2 August 2017

It’s time for Britain to phase out food tariffs

by Warwick Lightfoot

Originally published by CapX.

It’s literally a case of “let them eat cake”. As you might expect, lower-income households spend a greater portion of their total expenditure on food than than better off households. But the differences go beyond the proportion of income spent on food. Poorer households spend more on basic groceries like bread and milk, and richer ones more on vegetables. And, when comparing 2015 with 2007, Defra statistics show that while the poorest are buying less meat and fish, their purchases of cakes, buns and pastries, and confectionery have increased.

Of course, this disparity raises important questions about awareness and choice, but it also demonstrates just how problematic UK food prices are. The reasons for high prices are manifold — including long-standing competition issues in relation to supermarkets and food retail, as well as restrictions in the planning system. But, as we prepare for Brexit, the focus is on the way in which food prices have been affected by the EU tariffs and subsidies that have increased costs and protected inefficient methods of production.

Brexit is an opportunity for the British Government to take back control of agriculture policy, and to design a better functioning system than the EU’s Common Agricultural Policy.

The inconsistent objectives of the CAP have resulted in artificial markets and direct losses of economic welfare to consumers — not least the most disadvantaged. Its inflexibility has also prevented progress on the multilateral trade liberalisation that would help developing countries to trade their way out of poverty.

Once the UK has left the EU, voters will be able to draw a clear line between their taxes and whatever subsidies the government decides to afford British farmers. Greater accountability will, one would hope, mean the government takes into account the interests of British consumers and focuses its efforts on producers who are commercially viable.

British farmers are often not particularly productive; many are not commercially viable. For most people, however, there is more to farming than the bottom-line value of what we produce; there should be more to our new agricultural policy than just counting sheep. There is a reasonable case for refocusing subsidies on positive environmental externalities — those often unintended public goods, such as flood prevention or increased biodiversity, which derive from their practices — for which no direct incentive is currently offered. Such a move would also send a message about fairness: rather than receiving something for nothing, farmers would have to earn subsidies based on how their used their land.

This approach does pose another problem. Let’s say another type of landowner — such as a national organisation — were better placed to increase the biodiversity of a field. Should such subsidies go to non-farming landowners? And calculating those subsidies involves countless thorny questions. What value should be placed on the life of a bat? And what about an endangered great-crested newt? Or a sheep?

The bigger question, however, is how the government should balance these considerations with other areas of spending. What is more important, biodiversity or a better school for your children? Or for other less-advantaged people’s children? Or the price of their food?

Governments make these kinds of priority choices all the time. But recent political events have demonstrated the level of disagreement over how we want our country to be run. How can the government convince taxpayers that their money is being well spent? As we withdraw from a protectionist bloc, how can we further embrace the free and fair capitalism that does not reward exploitation? How can we protect the disadvantaged, and ensure a decent standard of living for the poorest?

After leaving the EU, the sensible choice for Britain is to unilaterally phase out the tariffs that increase food prices and jeopardise trade deals. It may not “fix” our food price problem, but it would allow for a freer system of supply and demand. And it need not necessitate lower standards. Rather, it would allow the government — by devolving new powers to an organisation such as the Food Standards Agency — to review the best evidence in order to improve the safety of our food, where current standards are found lacking.

Again and again, surveys show that consumers want inexpensive, high-quality, safe food, which is available in the right quantity at the most convenient time and place. They also care about the environment — for its own sake, and for that of future generations. And most of them are taxpayers, too.

By forcing us to answer the hard questions about how we use and pay for our land, Brexit offers Britain an unrivalled opportunity to succeed where the EU’s CAP failed.