Farm Subsidies
UK farming subsidies were introduced after World War II in order to improve the country’s
food security. The experience of the U-boat campaigns and rationing showed that the UK
could not feed itself, at least not without undergoing significant hardship. Upon joining the
EU, the UK’s system of subsidies was folded into the European Common Agricultural
Policy (CAP) scheme [link 162].
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CAP redirects a vast amount of money every year. It accounts more than one-third of the EU’s budget [link 163] and UK farmers currently receive nearly £4 billion from the scheme, an expense which the UK Government (and devolved administrations) will be directly responsible for after Brexit. These subsidies account for up to 80% of the net incomes of British farmers, so as it stands many farms would be loss-making enterprises without subsidies [link 164].
For most of its existence CAP directly encouraged greater food production by subsidising the market prices of agricultural products. [link 165] This meant high consumer prices, contributing to inflation, and perversely encouraged European farmers to overproduce. This was, firstly, wasteful as it led to production outstripping demand and the accumulation of stockpiles of food – the infamous wine lakes and butter mountains – which could not be released into the European market to lower consumer prices as that would defeat the point, but was instead often offloaded to non-member states to the annoyance of those countries’ farmers [link 166].
Overproduction also caused environmental degradation as farmers sought to maximise their benefit using intensive practices and bringing marginal land into usage. More than 70% of UK land is farmed in some way [link 167] so agricultural practices have a huge impact on the natural environment and wildlife. Farmers have used more, increasingly effective pesticides, drained wetlands to expand their farmland, and increased the sizes of their fields at the expense of hedgerows and other margins, among other practices [link 168] As a result the UK Farmland Bird Indicator, an insight into rural biodiversity, has declined by nearly half since 1970 [link 169].
Following a major reform in 2005, CAP no longer directly subsidises prices in order to try and avoid the above issues, instead primarily making direct payments to farmers based on how much farmland they own rather than how much they produce. Whether this has truly had a beneficial environmental impact is questionable as farmers are still not incentivised to manage their resources efficiently and can still maximise their profits by producing as much as they can on the land they have [link 170]. Environmental groups have accused the EU of being in a “state of denial” over the continued impact of farming practices as numbers of birds and insects continue to fall [link 171].
With all that said, have farming subsidies at least resulted in the achievement of food security? It is not clear that it has. The UK remains a net importer of food with 45% of the food the UK consumed in 2019 coming from abroad. The UK’s trade deficit in food, feed and drink stood at £24.3 billion [link 172]. Those figures may be understating the issue as food which is imported but then processed in the UK is counted towards the UK’s production, for example, the UK is counted as producing tea and coffee despite none being grown here [link 173]. While this is an improvement over the world wars when the UK produced as little as one-third of the food it consumed, it is still some way off self-sufficiency and concerns remain that a failure to agree satisfactory trading arrangements with the EU after the Brexit transition period ends could lead to disruption and shortages [link 174].
Payments to Landowners.
As discussed above, since 2005 farming subsidies have been paid according to how much farmland the farmer owns rather than directly rewarding them for how much they produce. This is primarily administered through the Basic Payment Scheme which gives farmers an annual payment, calculated according to how much qualifying land they hold and what it is used for, with some environmental requirements [link 175]. While this has alleviated some of the overproduction issues with the EU’s absurd stockpiles largely a thing of the past [link 176], it is far from a perfect system.
This change means that CAP is arguably no longer a proper farm subsidy in the sense that it does not subsidise farming itself; instead, it rewards rural landowners for simply owning land so long as they meet some basic requirements. Unsurprisingly, this has encouraged big landowners to expand their holdings largely for the sake of receiving subsidies which are, after all, the most profitable aspect of farming in the UK. Some have been described as “slipper farmers” who buy farmland in order to increase their subsidy entitlement while renting out the land to others who actually do the farming [link 177].
This system promotes inequality as most of the benefits are accrued by the biggest and wealthiest landowners. The top 10% of CAP recipients receive nearly half of all payments while the bottom fifth receive just 2% [link 178]. An investigation by Greenpeace in 2016 found that the list of the top 100 CAP recipients in the UK included the Queen, the Duke of Westminster, the Saudi Prince Khalid Abdullah, Sir James Dyson, and several multinational corporations [link 179]. Meanwhile, small farmers with holdings below five hectares are ineligible to receive subsidies which further encourages the concentration of ownership. From 2005 to 2015 one-fifth of farms in England disappeared, including one-third of those with less than 50 hectares of land [link 180]. The environmentalist George Monbiot described farm subsidies as “the most blatant transfer of money from the poor to the rich that has occurred in the era of universal suffrage”, raising the question of how it could be justified in the context of austerity and cuts to many public benefits [link 181].
Rural landowners already benefit from some enviable tax and policy advantages. Agricultural Relief exempts farmland from Inheritance Tax meaning it can be passed on for no charge [link 182]. HMRC estimates that this relief costs about half a billion annually [link 183]. Landowners can also benefit greatly from the granting of planning permission on their land. Because development rights are nationalised but the increase in land value that results the granting of planning permission creates goes largely untaxed, landowners can secure massive windfalls due to decisions made by local or national government. No less a capitalist than Adam Smith believed such gains to be fundamentally unjust and inefficient, requiring no productive activity by the landowner, instead rewarding them for the mere fact of their ownership [link 184]. The Centre for Progressive Policy estimated that awarding planning permission to agricultural land increases land values by more than 275 times and that landowners captured more than £10 billion in post-tax profits from planning windfalls in 2016-17 [link 185]. Given that they are treated favourably by other policies, why should landowners be enriched by what are nominally farming subsidies too?
Post-Brexit Reforms: “Public money for public goods”
CAP is an EU policy and so after the Brexit transition period ends it will be replaced by a UK system of farm subsidies. The Department for Environment, Food and Rural Affairs (DEFRA), which will be responsible for subsidies in England (agricultural policy in Scotland, Wales and Northern Ireland will be a devolved matter), plans to phase out direct subsidies starting in 2021 and gradually replace them with a new system which rewards farmers for delivering public goods [link 186]. DEFRA has described the proposed new system as paying farmers “public money for public goods”, including improving the natural environment and investing in sustainable food production [link 187].
The public goods that it is proposed that farmers will be paid for include: [link 188]
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Environmental land management – actions which offer environmental benefits such as clean air, clean water, reduced pollution, biodiversity, and efforts to mitigate or adapt to the effects of climate change
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Animal welfare – including financial rewards for improving animal welfare beyond baseline standards
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Investment – equipment, technology and infrastructure which would help improve productivity and sustainability
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Research and development.
An early review of these proposals by the National Audit Office (NAO) accused DEFRA of being unprepared and unrealistic in its expectations. In particular, the review criticised DEFRA’s assumptions of an unprecedented level of take-up for an environmental scheme and sufficient productivity gains to offset the withdrawal of direct payments. The NAO noted that 16% of UK farmers made a loss between 2014-15 and 2016-17 despite their receipt of subsidies and that 42% would have been loss-making if they had not received subsidies [link 189]. The farming sector as it currently exists is hugely dependent on subsidies and their withdrawal could easily be devastating unless the replacement system is extremely generous and successful.
Partly in response to these concerns, DEFRA subsequently announced plans for a Sustainable Farming Incentive which would pay farmers for more basic actions such as soil conservation or keeping pesticides out of streams. However, this has in turn been criticised by environmentalists as essentially being a way to preserve the existing system of subsidies by rewarding farmers for following what is actually just good business practice or legal requirements on their land [link 190]. A range of environmental groups criticised the plans as diverting money from the more radical Environmental Land Management scheme to propping up farms that are just carrying on as before, subverting the principle of “public money for public goods” [link 191].
Fundamentally, it does not appear that the general shape of these proposed reforms is likely to stop farming subsidies from ending up as a transfer of money to wealthy landowners. Large landowners will have the greatest capacity to engage in newly rewarded actions, having more land to manage in an environmentally friendly way and more capital to put towards desired investments.
Ending Farm Subsidies.
Are farm subsidies as we know them even necessary? While the vast majority of the world’s major agricultural producers subsidise farming in one way or another, New Zealand is a notable counter-example. Up until 1984 New Zealand’s farms were heavily subsidised just like in many other countries and this helped prop up an inefficient and wasteful agricultural sector where total agricultural output was worth less than the cost of producing and processing it [link 192]. Over the next few years farm subsidies were phased out and ultimately almost entirely abolished.
While this did cause a great deal of disruption, over the long-run the result seems to have been a net benefit to New Zealand’s farming sector and environment. The end of subsidies deflated land prices, reducing barriers to entry in the market, while also disincentivising overintensive exploitation of land and forcing farmers to abide by commercial pressures and genuine good practice. The productivity of surviving farms improved significantly, with average annual agricultural productivity growth more than doubling. Wasteful and environmentally damaging practices such as the indiscriminate use of fertiliser and the unsustainable farming of marginal land decline, leading to an improvement in water quality and biodiversity [link 193].
The removal of subsidies may also benefit consumers who pay for a subsidised farming sector not just through their taxes but also through higher food prices. The free-market Institute for Economic Affairs has previously called for the abolition of CAP on the basis that the network of subsidies and protectionist tariffs it creates results in EU food prices being nearly one-fifth higher than world market prices.
Of course, the abolition of subsidies would inevitably cause a great deal of disruption. The fact that UK farms are so reliant on subsidies shows that many would simply be uncompetitive if left exposed to market forces [link 194]. Gradual adjustments and transitionary support could help but cannot change the underlying fact that many, perhaps even most, British farms would have to adapt or die if farm subsidies were abolished as in New Zealand. There is a trade-off between a genuinely efficient and perhaps cheaper market and the preservation of the existing agricultural sector which the government will inevitably have to confront as it reforms its agricultural policy.
Such observations nevertheless raise the question of why farming should be treated differently to most of the rest of the economy? Many people and businesses struggle to get by and it is generally accepted that they should be protected by a social safety net rather than heavily subsidised in a way that ultimately benefits the wealthy more than those facing genuine difficulties.
Abolishing farm subsidies in the UK could lead to a less distorted market, reduce speculation on land prices, save consumers money on their food shopping, and encourage farmers to concentrate on boosting their productivity and focus on those aspects of British farming that would be genuinely competitive in a global market. Combined with an agricultural policy which generally abides by the principle of “public money for public goods” – the government correcting rather than creating market failures – it could produce more efficient and more environmentally-friendly farms, instead of the vehicles for subsidy collection we have today.
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163 https://commonslibrary.parliament.uk/research-briefings/cbp-8218/
165 https://www.instituteforgovernment.org.uk/explainers/common-agricultural-policy
166 https://www.wildlifetrusts.org/farming
169 http://www.epicenternetwork.eu/blog/cap-subsidies-harm-the-environment/
173 https://www.countryfile.com/news/can-the-uk-feed-itself-after-brexit/
176 https://www.bbc.co.uk/news/uk-scotland-north-east-orkney-shetland-37503895
179 https://landforthemany.uk/8-growing-together-farming-and-forestry-for-the-many/
181 https://www.gov.uk/guidance/agricultural-relief-on-inheritance-tax
183 https://landforthemany.uk/5-place-before-profit-taking-back-control-of-land-development/
186 https://www.gov.uk/government/news/once-in-a-generation-opportunity-to-shape-future-farming-policy
188 https://www.nao.org.uk/wp-content/uploads/2019/06/Early-review-of-the-new-farming-programme.pdf
189 https://www.bbc.co.uk/news/science-environment-54238399
191 https://www.cbd.int/doc/case-studies/inc/cs-inc-newzealand-technical-en.pdf
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