Could Brexit give us a free market in farming products?

Brexit is an opportunity. The European Union is rife with waste, bureaucracy and subsidies, but Britain now has a clean slate and a chance to re-write policy and pursue a future of free trade and dynamic enterprise by taking the knife to the EU rule books. The EU’s Common Agricultural Policy (CAP) is a good place to start.

The annual budget for the CAP is around EUR 59bn (around 37% of the EU’s budget and EUR 107 per European citizen). The money is spent on direct income transfers to farmers (the Basic Payment Scheme), rural development programmes and market measures (subsidies, purchase of overproduction etc.). The UK’s 212,000 farm holdings enjoyed a total of £2.4bn in direct payments in 2015. The agricultural policy does of course not just consist of transfers from taxpayers to farmers, but of a complex system of tariffs, quotas and standards that protects European farmers from outside competition.

Quantifying the cost to consumers of trade restrictions is not straightforward, but in 2013, the Institute for Economic Affairs estimated that wholesale food prices in the EU were 17% higher than world market prices – the CAP has real costs beyond the generous subsidies from tax payers.

The European consumer is of course not the only loser. Food producers outside the protectionist union are prevented access to a market of more than 550 million consumers. This especially hurts African farmers. At the same time, European over-production is regularly dumped on 3rd world markets, distorting prices and damaging the development of domestic farming industries.

Brexit presents an opportunity for Britain to break with this profligate, protectionist racket. It is however clearly disingenuous to suggest that leaving the EU will reduce food prices in Britain. That of course depends on future policy. History suggests a willingness to act. Successive British governments have argued for a reform of the CAP and a cut to the budget, but has found resistance from special interests impossible to overcome. The French, with an outsized agricultural sector who is the single largest beneficiary of CAP means, often lead resistance to change (though France is a net contributor to the CAP budget). With those hurdles out of the way, will there be political will to take on the British farming sector and reform the system?

The Conservatives included in their June 2017 manifesto a pledge to continue financial support at the current level until 2022 (the National Farmers’ Union have proposed 2023). The intention is to work with the industry to implement a new ‘agri-environment system’, to be introduced in the following parliament. What this new policy will entail is sketchy, but anyone hoping for comprehensive reform may be disappointed. The Agriculture and Horticulture Development Board (AHDB) have predicted that farm income could fall by more than half if the UK reduced subsidies and opened up trade. The farming lobby is unlikely to agree to much change if they expect those kinds of ramifications. However, Australia and New Zeeland have thriving agricultural sectors with very low levels of farming subsidies and a relatively open market (food prices differ very little from world market prices), but productivity at more than 150% of the EU average (2013). The AHDB report encourages farmers to improve productivity in preparation for Brexit, a damning indictment of the status quo where productivity increases are seemingly optional. However, there are other hurdles. When negotiating new, bilateral trade deals, the usual fall-back option of WTO rules provides scant comfort for believers in free trade. Current WTO rules on trade in agricultural products were negotiated in the so-called ‘Uruguay Round’ more than 20 years ago, and saw the EU, as a member, sign up. The CAP is hence designed to comply with the WTO rules, illustrating clearly the impotence of the agreement. Britain will have to do much better if consumers are to enjoy any tangible benefits.

The CAP is recognized by most as a case of pandering to special interests, putting them ahead of the concerns of the general population. The policy is wasteful and regressive, hurting especially low-income Europeans, who spend an outsized proportion of their income on unnecessarily expensive food products, as well as poor farmers in the developing world, where access to European markets could transform local economies.

A change in Britain’s approach to agricultural policy and a move towards a free market in food products provides a litmus test for the political will to take on special interests and deliver tangible change once outside the European Union. It will be years before any new policy has any impact, but the government should start preparing the ground by making clear to the protected British farming sector that the cosy days of subsidized living under the CAP are numbered.

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