"TAINTED RICE" SCANDAL REVERBERATES THROUGH JAPAN

UNCLAS SECTION 01 OF 02 TOKYO 002596 SENSITIVE SIPDIS 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 TOKYO 00002596 002 OF 002 -------------- ¶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