Policy Exchange’s Warwick Lightfoot writes about Brexit’s effect on food prices, in the Daily Telegraph

May 7, 2017

This article was featured on The Telegraph

Earlier this week a House of Lords committee published a report looking at the impact of Brexit on agriculture which set out the challenges that the producer lobbies in British agriculture and food sectors will face when we leave the EU. Nowhere did they recognise that protectionism drives food prices in the EU above world prices.

Leaving the EU gives the UK the opportunity to move towards free trade, thereby reducing food prices and benefitting all consumers, especially those on lower incomes.

The report briefly quotes evidence from Lord Forsyth and Professor Alan Swinbank (a former professor at the University of Reading) which argues that, after Brexit, there will be opportunities to open agriculture to international competition and to lower British food prices.

However, the vast majority of the report is given over to cataloguing the evidence of business lobbies that represent producer interests. As in so much of the speculation about the future of our farming sector, the consumer’s voice is not heard in the report’s conclusions.

Much of the report explores how after the UK leaves the EU, the defective features of the Common Agricultural Policy can be maintained and accommodated within the WTO trade rules. However, liberalisation of these multilateral rules on trade has been blocked by the EU’s failure to lower tariffs on trade in food and agricultural products.

Trade negotiations have repeatedly failed because the advanced economies led by the EU, Japan and US would not give opportunities to developing economies to export the food products where they have a comparative advantage and can compete. The present rules provide opportunities to replicate the protection that has distorted consumer welfare since 1973.

In reality, the CAP’s subsidies and the EU’s high tariffs protect European farmers from competition from more efficient producers in countries such as Australia and New Zealand. This results in a large bill for the taxpayer and higher prices in the shops for the consumer.

This has been the case for our whole membership of the EU: the 1971 White Paper The United Kingdom and the European Communities, which set out Ted Heath’s case for joining the then European Community, “estimated that membership will affect food prices over a period of about six years with an increase of about 2.5 per cent each year”. Our Clean Brexit paper published in January suggested that food prices are now 17 per cent higher inside the EU than they would be outside.

The agricultural tariffs that the House of Lords recognise as being ‘relatively high’ are arresting. EU protectionism means that huge additional expense is imposed on consumers who might wish to buy products from outside the bloc: on dairy products tariffs are 54 per cent, on sugar 31 per cent and on cereals 22 per cent. It is not surprising that food prices in the EU are significantly higher than world food prices.

Yet the House of Lords has been suckered by the sheer volume of evidence from the agricultural lobby (against barely anything from consumer organisations) into regarding this as an acceptable state of affairs.  The Welsh First Minister’s key consideration was the danger of UK producers being “undercut by imports”.

In terms of developing a mercantilist agenda with imagination and flair it is difficult not to be impressed by the evidence from Northern Irish civil servants which looked forward to opportunities for making the UK more self sufficient even in markets where we already produce 75 per cent of what we consume, but neglected to mention the issue of internationally competitive prices.

The CAP and its high protective tariffs have deformed the public policy agenda of the EU since its beginning. It has absorbed the lion’s share of the EU budget. Its subsidies and tariffs have made further progress on international trade liberalisation next to impossible.

The people who are most damaged by this malign policy are low income households for whom food bills absorb 16 per cent of their incomes. The farm subsidies are highly concentrated on major landowners like aristocratic estates and large agribusinesses which get hundreds of thousands of pounds while a Welsh hill farmer receives modest payments closer to £14,000. When we leave Europe we can finally ensure that food and farming policy considers consumers and supports the right farmers.

Brexit is an opportunity to replace the CAP with a British Agricultural Policy that puts value for money for the consumer and the taxpayer at its heart. Subsidies should be focused on public benefits that warrant taxpayer support such as encouraging land management practices which reduce flood risk or improve water and air quality.

The consumer should be given more choice over price, quality, and sources of food and production methods. Rigorous science should determine decisions regulating pesticides and the use of new technology such as developments in climate resistant crops that have higher yields used in countries such as Canada.

Every year the UK exports around £30bn of agricultural produce and imports £60bn.  In recent years 60 per cet to 65 per cent of our exports have gone to the EU and around 70 per cent of imports have been sourced from there. These proportions are significantly higher than for goods and services as a whole (43 per cent and 53 per cent respectively).

These numbers highlight the strength of the UK’s position in a future FTA negotiation with the EU.  In the politically sensitive sector of agriculture, the EU has more at stake, and much more to lose, from any move away from the current open market regime. We should remember this when Brussels plays the kind of brinkmanship games we have seen this week.

Unlike the House of Lords, I am optimistic: after Brexit, consumer welfare will be increased by access to the world’s most competitive suppliers and I believe we will see lower food prices.  It also provides a significant opportunity to raise the efficiency and sustainability of the UK’s farming sector.

Author

Warwick Lightfoot

Warwick Lightfoot
Director of Research & Head of Economics and Social Policy Read Full Bio

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