The Common Agricultural Policy – a costly protectionist racket

‘The Common Agricultural Policy forces consumers to pay ‘two or three times more for food than we would pay without the policy’
Dalia Grybauskaite, EU budget commissioner 
The way to build lasting economic growth [in Africa] is for Europe to end the CAP
-Sir Digby Jones, former Chairman, CBI.

The Common Agricultural Policy is an EU-wide system of agricultural subsidies. It is a form of protectionism that represents the worst of European Union parochialism. It is designed to “defend” the European agricultural industry from cheaper products from outside producers. The EU spends between £45-50 billion per year (£49 billion in 2013) on this system which is approximately 43% of the total EU budget. The subsidies are combined with protectionist measures such as import tariffs and strict quotas on certain agricultural products from outside the EU. This has made European food prices some of the highest in the world and is seriously detrimental to foreign farmers.

The CAP subsidies have often caused overproduction, which has led to food being destroyed, or sold at below market prices through export subsidies or being stored thereby creating the, now infamous, “food mountains”. The subsidies exports are flooded into third world countries, especially Africa. By undercutting local farmers, who cannot compete with the low priced subsidised imports, the policy is distorting the market and impoverishing people. With growth and development being absolutely essential to the long term prospects of third world countries,the CAP is seriously harmful their underdeveloped economies. The subsidies prevent them from exporting agricultural produce to the EU on a level playing field, creating inflated food prices for us, and economic stagnation for them.


During negotiations on the creation of the “Common Market”, France used its influence as the second major power of the EU to lobby heavily for subsidies for its farmers which have stood ever since. This privilege was her price for agreeing to free trade in industrial goods and one of the many benefits France enjoys for its status as the secondary power behind the project. The CAP was created in 1957 under the Treaty of Rome and was implemented from 1962.

It aimed to increase productivity and to protect agriculture throughout the EU by controlling prices and levels of production, and to protect the countryside by subsiding the rural lifestyle. It has in-fact had the effect of protecting big agricultural businesses and enriching hereditary landowners while also damaging the rural environment. The subsidies led to big agri-businesses growing ever larger and stifling smaller producers. The CAP, by guaranteeing prices, encourages producers to use every bit of available land. Inevitably, they have altered the rural landscape with intensive farming. Every furrow is valuable thus efforts are made to use every bit of available space.

A landscape which had been unchanged for centuries and was famously pleasant and aesthetically pleasing is now less diverse. Ancient hedgerows have been torn up, swathes of land are blighted by industrialised prairies and polluted with high levels of chemicals and pesticides (leading to water pollution and soil degradation). The natural habitat of wildlife have been disrupted or destroyed, leading to widespread declines in the populations of many farmland bird species and other wildlife.

By the 1990’s the process of reform began in attempt to curb the amount of waste and address environmental concerns. By 2013, after the first full review since the policies inception, a number of reforms were been approved to be implemented in the period 2015-2020. They represent an attempt to move towards sustainable agriculture and prevent overproduction and include policies intended to preserve the environment and encourage new entrants into the industry. The reforms, while welcome, were a long time coming but have done nothing to address the fundamental problems with the policy. Further, far reaching reforms, of the kind sought by Britain for decades, are unlikely to happen because France and her allies benefit disproportionately from the subsidies and will not allow changes to that threaten the status quo.

Costly protectionism

Britain should strive to be an open, free-trading nation with a global outlook. The CAP is the very antithesis of free trade; it is protectionist central planning and economic isolationism. The cost of food has been steadily declining for decades but the great recession has created a cost of living crisis in Britain and across Europe, food prices have risen and the CAP exacerbates this, costing hard pushed consumers. The price inflation can be seen by comparing wholesale food prices in Europe to world market prices, this shows that we are paying 17% more for food than we would under market conditions.

Central planning and market intervention always creates distortions and unintended consequences. The worst of all the damage caused by the CAP is the way it punishes consumers, especially the poor. The Common Agricultural Policy should be abolished; this would represent a drastic measure to address the cost of living crisis, cutting food bills for all European citizens and bringing relief to impoverished households across the continent.

Advocates of the CAP will protest but for the way forward we need only look to New Zealand. Farmers there had enjoyed generous taxpayer funding and were disconcerted at the thought of losing out but in 1984 when the government was faced with a budget crisis it decided to repeal all subsidies. Did the predictions of disaster and an end to small family farms come true? No, since then the agricultural sector has thrived!

Much like in Europe subsidised farmers in New Zealand had become dependent on government aid and were, in-effect, farming in such a way as to meet targets to make them eligible for subsidies.  This was detrimental to productivity and innovation. When all subsidies were removed farmers in New Zealand proved to be entrepreneurial, innovative and adaptable.  Now, instead of trying to maximise the amount of government aid received, agricultural practices are now motivated by the demands of consumers and farmers are focussed on good business practice. it is as simple as growing things that consumers want to eat. Productivity is up, efficiency and innovation has increased and the industry is thriving without taxpayer hand outs.

Abolish the Common Agricultural Policy and Europe could have a dynamic, diverse, prosperous and growing rural economy too, and we would all be saving money on our food bills.

Lee Rotherham on the Common Agricultural Policy, Food, and Trade

Lee Rotherham says that the Common Agricultural Policy is a major disaster. And he blames the French, their working population was dropping relative to other countries and they desired a subsidy to maintain the French countyside.

The costing he did demonstrated that the policy costs each family £398 anually (3.1% of a living wage) and an additional cost of £2.81 per week (1% of a living wage) stems from the Common Fisheries Policy. Dr Rotherham pointed out that other EU policies add additional costs on top of those two.

The mechanisms at work are the direct draw by the EU on UK tax payers and the indirect effect of higher (not lower, higher) prices for food products.

Ian Dunt complimented the French lobbying that lead to the CAP but pointed out that the upward trend in food prices is a more recent phenomenon. Combined with the fact that other countries have similar policies he contended that this policy does not fully explain the problems since 2008.

Kristian agreed after a fashion, and added that there was a historic downward trend in food prices. However although the problems of the crisis post-date it, he argued it is no longer reasonable to endulge French farmers. Times are tough and we would prefer food prices were lower than they are now. Kristian refered to global market forces to explain the more recent rises.

Yaron agreed that it is not proper to endulge French or any other farmers. This is form of central planning and Yaron believes that plannning creates unwelcome distortions in every area that it is attempted. Recalling his knowledge of US food markets he mentioned subsidies to leave land uncultivated (not unheard of here) and bio-fuels subsidies that raise the price of corn globally. He went on to repeat his observation that there are so many state interventions in various markets that it is difficult to clearly observe the effects, but he said that if you look at the areas where the state has kept largely out of the way you see prices come down and quality go up.

Yaron throws in an interesting extra point here, not specifically related to food but related to the price of every good, and that is the effect of regulating banks. Banks, he says, are the engine of the economy (I assume he refers to their heterarchical, and therefore free, role in allocating capital to where it is most productive – something Yaron has spoken about before). This drop in productivity is a cost that is passed on to all of us.

Kristian picks up on a passing remark Yaron made about the lack of a parrallel universe to demonstrate what he is arguing. Kristian refers to the recent deregualtion of agriculture in Australia and New Zealand as an example of market mechanisms restoring the productivity of the economy in a previously regulated sector. The panel appreciated that this was largely reponsible for the flood of good wine from those countries.

Returning to Dr Rotherham, I ask him what can be done to solve the problems that have been talked about. Lee was skeptical that this would be possible without a fundamental change to the nature of the EU treaties. Returning to the “Hobbits” he mentions that farmers in New Zealand are now so persuaded that the market-liberal approach is the right one that they are advocating in favour of the policy, having seen only small numbers of farms getting into difficulty at the end of their subsidy system.

Lee concluding by describing some of the flaws of the CAP, with subsidies flowing to golf clubs and airports and inner London councils rather than to farmers. He said that despite those flaws, if you kept the same system but ran it nationally you would still be £5 billion better off – that’s becuase the CAP is costing UK tax payers money and is sending that money abroad. For him this highlights the ethics of the situation which is that there are much better cases of marginal businesses offering social value in the UK and we ought to focus, if we are to have a CAP, on helping them.

That would certainly be a step in the right direction.

There’s no need to separate our rubbish by hand

© Intel Free Press

© Intel Free Press

Turning the whole of Europe into a recycling society is a bit like building the Pyramids. It’s a worthy and ambitious aim, but very expensive unless you use slave labour along the way.

In May I will be voting for the candidate that ends this nonsense, or spoiling my ballot by scribbling a rude note across it’s face. Given the level of slave labour required of my household, it is the only issue on which I will vote in the locals.