Warwick Lightfoot is Director of Research at Policy Exchange and the lead author of Farming Tomorrow: British agriculture after Brexit. He is a former special adviser to three Conservative Chancellors.
The Common Agricultural Policy was the first policy developed by the EEC after 1957 and remains its largest, absorbing around two-fifths of the EU budget. The biggest practical policy questions that the UK confronts as a result of the Brexit decision are what to do about trade and what to do about farming. They are questions that are directly linked.
As the former Greek finance minister Yannis Varoufakis has emphasised, the EU’s economic institutions and policies emerged from political compromises that protected German industrial interests and French agricultural lobbies in the 1950s. They are principally influenced by producer interests. The interest of consumers and wider concerns of economic welfare have always been a secondary consideration.
A protective Common External Tariff raises the costs of EU goods and food in relation to world prices. That was the case in the 1960s when the UK first explored applying for membership and it is the case today. Agriculture is heavily protected by the external tariff. Before 1973, Britain imported food from around the world, from New Zealand butter to Argentinian lamb and canned fruit from South Africa, at world prices. To ensure that farmers could compete there was a deficiency payment regime that topped up their incomes, with the cost borne by the taxpayer.
One of the rub points about applications to join made by Harold Wilson and Ted Heath was that EEC membership would involve an increase in food prices. I have a copy of the 1971 White Paper on EEC membership on my desk, which has been much consulted over the last year, and which is explicit that food prices would rise by around 2.5 per cent for about six years and would end up higher than world food prices. Today, UK food prices are between 15 and 18 per cent above world food prices. This is no accident or oddity of being an island nation with a distinct geography and culture, but the express purpose of the present EU policy.
The high common external tariff on food and the CAP’s subsidies do not simply distort food and farming business but the whole of the EU’s trade policy. The reason why little multilateral progress on trade liberalisation was accomplished in international forums such as the World Trade Organisation, and countries such as Australia began to turn to bilateral free trade agreements, was the EU’s insistence on protecting farming. The result was that other countries with a comparative advantage in agriculture would not agree to the EU’s continuing protection. This stymies progress on reducing trade barriers in manufacturing and services, resulting in further damage top consumer welfare extending beyond farming.
Britain needs a policy for food that starts with the consumer, giving them the maximum choice over price, quality and origin, and this is what Policy Exchange has published today in our new report, Farming Tomorrow. The UK also needs an effective rural policy that protects its distinct and in many ways artificial landscape. Whether it is the hills of Wales and Yorkshire or the landscapes of Devon, there is an aesthetic that people will want to maintain. The reform of agricultural subsidies so that they conform to the rules of the WTO and are directed towards environmental objectives such as water management and maintaining natural habitats is consistent with a fundamental review and reform of the subsidies of the CAP.
Any significant reform of subsidies and tariffs will have to be phased. The average farmer is aged 59. A farm business that has just spent tens of thousands of pound on a new barn or tractor that would be amortised over several years has to be protected from a sudden and erratic change of policy. We need a debate about the sort of policy we want in the future and how we should get there. Brexit will probably speed up a rearrangement of farm subsidies that would have taken place in any event. Many farm experts have come to believe that it is only a matter of time before the Agriculture Commissioner will have to surrender large chunks of the CAP budget to competing priorities. And Eastern European diplomats are very alert to the challenge the WTO’s existing rules present to the long-term durability of the transfer payments their farms currently enjoy.
As our report shows, Brexit presents a huge opportunity for the UK to start making long overdue changes to farm policy that hurts consumers in general and low income families in particular. CAP damages international trade, cramps the livelihoods of low income rural communities around the world and holds back innovation that may be viable in a properly competitive market. The present structure of subsidies protects existing business and makes it hard for younger people and people with different ideas from having a go, while tariffs help to wed large chunks of faming to commodity businesses where they are uncompetitive in international markets. One way or another it is time to move on.