Rice price rise pushes Japan to tap strategic reserves #JapanFinance

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Japan is set to respond to the highest rice prices on record by making it easier to tap its stockpile of the grain at the heart of the nation’s cuisine.

In a historic change, the government is for the first time set to loosen the rules on accessing strategic rice reserves. The move is part of a bid to tamp down soaring rice prices, which have contributed to overall inflation, and quell consumer fears of shortages.

The stockpile was established three decades ago to protect against the risk of crop failure or natural disasters. It was last used after the 2011 tsunami and Fukushima nuclear crisis.

But rising prices have revived concerns of shortages. According to government figures, average Japanese domestic rice prices last year hit a record of ¥23,715 ($153) per 60kg bag, about 55 per cent higher than the average for 2023. Prices continued to climb in December, hitting ¥24,665.

Last summer, Japanese consumers were shocked by the worst shortages of the staple since 1995, on the back of a weak harvest in 2023, panic-buying by restaurants and households and a farm subsidy policy that incentivises farmers to leave land fallow. Supermarket shelves were emptied, and many shops limited sales to a single 5kg bag per customer.

On Friday, the agriculture ministry agreed in principle to add a clause to the guidelines allowing the reserves to be tapped “when smooth distribution of staple rice is hindered and when the ministry deems it necessary”.

Taku Eto, the agriculture minister, told a press conference that while there was sufficient rice in the system, supplies were not reaching the market, leading him to suspect it was “stuck somewhere”.

Rice market experts suspect wholesalers are withholding the grain to take advantage of rising prices and a post-deflation era where it is easier to pass costs on to customers.

Last week, when the Bank of Japan raised interest rates to their highest level in 17 years, the central bank’s outlook statement made multiple references to rice prices as it revised up its projections for consumer price inflation. The headline CPI figure — which includes volatile fresh food and energy pries — came in at 3.6 per cent for December.

7-Eleven, the country’s biggest convenience store chain, said this week that it had “unavoidably” raised prices on 37 rice-based products, including a 20 per cent increase for the onigiri rice balls preferred by many Japanese consumers as a cheap lunch option.

Teikoku Databank, a research company that tracks historic changes in the cost of assembling a plate of Japan’s beloved curry rice, found that the cost of the dish hit an all-time high of ¥377 in November, compared with ¥316 a year earlier.

But offsetting domestic rice prices is difficult. Unlike most of its food supply, Japan is self-sufficient in rice, and has tightly limited imports to support domestic prices. Agricultural policy has also incentivised limits on domestic production as a means of maintaining prices at levels that keep farmers in business.

Under the terms of the rule change on Friday, the government agreed to buy back the equivalent amount it withdraws from the reserves within one year to prevent prices from tumbling too far.