Richard Ali is an agricultural economist and a former Parliamentary candidate.
The Prime Minister has spoken. The UK will negotiate its exit from the European Union with a clean sheet of paper. It is a “foundation” as opposed to a “renovation” approach.
This approach will be particularly instructive for British agriculture and its customers; food manufacturers, retailers and consumers, not to mention taxpayers. After all, 39 per cent of the EU’s budget is related to agriculture and rural development through the EU’s Common Agricultural Policy (CAP), and EU farm subsidies currently make up around 50-60 per cent of UK farm income. Between 2014 and 2020 the UK was expected to receive €25.1 billion in direct payments and €2.6 billion in rural development funds for the environment and rural development. In broad terms that’s a total of just over £3.4 billion each year (at current exchange rates). In 2015 (at pre-referendum rates), the UK received a total of £3.1 billion. In any event, the majority of the UK’s EU receipts are through the CAP.
The CAP provides support to farmers through its two pillars. Pillar 1 provides direct subsidies and market support (price safety nets). In return, farmers must meet cross compliance rules covering areas such as animal husbandry, crop rotation and farm management. Many of these regulations are said to provide the public goods that justify taxpayer support for farming.
Pillar 2 funds wider rural development projects, including capital grants for such things as rural tourism and broadband provision. At least 30 per cent of Pillar 2 funds must be spent on environmental measures. The UK is able to co-fund Pillar 2 programmes. Under the rules, member states can move up to 15 per cent of their allocation from Pillar 1 to Pillar 2. These transfer rates (modulation in EU-speak) is devolved in the UK.
One might have expected farmers to have voted to remain, but polling by Farmers Weekly showed that not to be the case. EU regulation is likely to be the main reason for this.
So what will the “farming foundation” need to consider?
The first is the need for an overall vision for farming. Do we want a New Zealand model of little or no support or a Norwegian model of high levels of support designed to keep farmers on the land? Do we want lower or higher levels of state regulation? Do we want to pursue a policy of international trade or one of autarky? What sort of countryside do we want to see, and who should pay?
The second is the question of future levels of payment support and what tools will be used. In reality, this means levels of support after 2020, as Government has already provided certainty and made clear that there will be no changes before this date. Linked to payment support will be the question of cross compliance. Expect farmers to argue for lower levels of regulation and bureaucracy but in combination with continued support payments, and for conservation bodies to seek more stringent requirements in return for taxpayer payments.
The third is the interrelated question of trade. After all, higher tariffs mean higher levels of effective support to farmers, while increased access under freer trade agreements generally means lower prices to manufacturers, retailers and consumers but hence lower farm gate prices to domestic producers. But it is not all about tariffs. Issues around production standards play a major role in international trade. The World Trade Organisation’s Technical Barriers to Trade (TBT) and Sanitary and Phytosanitary (SPS) agreements encourage international harmonisation of food standards and the use of equivalence and mutual recognition to facilitate trade.
Harmonisation is the uniformity of measures on an international basis. For many reasons, not least differences in perceptions of risk, harmonisation is not always necessary or possible, with equivalence and mutual recognition used as alternative trade facilitating techniques allowing for regulatory differences.
The concept of equivalence is based on the fact that regulatory goals, in relation to health and food quality, may be fulfilled by the use of different kinds of measures. Thus countries mutually accept each other’s food control and inspection systems as equivalent in order to ensure compliance with applicable regulations and standards.
Mutual recognition means that two or more parties mutually accept each other’s rules. The classic example of this is the “Cassis de Dijon doctrine”, under which a product lawfully produced in one EU member state must be accepted into another EU member state. It means that national food legislation cannot be invoked to prevent trade unless necessary for genuine reasons of public health.
I raise these issues because they will have very direct affects upon the degree to which freer trade agreements with countries such as the United States can be negotiated. We only have to look at issues such as GMOs to understand the complexities of trade in food.
The fourth area is UK agriculture’s need for seasonal labour supplies. The Defra Secretary, Andrea Leadsom has already indicated that arrangements will be put in place, so there seems no reason to dwell on this area.
The fifth involves rural development and the provision of capital for projects. If capital grants are available, should they be for individual entrepreneurs or only for group applications? If only for groups, will British farmers be able to overcome their historic resistance to working together?
Finally, I am convinced there will need to be a greater focus on the structure of UK agriculture. Are we happy to see larger farms or are we willing to support smaller enterprises? Do we want to support farming in the uplands and on marginal lands? Do we want farmers to earn more of their income beyond the farm gate? Does that necessitate more farmer-owned businesses, and does that mean more co-operatives as seen in many of our trading partners?
There are already myriad views on what our countryside, and with it our farming and food supply chain should look like outside the CAP. There are undoubtedly opportunities to be seized as we leave the CAP. Achieving them will need both a strategic vision and attention to detail. Conservatives must be at the forefront of the debate.