This study reexamines the classical notion of the agricultural adjustment problem in Japan. First, we explain the current conditions of Japanese agriculture and show why structural reform in the land-intensive agriculture sector has become an important policy agenda. Next, we review the historical development of farmland policy and examine the policy effort to promote structural changes of agriculture. Furthermore, we conduct an econometric analysis on rice production and show that scale economies of rice production have emerged since the mid-1960s owing to continuous farm mechanization. In addition, we propose statistical analysis for why the structural adjustment of Japanese agriculture has been very slow even with scale economies. This analysis indicates that transaction costs related to farmland, such as those associated with expectations of farmland conversion for non-agricultural use, are the main obstacles for farmland consolidation.


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