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.

History

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.

Initial thoughts on Cameron’s speech

It looks like today will mark the beginning of two political campaigns. The first is for the next general election, as Cameron announces a key plank of the Tory Party’s manifesto. The second is for the referendum we have long been promised. It is true that the issue has been much debated, but now is the time to start fleshing out the arguments in favour of leaving, and dealing with the great many practical issues which will arise come that glorious day. As the EU Referendum blog noted recently, there are hundreds of treaties to which Britain is party, due to its membership of the EU, which will need to be pored over to discover what will be necessary for Britain to function outside the EU.  We have had a little taste of such problems in the disputes between Alec Salmond’s SNP and the Commission over the status Scotland would have vis à vis EU membership, if she became independent of the UK.

The issue of a referendum will certainly have an impact on the next general election, but what kind of impact will depend on how Labour and the Lib Dems react.  In the 2005 election, we saw how Labour nullified the Tories’ advantage by also promising a referendum. This removed the issue from the debate, and by the time Labour betrayed their promise and cancelled the referendum, there was nothing anyone could do but howl in outrage at such perfidy.

The other party which will be greatly effected is UKIP.  If the Tories are promising a referendum, voters who would otherwise have supported UKIP will be under great pressure to support the Tories one more time, and if the day comes for the referendum, then it could be argued that UKIP achieved its primary goal. Certainly the pressure from UKIP has forced Cameron’s hand.  However, between the next general election and now, there will be a Euro election, in which UKIP is likely to do very well, and Cameron’s promise need not change that at all. Indeed those voters who swing between these two parties have just as much reason to support UKIP in 2014, in order to make the point very clear to the Tories that they need the UKIP voters on board.

As for the Lib Dems, not much need be said. They can swing either way in this debate, as is clearly illustrated in the old party leaflet in which Nick Clegg demands this very referendum.  The party has always proclaimed itself to be deeply pro-Brussels, but it sometimes pays lip service to democratic principles. So, whether or not it decides to back a referendum being held, we know which side it will support in the referendum.

Finally, I wonder what will be the impact on our own nascent libertarian movement, if today’s speech marks a significant mile-stone?  In recent times, many libertarians have joined UKIP, in the hope that the party would develop into a predominantly libertarian party, and no doubt because of the close affinity between libertarians and the right-wing which grew up in the long, dark years of Labour mis-rule.  However, with Cameron’s promise of a referendum, he may just have shot the UKIP fox, in which case;  where does this leave UKIP’s libertarians?

As the title notes, these are just my immediate thoughts, but something just happened in British politics which may lead to new alliances and alignments, both within political parties and without. From the above, it is no doubt clear that I am wholly in the pro-independence camp with regard to the EU, but I am aware that not all libertarians feel the same way, or do so with less emphatic commitment.  The recent brouhaha within UKIP has strengthened my belief that libertarians need to develop their own political identity in British politics, even if at any given moment or on any particular issue such a force would find itself closely aligned with another, perhaps larger political group.