British Agriculture Post Brexit

October 8, 2016

Brexit gives Britain an opportunity to think afresh about many things. We can think about our place in the world, how we go about maximising the benefits of international trade, and how we support sectors such as rural communities and farmers. In many respects, agriculture and the future of policy for rural communities exemplify the opportunities that Britain will have to refashion policy. There is an important and overdue opportunity to work up policies that better suit the particular circumstances of the UK and diverse rural communities. Governments in London and the devolved nations will have the historic opportunity to end one of the most defective agriculture polices constructed in advanced economies.

The Common Agricultural Policy, the CAP, was recognised as flawed and hugely inefficient from its inception in 1960. It was a policy so defective that the German Economics Minister at the time, Ludwig Earhard, the father of the post-war German economic miracle, warned Konrad Adenuer that it was a hugely expensive and distorting policy. The CAP has been expensive for consumers because it imposes high tariffs to keep cheap food out, and expensive for taxpayers because it also provides generous subsidies for farmers.

There are profound questions about — whether in a modern economy, such as the UK — farming as an economic activity should enjoy protection from competition, and taxpayer support to maintain farm incomes. Even if the electorate wanted to make support of high farm incomes, agricultural production, and food security their principal economic priority, politicians acting rationally would not construct a policy like the CAP. It would probably be something more like the former deficiency payment regime that the UK had before 1973, supported by special payments for hill farmers and certain categories of production, such as the sheep meat regime. These polices would be expensive for the taxpayer, but they need not damage the consumer, provided food can be imported from around the world.

The defect of the CAP was both to subsidise the farmer and impose costs on the consumer through high tariffs. The OECD, for years, has been clear that it should be possible to reform the CAP in a manner that would give the average farming household higher levels of income, and cut the prices for consumers in the shop and the cost to the taxpayer. The fact that economists can seriously speculate about a ‘hat-trick’ of potential gains, illustrates the egregious defects of the CAP, and the welfare losses it imposes on EU economies.

The EU common external tariff makes food prices about 20 per cent higher than world food prices. Only 75 per cent of the spending under the CAP reaches a farming household or business. And of the money that reaches a farming household, 80 per cent of it goes to the top ten percent of farming households by income. The average support per famer is about £24,400. A hill farmer gets about £14,700 a year, while, in recent years, the Earl of Plymouth received some £669,000, the Duke of Devonshire, £260,273, and the Duke of Buccleuch, £251,729. The great aristocratic estates and large agricultural businesses receive the largest share — 60 per cent of the CAP’s subsidies — rather than the smaller traditional farms that might be considered to merit non-market support for wider reasons of social policy: supporting rural communities and helping households with low incomes.

Sensible policy would not start from here. We need to think again. We need to identify what our social and political priorities are, and then identify the most efficient policy instruments for achieving them at least overall cost. It is likely that we will have environmental objectives, a concern to maintain the rural landscape as a merit good, a desire to help traditional smaller low income farming households, and that we will want to give careful thought to the position of farms in difficult locations, such as the hills farms.

Brexit also gives the UK the opportunity to look again at the science of modern farming. We need to think again. The EU’s approach to GM crops has been shown to be scientifically defective. The Commission would like to change its policy but has been blocked by the Parliament. The Commission’s approach to the regulation and licencing of pesticides has a major impact on agricultural and horticultural businesses. It has recently introduced a ban on certain products to protect bees. The UK Government does not agree with the scientific evidence base used to support the measure that is having a significant effect on crop yields. The House of Commons Environmental Audit Committee has described the process for approving pesticides as ‘opaque’. In making these policy decisions, science and the evidence base should be the determining criterion for deciding policy — and the process should be transparent and contestable.

The CAP has blighted progress with multilateral international trade liberalisation for more than a generation. Subsidies for sugar production, the growing of so-called sugar beet have done this, and the generosity of the EU subsidies have made significant progress on liberalising trade next to impossible. The countries that have been damaged are emerging market economies, which have a comparative advantage in agriculture, not least the Caribbean islands. We must ensure that we have a farm policy that is consistent with a liberal trade policy.

There are very few areas of policy where it is possible to be confident that they can be significantly improved to the benefit of taxpayers, consumers, and the great majority of businesses in the sector. It is a measure of the distorting character of the EU CAP that such an agenda of reform would appear to be plausible.

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