IEA report sets out proposals for agriculture, post-Brexit
Productivity in the UK agricultural industry has stagnated and UK farming productivity now ranks much lower than international competitors. Director of the IEA’s trade unit and author of this new report, Shanker Singham, illustrates how this is partly down to the distortive effects of the CAP.
The report makes the case that the upcoming Agriculture Bill could set out decisive policy reform in areas such as tariffs and quotas, subsidy support and regulation, with the aim of reducing prices for consumers and increasing the productivity and profitability of UK farms.
The report also looks at regulatory reform, tackling frequently perpetuated myths around food standards if the UK were to strike free trade agreement with the United States. Singham argues that the US does not produce unsafe poultry products, highlighting research which shows poultry-related illnesses are more prevalent in the EU than in the US.
Busting the chlorinated chicken myths
It is often argued that a US-UK free trade agreement means the UK will be forced to open its market to agricultural produce that is dangerous to human and animal health.
New report finds:
• The US does not produce unsafe poultry products; it uses a number of chemicals in Pathogen Reduction Treatments (PRT) that according to the European Food Safety Authority pose no risk to human health.
• Such treatments have the added benefit of protecting human health. Codex Alimentarius – the internationally recognised standards, codes of practice and guidelines relating to food products – conclude that systems of sprays and washes have been “shown to reduce” the prevalence of both Salmonella and Campylobacter in chicken meat.
• Poultry-related illnesses are more prevalent in the EU than the US: Campylobacter is 5 times more prevalent in the EU than the US and Salmonella is almost 1.5 times more prevalent.
• It is not necessary to label food that has been PRT washed under European law, but if there were public concern over labelling, the UK could unilaterally introduce such a requirement.
The EU approach towards animal welfare is prescriptive and rules-based (the enforcement of which has been patchy – with member states such as Italy and Greece failing to comply to certain rules). The US approach focuses more on informing consumer decisions, but this approach has not led to worse outcomes.
• For example, a EU ban on battery cages in 2012 did not lead to an increase in free-range eggs, but to ‘enriched cages’, only slightly larger than basic cages.
• In the US producers have been switching production to free range without compulsory legislation – McDonald’s, for example, announced its intention to go cage-free in 2015.
Key recommendations for a new UK agricultural policy
Many of the food products the UK is not self-sufficient in, such as fresh fruits, also have some of the highest tariffs rates under the Common External Tariff. This results in higher costs for UK consumers and contributes to the cost of living crisis.
Food costs form a higher proportion of lower income households’ budget, accounting for 14% of all low-income household spending, compared to an average of 10.5% across all households.
To lower food bills in the UK after Brexit, the report recommends the UK:
• Lowers tariffs on products that the UK does not have direct competition in or does not produce.
• Uses a mechanism to address distortions in other countries’ markets. The price gap approach could be used to discipline imports of products, where costs are reduced by distortions in the exporting country’s market. In this scenario, the relevant prices to consider would be the import price and world prices, to understand the extent to which import prices are lower than world prices through distortionary policies.
• Negotiates ‘zero for zero’ tariffs in the implementation period with the EU, prior to a comprehensive free trade agreement, with mutual recognition agreements.
Subsidies and support
The report finds that the current support system – including CAP subsidies – is not working to promote a profitable or productive industry.
Statistics from 2016-17 show that around 20% of UK farms failed to make a profit, even after taking account of the Basic Payment Scheme (BPS) support. Over 50% of UK farms were in the lower income category (less than £20,000 of Farm Business Income).
Any changes to subsidies would need to be gradual and carefully managed, to avoid destabilising the industry.
To promote a more productive agricultural industry post-Brexit, the report recommends the UK:
• Transforms the current system of multiple programmes and types of subsidies into a simplified national system of decoupled direct payments to farmers, supplemented by funding directed towards clear objectives after 2022 (once the UK has fulfilled its commitment to maintaining the current level of agricultural funding under the CAP).
• Introduces payments to encourage innovation and enhance productivity. For example, funds could support projects undertaken in collaboration between higher education institutions and the agricultural industry to develop antibiotic and pesticide resistance and new use of technologies.
• Separates out support for environmental remediation and land management from farming activities.
The government could ensure high farming standards are maintained and can look to build on existing systems to promote safe and good quality products. To do so, the report recommends that the UK:
• Ensures that regulations are based on sound science and are not unnecessarily protectionist.
• Considers developing a more rational ‘risk=management’ standard that is based on the balance of scientific evidence (rather than the absence of it).
• Seeks to agree on mutual recognition agreements with the EU, and could be prepared to rely on the WTO Sanitary and Phytosanitary (SPS) / Technical Barriers to Trade (TBT) Agreement to challenge any unnecessary restrictions on trade.
Commenting on the report, Director of International Trade and Competition at the Institute of Economic Affairs and author of the report Shanker Singham, said:
“European agricultural production is among the most distorted in the world. But decades of distortions can be corrected through decisive policy choices around subsidies and supports, tariffs and quotas and regulation, while maintaining defensive measures to protect producers where needed.
“There is a bright future for UK farmers if these policy choices are adopted. Transitional arrangements will be needed, but a more open and liberal farm policy will be beneficial for UK farmers, the food industry and consumers alike.”
Notes to editors:
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To download the IEA’s “Fertile Ground: Opportunities and challenges for UK agriculture” please click here.
Fertile Ground Appendix: Recent and varying IEA content on agriculture policy
Matt Ridley and David Hill: “The effect of innovation in agriculture on the environment”, IEA Current Controversies No 64, 6 November 2018.
Sean Rickard: “Liberating Farming from the CAP”, IEA Discussion Paper No 37, 28 February 2012.
Sean Rickard: “Ploughing the wrong furrow”, IEA Discussion Paper No 75, October 2016.
Patrick Minford and J.R. Shackleton (ed): “Breaking up is hard to do”, Hobart Paperback 181, 2016.
IEA blogs and articles
Philip Booth: “Liberating Farming from the CAP”, IEA Blog, 13 March 2012.
Ryan Bourne: “Brexit could slash food prices – but only if we make it a free-market Brexit”, IEA Blog, 18 October 2016.
Sean Rickard: “Regulation and the cost of food”, IEA Blog, 26 October 2016.
John Blundell: “A one-sided approach to free trade”, The Scotsman, 29 September 2003.
Linda Whetstone (ed): “Reforming the CAP”, Volume 20, Issue 2, 1 June 2000.
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems and seeks to provide analysis in order to improve the public understanding of economics.
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