JAPAN Trends and Developments Contributed by: Yasunari Sugiyama, Miki Tsubono, Kenya Suzuki and Mayu Okada, Nishimura & Asahi
land that has five or more years of experience as an approved business operator receives approval from the Minister of Agriculture, Forestry and Fisheries for a plan to develop agricultural management ( nougyo keiei hatten keikaku ) through collaborative measures with food business operators or regional bank funds (collectively, “Permitted Food Business Partners”) via investments from those partners, the voting rights requirements will be relaxed. In such cases, agri- cultural business operators need only own one third or more of the voting rights in the corporation (and the entity will be known as a “Certified Management Development Corporation”), on the assumption that agricultural business operators and Permitted Food Business Partners will hold 50% or more of the total voting rights. These exceptions have allowed an influx of outside capital, but only from Permitted Food Business Part- ners with which the agricultural businesses have busi- ness relationships. However, the decision to transfer the rights to cropland and to appoint and dismiss directors of agricultural operators must be approved by a special resolution of a general meeting of share- holders, and control over cropland is still left to a per- son who regularly engages in agricultural business ( jyoji jyuji - sha ). Other than Permitted Food Business Partners using the aforementioned special provisions in connection with the voting rights requirements for Corporations Qualified to Own Cropland, enterprises entering agri- business may not hold more than one half of the vot - ing rights in Corporations Qualified to Own Cropland. This means that enterprises that become involved in agribusiness are not able to make decisions on their own through the exercise of their voting rights at a general meeting of shareholders or the board of direc- tors, which are the decision-making bodies of com- panies under the Japanese Companies Act. Instead, they must entrust decision-making to a person who regularly engages in agricultural business ( jyoji jyuji - sha ), when dealing with a non-public stock company, which is the type most often used as a Corporation Qualified to Own Cropland. However, strategic companies often wish to secure a certain level of control over the governance of the
companies in which they invest. One method of ensur- ing the desired level of control over the governance of an investee company is the execution of a share- holder agreement with one or more other sharehold- ers, which contains a penalty for breach of the share- holder agreement, in addition to provisions governing the right to appoint directors, veto important matters, and other governance rights that are stronger than the voting rights held by the investing company under the Japanese Companies Act. Method of participation in agriculture: use of non- cropland The Cropland Act only restricts the acquisition of “cropland” and does not restrict the entities that implement “agriculture”. For this reason, enterprises may also construct fully enclosed plant factories by using “non-cropland” for agricultural purposes. Plant factories with strict environmental controls are becoming increasingly important in Japan’s agri- business sector. As of 2024, the production value of horticultural crops amounted to JPY3.9045 trillion, accounting for approximately 40% of Japan’s total agricultural output and making these crops a key agri- cultural category. While the number of horticultural farmers has been declining annually, due to ageing and other factors, the total area of horticultural facili- ties measuring one hectare or more in size has con- tinued to grow, and the number of highly controlled plant factories has also been increasing year on year. The introduction of innovative technologies, such as AI-powered harvest forecasting and robotic harvest- ing, is also being promoted to improve productivity and expand the scale of horticultural facilities. Since 2020, the Japanese government has provided support for the transition to data-driven smart greenhouses. Application of the Cropland Act to plant factories Although the definition of “plant factory” varies based on context, plant factories generally fall within one of two categories: Plant Factories (Indoor Farms) Market overview: plant factories
51 A GRICULTURA L LAW 20 26
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