Wednesday, May 15, 2013

Farmers and the EU

Yesterday I spent a very interesting day in Yorkshire talking with a cross-section of farmers. As always, it was good to hear of the ingenuity that farmers deploy in diversification such as an upland sheep farmer who was producing honey using the summer heather crop, a bit hit with consumers. Another interesting point to come out of the discussion was that many farmers, perhaps egged on by banks, had gone for increasing the area of their farms and had not thought enough about how they could improve productivity on existing land, e.g., by grassland improvement which could yield gains of 50 to 100 per cent.

Many different topics came up, the availability of plant protection products being a particular concern, but among other things we discussed Britain's membership of the EU. There was concern about EU regulations, particularly from the poultry sector, in terms of whether they prevented British farmers from enjoying a level playing field in terms of competition.

When I said 'many' farmers could not survive without the single farm payment, I was corrected by the word 'all'. If this is the case, it is worrying in terms of the viability of British farming. But I accept that the availability of the SFP is built into business models and can make the difference between profit and loss. An arable farmer did emphasise that most farmers would prefer to earn a living from the market if they could get a fair price and this led us into a discussion of the economic power of the supermarkets.

It is quite likely that we will have a referendum on Britain's continued membership of the EU: Labour would be disadvantaged at the next general election if it was unable to offer this. It is also quite likely that the vote would be to withdraw. In terms of the single market, a lot would then depend on whether a satisfactory association agreement could be concluded with the EU. European countries have an incentive to do so given the exports they make to the UK, but the devil would be in the detail.

But what would happen to farm subsidies? It would be an opportunity to think again about what the objectives of such subsidies should be, and also to reduce them. One of the problems with EU policy has been that the objectives in the Treaty of Rome were contradictory, had no preference ordering (although one appeared in practice) and were never changed in treaty revisions (too much of a hot potato).

What could be done is to pay farmers a tapering percentage of their historic SFP, say 90 per cent in the year after exit and 80 per cent in the second year while there was a serious conversation about what sorts of subsidies were needed, for what purpose and how they could be reduced over time. Indeed, farmers could be offered a buy out of their subsidies through a bond scheme.

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