Thursday, June 29, 2017

The CAP after Brexit

The EU will lose about eight per cent of its current income after Brexit and is thinking about how to adjust to this loss. Given that the CAP accounts for 39 per cent of EU expenditure, it is at the forefront of concerns.

The European Commission has published a 'reflections' document on possible ways forward: EU finances

In terms of what it has to say about agriculture, it is an interesting mix of sticking to old orthodoxies and some signs of new thinking.

On the negative side, it sticks to the discredited argument that direct payments offer a form of 'income support that partially fills the gap between agricultural income and comparable income for other economic sectors.' It is a highly inefficient and poorly targeted means of delivering income support. Later down the same page, we are told that 80 per cent of support goes to 20 per cent of farms. (Actually, this is a stylised fact based on the Pareto rule: the actual figure is lower than 80 per cent).

We are also told that 'thanks to the CAP, European citizens have access to safe, affordable and high quality food.' One could argue that this is the result of technological advances and the innovations made by many farmers in response to changing patterns of consumer demand. Do the citizens of New Zealand lack access to food with these qualities despite the absence of subsidies?

The paper does admit that 'There is no consensus on the level of income support necessary when taking into account competitiveness within the sector.' This is because the policy does not have a competitiveness objective and is not designed to promote competitiveness.

Indeed, high tariff barriers allow uncompetitive practices to continue). A graph makes the claim that 'Agricultural trade balance shows a competitive sector', but makes no reference to the way in which tariffs keep out price competitive imports. Indeed, it is admitted that 'In some cases, these [CAP] payments do not contribute to the structural development of the sector but tend to increase land prices that may hinder the entry of young farmers into the market.'

There is a greater recognition of the need to deliver 'climate public goods and services', a serious omission in the current policy. There is also a recognition of the need to encourage farmers to invest in new technologies which is forming part of the UK debate on a new domestic agricultural policy.

The document envisages 'the introduction of a degree of national co-financing for direct payments in order to sustain the overall levels of current support.' This will not go down well in countries such as France which benefit from the current distribution of CAP funds.

There is also reference to reducing direct payments for large farms. It is suggested that there should be a new 'focus on farmers under special constraints, e.g., small farms, mountainous areas and sparsely populated regions.' Again, care will be needed to ensure that the chosen policy instruments do really tackle problems such as rural depopulation. For example, improving rural broadband might be a more effective way of stimulating new economic activity rather than propping up farms that lack viability.

Friday, June 23, 2017

Challenges for grains post-Brexit

The AHFB has produced a comprehensive report on the challenges facing the grain sector post-Brexit: Grain challenges

The report emphasises that the global grain trade is driven by competitiveness. It is a high volume, low margin business, dominated by relatively few multinationals. The UK is a small player in a big market. In the past four seasons the UK exported 11 per cent of its wheat and 17 per cent of its barley crop. Competition for barley export business is likely to get tougher in future. There is no doubt that the UK faces tough competition from lower cost producers with higher outputs.

Any change in trade and support arrangements is likely to lead to structural changes on farm. Further farm consolidation could follow to achieve economies of scale.

The loss of preferential treatment in relation to the EU market is likely to mean loss of access agreements with non-EU countries such as Morocco and Algeria in the absence of new access arrangements and probably tariffs.

Strawberry prices could soar

Growers have warned that strawberry prices could soar if they no longer have access to seasonal EU workers after Brexit. Already this year the number of seasonal workers has fallen by 17 per cent because of the fall in the value of sterling and uncertainties about the future: EU workers

Former Defra secretary Andrea Leadsom suggested that farmers should invest in machinery as an alternative, but this is not an option for some crops. Machinery would damage soft fruit.

Sunday, June 11, 2017

No need for experts at Defra

There will be no need for experts at Defra after Michael Gove was appointed Secretary of State at the department in the reshuffle of the Cabinet.

It had been widely anticipated that Andrea Leadsom would be replaced and she becomes Leader of the House of Commons.

Monday, June 05, 2017

Confidence levels among farmers falling

Confidence levels among farmers are falling, despite a good short-term outlook, according to this report from The Guardian.

However, it repeats the myth that farmers were among the 'staunchest supporters' of Brexit. Where is the evidence for this statement? To generalise from rural voting to that of farmers is to commit an ecological fallacy, a basic methodological error.

Read the report here: Gloomy farmers