Agricultural Co-operatives Facing the Reform in Legal Framework

The Japanese legislation on co-operative organizations is highly fragmented since it has been built to implement the economic and social policies resulting in a dozen of co-operative laws with different supervising ministries.... [ view full abstract ]

The Japanese legislation on co-operative organizations is highly fragmented since it has been built to implement the economic and social policies resulting in a dozen of co-operative laws with different supervising ministries. Such legal and administrative system contributed to the lack of identity as a co-operative sector.
The Japanese agricultural co-operatives (JA) is ranked as world-class organizations and command ca. 80% of fertilizer market while JA’s financial arms are among the largest banks and insurance companies in Japan. They have evolved to be the Japanese style agricultural co-ops characterized by all-embracing membership, pyramidal Keitou system and multi-purpose businesses including financial ones under the favorable public policies and close tie with the ruling party.
However, the globalized economy has given serious impacts to JA’s businesses since the 1980’s when JA's power was culminated. The liberalization of trade and the deregulation of food distribution system resulted in gradual decline of JA’s businesses while the production bases of agriculture (farmers, farmland and technologies) eroded over the decades. Since the 1990’s, a series of criticisms against JA have been staged and the Abe administration shaked JA through the proposal for reform of JA in May 2014 that included the abolition of JA Zenchu (Central Union), the demutualization of Zen-noh and the separation of financial businesses. JA Zenchu fiercely reacted to this proposal but finally accepted the government’s proposal to amend the Agricultural Co-operative Act that took place in September 2015. As a result, JA Zenchu will be transformed from specially authorized body to a general corporation within 5 years separating its function of compulsory auditing of primary co-ops. The provisions enabling JA to transform to PLC, consumer co-ops etc. were introduced. A number of provisions on governance were also brought in aiming to strengthen JA’s competitiveness. But the abolition of associate membership was not included this time but will be revisited in 5 years. Now the JA group is tackling with implementing these reforms under the renewed leadership.
This paper will explain the reasons for fragmented legislation on co-operative organizations. Then it will describe JA's institutional framework and compare with that of consumer co-ops. It will examine the issues concerning to proposed reform of JA’s legal framework. In conclusion it will suggest the implications brought by this legal reform.