Oil-Dependent Japan Tries Turning Rice Into Fuel

NIIGATA, Japan -- For decades, Yasuji Tsukada has meticulously tended histerraced rice paddies to grow top-quality rice for Japan's demandingconsumers.

Now the 60-year-old farmer faces a new challenge: Grow a new type of ricebut spend as little money and labor as possible and ignore its taste andappearance.

Mr. Tsukada is among the 360 farmers in this renowned rice-growing region incentral Japan who are on the forefront of an effort to develop a new type ofbiofuel. A group of Japanese farmer cooperatives, with some governmentfunding, started a project last year to turn rice into ethanol, a fuel thatcan be mixed with gasoline to power automobiles. The cooperatives have askedfarmers such as Mr. Tsukada to start growing cheap, high-yielding rice to beprocessed at what could be the world's first rice-ethanol plant, to openearly next year. The group hopes the experimental factory -- half of whosecost is to be paid for by the government -- will help it determine if riceethanol is technically and financially feasible.

On the northern island of Hokkaido, Oenon Holdings Inc., analcoholic-beverage maker that started out as a sake brewery, is buildinganother rice-ethanol plant, also with government assistance. The technologyneeded to turn rice into ethanol -- also know as grain alcohol -- is verysimilar to that used to make sake. An Oenon spokesman said the company wantsto see over the next five years whether the project will be profitable.

For now, the cost of growing rice is too high to make rice ethanolcommercially profitable for farmers, unless the government increasessubsidies.

Oil accounts for 44% of Japan's total energy needs, and nearly all of itsoil is imported. With oil prices rising, the country is eager to diversifyits sources of energy.

While the country imports most of its raw materials and food, it isself-sufficient in rice production, and even has a surplus. A change in theJapanese diet has significantly reduced rice consumption over the pastdecades, but government subsidies and farmers' persistence have kept ricefarming popular. Warehouses are brimming with rice and the countryside isdotted with rice paddies left fallow or converted temporarily to other cropsto prevent overproduction.
"We have the land, people and technology to make this happen in Japan," saysShigenori Morita, a professor of agriculture at the University of Tokyo. Heestimates Japan could make up to one million kiloliters (264 milliongallons) of rice-based ethanol annually -- the equivalent of 1.7% of itsgasoline consumption -- by planting crops in idled rice fields. The initialproduction will be tiny; the new ethanol plant in Niigata will make just1,000 kiloliters of ethanol a year. The output will be mixed with gasolineand sold at local farmer cooperatives' pumps.

Backers of the experiment say large-scale Japanese rice-for-fuel productionwon't push up prices, as has been seen elsewhere in the diversion of cornand sugarcane for ethanol production.

As global biofuel output increases -- rising annually by the equivalent ofroughly 300,000 barrels per day of oil -- researchers are looking to developbiofuels that use nonfood crops, such as switchgrass and jatropha, to avoidfurther driving up food prices. But because Japanese rice is expensive -- aresult of high production costs and government price controls -- little isexported, and the market is largely self-contained.

Prof. Morita says biofuel rice would contribute to the environment and foodsafety in Japan by adding greenery to the rural landscape and helping keeppaddies in good condition for possible future reconversion to food-ricegrowth.

But the same things that shape the Japanese rice market -- notably highcosts and inefficiencies -- could pose problems for large-scale rice-ethanolproduction. Most farms are small, family-run operations with just a fewhectares of land. (A hectare is 2.47 acres.) And many rice paddies aredivided into small lots or laid out in terraces on the sides of mountains,making automation difficult.

Mr. Tsukada had already stopped growing rice for consumption on about threehectares of his 30-hectare farm to qualify for government subsidies. Hetried to grow soybeans but the land is too wet and the quality and size ofthe crops have been less than satisfactory. So when the local farmerscooperative suggested planting rice for ethanol last year, Mr. Tsukada, whoworks his land with his wife and son, was happy to give it a try.

After a fairly successful fall harvest, Mr. Tsukada has allocated more landto the special rice. He planted the seedlings last month. "They've told usover and over again to switch to soybeans and start growing vegetables,"says Mr. Tsukada. "But I'm a rice farmer and I'd rather stick with rice if Ican."

Mr. Tsukada has started growing Hokuriku 193 rice, a high-yielding breedthat was developed as animal feed. Its stalks grow tall and thick and itsoutput could be as much as 70% higher than the average Japanese rice plant.The biofuel factory in Niigata will use the rice grains to produce alcoholand will power its production machinery using rice husks.

Mr. Tsukada sold his fuel crop at 20 yen per kilogram last year, comparedwith 230 yen for high-grade food rice. This pays just a small portion of hisproduction cost. For now, temporary incentives and subsidies cover some ofthe balance, but he thinks he will still come out behind.
"I'd be happy to keep growing biofuel rice," says Mr. Tsukada. "I only wishthey will give us a better price."

Write to Yuka Hayashi at yuka.hayashi@wsj.com