Liberating farming from the CAP

The country has recently been asked to celebrate the beginning of “Fairtrade Fortnight”. Fairtrade is a private certification scheme that, according to the Fairtrade Foundation, brings benefits to poor farmers who provide us with our coffee, cocoa, cotton and other staples.

In return, consumers in the UK may have to pay a bit more in the supermarket. As it happens, I am a fair trade sceptic, though I welcome such private certification schemes in general. David Cameron is fully signed up to fair trade as part of his attempts to “de-toxify” the Conservative brand.

But, what if I were to offer you a policy that could dramatically cut your food bills, reduce your taxes and provide a better deal for farmers in poor, under-developed countries? That really would be something worth fighting for. Such a policy is on offer, if only the EU would consider radical reform of the Common Agricultural Policy (CAP).

After a long period of relative decline in food prices, there was a commodities boom in 2007 which led to a huge increase in prices. These price pressures may well not ease, unless we change policy.

Indeed, over the coming years, the world’s population will increase and citizens of the once-poorer nations will start to eat more meat and will have a bigger intake of calories. These factors may cause a doubling of food demand over the next 40 years, but it is likely that the area of land under cultivation world-wide will increase by only about 10 per cent. In order to prevent enormous increases in food bills, we need to substantially increase the efficiency with which land is used.

Interestingly, since 1945, the typical UK wheat farm has tripled its production per acre. However, in the last twenty years improvements in crop yields have ceased. If we are going to get agricultural productivity on an upward track again, we need radical reform.

The objectives must be to ensure that farms are not encouraged to operate below a technically efficient capacity and that agricultural policy does not encourage farmers to allocate resources towards crops that are not those most valued by consumers.

Unfortunately, the EU’s CAP encourages gross inefficiency. EU policy discourages investment in research and development and also encourages farms to remain small. This encouragement for small farms also discriminates against the UK.

A paper published by the Institute of Economic Affairs last week suggests that the CAP should be more-or-less scrapped.

Farming lobby groups maintain that EU policy has certain advantages. They argue, for example, that it encourages environmental protection and bio-diversity. However, research seriously questions this assertion.

The EU currently spends about £35bn on direct payments to farmers, though only a little more than £2.5bn of this flows to the UK – the CAP is a net drain on the UK taxpayer.

These subsidies should be abolished. There has never been a better time for agriculture to stand on its own two feet and we should take this opportunity to wind up the CAP.

Indeed, reform may not affect farmers greatly. EU subsidies often end up being capitalised in agricultural land values which have risen by 400 per cent since direct farm payments were introduced 1992, compared with general inflation of about one tenth of that rate.

Indeed, New Zealand’s experience suggests that farmers could benefit from the removal of subsidies. When subsidies were abolished there, farmers moved into higher value-added products and there were huge improvements in supply chain efficiency. Wine, apples and kiwi fruits became major export industries as a result of New Zealand policy.

Technology also has to be liberated. We will not feed the world with a luddite attitude. If the EU remains luddite while the rest of the world discovers the efficiencies of new technology, we will suffer hugely.

The author of the IEA work points out that the EU talks about being the world bio-technology leader and about fighting hunger whilst maintaining environmental standards.

At the same time, it stands at the most restrictive end of the regulatory continuum regarding genetically modified (GM) products. If GM is embraced it could lead to huge increases in productivity over the coming generations – as well as resistance to disease and drought which are big risks for farmers.

Government policy changes are often seen as zero sum games. Radical reform – indeed abolition – of the CAP could be a win, win, win situation. EU taxpayers will save £35bn. It will cost UK farmers very little – especially when you take into account how the cost of land is affected by subsidies.

UK farmers will be encouraged to move up the value chain and farmers in poor countries will be able to compete on a level playing field. These policies, together with the liberation of technology, will also ensure that the pound in your pocket goes further.

This article was originally published in the Yorkshire Post.

Philip Booth is Senior Academic Fellow at the Institute of Economic Affairs. He is also Director of the Vinson Centre and Professor of Economics at the University of Buckingham and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham. He also holds the position of (interim) Director of Catholic Mission at St. Mary’s having previously been Director of Research and Public Engagement and Dean of the Faculty of Education, Humanities and Social Sciences. From 2002-2016, Philip was Academic and Research Director (previously, Editorial and Programme Director) at the IEA. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. He is a Senior Research Fellow in the Centre for Federal Studies at the University of Kent and Adjunct Professor in the School of Law, University of Notre Dame, Australia. Previously, Philip Booth worked for the Bank of England as an adviser on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.

2 thoughts on “Liberating farming from the CAP”

  1. Posted 13/03/2012 at 15:49 | Permalink

    SCRAP the CAP!

  2. Posted 17/03/2012 at 18:38 | Permalink

    Government subsidies are immoral as well as ineffective. Please use both arguments in the future.

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