[Skip to Content]

Register to receive the weekly OMFIF Commentary, on the stories behind global economic and financial news.

* Required Fields

Member Area Login

Forgotten Password?

Forgotten password

Analysis

Setting farmers free

Britain should allow food trade liberalisation 

by Brian Reading

Wed 16 Nov 2016

Brianreading -banner

During the UK referendum campaign, many misleading claims were made about Britain’s contributions to the European budget. Put simply, Britain pays a lot into the European Union pot and gets almost all back. The issue is who should decide how the money is spent, Brussels or Westminster? Farmers are the most heavily subsidised by Brussels. Escape from the Common Agricultural Policy was ignored.

The CAP is significant for Britain and the EU. Since the 1960s European farmers have been subsidised by taxpayers and consumers. No other industry enjoys such benevolence. In the 1980s British farmers fed cattle with offal from dead cows. This caused BSE, bovine spongiform encephalopathy – ‘mad cow disease’. It spread through the food chain to humans, with fatal results. Infected cattle were slaughtered and farmers paid compensation for desisting from killing consumers. Automaker Volkswagen would be delighted to receive taxpayer compensation for scrapping pollution-cheating diesel cars.

During and after the second world war starvation was rife in Europe. Food security became a priority. Farmers were given production subsidies, and told what to grow or livestock to rear. National systems differed, but free trade required harmonisation. The CAP was introduced in 1962 for the original six EC members. Subsidies were based on production – the more you produced the more you were paid. Guaranteed minimum prices were set. Over-production surpluses were bought and stored – called ‘butter mountains’ and ‘wine lakes’. Tariffs were placed on cheaper imports to match the minimum guaranteed prices. Regulation was handed to the European Commission and costs were paid out of national contributions to the community budget. The CAP initially cost 80% of the budget and has now shrunk to 40% – still big money. Inevitably, some members became recipients on a net basis and others paid for cross-border farmers’ handouts.

The CAP was a deal between France and Germany. France accepted manufacturers from the large and efficient German industry. Germany paid for the many small and inefficient French farmers. Britain had a large, but backward, industry and efficient farms. The idea was that British industry would become more efficient due to competition. I suggested to Prime Minister Edward Heath in the early 1970s that making farmers inefficient would be easier, growing grapes on the north slopes of the Yorkshire moors and farming the EU subsidies. He was not amused.

Production quotas replaced unlimited payments to prevent over-supply. Telling farmers what to produce went out. Today the emphasis has shifted. Guaranteed minimum prices have been substantially reduced. Instead, a single payments system provides subsidies determined by how much land is said to be farmed, conditional upon maintaining environmental, food safety and animal welfare correctness. Livestock must not suffer before we kill and eat them.

Great landowners operating through farming companies receive the most support. The objectives have changed to preserving rural life and providing farmers with minimum stable incomes. Some farm the EU taxpayers by cheaply buying up useless land for the subsidy. This is reminiscent of Catch 22 where Major Major’s father was paid not to grow alfalfa. He used the payment to buy up land on which not to grow it. He ended up not growing the most alfalfa in America.

The CAP is disastrous for free trade negotiations. EU tariffs on food imports are at least 18%. Developing countries are shut out. The World Trade Organisation’s Doha round of trade negotiations stalled owing to agricultural protection. In the UK, green belt protection from urban development exacerbates the housing crisis. Farmers stand to benefit from relaxed controls. What they lose in subsidies will be offset by their gains in land values. Brexit should allow free trade in food. Perhaps an Anti-CAP Law League should try to emulate the successful British 1838-46 Anti-Corn Law League. That would be another positive effect of Brexit.

Brian Reading was an Economic Adviser to Prime Minister Edward Heath and is a Member of the OMFIF Advisory Board.

Tell a friend View this page in PDF format

0 Comments -