Public goods scheme may run into trouble

The Government's intention to switch to public goods payments for farmers after Brexit may fall foul of the poor record of implementation of existing agri-environmental schemes. About 30 per cent of the farmers signed up to the various green programmes are still waiting for payments from 2017.

Payments often come up to a year late. By the government's own assessment, delivery of the country stewardship scheme has 'fallen short' and 'the situation is unacceptable' according to the latest annual report from Natural England.

The new schemes are likely to be even more complex and will have more money going through them, making even more delays likely.

Given the likely complexities of making applications, farmers could simply opt to farm their land more intensively, reversing previous environmental gains.

A crucial turning point for agricultural policy

Dieter Helm from Oxford University in a video presentation of policy options for agricultural policy after Brexit: Dieter Helm

He argues that we are at a critical historical turning point for agricultural policy, as important as the post-war settlement embodied in the 1947 Act and joining the then common market in 1973. We need to be clear about what the problem is you are trying to answer in agricultural policy. Why do we have to intervene at all? Post-war policy across Europe was influenced by a 'dig for victory' narrative which is no longer relevant.

He argues that we no longer need policies to deal with volatile prices given the availability of futures markets and financial instruments. I am not convinced that these address all the challenges, particularly for smaller farmers.

What earlier policies failed to address were negative externalities and public goods. Economists have a tight definition of public goods, but public perception equates public goods with the public interest. The Treasury may be tempted to transfer non-agricultural policies to the agricultural budget, e.g., rural broadband access.

There is an asymmetric information problem between farmers and those implementing public policies. Helm suggests the use of auctions and discusses this in the context of river catchment areas.

Could government change its stance on subsidies?

The National Trust is worried that the Government may cave into pressure and preserve many subsidies to farmers. They and other green groups fear that the farm lobby has succeeded in ensuring that food production and agricultural productivity will also be listed as 'public goods'.

This would go beyond the definition of what is a public good in economics, but the definition tends to be elastic in public debate and tends to encompass what would properly be termed merit goods.

Of course, the political calculus behind using farm payments to incentivise environmental benefits was to appeal to the urban electorate (many of them members of the National Trust) and that calculation remains a powerful one.

I do not think that there is a general case for subsidies for food production (many food security arguments are spurious) but there is a case for doing more to boost agricultural productivity which is poor, particularly through encouraging the use of new technology.

There is a £60m Countryside Productivity Small Grant Scheme to assist the purchase of new farm equipment: Farming productivity fund. However, the maximum grant is £12,000 which doesn't go a long way to buying sophisticated kit. Also, farmers applying for the scheme consider that they get caught between demonstrating that the farm business is viable, but not too viable otherwise it would not need assistance.

The future of agriculture

The Defra consultation on a future domestic agricultural policy received 44,000 responses, among them that from the Farmer-Scientist Network of the Yorkshire Agricultural Society which you can read here: Consultation response

I think that we submitted particularly strong sections on public goods, international trade and animal welfare.

A critical look at the CAP and its possible replacements

A number of papers have been produced on the consequences of CAP and the policies that may replace it, but this is one of the better ones. It takes a critical look both at the pathologies of the CAP and the cases that have been put forward for continuing forms of subsidy: Dieter Helm

The paper points out that no other economic sector outside defence has received so much government money. It points out the CAP was the result of a very political deal, reflecting a very particular historical context. The reforms that have taken place addressed some of its deficiencies, but remain sub-optimal.

The paper subjects the three main arguments for subsidy to critical scrutiny: food security; a shift towards environmental subsidies; and public money for public goods. It points out that food security arguments still embody production maximisation. The paper then goes on to consider the key issue of a workable transition.

This is very much an economist's perspective and as a political economist I tend to take a somewhat different perspective. For example, I sometimes think it is necessary to accept a 'satisficing' (in Herbert Simon's terms) rather than an 'optimal' solution. However, I will certainly take its arguments seriously as I prepare my paper for a Welsh Assembly committee public seminar next month.

Birdlife International critique greening delivery mechanisms

Birdlife International have understandably welcomed the Commission's stated intention to devote 30 per cent of Pillar 1 funding to 'greening' the CAP. They think that it could make a real difference in terms of the delivery of public goods by the CAP.

However, as always the devil is in the detail and they think that some of the proposed policy instruments are not fit for purpose. Indeed, on a scorecard they fail six of the twelve and give an 'unclear' rating to the other six.

Read their report here: Birdlife

The French perspective: the new French food law

Recently I had the opportunity to talk to some French agriculture and food policy advisers. This was very informative in the sense of understanding where we differ. The French stance on these matters is a product of their own values which in turn reflect their historical development. One has to understand their stance, even if one does not agree with it.

One topic was the new French law on the 'modernisation' of agriculture which I understand has reached the Senate. I think our understanding of modernisation is somewhat different from the French one. There appear to be three broad objectives: creating a public policy for food; stabilising and re-regulating the agricultural market; and ensuring food security.

Apparently, there is a view in France that there is need to combat new food behaviours. From an English perspective, I would say that this was no concern of the Government, but again this reflects the difference between a liberal and an étatiste tradition.

France was once the country of the one hour lunch: indeed it was not unknown for some lunches to extend more than hour and be washed down with more than a glass of 'vin ordinaire'. However, the view is that France has moved away from having a fixed eating time and young people are turning to fast food. This is thought to be not good for public health, but above all it is believed that restoring traditional behaviour would open the market for agricultural products.

France would also like to strengthen corporatist associations of producers, but admits this would require competition law changes at EU level. A somewhat more sensible idea is to seek longer-term contracts between farmers and the hypermarkets.

However, some of the goals sound a little strange to English ears. Preserving the food heritage is one. Now, whilst I do not share the English middle class love affair with France, I would admit there is something special about a Parisian café. But does this require government intervention?

The policy also seeks to rely on educated citizens, that is educated about food and that objective would certainly resonate with many in England. However, the notion of keeping competitive enterprises on all parts of the territory is a less comfortable one, even if one admits that many parts of France are thinly populated and at risk of depopulation. (Whether depopulation is necessarily a bad thing is itself an interesting question).

A British participant in our discussions argued that the structure of dirigisme facilitated collusion and was essentially anti-competitive. Were the objectives coherent and did they try to cut across the expressed preferences of the French people? The attempt to stabilise might be an attempt to immoblise.

Not surprisingly, this was seen as a rather polemical point on the French side. They explained, that their policy was not economically rational, but was a [normative] choice. The production of food had a very strong public good component and belonged to public policy. However, it was admitted that French consumers had a very limited role in food policy formation.

More from our discussions at a later date.

New Ag committee line up

With co-decision on agricultural issues likely to come into force from next year, the European Parliament's Agriculture Committee has assumed a new importance and there was plenty of competition for places. However, one unasnwered question is whether the Budget Committee will have a stronger influence on plenary voting patterns than the Ag committee.

Many of the leading lights from the old committee have gone. Former chair UK Conservative Neil Parish is standing for the UK Parliament and may have a role in Dave Cameron's government at a junior level. I am grateful to Parish for getting me a glass of champange after German Green landowner Freidrich-Wilhelm Graefe zu Baringdorf had attacked me when I appeared before the committee as 'not a real scientist.' (It then all kicked off with a German CDU member heckiling the Green Junker).

The new committee chair is Paulo De Castro, the second Italian to chair the committee and just the second Social Democrat. The fact that he is chair owes much to the priority which the European People's Party gave to chairing other committees under the D'Hondt points system for allocating committee chairs.

De Castro is well qualified for the job, having been a Professor of Agricultural Economics at the University of Bolonga and Italy's farm minister from October 1998 to April 2000. He also served as a special adviser on agricultural issues to Commission President Romano Prodi from June to December 2000.

Agra Focus commented that De Castro 'is arguably as well-qualified as anyone in Europe to head one of the EU Institutions going into the debate on the post-2013 Common Agricultural Policy.' It remains to be seen whether the 1st reading vote on the reform proposals occurs while he is chair, or after the halfway point in the mandate (early 2012) by which time there could be a different chair.

De Castro used encouraging terminology in a short interview with Agra Focus. There have been concerns that co-decision (if the Irish get the vote right at the second time of asking) could slow down and dilute reform because of farm interests on the EP Committee. However, De Castro emphasised the importance of goals of concern to all EU citizens such as public goods, food safety and animal welfare.