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Can Removing Subsidies In Farming Be Positive After 'Brexit'?

17/10/2016 12:32

After 'Brexit', British farmers will no longer receive funding from the EU where subsidies are currently vital in preserving the livelihoods of farmers. The UK's departure from the European Union will hinder many industries in the UK, but it can also be used as an opportunity to seize a chance to improve some of the problems that the country faces such as low productivity. In particular, farming in the UK must tackle the issue of efficiency where British farming is not sustainable without subsidies.

If no subsidies are pursued, subsidies could, in theory, be scrapped over at least a five year period in a shift that would see farming in the UK move away from dependency on subsidies and towards greater productivity. Britain's exit from the European Union, and thus a departure from CAP (Common Agriculture Policy) which maintains subsidies for farmers at a high level, would allow for a dramatic change in the UK farming industry in a bid to render farming more efficient and productive.

Currently, supermarkets in the UK seek to increase their market share and maintain artificially low food prices at the expense of British farmers. Supermarkets buy farmers' produce often at lower price than the cost of the farmer producing the food stuffs, for example a litre of milk costs a farmer 30p to produce, but supermarkets pay the farmer an average of 23p. British supermarkets' are engaged in a competitive oligopoly which drives down prices for consumers, but has hurt farmers and led them to rely on subsidies.

A high level of subsidies can distort markets and make goods more expensive, for example in Switzerland, the government pays significantly high subsidies to farmers, which has held back productivity and led to high prices of meat in particular. Countries such as New Zealand and Australia have managed to reduce subsidies and ensure the survival of farming. In New Zealand this transition to a subsidy-free farming industry in 1984, did lead to a decrease in 1% of the total number of farmer. But New Zealand has been able to increase its productivity significantly, for example the number of sheep has been reduced from 70 million to 40 million but produce the same amount of sheep meat. The removal of subsidies led to New Zealand farmers cutting costs, increasing profits and improving efficiency, with a greater attention to the demands of the market by farmers. The removal of subsidies could increase exports and overall make the UK farming industry more competitive.

Temoving subsidies immediately would negatively impact the farming industry, where in 2015 UK farmers received around 2.4 billion in direct payments, according to the NFU. The UK government would be unable to maintain funding for farmers at the same level as CAP, where 55 percent of UK total income from farming comes from CAP. Farmers also have access to £4 billion worth of funding for rural development projects in the UK between 2014-2020.

Perhaps the biggest threat of 'Brexit' to the farming industry is the uncertainty created by the exit of the UK from the EU where the impact of the departure is difficult to predict and the importance of CAP funding will be undoubtedly felt. Consultancy Agra Europe warned that a British exit from the EU could lead to land prices dramatically falling with 90 percent of farmers forced out of the farming industry. Switzerland and Norway, both outside of the EU, rank high of countries that provide subsidies to farmers. Government subsidies in Switzerland totalled 57 percent of farm income in 2012, and in Norway agricultural subsidies was worth 63 percent of farm income in the same year. If the UK farming industry is to be sustainable, a move away from subsidies could potentially be more profitable and efficient.

If the UK is to prosper outside of the EU, opening itself to worldwide markets will mean that British farmers must be able to compete in order to maximise profits. Theresa May's government should pursue free trade where cooperation with the EU is also important, and a trade agreement must be agreed with the EU, the UK's largest trading partner.

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