Japan approves plans to overhaul rice subsidies Japan's government has approved plans to overhaul a decades-old system of handouts to rice farmers, signalling progress on a much-trumpeted policy goal amid negotiations with the US and other partners on a regional trade pact. Direct payments to hundreds of thousands of farmers have been at the heart of agricultural policy in Japan since 1970, when the government began to prop up prices by subsidising production of table rice according to annual estimates of demand, while encouraging shifts to other crops such as wheat, soybeans or rice for animal feed. But Yoshimasa Hayashi, agriculture minister, on Tuesday announced that subsidies for producing table rice to quotas would be scrapped by 2019. A separate system of payments to rice farmers, introduced by the previous government in 2010, would also be abolished and replaced by a fund to support agricultural infrastructure in villages particularly affected by the changes, he said. The package amounts to "a historically great transformation," said Akira Amari, economy minister, at a separate briefing. The reforms should spur consolidation of small, individually owned paddies into larger, more productive fields, making Japan's farmers more competitive on international markets, he said. The government plans to submit a bill containing the measures to parliament next February or March. "It is essential to change farm policies to enable farmers with good management abilities to become financially independent," said Mr Amari. The decision to end the subsidies, coming as Shinzo Abe, the prime minister, is trying to sustain flows of investment drawn to Japan by the promise of structural reforms to revitalise the sluggish economy, was well timed, analysts said. It also comes as Japan is deep in talks to establish the Trans-Pacific Partnership, a free-trade bloc including 11 other nations such as the US, Australia and Vietnam. Japan's complex system of subsidies and tariffs, which combine to guarantee farmers incomes well above those of most other rural households, has been a source of friction in TPP negotiations, which are overseen by Mr Amari. "I think this sends a very clear message to large audiences, both domestic and external," said Ken Ash, trade and agriculture chief at the OECD in Paris. In the context of Japan's aggressive monetary and fiscal policy actions, and in the context of its wider growth agenda, it would have been a signal if there were no reforms of Japanese agriculture. It is essential to change farm policies to enable farmers with good management abilities to become financially independent Akira Amari, Japan's economy minister Under the current system, farmers producing rice for staple food receive a subsidy of Y150,000 ($1,480) per hectare after each harvest, while producers of rice for flour or animal feed get Y800,000 per hectare. If the new law is passed as planned, the subsidy for staple rice will be steadily cut to zero by fiscal 2018. The basic subsidy for flour or feed rice will remain the same, rising to Y1.05m if yields are better than average. An official at the ministry of agriculture, forestry and fisheries said that the shift should encourage farmers to think less about meeting shrinking demand at home and more about exporting. The terms of Japan's entry into the TPP are still in the balance. Last weekend, chief negotiators failed to reach agreements after six days of intensive talks in Salt Lake City, and said they aimed to sign a provisional agreement next month in Singapore. One of Mr Abe's pledges during the Upper House election campaign this summer was to maintain tariffs on the "big five" farm products of rice, wheat, beef/pork, dairy and sugar. However, to do so would mean only 93 per cent of farm trade was liberalised, below the TPP's 98 per cent target. Hiroshi Oe, Japan's acting chief negotiator, told reporters on Monday that the access Japan was proposing was "significantly low" compared with other nations, suggesting that Tokyo would be forced to offer additional concessions.