The UK’s withdrawal from the European Union and Common
Agricultural Policy (CAP) provides an opportunity to develop a
more productive and less protectionist industry, says
a new report from
the Institute of Economic Affairs.
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 should 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.
Animal welfare:
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
Tariffs
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.
Regulation
The government should 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 should 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."
