Japan: Land of Cooperatives

Of the “cooperative commonwealths” in the world there is none so prevalent in a nation’s daily life as the cooperatives of Japan. From rural to urban, farmer to consumer, or student to senior, cooperatives play a critical and broad role throughout the Japanese economy.

Cooperatives are the mainstay of Japan’s rural economy through their presence in agriculture, fisheries, and forestry. Norinchukin, Japan’s agricultural cooperative bank and 31st largest bank in the world, has assets of $530 billion and is the national backbone of those three industries. Every rural village has a co-op store and access to co-op financing and co-op insurance. Almost every farmer, fisherman, or forest owner is a member of a co-op.

Overview of consumer cooperatives

Cooperatives are also a major presence in the Japanese world of retail distribution. In the year ending March 2007, Japanese consumer cooperatives had a total turnover of $22 billion. That total makes the consumer cooperatives the third largest overall retailer in Japan. The next largest consumer co-op grouping in the world is Co-op Italia with $13 billion in sales (2005). The wholesale activities and group purchasing done by the Japanese Consumer Cooperative Union (JCCU) add another $3.3 billion in volume to the co-op economic activities.

The 158 independent Japanese co-op societies presently hold 2.8 percent of the Japanese retail market share. This share has risen from 2 percent in 1986 but is now beginning to erode from a high of about 3 percent, following aggressive efforts by national Japanese retailers. The retail co-ops employ over 26,000 people. This employee number would be much larger except that the home delivery system requires far less staffing, since either the member group or the individual member does most of the work. Almost all of the individual societies participate actively in regional and national group activities. This helps them compete with the national chains in their local markets.

Retail consumer cooperatives in Japan now have 17 million members (2007), a growth of almost 900,000 members over 2006. Each member purchases an average of $112 per month at the co-op. Consumer co-ops in Japan operate very differently than most other co-ops around the world. Of the retail sales of Japanese co-ops, $8.4 billion takes place through stores, whereas home delivery creates $13.1 billion in sales. The cost of real estate in Japan and competition for sites literally forced the co-op to think outside the box. Due to these factors, JCCU members only opened 19 new stores in 2006.

Home delivery began in 1962 and primarily took the form of member purchasing through a group (Han system). The Han group was almost entirely based on the time and effort of nonworking married women. However, with the arrival of the internet and changes in family life, individual purchases for home delivery, begun in 1995, have risen to $6.6 billion, just over half of the home delivery sales.

When the Han group system was first created, the private retailers attempted to replicate the concept. However, they did not have the social glue of the co-op, which was also addressing the issues that many young housewives were tackling. Yet, as the economy strengthened and the cost of living rose, Japanese families wanted better lives for their children, and women began to go to work. At first much of the work was part-time, but as the economy weakened, women began to turn to full-time work. There was much less time available and fewer women willing to participate in the Han group. The diminishing number of members using the Han system has had a large impact on the social strength of the co-ops. For three decades, the Han system gave the co-ops their citizen philosophy and was the cradle of their leadership and involvement. The co-ops are now engaged in great efforts to build linkages to the new wave of individual nonstore members. But in this they do have more open competition with other retailers.

Consumer co-op members in Japan invest heavily in their co-ops. The average member has $278 in shares in their co-op, which has created $4.8 billion in member capital. In addition to providing share capital, co-op members have also purchased $384 million in co-op bonds. Interestingly, the highest average share is provided by members of the “alternative style” Seikatsu Club. Seikatsu’s members invest $791 per member in their “green” co-op. (See sidebar for more on the Seikatsu Club and community-supported agriculture.)

University, medical and housing co-ops

In addition to the retail consumer cooperatives, there is a national grouping of university cooperatives providing school supplies, cafeterias, coffee bars, food distribution, travel, insurance, and now also student housing. The National Federation of University Cooperatives Association (NFUCA) is also actively setting up similar co-ops throughout Asia.

The figures for the university cooperatives are in addition to the consumer co-op totals. There are over 200 university cooperatives throughout Japan, with 1.38 million members and a volume of $924 million per year. There is a lot of synergy between the consumer and university cooperatives in their purchasing activities. In the 1970s, the more dynamic university cooperatives brought energy to the other consumer co-ops.

Among the other major consumer cooperatives are 115 medical co-ops providing insurance and medical care to almost 2.5 million members. These medical co-ops operate more than 13,000 beds and employ over 1,635 doctors and an additional 21,000 staff. In addition, there are 45 housing cooperatives, which house over one million members and their families. Most of the housing cooperatives were created as joint developments of trade unions and co-op banks.

There are close to 24 million members of consumer co-ops in Japan when you add them all together. About 30 percent of Japanese families are members of a consumer cooperative.

The path to cooperation

Japan and its culture have always supported many forms of cooperation. However, formal cooperatives, beginning in agriculture, did not appear until the late 1800s. While there were a few consumer cooperatives in Japan prior to World War II, the idea did not take hold until after the war. All consumer cooperatives were disbanded by the military during the war. However, General MacArthur believed that what might prevent another war with Japan was the creation of democratic organizations throughout the country. Cooperatives and trade unions were two groups that MacArthur wanted to see grow, because they could instill democracy into daily life. A new cooperative law was passed in 1948, and the consumer cooperative movement was born again in Japan. (See sidebar.)

The new post-war cooperative movement in Japan was led by Toyohiko Kagawa, a revered English-speaking Christian who had graduated from Princeton Theology School. Kagawa was well-known in America for his oratory and for promoting cooperatives during the Depression. He had a role in creating a number of consumer cooperatives in the U.S. and Canada. Kagawa became the first President of the Japanese Consumer Cooperative Union, founded in 1951. Consumer co-ops in Japan were important distribution systems during the difficult postwar years of near starvation and food rationing. These co-ops took off in the boom years of the 1970s and spread all across the nation.

From the 1970s to the 1980s, consumer cooperatives in Japan experienced tremendous growth, which paralleled the dynamic growth of the Japanese economy. However, in 1989 the Japanese property bubble burst. As a result, the stock market crashed, the value of property sank, and the economy entered deflation. The economy lurched along for more than a decade. During that time, like other Japanese companies, some of the overextended co-ops had to downsize or seek help. These were tough challenges for the co-ops. They had never laid anyone off nor had to cut programs nor seen organizational failure in their working lives. Then came the Kobe earthquake, which deeply impacted Co-op Kobe. Co-op Kobe was then the thriving flagship co-op, with 1.3 million members and $2 billion in annual turnover.

Retail was in a slump, property assets were falling in value, and the purchasing power of the consumer was being eroded. However, it was not the case that co-ops were ailing while the competition was not. As a result of the weakness of the Japanese economy, the well-known Japanese food retailer Daiei has been flirting with bankruptcy for the past decade. Daiei, also headquartered in Kobe, was the largest retailer in Japan but lost 25 percent of its retail sales from 1998 to 2003.

The pressure on the co-op boards from outside forces forced many CEOs and executive staff out of their positions. Some stronger co-ops took weaker ones under their wing, and new alliances were formed to share staff and to eke savings out of their volume. However, unlike their competitors, cooperatives are governed under a separate cooperative law. That law requires that (a) co-ops can only serve members and (b) a co-op cannot operate outside the borders of its home prefecture. Therefore, a merger of two co-ops cannot be achieved in Japan, because that would mean one cooperative operating in another prefecture; there are 47 prefecture boundaries, which co-ops cannot cross. As a result, cooperatives in Japan have to do some fancy legal footwork when they enter into business alliances with any co-op outside their prefecture.

The future holds challenges for consumer co-ops in Japan. However, they have always been adept at meeting the challenge of change. The cooperatives are leaders in such innovations as organic produce, local sourcing, ethical products, humane practices, recycling, opposing genetically engineered food, and a host of other consumer preferences.

At the same time, the co-ops are facing the changing patterns of their members and implementing a series of major adjustments. The co-ops foresaw the aging of their membership. The young parents who set the co-op on a path to success in the 1970s are now approaching retirement or are caring for aging parents rather than children. The retail co-ops are now providing adjacent “Life Centers” with education and classes, home health care staffing, and services and tools for senior living.

Co-ops are again leading the way in meeting the needs of a changing Japanese society. Because the Japanese co-ops carry an obligation to serve the whole needs and the lifetime needs of their members, we should expect them always to be different and always to be thinking about tomorrow.

Birthplace of Community-Supported Agriculture -- A Japanese Co-op

Japan is considered the birthplace of community-supported agriculture (CSA). The origin of the CSA can be traced to Japan to around 1965. Concerned with the loss of farmland, the diminishing number of farmers and the loss of quality in their daily foods, groups began to form to buy directly from the farmers. Out of this arrangement came the idea of the farmer contracting with the group for them to support the farm.

Robyn Van En describes the contract or “teikei” as meaning partnership, but philosophically it means “food with the farmer’s face on it.” The group that molded the CSA concept is a consumer cooperative called the Seikatsu Club; “Seikatsu” (“life”) means the lives of people. The Seikatsu Club has grown to almost 270,000 members throughout Japan and has an annual turnover of $640 million. Little of their business is done in a retail store, but rather through highly organized informal distribution channels.

Seikatsu Club could be regarded by some as an “idealistic” consumer co-op because its business principles are at the forefront of consumer ethics. They pioneered not only the CSA model but also contracting for “clean and green products” directly from farmers and manufacturers. In 1989, the Seikatsu Club was one of the earliest winners of the Right Livelihood Award, the alternative Nobel Prize.

Japanese Cooperatives -- the U.S. Connection

After World War Two, a key advisor of General MacArthur’s in Japan was a former executive at Farmland-then the largest agricultural co-op in the U.S. This advisor advocated for an agricultural cooperative system that replicated the success in the U.S. And movement was started.

Toyohiko Kagawa had visited the U.S. since the 1920s and was well-known to the U.S. cooperative sector, particularly to the consumer co-ops. After the war, Kagawa was eager for co-ops to rebuild Japan’s war-torn economy and to feed the hungry. He wrote to the Cooperative League of the U.S.A. requesting that the California co-ops host young Japanese co-op leaders. Kagawa felt that if they could learn how cooperatives could operate in a postwar economy, they could bring those lessons home to Japan and help build the Japanese cooperative movement. Through used books sales at the Palo Alto Co-op and the assistance of the Cooperative League Fund for International Development, money was raised to sponsor the visit of two Japanese co-op leaders.

The JCCU sent Masao Ohya to the Palo Alto Co-op and Shigeru Fukuda to the Berkeley Co-op. Later, both of these young men rose to the top of the Japanese consumer cooperative movement. Fukuda became the managing director and Ohya the executive director of the Japanese Consumers Cooperative Union. Ohya took responsibility for the international department of the JCCU and continued to show strong interest in his ties to U.S. co-ops. Ohya and Fukuda never forgot the opportunities provided by the two Bay Area co-ops.

With the strengthening of relations, the Berkeley Co-op and Co-op Kobe formed a sister co-op relationship in 1965 that lasted for nearly 30 years. In 1971 the Berkeley Co-op had 54,000 members and $34 million a year in sales. The Nada Kobe Co-op then had 160,000 members and $100 million in annual sales. Now Kobe has 1.3 million members and does over $2 billion annually.

Kagawa is the only Japanese person whose face is sculpted into the National Cathedral in Wash., D.C. and he was the first Japanese citizen nominated for the Nobel Peace Prize. When the Berkeley Co-op failed, Mr. Ohya commissioned a book, What Happened to the Berkeley Co-op (reviewed in CG #38). Mr. Ohya led efforts on the 100th anniversary of Kagawa’s birth to have the JCCU donate $50,000 to the National Cooperative Business Association. The JCCU contribution was used to create the Kagawa Fund within the Cooperative Development Foundation for student co-ops in the U.S. The establishment of the fund is a fitting legacy to a humble man who stirred the souls of cooperators in the U.S., Japan and many other countries.

Author’s note: I am grateful to Akira Kurimoto, a friend and director and chief researcher of Consumer Co-operative Institute of Japan for providing his writings on the subject of consumer cooperatives in Japan.

See other articles from this issue: #135 March - April - 2008