Japan Tobacco Privatization a Threat

Far from the economic rationale in favor of full privatization of Japan Tobacco Inc., the world’s third-biggest cigarette maker, one group fears for its future: the country’s tobacco farmers.

About 400 farmers from across the nation gathered and then staged a demonstration Thursday, marching around Tokyo’s Nagatacho-district, the center of Japan’s government, to urge the case against selling off its 50% stake in the company, conceived as part of potential program of fund-raising to help the country cover the cost of restructuring after the March 11 disasters.

Japan Tobaccco, known universally as JT, itself has long expressed a desire to become a fully private company to better compete with its bigger global rivals — Philip Morris International Inc. and British American Tobacco PLC.

But farmers are strictly against the government and the ruling Democratic Party of Japan, which plan to transform JT eventually into a fully privatized entity within 10 years. They also showed strong opposition to plans for another round of tobacco tax hikes, adding another ¥2 per cigarette.

Current law requires the government to hold at least 5 million JT shares, or 50%, of the shares outstanding, and any share sale will require a law change, which in turn would be smoothed by cooperation from the Liberal Democratic Opposition party. The latter, though, has close ties with the tobacco lobby.

Tobacco farmers remain suspicious that any decline in the government’s stake in JT would be accompanied by the scrapping of the current tobacco sales framework here, under which the farmers have long been protected via an arrangement under which JT buys all tobacco leaf produced in Japan.

Any change in that poses a threat to future livelihoods, tobacco farmers say, because JT may buy larger amounts of cheaper tobacco leaf elsewhere.

“I have sons aged 19 and 17 but I can’t tell them to take over (my farm),” said Masakatsu Sakai, a farmer attending the gathering from Kumamoto prefecture in western Japan, the biggest tobacco producing prefecture in the country.

“If the government unloads its entire stake in JT, I have no doubt that JT would increasingly be driven in pursuit of profits, more than ever,” said Mr. Sakai, putting downward pressure on the price of tobacco leaf in Japan.

The potential change in JT’s shareholder structure comes amid increasingly uncertain times for Japan’s tobacco industry, with the number of smokers in the country having slid to a record low of about 21.7% of the population. Compared with a decade ago, the number of tobacco farmers in Japan has almost halved to 10,801 for this fiscal year.

The tempo of decline accelerated with lean harvests in recent years. A major tax hike — ¥3.5 hike per cigarette — implemented by the government in October last year led to a hike of close to 40% in the price of a pack of cigarettes.

Earlier this year tobacco farmers found about 40% of them have already decided to discontinue tobacco farming next year, according to JT and farmers.

“I’ve lost many fellow farmers…they decided to quit because of inability to make a living and no prospect for the future,” said Mr. Sakai.

One point of optimism for the farmers — privatization still has a very long way to go before becoming reality.

Prime Minister Yoshihiko Noda is already struggling to cope with what’s called in Japan a “twisted parliament.” While the DPJ controls the lower house of parliament, after a defeat in national elections last year, the ruling DPJ lost its majority in the upper house of parliament.

And that means the government could be dependent on the cooperation of the opposition parties like LDP to enact any law to change JT’s shareholding structure, cooperation that may be a long way off.

By Hiroyuki Kachi

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