Brexit disclosure: food prices can go down as well as up

A few weeks ago the Tesco-Unilever stand-off had the British public trembling at the thought of higher Marmite prices and the Bremainers (or Bremoaners, if you will) feeling vindicated as their prophecies of impending doom felt a bit closer to fulfilment. The prophecy of higher consumer prices does of course not solely rely on a weak sterling, but also on tariffs on imports from the EU and the higher labour costs that will result in farming and manufacturing from a curb on EU immigration. Nick Clegg warned of a ‘triple whammy’ of customs, tariffs and workforce shortages.

The irony is of course that the EU’s Common Agricultural Policy (CAP) has for years saddled UK consumers with not lower, but higher food prices. The Institute for Economic Affairs estimates this EU food premium to be 17% and that’s without including the cost of massive subsidies. The arguments for the CAP includes food security, rural commitments and variety (?), but no-one can be in any doubt that ‘rural commitments’ override other concerns; in reality the CAP only serves the interest of the 3% of the EU populace employed in farming. Though the share has been falling, CAP still incredibly makes up more than 30% of the EU’s budget. Now, there is every chance that Brexit will not lead to a cut in British farm subsidies (so far the government has guaranteed Brussels level funding until 2020), but that won’t be because Britain left the EU, rather it will be a legacy of having been part of it in the first place.

In general, the free trade argument made by the Bremainers sounds hollow. The EU has trade agreements with around 50 countries, but recently failed to conclude negotiations on the Transatlantic Trade and Investment Partnership (TTIP) with the USA. Agriculture was a major stumbling block. Talks with Canada hit a bump when staunchly socialist Wallonia led a group of three Belgian regions in a revolt after concerns about the deal lacking environmental and health standards, giving multinationals ‘too much’ power and (you guessed it) threatening the regions dairy farmers.

Outside the EU, the UK can in theory pursue trade deals without a powerful agricultural lobby and other vested interests scuppering the deals. Unfortunately, one has to admit it is likely that domestic vested interests will be there to pick up that particular baton and the obvious alternative of adopting WTO trade rules is hardly a free trade nirvana anyway. Hard negotiations lie ahead.

Whatever the arrangements, the importance of the EU as a trading partner is dwindling. In 2015 44% of UK exports went to the EU, and the share is likely to fall whether in our out. The European Commission itself estimates that over the next 10 -15 years, 90% of world demand will be generated outside the EU.

That said, trade with the EU countries will continue to be of significant importance to the UK. It is possible that a moribund EU will eventually have to open up to the world, tackling decade old privileges, primarily in agriculture, in the process. But any attempt to address these issues has so far never had much traction, as the French are vehemently opposed. It is likely that the French will rather see continued economic decline than tackle the farming privileges. Therefore, the truth is that leaving the EU may very well result in tariffs on trade with the EU, despite the blatantly obvious mutual benefits of free trade. The question to ask oneself is: given that the EU is a protectionist organisation, only promoting free trade between member states, in the long run would you want to be a member of such an organisation or not?

We will have to wait for the outcome of the Brexit negotiations to pass judgement on the consequences, but it is clear that there is nothing anti-trade in Brexit as such. It is up to the UK to make the most of the opportunity the vote has created. It can be wasted or lead to a new, prosperous free trade future. In the long run, though, one thing it is unlikely to lead to is higher food prices.

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