Phase out agricultural subsidies – a better deal for everyone
Leaving the EU means leaving the Common Agricultural Policy (CAP) which provides an unprecedented opportunity for far-reaching reforms of Britain’s farming subsidies. Protectionist regulations aimed at keeping the price of food artificially high are not just harming consumers; by hampering Britain’s growth through inefficient wealth transfers to producers, they’re harming everyone.
Economists notoriously disagree on almost everything. Yet one of the few areas in which a broad consensus exists across completely different schools of economic thought is free trade. The case for free trade in agriculture is no less clear-cut than in other sectors – according to OECD estimates, the price of food in Europe between 2001 and 2010 has been on average 16 per cent above world market levels.
The most frequently cited example of agricultural liberalisation is New Zealand, where the sector was rapidly liberalised while state support was withdrawn. Between 1983 and 1989, agricultural subsidies were cut from 3.8 per cent of GDP to 0.4 per cent. The total value of producer support, which also includes the value of protectionism, fell from 33 per cent of farm revenues to 5 per cent. Subsequently, the sector underwent a difficult period of restructuring and readjustment, consisting of technological and organisational changes, and a better alignment of agricultural activities with the country’s comparative advantages. The ascent of New Zealand’s successful horticulture and wine industries has been linked to the removal of state support.
Liberalisation should be comprehensive on the domestic front as well – it should mean much more than an abolition of subsidies. The Luddite rejection of GM food is another example of how low-earners are forced to pay the price for the costly obsessions of the “chattering classes”. Adopting a permissive approach to GM food, as in the US, could unleash productivity improvements in agriculture.