Regulation and the Cost of Food
26 October 2016
SUGGESTED
Healthcare
Healthcare
27 October 2016
Trade, Development, and Immigration
4 November 2024
Regulation is a feature of a modern economy and it can serve a positive purpose. However, when it comes to farming, amongst industry participants there is widespread concern that regulations surrounding the production of agricultural products have become too burdensome, intrusive and stifling. For British farmers the costs of regulation – only half of which arises from the EU under the Common Agricultural Policy (CAP) – now amount to some £600m per year: adding approximately 5 per cent to production costs.
The authorities argue that the benefits of this regulation outweigh the costs. But they rarely attempt to fully quantify these benefits, and for good reason. Unlike the costs that involve cash payments by farmers, the benefits to a large extent depend on subjective estimates of the value delivered and only in rare cases is this tested by requiring people to actually pay for the claimed benefit. In fact many of these benefits emanate from non-farming, special interest groups who claim to reflect society’s preferences. For example, surveys undertaken by such groups find that in the UK around 70 per cent of consumers are concerned about animal welfare or rate ethical food production as important and therefore regulations in these areas are justified. But such surveys should be contrasted with more general surveys of consumers’ behaviour showing that only 5 per cent of consumers include animal welfare as one of their major concerns when buying food. When it comes to private decisions regarding food purchases the evidence shows that price and convenience dominate. Put simply, when it comes to food, affordability is critical.
I will argue below that estimating the farm level costs of regulation greatly underestimates the longer term impact on the affordability of food. The costs of excessive regulation are long lasting and threaten future generations not only with more expensive food but also paradoxically a higher cost in terms of the loss of natural resources non-farming interest groups seek to protect. Before I explain why this is likely to be the case I must first explain how agriculture got into this situation.
The rising burden of agricultural regulation owes much to the political need to justify high levels of public funding for farm businesses. For its first 30 years the CAP boosted farm incomes by supporting the prices of farm produce above the levels that would have been generated by the market. By the end of the 1980s this system had produced chronic surpluses and the associated costs of storing and disposing of these not only threatened to exceed the Community’s total budget but also it was causing tensions with trading partners and damaging the livelihoods of poorer farmers in other parts of the world.
In 1992 the CAP was reformed: farm-gate prices were allowed to fall nearer market levels and in return the basis of farm support was switched to direct payments i.e., income subsidies. Given the crisis caused by overproduction it was no longer possible to argue that support was needed to maintain production levels. Under pressure from the powerful farming lobby the authorities disingenuously argued that continued support was necessary to deliver environmental protection, high levels of animal welfare and ecological sustainable farming systems. This widening of the basis of support under the CAP inevitably opened the door to the involvement of non-farming interest groups in agricultural policy making and it is their involvement that has proved costly in terms of the scope and volume of regulation.
Well resourced, non-farming interest groups, such as Greenpeace and Friends of the Earth, have not only influenced policy but also they have been the driving force that has caused the authorities to place greater reliance on the precautionary principle when it comes to farming regulation rather than transparent, evidenced based risk assessment. The effect of such pressure is that much regulation is now based on opinion, vested interests and even commercial gain. The effect has been to usurp science while adding unnecessary costs to hard pressed farmers. I noted above that not only do the authorities rarely attempt to quantify the benefits of regulation – and when they do they are both superficial and opaque – but also their evaluations amount to serious underestimates of the longer term costs to society. Studies show that excessive regulation adversely influences farm level experimentation and innovation. And upstream of farming, their effect is to discourage research into new technologies, the effect of which is to reduce the number of new, productivity enhancing, science based products. Put simply, over time the growth of precautionary based regulation under the CAP is likely to result in farm level productivity being lower that it otherwise would be; the direct effect of which will be to make food less affordable than it might otherwise have been. Moreover, it is only via high levels of productivity that the industry’s demands on the earth’s natural resources can be diminished while feeding, at affordable prices, the world’s growing population.
I can demonstrate how excessive regulations threaten the affordability of food with two examples where the precautionary principle has had a significant effect on productivity-constraining regulation; namely, crop protection products, and GM technology. Studies show that precautionary based regulations have greatly increased the cost and uncertainty of turning new knowledge into commercial products with the effect that the development of crop protection in the EU has been arrested. Indeed, let alone development, the precautionary principle has come very close to denying EU farmers glyphosate; the crop protection product most heavily relied on by farmers. Had common sense not prevailed agricultural production in the EU would have fallen sharply causing a corresponding rise in food prices and imports. Crop protection products have been at the heart of productivity growth in agriculture, a process that has lowered the price of food and thereby improved the quality of life across the planet.
Similarly, non-farming interest groups have succeeded in using the precautionary principle to bring about a de facto moratorium on the growing of GM crops in the EU. As this technology spreads around the world with no adverse effects, EU farmers and their customers are denied the benefits. These range from higher agricultural productivity, potentially enormous opportunities to improve the quality and choice of foods while reducing the impact of agricultural production on the environment. Furthermore, the precautionary based attitude of EU regulators has the side-effect of encouraging research institutions and scientists to relocate to other parts of the world where science can be pursued in a more open, supportive environment. The behaviour of non-farming interest groups towards GM technology gives the lie to their claim that precautionary regulation stimulates innovation and alternative technologies.
Sean Rickard is the author of the IEA/Epicenter Discussion Paper ‘Ploughing the Wrong Furrow. The costs of agricultural exceptionalism and the precautionary principle’.
The authorities argue that the benefits of this regulation outweigh the costs. But they rarely attempt to fully quantify these benefits, and for good reason. Unlike the costs that involve cash payments by farmers, the benefits to a large extent depend on subjective estimates of the value delivered and only in rare cases is this tested by requiring people to actually pay for the claimed benefit. In fact many of these benefits emanate from non-farming, special interest groups who claim to reflect society’s preferences. For example, surveys undertaken by such groups find that in the UK around 70 per cent of consumers are concerned about animal welfare or rate ethical food production as important and therefore regulations in these areas are justified. But such surveys should be contrasted with more general surveys of consumers’ behaviour showing that only 5 per cent of consumers include animal welfare as one of their major concerns when buying food. When it comes to private decisions regarding food purchases the evidence shows that price and convenience dominate. Put simply, when it comes to food, affordability is critical.
I will argue below that estimating the farm level costs of regulation greatly underestimates the longer term impact on the affordability of food. The costs of excessive regulation are long lasting and threaten future generations not only with more expensive food but also paradoxically a higher cost in terms of the loss of natural resources non-farming interest groups seek to protect. Before I explain why this is likely to be the case I must first explain how agriculture got into this situation.
The rising burden of agricultural regulation owes much to the political need to justify high levels of public funding for farm businesses. For its first 30 years the CAP boosted farm incomes by supporting the prices of farm produce above the levels that would have been generated by the market. By the end of the 1980s this system had produced chronic surpluses and the associated costs of storing and disposing of these not only threatened to exceed the Community’s total budget but also it was causing tensions with trading partners and damaging the livelihoods of poorer farmers in other parts of the world.
In 1992 the CAP was reformed: farm-gate prices were allowed to fall nearer market levels and in return the basis of farm support was switched to direct payments i.e., income subsidies. Given the crisis caused by overproduction it was no longer possible to argue that support was needed to maintain production levels. Under pressure from the powerful farming lobby the authorities disingenuously argued that continued support was necessary to deliver environmental protection, high levels of animal welfare and ecological sustainable farming systems. This widening of the basis of support under the CAP inevitably opened the door to the involvement of non-farming interest groups in agricultural policy making and it is their involvement that has proved costly in terms of the scope and volume of regulation.
Well resourced, non-farming interest groups, such as Greenpeace and Friends of the Earth, have not only influenced policy but also they have been the driving force that has caused the authorities to place greater reliance on the precautionary principle when it comes to farming regulation rather than transparent, evidenced based risk assessment. The effect of such pressure is that much regulation is now based on opinion, vested interests and even commercial gain. The effect has been to usurp science while adding unnecessary costs to hard pressed farmers. I noted above that not only do the authorities rarely attempt to quantify the benefits of regulation – and when they do they are both superficial and opaque – but also their evaluations amount to serious underestimates of the longer term costs to society. Studies show that excessive regulation adversely influences farm level experimentation and innovation. And upstream of farming, their effect is to discourage research into new technologies, the effect of which is to reduce the number of new, productivity enhancing, science based products. Put simply, over time the growth of precautionary based regulation under the CAP is likely to result in farm level productivity being lower that it otherwise would be; the direct effect of which will be to make food less affordable than it might otherwise have been. Moreover, it is only via high levels of productivity that the industry’s demands on the earth’s natural resources can be diminished while feeding, at affordable prices, the world’s growing population.
I can demonstrate how excessive regulations threaten the affordability of food with two examples where the precautionary principle has had a significant effect on productivity-constraining regulation; namely, crop protection products, and GM technology. Studies show that precautionary based regulations have greatly increased the cost and uncertainty of turning new knowledge into commercial products with the effect that the development of crop protection in the EU has been arrested. Indeed, let alone development, the precautionary principle has come very close to denying EU farmers glyphosate; the crop protection product most heavily relied on by farmers. Had common sense not prevailed agricultural production in the EU would have fallen sharply causing a corresponding rise in food prices and imports. Crop protection products have been at the heart of productivity growth in agriculture, a process that has lowered the price of food and thereby improved the quality of life across the planet.
Similarly, non-farming interest groups have succeeded in using the precautionary principle to bring about a de facto moratorium on the growing of GM crops in the EU. As this technology spreads around the world with no adverse effects, EU farmers and their customers are denied the benefits. These range from higher agricultural productivity, potentially enormous opportunities to improve the quality and choice of foods while reducing the impact of agricultural production on the environment. Furthermore, the precautionary based attitude of EU regulators has the side-effect of encouraging research institutions and scientists to relocate to other parts of the world where science can be pursued in a more open, supportive environment. The behaviour of non-farming interest groups towards GM technology gives the lie to their claim that precautionary regulation stimulates innovation and alternative technologies.
Sean Rickard is the author of the IEA/Epicenter Discussion Paper ‘Ploughing the Wrong Furrow. The costs of agricultural exceptionalism and the precautionary principle’.
SHARE
