Japan’s rice crisis from acreage reduction to panic buying

Japan had broadly welcomed the current turn from deflation to inflation, but the recent spiral in rice prices is starting to seriously strain household budgets.

The retail price of Koshihikari — Japan’s most renowned rice variety — has doubled from last summer's levels. Similar increases have also been observed across other rice varieties and related products.

As our chart shows, this is contributing significantly to Japanese core inflation - far surpassing the effects of a 2003 spike related to bad weather and poor harvests.

Interestingly, this is a domestically driven phenomenon, rather than the "imported inflation" Japan experiences for commodities it must buy with a depreciating yen.

In Japan, rice is not just a staple food, but a subject of deep cultural and political significance. This has several implications. First, Japan's consumers tend to prefer homegrown rice over imported varietals.

But a crucially important factor is the government's multi-decade acreage reduction policy, which has aimed to support the rice price and help the politically influential bloc of small farmers -- which was especially relevant during Japan's deflationary era. Producers are subsidized to switch to other crops.

As the second chart shows, both the harvested area and overall rice production have been steadily declining in the last 20 years. This erosion of productive capacity has left the market more vulnerable to sudden disruptions -- and Japan has had two of those over the past couple of years. First, the hot summer of 2023 damaged quality and reduced the harvest, which typically takes place in September and October. And more recently, warnings of a potential megaquake off Japan's Pacific coast triggered stockpiling and panic buying.

Japan's tourism boom -- driven by the weak yen and hungry visitors from neighboring countries with similar dietary tastes -- might also have caught the food industry off guard. (We've concluded with a chart on this tourism boom, showing how it has surpassed pre-pandemic levels.)

In response, the Japanese government has conducted several auctions to release rice from national reserves since March. This initially targeted wholesalers, but only a minority of these reserves ended up reaching consumers. As part of the latest effort to stabilize prices, this reserve rice is now being sold directly to consumers through retail outlets and supermarkets. Recently, 5-kilogram bags were seen on sale for around JPY 2,000 yen (about USD 14) at some stores -- raising concern over whether these measures are having any effect.