into agriculture, rice-growing or else. They say that large capital would do the business only when they can make money and hence they are unreliable producers at the time of crisis. This logic stood until 2024 when the worst rice shortages in over a hundred years hit the economy without large capital’s involvement. 

At the end of the 17th century, merchants in Osaka pioneered with creation of the world’s first commodities futures market. It was on rice prices. The rice futures market was closed in 1939 on the Japanese economy’s war time shift. Having been closed for 72 years, the rice market was reopened in 2011, despite fierce opposition from JA, who insisted on holding onto the power of a dominant price-setter through direct negotiations. The newly opened futures market has not been very effective due to  thin trading volume. JA, the dominant player, shuns the futures market, wanting to preserve their pricing power. The less-than-effective futures market makes rice producers more exposed to volatility than they otherwise would have been the case. JA is an organization that denies the market’s function, but anyone who understands it must be thinking that they would have been better off should they locked in at higher prices a year ago. 

While those who had little interest in rice paid cash for it at farmers houses, traditional wholesalers, including JA, overstocked it in 2025, in the hope of selling it at higher prices sometime in the future. As it turned out, however, rice prices began to stall toward the end of 2025. By the spring of 2026, those who are familiar with market mechanism began to believe that rice prices were due for a major correction. Prices were no longer rising and the hoarders were pressed to unload their inventories that they carried paying warehouse costs. As the new supply from the 2026 crops came in sight, rice prices began to fall in early summer. In late summer, prices are distinctly lower than they were in the last twenty-four months.

When Sanae Takaichi became prime minister last October, she named Norikazu Suzuki, then 43, as Minister of Agriculture, Forestry and Fishery. This relatively young minister is elected from farmland in the northeastern region and is strongly tied to rice farmers. Not surprisingly he has shown little interest in doing something to high rice prices that has been afflicting consumers, especially those in cities. It is, therefore, a great irony that rice prices are collapsing under his watch. Both Ms. Takaichi and Mr, Suzuki think they can bend the market to their will with their muscles. As it turned out, the invisible hand is teaching them a stern lesson. 

In the late summer of 2026, on a reversed trend, rice prices are heading back toward where they were two years ago. While consumers are joyed,  today’s prices are presenting a nightmare for rice farmers. Production costs of rice keep rising while wholesale and retail prices are falling. Wage, electricity, gasoline and other costs are all significantly higher than they used to be. Rice farmers reportedly have not been greatly well off even under the elevated prices the last two years. Now their already thin margins are squeezed further by higher costs. The current condition is exacerbating life of small time farmers, many of whom are aged and living off pensions. Worse, their children aren’t interested in growing rice. Higher prices the last two years gave them some breathing space to them but gave no solutions to the serious structural problems of the industry. Higher prices to farmers were in a sense tantamount to ultra low interest rates to small and medium enterprises owners. Near free money kept struggling SMEs afloat but didn’t turn around their businesses. Then, rising interest rates today are beginning to squeeze them out. Regrettably, this is a natural process of structural changes enforced by the market. The same thing has been in progress in agriculture for some time and today’s macro environment accelerates the trend. That said, structural changes in agriculture requires much greater policy efforts.

About the author: Mr. Suzuki is a retired banker based in Tokyo, Japan.