TOKYO, June 24 (Reuters) - Prime Minister Shinzo Abe will announce steps aimed at weakening Japan's powerful farming cooperative as part of a reform package on Tuesday, but the plan has been watered down after lobbying and lacks details.
Critics say the diluted measures mean the government is losing an opportunity to revive the country's moribund farming sector, suggesting a long called for shake-up of Japanese agriculture remains a distant prospect.
It could also be missing the chance to make significant changes to the most powerful critic of its efforts to join a trade agreement with other Pacific nations.
Abe will announce a so-called third arrow of reforms, following the first two arrows of monetary easing and fiscal spending to end deflation and nearly two decades of stagnation. Reforms unveiled last year failed to excite investors and led to a decline in Japan's stock market.
Abe had promised to take a drill bit to the "solid rock" of vested interests such as the Central Union of Agricultural Cooperatives which oversees about 700 regional farming cooperatives, with a cabinet reform panel in May calling to abolish the group, known as JA Zenchu.
But the plan's final draft - released last week and expected to remain largely unchanged on Tuesday - simply says the body should reorganize itself within five years, with the government to submit related legislation next year.
"These proposals are heavy punches, but they will only sting, not stop the group," said Hiroyuki Kawashima, an associate professor in the global agriculture department at the University of Tokyo.
Reforming the cooperative is seen as the first step in changing Japan's heavily protected agricultural sector, with the aim of boosting exports to 1 trillion yen ($9.8 billion) in 2020 and 10 trillion yen in 2030 from about 550 billion yen last year.
With licenses to operate banking and insurance business, JA differs from North American and European cooperatives that generally only buy and sell agriculture-related goods.
JA's banking business alone boasted nearly 83 trillion yen ($810 billion) in assets as of September 2013, putting it on a par with so-called megabanks in the country such as Mizuho Financial.
That financial clout and the group's large membership, which also includes part-time and non-farmers, give it influence over lawmakers in constituencies outside cities.
But JA has been criticized for being too uniform in its approach to agriculture and stymieing innovations by farmers, while focusing on its profitable banking and insurance arms.
Proponents of change say JA's business model has not altered significantly since it was set up shortly after World War II when there was a need to closely manage the country's food supply, and that change is long overdue.
The group has also been the biggest opponent of Japan joining the Trans-Pacific Partnership with the United States and other nations.
The government wants to transform a sector faced with declining production, largely from small-scale family farms.
It hopes to build on plans announced in November to phase out a 40-year-old policy under which the government paid farmers in exchange for reducing rice output to protect prices.
Under the latest measures, it expects to boost the number of corporate farmers to 50,000 in a decade from about 15,000 last year.
The reforms allow for non-food companies to take almost 50 percent stakes in farming entities, up from the current 25 percent, a measure that should increase the allure of farming for companies.
The government also hopes to set up investment funds to sponsor new growth areas in fisheries, farming and forestry.
And it aims to open membership of local agricultural committees to people outside JA, reducing the power of the cooperative.
But many details remain sketchy, and the final version of the growth strategy is unlikely to tackle key issues such as how to solve the problem of a rapidly aging workforce.
"The government is getting tough with JA through these reforms, but I think only half of the changes will materialize, since JA is going to fight tooth and nail against them," said Nobuyuki Chino, president of Tokyo-based Continental Rice Corp. ($1 = 102.0500 Japanese Yen)
(Reporting by James Topham; Editing by Aaron Sheldrick and Joseph Radford)