Cablegate: "Tainted Rice" Scandal Reverberates Through Japan

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UNCLAS SECTION 01 OF 02 TOKYO 002596

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USDA FOR FAS OA, ONA, OCRA AND OFSO/DBREHM
STATE PASS USTR FOR AUSTR CUTLER, BEEMAN, AND HOLLOWAY

E.O. 12958: N/A
TAGS: EAGR ETRD ECON SENV JA
SUBJECT: "TAINTED RICE" SCANDAL REVERBERATES THROUGH JAPAN

1. (U) Summary: Agriculture, Forestry, and Fisheries (MAFF)
Minister Seiichi Ota's resignation on September 19 marks the latest
casualty from Japan's "tainted rice" scandal, following the ouster
of his deputy, Vice Minister Toshiro Shirasu, on September 18. Both
Ota and Shirasa have been widely criticized for their comments that
understated the MAFF's responsibility in the illegal resale of rice
imports for edible purposes that had become contaminated with molds
or pesticides while stored in MAFF-controlled facilities. FAS
attaches raised concerns with MAFF representatives on September 19
that they have not corrected inaccurate local media coverage that
portrays the scandal as a problem with imported rice instead of as a
domestic distribution fraud issue. The scandal has also affected
tenders for U.S. rice and wheat, including those related to Japan's
WTO minimum access requirements. MAFF asserted that it is not
attempting to portray tainted rice as an imported food safety issue,
but that the media is ignoring other explanations for the scandal.
End summary.

A Scandal Boils Over
--------------------

2. (U) A whistle blower on September 5 revealed that Mikasa Foods,
an Osaka-based food processing company, had been fraudulently
selling so called "incident rice" designated for non-human
consumption to food processing and foodservice users since 2003 and
perhaps longer. "Incident rice" refers to rice stored in government
warehouses under MAFF's supervision whose quality is deemed
unsuitable for human consumption due to pesticide residues exceeding
the regulatory limits or to quality deterioration like mold. MAFF
allows "incident rice" (or what the media now calls "tainted rice")
to be sold only for industrial uses such as glue manufacturing.

3. (U) Mikasa bought approximately 1,779 metric tons (mt) of
tainted rice from MAFF and sold most of it to over 370 companies,
which then unwittingly used it to make products for human
consumption, according to MAFF. The list of purchasers includes
sake breweries, confectionery manufacturers, and foodservice
companies catering to day care centers and kindergartens. MAFF has
inspected Mikasa 96 times since the initial whistle blower incident,
but has found no evidence of wrongdoing. New findings have surfaced
in the press on an almost daily basis, including a recent story that
alleges an Osaka-based MAFF official in charge of supervising Mikasa
received unethical gratuities from Mikasa such as dinners with
Mikasa's president. The scandal might extend beyond Mikasa. Media
reports suggest that a starch manufacturer in Niigata prefecture has
also sold "incident rice" to food manufacturers. MAFF officials
told us that the Ministry "is on fire" and that this is its biggest
crisis since the GOJ confirmed cases of "mad cow" disease in Japan
in 2001.

Media: Food Safety vs. Fraud
-----------------------------

5. (SBU) Despite Mikasa's public admission of wrongdoing, Japanese
media is portraying the tainted rice scandal as a food safety issue
and not as the result of fraudulent activities by Japanese companies
and a lack of oversight by GOJ agencies. (Note: According to MAFF,
55 percent of the "incident rice" in question became inedible as a
result of improper or lengthy storage by MAFF; the rice that
received maximum-residue level (MRL) violations entered Japan prior
to implementation of Japan's very strict MRL testing regime; and
testing of rice products known to contain tainted rice have not
revealed unsafe levels of residues. The media has not reported
these findings and MAFF has made no public efforts to counter claims
that imported rice is unsafe. End note.)

6. (SBU) Media reports initially focused on the Chinese origin of
most of the tainted rice. Approximately 337 metric tons of U.S.
rice entered the Japanese market through fraudulent means, but so
far this U.S. component has not received much media scrutiny. About
293 metric tons of Japanese domestic rice has also been implicated
in this scandal. FAS attaches told MAFF that rice imported into
Japan is arguably among the safest globally. It undergoes rigorous
maximum residue level (MRL) testing (four times in total), a level
that exceeds the testing for domestic Japanese rice. MAFF asserted
that it is not attempting to portray tainted rice as an imported
food safety issue, but that the media is ignoring other explanations
for the scandal.

Politicians: The Trouble with Imports

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7. (SBU) Upper and Lower House agriculture committees grilled MAFF
in a special Diet session on September 18 about why it failed to
secure the safe distribution of tainted rice. Committee members
concluded the problem could have been avoided if the rice had never
been allowed entry, arguing that MAFF should rewrite its rice,
wheat, and possibly barely contracts to require any product that
fails MRL testing at a port-of-entry to be re-exported. Under
current regulations, MAFF has three options for handling imported
rice that fails MRL testing: diversion to non-food use, destruction
or re-export.

Tenders on Hold
---------------

8. (SBU) The tainted rice scandal and the political fallout have
put other tenders on hold. MAFF on September 17 put on hold
indefinitely the Simultaneous Buy Sell (SBS) tender for rice --
already four months behind schedule -- and on September 18 the
tender for 55,000 metric tons of U.S. milling wheat. MAFF had
previously assured us that they would conduct the SBS tender for
rice as part of the GOJ's pledge to fulfill its Minimum Access
requirements in 2008 for rice under the WTO. MAFF assured FAS
attaches that it does not intend to erect any additional barriers to
trade and is fully aware of its commitments for 2008.

SCHIEFFER

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