June 2025 emergency report:
Can the "Koizumi Rice
Stockpile" emergency release of 2,000 yen control the Reiwa rice riots and
wild price fluctuations!?
Monday, June 2, 2025
The Reiwa rice riots and the stability
of the Japanese economy: spider web model, analysis of the combined impact of
monetary and fiscal policies
1. Introduction
The
"Reiwa rice riots" that occurred in 2024 have attracted a great deal
of attention as a social phenomenon surrounding rising rice prices and supply
instability. This situation is not just a temporary supply shortage, but
highlights the complex challenges of Japan's agricultural policy, market
structure, and even macroeconomic policy. In particular, concerns have been
raised that there is a risk that the risk of cyclical price fluctuations as
suggested by the "spider web model," a long-known economic theory,
the divergence in inflation perceptions in the Bank of Japan's (BOJ) monetary
policy, and the tendency to "spend" money, known as
"Ishibanomics," could lead to "bad government" that
destabilizes not only rice prices but the entire Japanese economy.
This report
aims to provide a multifaceted analysis of these complex concerns from an
economic perspective. Specifically, we will provide a detailed understanding of
the background and current situation of the Reiwa rice riots and consider the
impact of the spider web model on the rice market. In addition, we will
evaluate what challenges the BOJ's monetary policy faces in the current
inflationary environment, and what impact the Ishiba administration's fiscal
policy will have on the economy. Finally, we will comprehensively analyze what
complex risks public opinion, such as the release of stockpiled rice and blind
recommendations for increased production, will bring to rice prices and the
entire Japanese economy when combined with these macroeconomic factors, and
present policy implications.
2. Background and current situation of
the Reiwa rice turmoil
2.1. Direct factors and market turmoil
The rise in
rice prices in 2024 was caused by a complex intertwining of multiple factors.
The first direct factor is the quality of the 2023 rice harvest. The crop
condition index itself was 101, which was the same as usual, but due to the
extreme heat and the föhn phenomenon, the ratio of first-grade rice fell
significantly and the milling yield also fell. As a result, more raw rice was
needed, and the actual supply volume decreased.
Second,
changes on the demand side also contributed to the price increase. The recovery
of demand in the restaurant industry due to the economic recovery from the
COVID-19 pandemic increased by 18% compared to the previous year, and inbound
consumption also increased significantly by 170% compared to 2019, boosting
demand for rice.
In addition,
changes in the distribution structure and speculative behavior accelerated
market turmoil. The relative transaction price between producers and
wholesalers has been rising steadily, and especially since January 2025, the
spot transaction price of Kanto brand rice has reached about three times the
previous year. . The increase in direct transactions from the traditional
distribution via agricultural cooperatives (JA) has led to a scramble for rice
between different distribution channels, resulting in prolonged price increases
and distribution confusion. . In addition, amid the inflationary trend since
early 2024, speculative behavior has contributed to the price hike, with
traders buying up rice in anticipation of rising rice prices and holding back
on sales in order to "sell when the price is higher." . . In
addition, the fact that many media outlets have been reporting on the
"rice shortage" every day during the off-season (the time when new
rice is switched to), has fueled consumer anxiety and caused "panic
buying" in which people buy more rice than they need. . This has led to
rice disappearing from supermarket shelves, further spreading the sense of
shortage. Although major restaurant chains and convenience stores have secured
the necessary amount through annual contracts, supply shortages have become
apparent in the retail market for general consumers.
2.2. Structural problems
Behind the
current rice riots lies a deeper structural problem. One of the most
fundamental causes is the long-term decline in rice consumption in Japan.
Compared to around 1965, the current annual per capita rice consumption has
fallen to 50.9 kg, about half of what it was in 1965, and this trend has
continued even after the rice production reduction policy was abolished.
Despite this
trend in declining consumption, Japan's rice supply system is vulnerable due to
the legacy of the past rice production reduction policy. The rice production
reduction policy has been implemented for about 50 years to suppress rice
overproduction and maintain rice prices. This policy led to rice production
only to the limit of expected demand, and even slight fluctuations in supply
and demand were a factor in destabilizing the market. The rice production
reduction policy was abolished in 2018, but this was essentially a
"review," and the essence of vested interests such as the Ministry of
Agriculture, Forestry and Fisheries and JA agricultural cooperatives
suppressing production (supply) through subsidies and trying to maintain rice prices
above the market equilibrium level has not changed. It has also been pointed
out that because JA is an organization that also engages in economic
activities, it has prioritized the interests of its own economic activities
over the interests of farmers, and has maintained a high rice price and acreage
reduction policy.
The fact
that demand for rice is inelastic with respect to price also contributes to
market instability. Consumers have a limited capacity, and consumption does not
change significantly regardless of whether the price of rice is high or low.
For this reason, there is always a risk of a "big harvest, poor
harvest" in which a slight increase in supply causes rice prices to fall
sharply, and this provides an incentive for the Ministry of Agriculture,
Forestry and Fisheries and JA to induce less supply.
These
structural problems work together, and the 2024 rice riots can be evaluated as
a phenomenon caused not simply by a poor harvest due to bad weather, but by
socio-economic factors such as changes in the distribution structure,
speculative behavior, and an imbalance in the supply and demand balance.
3. Analysis of rice price fluctuations
using the cobweb model
3.1. Principles of the cobweb
model and its application to agricultural product markets
The cobweb
model is an economic model that explains the cyclical price and supply
fluctuations seen in agricultural product markets, especially in products with
long production periods and in which production volume cannot respond quickly
to price changes. The core of this model is the "time lag" in which
demand responds immediately to the market price of the current period, while
supply volume is determined based on the price one period before, that is, the
"expected price" at the time producers start production.
Farmers
decide their production volume based on a simple price forecast that predicts
that the market price at the harvest season will be equal to the market price
of the previous year. For example, if the price of rice rises in the previous
year, farmers will increase production, expecting high prices to continue the
following year. However, by the time the increased rice is on the market, there
will be an oversupply and the price will plummet. Then, seeing this low price,
farmers will significantly reduce production the following year, which will
result in a supply shortage in the following period and prices will rise again,
and the cycle will be repeated.
This was
named the "spider web model" because the trajectory of price and
supply fluctuations resembles the way a spider's web is spun. In the model,
three cases are considered depending on the slope of the demand and supply
curves: a convergent type, where price fluctuations "converge" to
equilibrium, a divergent type, where fluctuations "diverge," and a
"neutral type" where there is neither convergence nor divergence.
Whether prices converge to equilibrium or not is determined by the ratio of the
slope of the supply curve to the slope of the demand curve.
3.2. Implications of the spider
web model in the Japanese rice market
The Japanese
rice market has characteristics that make it easy to apply the spider web model
due to its production cycle and farmers' production decision mechanism. In
fact, this model has been referenced in past policy discussions. The
"Ishiba Model" published by Ishiba, the Minister of Agriculture,
Forestry and Fisheries in 2009, used this very spider web model as the
theoretical basis for predicting the movement of rice prices after the
abolition of rice production adjustment (rice acreage reduction policy), and
suggested the possibility that rice prices would fluctuate significantly every
other year. This is considered significant in that the executive branch tackled
theoretical predictions head-on.
However, the
actual behavior of farmers may differ from the simple assumptions of the
theoretical model. Interviews with farming experts in Niigata Prefecture
suggest that farmers do not decide the next year's production volume solely on
the most recent single-year rice price, but rather take more complex actions,
such as "waiting and seeing" in the first year, after which prices
fall and remain sluggish, gradually moving toward equilibrium. This shows that
real farmers take into account multiple information sources and risks, and do
not necessarily act solely based on simple past price forecasts. For this
reason, it has been pointed out that in reality, it is unlikely that price
fluctuations as extreme as those predicted by the theoretical model will occur.
Nevertheless,
the demand for rice remains inelastic with respect to price (a slight change in
supply has a large impact on the price) and the production process takes time,
which is an essential time lag. Therefore, if public opinion intensifies in
favor of blindly increasing rice production in the wake of the current
"Reiwa rice riots," there is still a high risk that farmers will
overreact to this, leading to a price crash the following year due to
oversupply. This carries the risk of falling into the cyclical fluctuations
suggested by the spider web model, especially the divergent cycle, which could
exacerbate the instability of rice prices.
4. The Bank of Japan's Monetary Policy
and the Current State of Inflation
4.1. Ueda's Policy Stance and
Price Target
The Bank of
Japan has set a "price stability target" of "2% year-on-year
increase in consumer prices". Governor Ueda has indicated that he places
importance on the "underlying rate of price increase" excluding
temporary fluctuations (such as fresh food and energy prices) when making
monetary policy decisions. This is an attempt to grasp more sustainable price
trends by excluding items with large fluctuations.
The Bank of
Japan decided to lift its negative interest rate policy in March 2024 and guide
the policy interest rate to around 0-0.1%. It then implemented additional
interest rate hikes to around 0.25% in July 2024 and around 0.5% in January
2025, raising the interest rate to the highest level since 2008. This suggests
that the Japanese economy is transitioning from a "world without interest
rates" to a "world with interest rates". The Bank of Japan
explained that this was because the underlying inflation rate was below 2%, and
stated that as of June 2024, inflation expectations were "rising slightly,
but not yet reaching 2%."
4.2.
Divergence between the Actual State of Inflation and the Bank of Japan's
Outlook
However,
contrary to the Bank of Japan's policy stance, it has been pointed out that the
current inflation rate is significantly different from the people's actual
living experience. The headline Consumer Price Index (CPI) reached +4.0%
year-on-year in January 2025, and the core CPI excluding fresh food was +3.2%.
In addition, the core-core CPI, which excludes fresh food and energy, which are
highly volatile, also recorded +2.9% year-on-year in March 2025, and +3.50%
(nationwide) and +3.60% (Tokyo) in April 2025. These figures are significantly
higher than the BOJ's target of 2%, and are expected to continue growing at
around +3% especially through the first half of 2025.
The main
factor behind this price rise is the soaring food prices, including rice
prices. Over the past 12 months, rice prices have risen by 98%, and food prices
excluding fresh food have also risen by 7.0%. Food accounts for a high
weighting of 22.3% of the consumption basket, and the price rise has a direct
impact on the cost of living of the people.
The BOJ aims
to achieve the 2% price target in a sustainable and stable manner, accompanied
by wage increases, and recognizes that the wage increase rate in this spring's
labor-management negotiations has reached nearly 3%, significantly higher than
last year.
However, the
rate of increase in service prices remains at 1.3% to 1.5% as of April 2025,
suggesting that wage increases may not be fully passed on to a wide range of
service prices.
Under these
circumstances, nominal interest rates are rising, but the increase is small
compared to the inflation rate, and real interest rates remain in negative
territory. This means that monetary policy is still accommodative in substance
and has the effect of stimulating the economy. Taking into account the slowdown
in overseas economies and uncertainties surrounding price trends, the Bank of
Japan views the risk balance for fiscal 2025 and 2026 as "more to the
downside," and continues to manage policy cautiously.
4.3.
Economic impacts and challenges of monetary policy
The
normalization of the Bank of Japan's monetary policy will have various effects
on households and companies. It is highly likely that mortgage interest rates
(variable interest rates) will rise from April to May 2025, and fixed interest
rates will also rise gradually. Overall, the impact of rising interest rates on
households is estimated to be positive, as the increase in deposit and
government bond interest income exceeds the increase in mortgage interest
payments, but the negative impact is expected to be large for the working
generation who hold liabilities such as mortgages. Although companies are
expected to maintain an upward trend in profits due to the gradual expansion of
the economy and progress in price pass-through, profits may be squeezed for
companies with a heavy debt burden and export-related companies.
The Bank of
Japan's emphasis on the concept of "underlying inflation rate" and
its cautious interest rate hike policy, stating that this is "still
somewhat below 2%, has created a significant discrepancy with the inflation
rate (general consumer price index) that the public faces in their daily lives.
This discrepancy is a factor that increases public dissatisfaction and distrust
toward the Bank of Japan's policies, and could also affect the effectiveness of
monetary policy.
5. Evaluation of Ishibanomics and fiscal
policy
5.1. The reality and background
of "handout finance"
The economic
policy of the Ishiba administration, called "Ishibanomics," has faced
criticism for being a "handout finance" accompanied by fiscal
spending. Professor Kazumitsu Sato (Public Finance and Public Economics) of
Hitotsubashi University has harshly criticized the recent trend of huge
supplementary budgets and handouts as "the vested interests of
deflation." Although prices have clearly risen and the deflationary gap is
being eliminated, the government has not yet declared that it has
"completely escaped deflation" and continues to spend fiscal money
under the pretext of deflation. Supplementary budgets are being used even for
projects that should be covered by the initial budget, such as national
resilience and regional revitalization, and supplementary budgets are becoming
the norm. This suggests that the "scale-first" thinking used to
stimulate demand during deflation continues even in the current inflationary
phase.
Politically,
the ruling and opposition parties are engaged in a "fiscal spending
race," and despite the fiscal deficit, it has been pointed out that there
is a lack of discussion about financial resources (tax increases). This is
thought to be because the dissatisfaction of the younger generation and the
voices of the Internet generation are gaining support, and policies are moving
in a certain populist direction.
As a
specific economic measure, grants to households not subject to resident tax
(30,000 yen per household, and an additional 20,000 yen per child for
households with children) have been repeatedly paid since 2021. In addition, a
huge budget (more than 11 trillion yen in total) has been allocated to
subsidies for electricity, gas, and gasoline prices, and an extension is being
considered. The total amount of fixed tax cuts and grants will reach 5.1
trillion yen, and the "1.03 million yen wall" measures proposed by
the Democratic Party for the People are expected to reach 7.6 trillion yen.
These policies are centered on grants, subsidies, and tax cuts aimed at
appealing to the public in the short term, and there are concerns that they are
more of a "spend-a-ticket" nature than policies that will lead to
strengthening the growth potential of the Japanese economy in the medium to
long term.
5.2. Economic impacts and
challenges of fiscal policy
Such
large-scale fiscal spending carries the risk of exacerbating the current
inflation. The subsidies temporarily increase household purchasing power and
stimulate consumption, thereby boosting aggregate demand. This may allow
companies to pass on the increase to prices more easily, accelerating
inflation. This is explained as a mechanism of "unintended inflation
promotion," in which the government intends to take measures against
inflation but unintentionally promotes inflation. Because this effect is temporary,
it has been pointed out that if household dissatisfaction is not resolved,
there is a risk of falling into a vicious cycle of repeated subsidy payments.
There are
also concerns about the impact on income inequality. The purpose of subsidies
to households exempt from resident tax is to support pension households (about
75% of exempt households) that are greatly affected by rising prices, but only
about half of working households can benefit from wage increases, and the
current situation is that income inequality is widening. Subsidies and tax cuts
without broad income restrictions may also benefit high-income earners,
weakening the income redistribution effect.
From the
perspective of fiscal soundness, these fiscal expenditures will only increase
the national debt and reduce future fiscal capacity. The rise in interest rates
accompanying the normalization of the Bank of Japan's monetary policy will
increase the government's interest payment expenses, which will further reduce
fiscal flexibility. The FY2025 budget proposal is expected to significantly
improve the primary balance (PB) deficit, but this is largely dependent on
increased tax revenue due to high wage increases, and there is a risk that it
will worsen again if wage increases slow down.
Historically,
there is a lesson that the expansion of fiscal financing has led to
hyperinflation. Takahashi Korekiyo's fiscal policy succeeded in overcoming
deflation, but the Bank of Japan avoided hyperinflation by temporarily holding
government bonds and selling them on the market. However, after Takahashi's
assassination, the military led the Bank of Japan to expand fiscal financing,
which is said to have led to postwar hyperinflation. The risk that the current
"spreading fiscal policy," combined with the central bank's
accommodative monetary policy, will follow a similar path cannot be ignored.
On the other
hand, Ishiba himself has stated that "finances are only possible because
of the economy," and has indicated his intention to promote fiscal
consolidation while taking the economy into consideration. It has also been
pointed out that rather than a handout policy, the subsidy system may be
revised to focus on supporting low-income earners and small businesses. 2 In
the FY2025 budget proposal, the overall fiscal deficit is expected to remain
almost unchanged, while the primary deficit is expected to improve
significantly, indicating that a certain degree of fiscal discipline is at
work. 3 However, future policy management will determine whether the plan will
lean toward short-term populism, or whether it will be possible to balance a
long-term growth strategy with fiscal consolidation.
6. Complex risks of releasing stockpiled
rice and encouraging increased production
6.1. Current
situation and issues regarding the release of stockpiled rice
In response
to rising rice prices, the government has expanded the conditions for releasing
stockpiled rice, which had previously been limited to times of poor harvest,
and changed the rules on January 31, 2025 to allow for release even in cases of
"distribution stagnation". Under this new system, released rice will
be subject to a "buyback obligation" to restock an equivalent amount
within one year. In March 2025, an initial tender for approximately 150,000
tons was held for major collection companies, and supply to the market began.
This measure is also said to be aimed at putting a stop to the accelerating
reliance on imported rice.
However, the
issue of the limited impact of the release of stockpiled rice on the market has
emerged. As of April 2025, only 10% of the released stockpiled rice had reached
retailers (including restaurants), and congestion at the distribution site has
been pointed out. As a result, market relative transaction prices are still at
record highs, and prices continue to soar. This suggests that the price hike is
not simply due to a lack of physical rice, but also due to inefficiencies in
distribution channels and speculative behavior.
In addition,
while the "obligation to repurchase" stockpiled rice aims to
stabilize the market in the short term, it may cause new distortions in the
long term market. The condition to repurchase the same amount within one year
creates new demand in the future market, and if the supply-demand squeeze
continues for several years, there is a risk that the repurchase will further
squeeze already tight market inventory. This makes the timing of price declines
unclear, and it has been pointed out that this may hinder long-term price
stabilization.
6.2. The danger of blindly
encouraging increased production
In response
to the current rise in rice prices, public opinion and some policy proposals
are encouraging blind increases in rice production [User Query]. An unusual
decision to increase rice production has been made in 29 prefectures
nationwide, and the movement to expand the planted area and increase production
volume for the 2025 rice crop is spreading. However, such "blind increase
in production" has the risk of increasing the risk of cyclical price
fluctuations, especially oversupply and price crashes, as suggested by the
spider web model.
Because
demand for rice is inelastic, even a slight increase in supply tends to cause a
significant drop in prices. In the past, under the food control system, where
the government purchased rice at high prices, excess inventory occurred, and
the rice production reduction policy was introduced to deal with it. If the
planted area for the 2025 rice crop increases and growth is good, there is a
forecast that there will be an oversupply in the fall of 2025 and prices will
stabilize from around April 2026, but at the same time, this means that there
is a risk of a price crash.
There is a
view that the most effective true food security policy would be to truly
abolish the rice production reduction policy, increase rice production in
excess of domestic consumption, and export the surplus. If rice is exported in
peacetime, the rice that would have been exported can be consumed domestically
in the event of a crisis such as a disruption in imports, and this serves as a
"free reserve" that does not require any financial burden. For
example, if 17 million tons are produced and 10 million tons are exported, even
if domestic supply and demand fluctuates, there will be no domestic rice
shortage simply by adjusting the export volume. As a result, it is estimated
that the rice self-sufficiency rate will increase to 243%, and the overall food
self-sufficiency rate will also rise to over 60%.
However, the
current recommendation to increase production is likely to remain a mere
movement to increase production for the domestic market without such a drastic
abolition of rice production reduction and an export strategy. In addition,
structural issues such as the aging of farmers, the increase in abandoned
farmland, and even a shortage of seed rice are also factors that hinder
increased production. Blindly increasing production will lead to oversupply and
a price collapse in the future, destabilizing farmers' management, and
ultimately leading to a vicious cycle of deepening dependence on production
adjustments and subsidies.
6.3. Multiple risks of economic
instability
The release
of stockpiled rice and the reckless promotion of increased production pose
multiple risks of instability to the macroeconomy as a whole.
First, it
will increase the fiscal burden. Storing stockpiled rice costs about 10 billion
yen per year, and if this is doubled, it will increase to 20 billion yen. In
addition, if rice prices fall due to future oversupply, new subsidies may be
required to compensate farmers for their income and support prices. This will
further worsen Japan's fiscal situation, which already has a strong tendency
toward "spend-out fiscal spending," and reduce fiscal leeway.
Second, it
will accelerate inflation and reduce real wages. Current inflation is driven by
food prices, and the soaring price of rice is one of the causes. If reckless
production increases lead to a future price crash, this could lead to periodic
fluctuations in which prices rise again in reaction. In addition, grants and
subsidies provided by fiscal stimulus temporarily stimulate consumption and
make it easier for companies to pass on price increases, which could further
encourage inflation. Even if nominal wages rise, if inflation exceeds the
nominal wage, real wages will fall and household purchasing power will continue
to be eroded. This will put pressure on people's lives and destabilize the
economy.
Thirdly,
there is a lack of consistency in policies. There is a risk that the
instability of the rice market will be amplified by a lack of coordination
between agricultural, monetary, and fiscal policies. If the Bank of Japan
continues to carefully raise interest rates, focusing on the "underlying
inflation rate," while the government continues to make large-scale fiscal
expenditures in the name of "anti-deflation measures," the
macroeconomic policy as a whole will lack consistency and may hinder economic stabilization.
From the perspective of food security, if short-term price stabilization
measures and blind encouragement of increased production delay truly effective
policies such as long-term agricultural structural reform and export
strategies, there is a risk that it will become "bad government."
7. Conclusions and policy
recommendations
7.1. Summary of conclusions
The
"Reiwa rice riots" are not simply a temporary supply shortage, but
are the manifestation of complex structural problems such as a long-term
decline in rice consumption, the legacy of past rice production reduction
policies, inefficient distribution structures, and speculative behavior. The
spider web model suggests that the time lag in the rice production cycle and
the price inelasticity of demand make the market inherently vulnerable to
cyclical price fluctuations.
The current
Japanese economy is facing high inflation driven by food prices while the Bank
of Japan maintains a cautious monetary policy, and real interest rates are
still in the negative zone. There is a large discrepancy between the Bank of
Japan's recognition of the "underlying rate of price increase" and
the people's actual living experience. On the other hand, the fiscal policy of
the Ishiba administration has been pointed out as having a tendency to
"spend money" on a large scale, despite the economic situation after
overcoming deflation, which poses the risk of promoting inflation and hindering
fiscal consolidation.
Under these
circumstances, public opinion movements such as the release of stockpiled rice
and blindly encouraging increased production may temporarily alleviate
short-term market turmoil, but unless the method of operation and the
structural problems behind it are resolved, there is a risk that they will
become a "bad government" that will cause long-term rice price
instability, increase the fiscal burden, and have a negative impact on the
entire macroeconomy.
7.2. Policy Recommendations
The
following multifaceted policy recommendations are essential to stabilize the
Japanese economy and strengthen food security.
1. Radical reform of
agricultural policy:
o True
abolition of the rice production reduction policy and introduction of market
principles: By abolishing rice production reduction subsidies and shifting to
income compensation (direct payments) to farmers, the function of market prices
should be restored and farmers should be encouraged to make autonomous
management decisions. This will create an environment in which farmers can
maintain their motivation to produce without directly bearing the risk of
fluctuations in rice prices.
o
Development of export markets and establishment of "free stockpiles":
Rice should be produced in excess of domestic consumption and exports should be
actively promoted. This will allow exported rice to earn foreign currency in
peacetime and function as a "free reserve" to be supplied
domestically in times of emergency, strengthening food security.
o
Transparency and efficiency of distribution structure: In order to curb
speculative behavior and information asymmetry in rice distribution, it is
necessary to review regulations and systems to increase market transparency and
promote the efficiency of distribution channels.
o Adaptation
to climate change and improvement of productivity: Stability of production and
improvement of quality should be achieved by developing varieties and
introducing cultivation techniques that can withstand the effects of climate
change, such as extreme heat, and by promoting smart agriculture.
2. Flexible implementation of
monetary policy:
o A clearer
roadmap for normalizing real interest rates: A situation in which real interest
rates remain in negative territory amid persistently high inflation rates
carries the risk that monetary easing will continue to provide excessive
stimulation. While carefully assessing the economic situation and price trends,
the Bank of Japan should reduce market uncertainty and stabilize inflation
expectations by indicating a clearer policy direction for normalizing real
interest rates.
o Defining
the "underlying rate of inflation" and communicating it transparently
to the public: In order to eliminate the discrepancy between the Bank of
Japan's perception of prices and that of the public, the Bank of Japan should
strengthen its communication of the definition of the "underlying rate of
inflation" and its calculation method in an effort to gain the
understanding and trust of the public.
3. Improving fiscal policy and
strategic investment:
o
Establishing fiscal discipline after "overcoming deflation": In a
period of rising prices, we must move away from fiscal spending based on
"scale" as a measure against deflation and tighten the standards for
compiling supplementary budgets.
o
Restraining short-term handout policies and strictly enforcing income
restrictions: Benefits and subsidies pose the risk of encouraging inflation and
increasing the fiscal burden, so they should be limited to low-income earners
who truly need support and income restrictions should be strictly enforced.
o Focus on
strategic investments that contribute to strengthening long-term growth: We
should strengthen investments for the future, focusing on strategic and
efficient fiscal spending to increase Japan's potential growth, such as
investments in semiconductors and AI.
4. Building a comprehensive
food security strategy:
o A
multifaceted perspective that includes not only rice but also feed
self-sufficiency: Since Japan's low food self-sufficiency rate is largely due
to its reliance on imports of items other than rice and feed, a comprehensive
strategy is needed to improve self-sufficiency in food as a whole, without
placing too much emphasis on rice.
o Improving
domestic production capacity and maintaining stable procurement capacity in the
international market: While strengthening the domestic agricultural production
base, we should continue diplomatic efforts to secure the economic strength to
prevent "losing out" in the international market and stable import
routes in the event of an emergency.
By promoting
these policies in a complex and consistent manner, it will be possible to
achieve not only stable rice prices, but also sustainable growth and stability
of the Japanese economy as a whole.
Tomo Nakamaru, former World Bank
economist
Reference: What is the "Spider Web
Model"?
We will
explain the formula of the "Spider Web Model" in as simple terms as
possible.
This model
explains how the price of a commodity that takes time to produce, such as
agricultural products, fluctuates. Producers look at the current price and
decide the amount of production for the following year, but by the time the
product is on the market, the situation has changed, so the price fluctuates
cyclically. Let's take a look at the formula.
1. Demand Curve
This shows
the relationship between the price of a commodity at a certain point in time
(period t) (pt) and the amount consumers are willing to buy at that price
(demand dt). It is a general rule that as the price rises, the amount consumers
are willing to buy decreases.
dt=a−γpt 3
• dt: Demand at time
t
• pt: Price at time t
• a: Constant (the
amount of demand even if the price is zero)
• γ: Positive
constant (indicates how much the demand decreases when the price increases by
one unit)
2. Supply Curve
This shows
the relationship between the price of a product at a certain point in time
(time t) and the amount that producers want to supply (supply st). However, in
the case of agricultural products, producers look at the "current"
price and decide on the "future" production volume. Therefore, we use
the concept of "expected price" here.
st=b+βpt∗+ϵt
3
• st: supply volume
at time t
• pt∗:
"expected price" at time t (the price expected by producers)
• ϵt:
"supply shock" at time t (unforeseen factors that affect production
volume, such as bad weather) 3
• b: constant (the
amount of supply that exists even if the expected price is zero)
• β: positive
constant (indicates how much the supply increases when the expected price
increases by one unit)
3. Price Expectation
In the
spider web model, we assume that producers predict future prices in a very
simple way: "the price next period will be the same as the price this
period."
pt∗=pt−1 3
• pt−1: price one
period ago
4. Market Equilibrium
In the
market, the price is determined at the point where the demand and supply are
equal.
st=dt 3
By
substituting the above demand curve, supply curve, and price forecast equations
into this equilibrium condition and rearranging it, we obtain a
"difference equation" that shows how the price in period t is
determined by the price one period ago.
pt=(−β/γ)pt−1+(a−b)/γ−ϵt/γ
3
This
equation mathematically expresses how prices change over time.
5. Stability Condition
The
important point of this model is that it is possible to predict whether price
fluctuations will settle down over time (convergence) or continue to grow
(divergence) 4. This is determined by the absolute value of the
"−β/γ" part in the above difference equation.
• Convergence type
(stable): ∣−β/γ∣<1, that is, when β/γ<1
3
o The price
will gradually approach the equilibrium price while fluctuating. It looks like
a spider web winding inwards 1. This happens when the supply curve is
"gentler" than the demand curve 3.
• Diverging
(unstable): ∣−β/γ∣>1, i.e. β/γ>1 3
o Prices
fluctuate more and more over time, moving away from equilibrium. It looks like
a spider web spreading outwards 1. This happens when the supply curve is
"steeper" than the demand curve 3.
• Neutral: ∣−β/γ∣=1,
i.e. β/γ=1 4
o Prices
fluctuate over a certain range and do not converge or diverge to equilibrium 1.
Simply put,
this equation tells us that if producers overreact to price changes (if the
supply curve is too steep), the market is prone to instability.
