JPRI Working Paper No. 41: December 1997
Nokyo: A Short Cultural History
by Robert Bullock

Perhaps the single most important actor in Japanese agriculture is Nokyo, Japan's association of agricultural cooperatives. The coops serve as the linchpin, both electoral and bureaucratic, joining the conservative coalition to its rural mass base. Yet while Nokyo is often identified as a key coalition player, it is rarely analyzed as one. Materials on Nokyo involvement in grassroots politics are particularly weak.

In Europe and the U.S. agricultural cooperatives have become active in the design and administration of agricultural policy; pursued a range of business interests often at odds with the interests of the rank and file; and given birth to large bureaucracies with a vested interest in self-preservation. It is no surprise to find similar developments in Nokyo, although they surpass Western counterparts in both the breadth and depth of their political and administrative and financial dealings.

The cooperatives' roots and organizational legitimacy both lie in agriculture, but their business concerns increasingly lie elsewhere. Current reforms promise to strengthen the Nokyo center and its financial position even as they alienate the local membership and push the coops even further from their agricultural roots.

Nokyo's History

Nokyo has two main prewar antecedents: the Sangyo Kumiai (industrial cooperatives) and Nokai. The industrial cooperatives were founded in 1900 by Diet legislation, based on the example of the cooperative system in Germany. Although created to improve tenants' living standards and productivity, they soon came under landlord domination. Responsibilities centered on provision of fertilizer and other inputs. In 1906, the coops opened a credit service, and in 1909, they introduced national and prefectural federations to centralize the coop's structure. By 1920, two million farm households (out of five million total) had joined the coops. By the 1930s, membership was up to four million farm households.

Nokai were introduced in the 1890s as local voluntary associations. From the outset, Nokai was a national, top-down organization, with prefectural and local branches answering to the national leadership. Every city, town, and village was charged with setting up a Nokai branch, and farmer participation in Nokai became mandatory in 1905. More so than the Sangyo Kumiai, Nokai channeled resources into agricultural education and extension services, and-as its 1899 title, Teikoku Nokai, or Imperial Agricultural Association, suggests-it was closely tied to the national government. Local political leaders served as heads of local Nokai branches. As with the Sangyo Kumiai, this leadership was predominantly drawn from among local landlords.

In 1931, the Sangyo Kumiai were granted a monopoly on the purchase of rice from farmers as well as on sales of rice to the government and retailers. In 1942, the wartime government combined the two organizations to form the Nogyokai. The unified cooperative system was under the direct control of the state, and considerable capital was withdrawn from cooperative accounts to finance the war effort.

Perhaps the single greatest consequence of the Nogyokai and its state-corporatist functions was to facilitate the displacement of the landlords from the agricultural economy. Through the Nogyokai-and the new Food Control Law of 1942-the Ministry of Agriculture circumvented the landlords to pay tenant farmers directly for their produce. This helped pave the way for the postwar land reform.

Nokyo was established during the U.S. Occupation as a voluntary association of smallholder farmers, but it never really stood a chance as an independent pressure group. Like the prewar and wartime Nogyokai, it was established by government legislation, not local initiative. And like the wartime Nogyokai, it quickly became the arm of state administration in the countryside.

After cursory occupation-era reforms-dismissed by critics as "kanban nurikai," or "switching the signboard"-the coops were quickly remobilized by the state. The occupation authorities and the Japanese administration through which they worked conducted little debate about the extent to which the wartime-era coops should be reformed. There were two main reasons for this non-debate. First, SCAP (the occupation authorities) showed limited interest in the issue and had less clearly defined objectives in comparison to its enthusiastic pursuit of the land reforms. They knew they wanted a new cooperative system, but what counted as new? In effect, what resulted was a compromise between the minimal reforms sought by the Japanese and the new organizations preferred by the U.S.: the coops were renamed, but they also simply took on all the old Nogyokai resources, responsibilities, and personnel.

Second and probably more important, the cities faced critical food shortages and distribution difficulties. Soaring black-market operations and hoarding of food supplies by 'evil merchants' (akutoku shojin) were disasters in the making. The U.S. was slow to approve food aid in any quantity, and the threat of starvation was real for many Japanese. Only the wartime cooperative system retained the organization and resources necessary to gather food and distribute it in the cities. By late 1948, the coops constituted 88 percent of registered food dealers, served as the market leader in food collection, transport, and storage, and provided the main channels for crop-payments to farmers by the Ministry of Agriculture. The coops were thus part of the state apparatus from their very outset.

State authorities also stepped in to rescue the coops as low farm prices, poor coop management, and the lagging economic recovery in the countryside pushed a majority of the local branches deeply into the red. By 1951, about 2600 local branches were bankrupt. With the backing of the Ministry of Agriculture and the Liberal Party, the coops successfully appealed to the Ministry of Finance for a program of financial reconstruction (saiken seibi). Between 1951 and 1955, the Japanese government supplied over three billion yen to bail out local Nokyo branches.

The government then turned to the coop federations, which were in even worse shape. It introduced new subsidies to reduce their debt (cutting it in half by 1956) and presided over their organizational streamlining and centralization. A Special Measures Law in 1956 provided for further financial assistance, organizational restructuring, and coop mergers (gappei). In 1952, the Ministry of Agriculture had authorized the creation of a national-level organization for Nokyo (the Nokyo Chuokai). The move was also designed to strengthen economic oversight of the coops and lock in the result of the restructuring, even though the ministry claimed publicly that these issues were unrelated.

Even as Nokyo was being pressed into state service, the ruling Liberal Party (under Prime Minister Yoshida) was advocating decontrol of the national economy, including agricultural markets. Under the 1942 Food Control Law, food prices were being held to below-market levels and the black market flourished. Facing bitter Nokyo opposition, however, the Yoshida government dropped the issue in 1951 and introduced new agricultural subsidies to win coop support. The Third Yoshida Cabinet introduced three bills during 1951-52 that covered all the farming regions of Japan. Subsidies grew to almost 50 percent of the Ministry of Agriculture budget.

Left-Wing Farmers' Unions

Tenants' unions in Japan lack the state ties and lineage of Nogyokai or Nokyo. The first major union, the Japan Farmers' Union, was established after World War I, attracting a scattered membership of tenant and partial-tenant farmers but remained without a strong national organization. In 1922, the first national tenants' union was founded. However, none of the unions succeeded in forming a truly unified national movement, and all were suppressed from the early 1930s with the rise of militarist rule.

The early postwar years brought improved fortunes to the left-wing farm groups, as they did to left-wing labor unions and parties in general. By 1948, Socialist and Communist tenant unions had a membership of 2.45 million farmers. The most important of the leftist unions, Nichino, was founded in February 1946 with close Japan Socialist Party support and ties to the Communist Party. It quickly won broad-based support by capitalizing on early postwar uncertainty and anxiety and by calling for thoroughgoing land reforms. This strategy was time-bound, however, since it was successful only so long as the land-reform program had yet to be enacted. After the U.S.-imposed land reforms were mostly completed by late 1948, popular support for the unions declined. Internal leadership struggles within Nichino also contributed to its declining support.

In 1949, Nichino split into two groups: the Socialist Independent group and the Communist Unity group. The Socialist faction (which continued to be known as Nichino) was by far the more prominent of the two. By the late 1940s, however, with land-reform success already clear and with at least a nominal democratization of the coops, the only issue left for the unions was their attack on the farmland tax (and on each other). Nichino Diet members totalled 54 after the 1948 elections but dropped to 21 in 1949.

The new Agricultural Land Law of 1952, introduced by the Yoshida government, locked in the postwar land reforms and also provided new farm subsidies designed to strengthen the Liberal Party's inchoate rural support. With the land-reform issue no longer available, Ronald Dore notes, the Socialists "did little but to call for more." The unions declined and came to serve as little more than campaign staff for Socialist Party candidates running in rural districts.

The two farm unions entered negotiations for reunification in 1956 and succeeded in forming a single union in 1958. By that time, however, their ties to the grassroots had already withered. At the first General Congress of the newly unified movement, membership stood at 200,000-just three percent of Japan's six million farmers. By contrast, Nokyo membership comprised 99 percent of all farmers that same year. By 1960, the new union had split again, and at no time since then have the farm unions collectively achieved a membership of over one million.

Probably the most important reason behind the leftist unions' decline was Nokyo's early incorporation into the agricultural bureaucracy. In 1947, the Ministry of Agriculture proposed that Nokyo serve as the exclusive collector and distributor of grain. Predictably, Nokyo leaders were amenable to the proposal while SCAP was opposed. The Americans argued that state-administrative duties conflicted with the principles of an independent farmers' organization. In late 1947, the ministry came back with a new proposal: collection duties would be shared by both Nokyo and licensed commercial dealers, which would turn over the grain to the Food Control Agency (FCA) for distribution. But even with this reformulation, the coops retained de facto dominance. By September 1948, 12,392 coops had registered over 5.5 million farm households, while just 214,000 farm households registered with 1,718 commercial dealers. And this marked the high point for the independent rice dealers.

Although food shortages had disappeared by the early 1950s, the cooperatives' role in government administration has only grown. Today, Nokyo handles 95 percent of all marketed rice; regularly consults with the Ministry of Agriculture on policy-making and analysis; implements a range of state policies, including the rice-reduction/crop-diversification program (gentan/tensaku), which is withdrawing one-third of paddyland from production despite strong farmer opposition; and channels about 80 percent of the government's agricultural subsidies into the villages.

Nokyo is not merely the dominant farmers' organization of postwar Japan; it quickly became the only one that matters. Throughout the postwar period, 98-99 percent of all farm households have been Nokyo members. In recent years, an increasing number of non-farmer households have joined the coops as associate members, joining largely for access to Nokyo credit and other incentives. Nokyo had 8.5 million members as of 1990, up from 7.9 million in 1980, making it the largest membership political organization in Japan. The Nokyo staff numbers some 375,000 today, also making the coops one of the biggest employers in Japan. Only two companies on the (international) Fortune 500 employ more.

Nokyo Today

Although incorporated both administratively and electorally by Japan's conservative coalition, Nokyo's and the state's agendas often diverge. There is also considerable tension between the Nokyo leadership and rank-and-file, although the latter, even more than political or bureaucratic elites, have nowhere else to turn.

Nokyo's high organization levels are often attributed to Japan's village communalism and solidarity. The organization was "grafted" onto local village structure, accounting for 99 percent membership as well as high group solidarity. As late as 1969, a villager could be ostracized by his fellow farmers for refusing to sell his rice through the coops.

But today, at least, the reasons for high organization-rates lie less in village communalism than in Nokyo's selective incentives and sanction powers. The economic incentives of membership are considerable-e.g., cheap and easily available credit, technical assistance, and easy input purchases. Indeed, it can be difficult to farm without being a Nokyo member-thus these inducements may be less selective incentives than a sine qua non. Using inducements like easy credit on favorable terms (used by non-farmers primarily for housing construction) and with minimal membership requirements, Nokyo has also built up an associate membership of non-farmers. There were 2.24 million in 1980 and by 1990, they totalled nearly 3 million, constituting the one significant source of membership growth.

More distinctively, Nokyo today means big business, and is best described as a high-growth, quasi-state keiretsu. Total 1991 sales would put it about fifteenth on the Fortune 500 list, second in Japan only to Toyota and equal to Hitachi. Like any keiretsu, Nokyo's business network is organized around an internationally active trading company (Zenno); a bank (Norin Chukin) and its local and prefectural branches with total assets of over 50 trillion yen, bigger than Daiichi Kangyo and seventh in the world as of 1992; and the world's largest insurance company (Kyosairen). As of 1990, the Nokyo network included some 3600 local general-purpose branches, operating in nearly every city, town, and village in Japan.

Although most Nokyo operations run chronic deficits, profits from banking and insurance, which have increased rapidly since the early 1970s, keep overall accounts in the black. Thanks to their political protection, the coops continue to receive preferential state treatment even in the current banking crisis; and they are building, at least in their national operations, a reputation for financial savvy. Local branches are another matter altogether, as I shall discuss below.

Nokyo has parlayed political protection into big business. The coops have extracted rents from the private sector as well as the state via preferential regulations that limit competition and subsidize Nokyo operations. It extracts high prices from consumers, and not least from its own members who depend on Nokyo inputs. It has stripped markets and profits from less privileged, private-sector firms. Agriculture may be in chronic decline, but the agricultural coops are not. With their growing financial clout, they have become a protectorate of the Ministry of Finance (MOF), as well as of the Ministry of Agriculture. This became spectacularly evident in 1995, with the MOF-designed, 680-billion-yen bailout of the coops following the collapse of the bubble economy.

Nokyo's dominance of the farm economy is clear at a glance. Zenno, the business arm of Nokyo, controls 90 percent of the fertilizer market; 51 percent of the agrichemicals market; 49 percent of the rural petroleum market; 37 percent of the feed market; and 60 percent of the farm market for cardboard boxes.

But the centerpiece of Nokyo operations in agriculture has long been the rice trade. Under the Food Control Law, still in place since it was enacted in 1942, Food Control Agency permits are required to participate in the rice trade (kyoka yoken), and these are not easy to obtain. Among the many conditions for obtaining a permit, for example, one must register at least thirty rice-growers, who thereby promise to sell their rice through that one dealer alone (i.e., farmers cannot register with multiple dealers). Next, total production-volume of the registered farmers must exceed 50 tons. Informal considerations are also important; administrative guidance is no less important at the Ministry of Agriculture than at MITI.

One wholesaler comments: "the rice-purchasing system (hanbai intaku) has become a bad habit (kuse), with everything right up to setting prices left to Nokyo. The farmers don't even have the confidence to set the prices on their own rice. . . . This is a system which suits small-scale farmers perfectly, but among the larger-scale farmers, it's the cause of great dissatisfaction (zutto fuman no tane)."

The problem is not simply Nokyo control of the rice trade, but the monopoly rents the coops are able to extract and the limited information available to the rank and file. One farmer explains the problem in detail:

"Let's say you sell 60 kg of semi-controlled rice for 21,000 yen to the local Nokyo branch. At that point, a handling charge of 2.0 percent, transport charges, and inspection fees are all deducted. All these are understandable to farmers. But then there's the handling fee of 0.6 percent charged by the Keizairen [Nokyo's prefectural associations], Zenno's handling fee of 0.4 percent, interest on loans from Norin Chukin, and various other expenses. If the farmer knew that all of these were being deducted from his rice price, no one would sell through Nokyo."

In the semi-controlled rice-trade alone, fees annually generate 250 million yen for the average prefectural Keizairen, and 4.59 billion yen for Zenno. Other fees are levied on government rice (seifumai) and rice for processing (kuzumai), the other two legal rice markets. Nokyo also has its fingers in these markets. Rice for processing, or "waste rice," is rice that is broken or otherwise sub-standard but that can be sold for making sake, senbei (rice crackers), and other rice-based products. Although the waste-rice market has been free of Food Control Agency regulation for decades, in 1982, the agency succeeded in bringing it back under its jurisdiction, thus setting the stage for market dominance by the coops.

Nokyo held almost no share of the waste-rice market while the market was unregulated. After 1982, however, the number of designated waste-rice dealers was restricted to fifty and Nokyo's market-share quickly jumped to over 50 percent. The coops then used their market strength to drive up prices two to three times the previous levels. According to AERA, the coops played hard-ball to enforce their market dominance, using price gouging and other threats. Nokyo would lure distributors into contracts with low initial prices for Nokyo-distributed rice, later force them to pay high prices, and undersell them if they resisted.

The waste-rice market offers still further opportunities for earning illegal profits. One route is diversion of this rice into the table-rice market. In reality, waste-rice is often not broken or substandard rice but simply table rice in excess of government orders. Some of this surplus table-rice is diverted into the lower-priced waste-rice market. But because the surplus rice is indistinguishable from table rice (it's not ground up at once or marked as not being for table use), it can be diverted back into the higher-priced table-rice market, creating windfall profits.

The Niigata Keizairen as well as Zenno engaged in this practice from the start, claims AERA. The Food Control Agency may set the rules for the rice trade, but it leaves it to Nokyo to follow the rules with little external monitoring. Illegal diversions of rice from processing into the table-rice market do occur, as do price inflation, squeezing of uragane (kickbacks) from rice distributors, and other forms of illegal behavior.

Other Nokyo Ventures

As important as the rice trade is to Nokyo, other sectors matter even more. The rice trade has declined from over half of Nokyo's annual marketing earnings to about one-third today. But with the Food Control Agency's assistance, Nokyo has long colluded with trading companies to prevent competition over government contracts for grain imports. Only a few designated companies are allowed to import grains. These companies divide up market-shares in advance and negotiate their bidding prices in advance as well-just as in dango in the construction industry. Nokyo has only a 37 percent share of the feed market, but that was enough to challenge Cargill, the U.S. multinational firm and the biggest grain-trading company in the world (with 55,000 employees and over $50 billion of sales annually).

Cargill set up its Cargill North Asia subsidiary in Kagoshima, in southern Kyushu, to process mixed feed (hairyo esaryo), as well as fertilizer, and constructed massive mixing facilities in 1988. In the U.S., Cargill sells the same goods as Nokyo for one-third the price. Its prices in Japan were 15 to 30 percent cheaper than Nokyo rates. Four years later, however, Cargill held just a few percentage points of the Kyushu market and a much smaller share of the national market-what the Mainichi calls a "mosquito bite" (ka ni sasareta teido). The company states that it plans to hang in until markets are liberalized, but it has already pulled out of the beef-importing business after disappointing results.

While Cargill prices are well below those at Nokyo, the coops offer other advantages to their customer-members: most important, stabilization funds to dampen fluctuations in feed costs (one must be a Nokyo member to have access to these funds). Also, while Cargill uses only cash accounts, Nokyo offers easy credit-important for farming, where many expenses are up-front. And Cargill operates as a specialist firm in Japan, handling a relatively narrow range of goods. So most farmers without independent management skills continue to buy from Nokyo. Shukan Shincho notes, "Today, the only farmers who buy from Cargill are the courageous, independent ones."

The fertilizer industry is a similar story. In 1950, Nokyo took over the fertilizer business from a government corporation and has dominated it ever since. Zenno today holds a 70-percent market-share and has especially strong relations with part-time farmers, who are less actively price-conscious than full-timers. As in the feed market, according to a former Zenno employee who was responsible for this sector (hiryo bucho), Zenno and other large producers set fertilizer prices via a dango-style cartel.

Zenno's control over the fertilizer market also effectively shuts out imports. The Fertilizer Price Stabilization Law was introduced in the 1950s to ensure stable supplies at a fair price, but in fact it has created much higher prices in Japan than the rest of the world. After the Plaza Accord in 1985 and the subsequent appreciation of the yen, imported fertilizer prices fell sharply but domestic prices did not. For instance, at the end of 1987, the price of ammonium sulfate (imported from a Chinese firm) was 9,025 yen/ton. The Japanese domestic price for the same product was 24,050 yen, about 2.7 times higher. In 1989, the Fertilizer Price Stabilization Law expired (as scheduled) and the industry is no longer exempt from the Anti-Monopoly Law. Japan's Fair Trade Commission is now said to be "watchful," but the cartel has reportedly continued to function covertly.

Increasingly, however, the center of gravity in Nokyo business operations has been not in the rice trade or farm inputs, but in banking and finance. The low-growth era (from 1973) and the decline in state budget growth-constraints that were redoubled with administrative reform in the 1980s-proved a catalyst for Nokyo business diversification. The coops muscled in on less politically protected private-sector enterprises. Since the early 1970s, chronic deficits in Nokyo's purchasing and marketing divisions have continued, but profits in its banking and insurance divisions have more than doubled and keep overall accounts (barely) in the black. While aggressive Nokyo diversification has angered private business interests as well as many farmer-members, current Nokyo reform plans call for still further expansion of non-agricultural operations.

Nokyo's Banking Operations

As of 1992, Norin Chukin held total securities of 68 trillion yen; and total financial assets (soshi kinryo) of 71.3 trillion yen. Daichi Kangyo, by comparison, had 44 trillion yen in total assets, and Kyowa Bank, 32 trillion. Norin Chukin deposits are about 65 percent of those of all city banks in Japan.

Despite their obvious financial strength, the coop banks continue to enjoy favorable conditions that give them an edge over private-sector competitors. These include an income-tax rate of 27 percent (the commercial rate is 37.5 percent); interest rates on deposits set 0.1 percent above the rate allowed for commercial banks; relatively loose reserve-requirements; and permission (unusual for Japanese banks) to issue debentures in order to raise supplementary funds. Further, because local Norin Chukin branches lend only to farmers, agricultural operations, and other (non-farmer) Nokyo members, the loan-to-deposit ratio at local branches has dropped from about 50 percent in the 1970s to 24 percent in the early 1990s.

Excess funds are transferred to the prefectural-level Keizairen, which lend out approximately 10 percent of funds. The remaining 90 percent flows up to Norin Chukin, the central Nokyo bank, which has become Japan's largest private-sector institutional investor and one of the largest Japanese lenders on short-term money markets.

Norin Chukin is the seventh largest bank in the world in terms of assets. It is the Japanese government's largest bond-buyer and also invests in blue chips of the international bond trade. The bank is regarded as financially conservative and only recently began international expansion. And while local Nokyo financial operations have led to a reputation for amateurish investment practices, the central offices have built in recent years a reputation among Tokyo traders for market savvy.

Norin Chukin continues to receive preferential treatment amidst ongoing financial-market liberalization. Along with other banks with numerous small depositors (e.g., labor credit associations and credit cooperatives), the coop bank is typically allowed to enter new financial markets at an earlier date than the more competitive city and regional banks. For instance, in 1985, it was allowed to start issuing money-market certificates one month earlier than the regional and city banks. And in July 1994, with the lifting of the ban on bank involvement in securities operations (i.e., the lifting of Japan's equivalent of the Glass-Steagall Act), Norin Chukin (along with the Industrial Bank of Japan and the Long Term Credit Bank of Japan) were the first to be allowed to enter the securities business. (This followed the enactment of the Financial System Reform Law three months earlier.) Nine more brokerage firms, all tied to city banks, also sought to enter the market but were allowed to do so only gradually, over the following two-year period.

But while national operations by Norin Chukin have won the respect of the financial community, things are quite different at local and prefectural branches. Although the local branches have been very successful in attracting farmer-member savings, they have not had much success in deploying those funds outside of agriculture.

The collapse of the bubble economy increased the coops' financial problems by several orders of magnitude, but it did not create them in the first place. There are plenty of examples of pre-bubble troubles at the coops: in July 1990, the Miyagi prefectural-level bank (Miyagi Shinren) was discovered to have lost 5.5 billion yen in bad investments, which officials in charge were attempting to cover up. In 1989, the Yamagata Prefecture Insurance Association (Yamagata Kyosairen) lost 11.5 billion yen. Also in 1989, a local cooperative in Hiroshima invested 15 billion yen and quickly racked up losses of 2.5 billion.

Poor internal auditing skills at the local level and the absence of audits by the national or prefectural federations have also made local co-op banks a breeding ground for employee embezzlement (chakufuku) and other financial misdeeds. Some known examples include the embezzlement of 88 million yen from a Yokohama coop by a staffperson in 1986; the embezzlement of 100 million yen from an Osaka coop by the branch manager in October 1992; and the electronic theft of 2.5 billion yen by a Nokyo employee with the help of her boss from a Fukushima coop.

One of the most extreme cases of coop-branch losses occurred in Kagoshima City, in southern Kyushu. While the Kagoshima City bank has the largest savings deposits of all Nokyo chapters (the richest Nokyo branches all lie in urban areas), it also accumulated 60 billion yen or more of unrecoverable debt over the 1980s. Without notifying its membership of the losses, the coop leaders went to the Ministry of Agriculture and Norin Chukin to plead for help. The Tokyo bureaucrats set up a repayment plan but the coop proved incapable of meeting the payments and the scandal became public knowledge. The ministry and Nokyo then forced the Kagoshima bank to merge with a neighboring coop as part of its financial reconstruction. And despite Ministry of Finance opposition, the Ministry of Agriculture and the prefectural Nokyo federation will pay for a good deal of the coop's bailout. Norin Chukin alone agreed (as of September 1990) to provide over 20 billion yen in emergency financing, according to a Nikkei report.

However, the Kagoshima debacle was nothing compared to what happened throughout Nokyo in the 1990s. Beginning in the late 1980s, emboldened by its swelling cash reserves, Norin Chukin aggressively expanded its operations in real estate and other non-agricultural investments. Unfortunately, it did so at the tail end of the bubble economy and simultaneous with the acceleration of financial-market liberalization. With the economic downturn that began in the early 1990s, many loans and investments suddenly went from questionable to unrecoverable. A Nokyo official worried in 1992: "Out of the three liberalizations [rice, beef/citrus, and finance], financial liberalization has had the worst impact. The Food Control System will probably also collapse with financial liberalization. If Nokyo cannot pay [competitive] interest rates, we will not have any income other than from rice sales." One Ministry of Finance 'old boy' was more succinct: "Nokyo is becoming Japan's own savings-and-loan crisis."

As of 1996, Nokyo's financial problems have lived up to the Ministry of Finance official's prediction. With the collapse of the bubble economy, many of Nokyo's loans and investments in the volatile real-estate market suddenly went bad. In January, 1996, seven jusen, or mortgage-lending, firms declared bankruptcy. Of 9.56 trillion yen in bad loans, 6.27 trillion yen was reported as unrecoverable; and 5.48 trillion yen of the jusen funds came from the Norin Chukin.

As of January, 1996, the top 21 banks involved in the jusen mess were scheduled to write off 3.76 trillion yen of loans to the bankrupted firms, but the coops claimed that they could not absorb more than 530 billion yen of the losses-against total investments of more than ten times this figure-and that is where the government settled. Nokyo and the LDP leaders even succeeded in persuading Ministry of Finance officials to label the 685-billion-yen bailout a "contribution" to the coops in order to put a positive face on the package. Almost 90 percent of the public opposes MOF's bailout plan. For many the scandal and its settlement underscore the greed and arrogance of both MOF and Nokyo.

The Nokyo-Political Nexus

Perhaps the most consequential, and least understood, operations of the coops are in electoral politics. With eight million members (including 99 percent of farm households), Nokyo has the largest membership of any political organization in Japan. At the national level, Nokyo executives are in daily contact with other conservative elites, including big business. Of at least symbolic importance, Nokyo headquarters faces the offices of Keidanren, the chief business association, at the center of Tokyo's Otemachi business district. Since the late 1950s, Nokyo has held regular demonstrations to raise the rice price and to oppose rice-market liberalization, lobbied individual politicians and bureaucrats on agricultural legislation, and conducted a range of other national political activities. Altogether, while one must not exaggerate the unity of the various Nokyo sub-organizations, it remains true that no change in agricultural policy is possible without their collective consent.

Where Nokyo political mobilization is particularly consequential is at the grassroots level-in reinforcing, even constituting, the koenkai, or support, organizations of local Diet members. This importance dates to the early postwar period. Democratization after Japan's 1945 defeat meant that overnight, elections became open and contested. The land reforms created several million smallholder farming households that were capable of backing the left as well as the right and were a sine qua non for rule by either. Winning the support of the farmers meant winning Nokyo's.

Nokyo support was important not so much for financial support (although there was that), but to gain influence over members of the local community. The leaders of the local coop branches are popularly elected, have everyday contact with the farmers, and became, in the power vacuum created by the landlords' decline, the new "local notables" (meiboka) of the countryside.

Nokyo-backed candidates include those running as "Nokyo candidates" representing agricultural coops; executives of Nokyo itself, who are permitted by law to enter politics while retaining their posts; and party candidates who have been supportive and who promise to continue their support. Nokyo Diet members constituted 5.9 percent of all Diet members between 1949 and 1983. In 1970, seven of 46 Nokyo prefectural chairmen were also Diet members, and all belonged to the LDP. A 1969 Ministry of Agriculture survey found that 140 local coop chairs were also members of prefectural assemblies, 900 chairs or full-time Nokyo officials held positions in local assemblies, and 73 were mayors of cities, towns, and villages. Again, the vast majority served as LDP members.

However, more important by far than Nokyo Diet members is the election assistance Nokyo chapters can offer to political candidates of all backgrounds (although generally of a conservative stripe). In addition to mustering votes, Nokyo also offers candidates it supports campaign organization and staff, and political funds.

Starting in the late 1950s, Nokyo sponsored a national political mobilization campaign to exert stronger pressure on the government. It formed a national organization to serve as a federation of local farmers' political mobilization groups. Nokyo also organized a national funding organization, the Agricultural Problems Research Association, for the specific purpose of backing candidates in elections. In the 1959 Lower House election, for instance, it contributed to the campaigns of 110 candidates, of which 103 were elected. In the Upper House election the following year, it donated a total of 10 million yen to some 30 candidates.

In many respects, Nokyo politics (like Nokyo organization and economics) are more top-down than broad-based in origin. But far more so than in business operations, local Nokyo political agendas do not necessarily match those of the Tokyo leadership. Rather, the core Nokyo electoral organizations are at the prefectural (and local) level. Fewer than half of the prefectural political associations are formally affiliated with the national body. Memberships in these prefectural associations vary-from 45,000 votes in Hyogo to 50,000 in Tochigi. Membership totalled 4.3 million votes in 1979-76.8 percent of Nokyo's individual farmer membership, or about 5 percent of the national electorate. At the prefectural level, Nokyo federations typically provide letters of support for multiple candidates, leaving other activities to the local branches (which had an average size of 1100 households in the early 1980s).

While the national Nokyo organization has deeply rooted LDP preferences, local coop branches do not always follow suit. The great majority of farmers and local Nokyo chapters, for good local reasons, does back conservative candidates. But at the same time, certain rural/agricultural districts like Hokkaido 5 are well-known JSP bastions. Niigata 3 was also left-leaning until Tanaka Kakuei transformed Niigata politics. In most national elections, between one-quarter and one-third of farmers vote for parties other than the LDP, chiefly the Socialist Party. Some Nokyo branches back opposition candidates (against the preference of the national federation) to protest LDP policies-the 1989 election was the most recent one that saw massive local farmer defection from the party to protest the beef-citrus liberalization agreement signed with the U.S. in 1988.

As an organization that receives state subsidies, Nokyo and its local chapters are formally non-partisan and are barred from entering electoral politics. But these restrictions are easily circumvented in practice. Most often, Nokyo "campaign activities" go unchallenged because they are circumspect. Illegality means the need to preserve deniability. Thus, for example, local Nokyo staffers go door to door to visit the membership as elections approach, doing so in part to collect savings for the Norin Chukin bank, but also to help turn out the vote. The latter function need not be entirely explicit for Nokyo members to get the message. And of course getting the message does not mean that all members heed it unquestioningly. Nokyo coercion has its limits. The secret ballot preserves voter anonymity, especially as village mergers have increased the size of the electorate in a given locality.

Nor is everyone in the LDP automatically enamored of the coops. Although "fusion" (yuchaku) is often used to describe the broad nature of the conservative coalition, a different Japanese phrase describes the actual scene on the ground: daido shoi, or agreement on the big picture, but disagreement on the details. LDP frontbenchers, in particular-those who are looking to build national reputations and can afford to neglect particularistic interests-can be highly critical of Nokyo. This was true of Nakasone Yasuhiro in the mid-1980s; and in 1993, in the midst of some of the Nokyo banking scandals, LDP agriculture zoku complained that while coop leaders continued to demand import-protection and higher prices for farm products, they were engaging in extortion (fushoji) from their captive farmer-members. The LDP leadership values the farm vote considerably more than the farm coops, but it continues to depend on both.

The LDP's unease over the coops is not of recent origin; it dates back almost to the origins of the conservative-agriculture alliance. The legendary LDP maverick of the 1950s and 1960s, Kono Ichiro, launched repeated attacks on the coops. In 1954, when Kono became Minister of Agriculture in the new Hatoyama Cabinet, he advocated fewer subsidies and more loans in order to make the agricultural sector more cost-conscious and competitive. That same year, Kono led the attempt to create new organizations for the agricultural sector, hoping to redefine Nokyo as a political group in order to remove it from the administrative loop. The proposal sparked great opposition within and outside the conservative parties, putting an end to Kono's attempt.

Kono tried again in 1957, proposing to separate Nokyo's financial operations from the rest of the coop structures. Again, he failed in the face of pressure-group tactics by the coops, including public demonstrations, letter-writing campaigns, and petition groups that circulated among Diet members and Ministry of Agriculture bureaucrats. In 1962, Kono made a third attempt to circumscribe the growing clout of Nokyo and the agricultural bureaucracy generally. This time, he renewed his call (part of Kono's agenda since at least the mid-1950s) to remove rice from the Food Control System. Once again, he found little government support and strong opposition from Nokyo.

At the grassroots level, too, while all politicians value the powerful farm vote, they fear that the coops may become too powerful in controlling it. In my interviews with politicians and bureaucrats, I often heard remarks to the effect that Nokyo has already become too powerful for its own good-in politics as well as in business. For example, a secretary of the late Kondo Motoji of Niigata, one of the LDP's leading farm zoku, explained to me Kondo's strategy of strengthening his own support group (koenkai) in order to bypass the excessive demands and meddling of the local Nokyo chapter. Similarly, in some farming regions, especially where full-time farmers dominate, Nokyo is distinctly unpopular among the farmers, who back local farm organizations and opposition politicians instead.

LDP leaders have made sporadic attempts to create a real grassroots organization for the party. But party organizational drives have failed, and the LDP has succeeded only in strengthening pre-existing, non-party organizations such as Nokyo, neighborhood associations (chonaikai), and the PTA. Postwar politics thus remains wedded to organizations of wartime vintage.

Current Nokyo Reforms

Ongoing reforms are designed to increase the centralization and economic competitiveness of the coops, increasing in turn the coops' "carte blanche leadership" (in Ishida Takeshi's phrase), and reducing the potential for challenge from inside or outside the coop structure. In brief, current reform plans call for three changes:

1) mergers of local coops (gappei);

2) elimination of the prefectural-level organizations;

3) increased emphasis on financial operations.

Financial problems within Nokyo exploded with the collapse of the bubble economy. The Mainichi reports that in 1988, just two percent of the 3600 local coop branches reported deficits. With the stock market's collapse, the onset of recession, and ongoing capital liberalization, the paper estimates the rate at nearly ten percent by early 1991.

These internal financial problems, far more than pressure from big business or foreign powers, have led Nokyo to propose an ambitious reform program. Ratified at the Nokyo General Congress in October, 1991, the reforms have drawn close interest from political and financial circles. As one Ministry of Agriculture official commented, "This is the last chance for Nokyo to reform. If the coops stop [the reforms] with words, as they've done in the past, farmers are not going to stay with them." Other observers predict Nokyo's collapse if the reforms fail.

The merger plan (gappei) is as necessary to Nokyo's financial health as "rationalization" (gorika) is for Japan's banking industry. However, a local merger policy is nothing new. The coops underwent a period of mergers during the 1960s, following municipal amalgamation (shichoson gappei) in the 1950s. In 1960, at the passage of the Nokyo Amalgamation Promotion Law (Nokyo Gappei Josei-ho), there were 12,500 general-purpose cooperatives, with 84.5 percent being small-scale, village-level branches. By 1975, that number had dropped to 4,942.

Merger plans have become more ambitious in the 1990s as the magnitude of the coops' problems grows. In 1991, the national leadership set a goal of 1000 local branches by the year 2000. In 1992, the goal was 800 branches; by 1994, it was 600. As of 1996, the stated goal is 550 local coops by the end of the century. Consolidation of the coops is already well underway (in stark contrast to the glacial pace of farmland consolidation). Since the early 1980s, the number of local Nokyo branches has dropped by 200-300 annually. At the beginning of April 1994 (the start of the new fiscal year), 139 local branches merged into 31.

These mergers will improve Nokyo's finances, and the need to do so is evidently recognized by much of the Nokyo membership. Internal Nokyo polls in 1992 showed a majority of coop members supporting the reforms. Financial problems are not confined to the local branches alone. All Nokyo operations other than banking and insurance have shown deficits in recent years. Profits in finance, which have helped to cover deficits in other operations, have been squeezed in the 1990s by financial liberalization as well as by the economic downturn.

Others fear, however, that both internal democracy and organizational self-monitoring will suffer under the merger plan. Given the problems with embezzlement and bad loans and investments noted earlier, the issue of monitoring is a real concern. The organizational reforms are also certain to add to the top-heaviness of the coops. The Chiba Nokyo Chair criticizes the Nokyo national structure as corrupt and counterproductive, the worse part of the organization to be gaining new power. Rather, he argues that the local (and sometimes prefectural) Nokyo alone are worth saving.

Such local criticism, however, does not easily filter up to the national level. The Mainichi reported much back-room politicking (nemawashi) prior to the vote on the Nokyo reforms (at the 1991 Nokyo General Congress) designed to get them passed without debate during the Congress itself. Those at the top have demonstrated over the years their commitment to the Nokyo status quo. Promotion patterns inside Nokyo, as with other large Japanese organizations, are from within, ensuring that only "good company men" rise to the top. They can be trusted to contain protest at the source.

Even so, "allergy" to gappei within Nokyo is perhaps strongest among Nokyo officials themselves. Streamlining the organization threatens to reduce the number of jobs. For example, the Nikkei reports that in both Sagawa and Kyoto prefectures, plans call for single, prefecture-wide Nokyo and have caused open protest by Nokyo employees as well as others. One chair of an Iwate-ken branch dismisses the gappei plan as "nothing but financial-ism (kinyu-shugi)." Noted agricultural economist Saeki Naomi also cites internal opposition as a serious issue as well as questioning the sufficiency of reform plans.

Nokyo has principally addressed employee resistance by pressing forward with gappei plans while preserving Nokyo staff positions, especially managerial posts. It is shifting some personnel into the finance and insurance divisions of the organization. Over one-quarter of Nokyo positions are already in these areas. Thus coop-branch reductions do not mean staff reductions. In 1991, Nokyo employees numbered 380,000, unchanged from five years earlier. That means one staff-person for every ten farm households, or nearly one for every full-time farming household. In comparison, employee numbers at NTT (privatized over the same period) declined from 310,000 to 260,000. Of course, Nokyo is not technically "public" in the first place, making politically forced cuts impossible.

Indeed, over the longer term, Nokyo's workforce has grown even faster than its farm membership. Farmer numbers fell by one-third between 1960 and 1986, but Nokyo workers (yakushokuin) increased by 40 percent. The Ministry of Agriculture predicts a continued, albeit slower, decline of farmers, but not of Nokyo personnel.

What appears likely is that staff (yakuin) positions will decrease as part of Nokyo rationalization, but management (shokuin) positions will not. Agriculture-related positions will fall but the decline will be more than offset by new positions in finance and especially insurance. Data for 1993 already show that management positions are increasing even as the number of Nokyo branches drops. Managers totalled 30,162 as of March 1993, breaking the 30,000 mark for the first time ever. The increase in management positions is due to expanding financial operations, Nokyo's union leaders say. But many farmers are not likely to be impressed by such explanations.

Despite farmer dissatisfaction with Nokyo (especially among full-timers), no competing farmer organizations come close to threatening its hegemony. Leftist farmers' unions are splintered, have dwindling membership rolls, and serve as little more than election campaign staff for opposition candidates. Other farmers' groups are limited by regional lines and by the diminishing numbers of full-time farmers.

Nokyo's ongoing reforms and its increasing focus on banking and finance strengthen the Nokyo center and undercut both internal and external opposition. The coops' growing non-farmer membership means that total membership is increasing despite agricultural decline. In short, Nokyo is no more an idle recipient of state largesse than the firms targeted by MITI's industrial policy. Indeed, a bit more idleness at Nokyo headquarters would probably suit the Ministry of Agriculture and the LDP today: Nokyo resistance to reform poses a significant barrier to change, while repeated Nokyo scandals are a steady source of embarrassment for conservative elites.

Will a new generation of Nokyo leaders win over the rank and file? Recent Nokyo politics are not encouraging. The newest Zenno chairman, Sato Yokeru, was appointed on July 15, 1993. Sato is a typical Nokyo insider, having held a variety of leadership posts, most recently as President of the Nokyo Travel Office (Nokyo Kanko) and Chair of Fukushima prefecture's Nokyo federation. When a local Nokyo official tried to question the candidate in an open meeting at Nokyo's Otemachi headquarters, Sato ignored the questions, drawing jeers from the audience. Sato was the only candidate for the position, but nonetheless, 14.4 percent of the Nokyo delegates present voted against him, and 17.9 percent did not bother to attend the meeting. AERA calls this level of dissent "unprecedented in Nokyo's thirty-nine years."

Still, Nokyo remains a major player in conservative power politics. It has proven willing to sacrifice farm interests, especially those of full-timers, in order to remain a player. Its position in the Food Control System, its implementation of a paddyland-reduction policy (gentan) and pocketing of farmer subsidies, and its increasing abandonment of agriculture for high finance all demonstrate this willingness. The upshot, as one unusually candid Nokyo high official told me, is that "Nokyo doesn't have a strategy to protect farmers in the future. Its strategy is to protect Nokyo."

ROBERT BULLOCK is an Assistant Professor of Government at Cornell University. This paper is drawn from a book manuscript entitled "The Social Bases of the Developmental State: Agriculture and the Conservative Coalition in Postwar Japan."

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