What should we do after the Common Agricultural Policy?

I’m often amazed by how woolly the language used by groups like the National Farmers’ Union really is. Wacky ideas like “food security” (as if there is any conceivable scenario where Britain will be laid siege to by U-Boats) and farmers having some special “stewards of the countryside” connection to the land obscure the important facts. Taxpayers and consumers are rarely mentioned at all. Plain speaking about the costs and benefits of our current system is needed so we can think about what we’re paying for, what we’re getting, and how we can make sure taxpayers aren’t being stuck with a bill for something they don’t want or need.

This matters because after we leave the EU we’ll have to come up with our own agriculture policy, replacing the EU’s Common Agricultural Policy. (I won't discuss the Common External Tariff here for the sake of space.) Although agriculture is a small part of the economy, making up just 0.6% of gross value added, its environmental impact is quite important and the sector receives a large amount of money from the state – about £3bn every year.

These payments currently go through the EU, but the government has committed to maintaining them throughout the life of this Parliament. That gives us time to figure out what we really want from the money we spend on the countryside. 

Most payments are straightforward subsidies, allocated to farmers on a per-hectare basis rather than based on output, under the CAP’s “Pillar One”. The problem here should be obvious: it incentivises farmers to expand the size of their farms, even if doing so is inefficient and environmentally harmful; it gives more money to larger, better-off farmers; and it does nothing at all for tenant farmers who are often the poorest.

British farming is remarkably reliant on subsidies like these. In 2015 the average UK farm £24,900 received in subsidies and made profits of just £2,100. Enormous as this ratio is, it conceals the true amount of subsidy to certain types of extremely unproductive farms. Cereal farmers made a yearly loss of £9,500 on their agricultural work, but received £37,400 in subsidies; whereas poultry farms made £79,300 in agricultural profit and received just £8,500 in subsidies. Dairy and specialist pig farms also made far more in profit than they received in subsidies; but like cereal farming, general cropping (vegetable) farms’ subsidies were very large and they made a loss on their actual agricultural business.

These payments account for about four-fifths of CAP payments in Britain. The remainder falls under “Pillar Two” of the CAP, which covers subsidies for more environmentally-friendly farming methods (like organic farming), payments for the preservation of natural resources like hedgerows, and a range of ‘rural development’ initiatives. 

As Dieter Helm argues, it’s quite an odd way of doing things. Usually we require that polluters pay for the damage they cause, through direct charges or taxation, like London’s new toxicity charge on polluting cars. But some elements of the CAP pay polluters not to pollute and picks winners: paying them to use specific favoured practices like organic farming, for instance, rather than charging them for damage they do and letting them figure out how best to reduce it. Or giving grants to manage intensively-farmed grassland next to watercourses where the nitrogen could poison other people’s water supplies. In other respects farmers bear no cost at all for the costs they impose on others.

So what should we do next? New Zealand is usually cited by free marketeers as the model, but has been criticised for being overintensive and environmentally harmful. Even so, it is an impressive example. Spending on agriculture fell from 9% of government expenditure in 1983 to 1% in 1989, alongside huge cuts to import tariffs and quotas. During that time, agricultural productivity growth rose from 1% to 2–2.3% per annum, farm profits rose, and only one percent of farms were driven out of business. If we could emulate that example, with better environmental protections, that would seem like a happy outcome. 

As we think about replacing the CAP, I’d suggest three guiding principles, which draw from Dieter Helm’s paper here:

1) A long-run commitment to end “Pillar One” style subsidies entirely, with payments made to help farmers make the transition to a subsidy-free system. I would suggest something like this: calculate the median payment being made to farmers now, perhaps averaged over the last five years. Then issue ten-year bonds to all farms currently in receipt of CAP Pillar One funding. Any farm in receipt of subsidies greater than the median level will get bonds that only pay the median, and any farm receiving less will receive that same amount, every year for ten years. The bonds should be privately sellable, to give farmers the freedom to trade future income for a lump sum now that they may wish to invest in their farms, and untied to continued ownership of farmland. If anyone wants to sell up, they should not have the rug pulled out from under them. 

This would have the effect of bridging away from the current system to a new one, but would still allow market forces to come into effect immediately. Land prices, no longer inflated by the promise of future subsidies, would fall significantly, so farms could be rationalised right away and efficiency gains achieved as soon as possible. And because it was done in the form of a once-off bond, it would be much harder for a future government to extend subsidies. The institutional memory and Whitehall apparatus would be long-gone.

2) A shift to a “polluter pays” principle that covers the damage caused by some methods of farming to others. There is substantial damage to the environment from factory farming, and a shift towards less intensive methods of farming would be better for wildlife in general. Where farmers are causing damage to other people’s land or resources, and where private compensation is too difficult, they should be expected to bear those costs. 

But we should go much further. Carbon emissions and the overuse of antibiotics and insecticides are all important costs that farmers impose on others. Overuse of antibiotics in particular may pose a huge threat to human health if it produces antibiotic-resistant bacteria that can infect humans. There is no real reason that we can’t put a price on most of these, so that farmers can continue to do them where necessary but will choose not to where the cost to others is greater than the benefit to themselves. One case which may be impractical to control this way is animal cruelty, where the costs are hard to quantify, so we should go as far as politically possible to outlaw obviously-cruel practices like caging chickens and sows and mass exporting of livestock. (The main limitation to doing this is that we need to make sure foreign food that’s badly treated doesn’t undercut these more humane products, and that’s difficult.)

Forcing the people who consume goods produced with these methods to bear the costs they create, instead of society at large, would be more efficient and probably shift many farmers away from intensive farming to less environmentally costly methods. 

3) Paying directly for public goods provision. Farmers are sometimes useful for management of the countryside – many people love the windswept clearings of Britain’s uplands and moors, for example, which are kept clear of foliage by grazing livestock. (Personally, I have some sympathy with George Monbiot on this one in wishing there was a little more unmanaged wilderness in Britain, but never mind.) Where we want the countryside to be managed, we need to be willing to pay for it just as we pay for street lights and rubbish collection, not do it in a roundabout way that part-subsidises farmers just for the sake of their being farmers. 

Helm suggests that things like preservation of the dry-stone walls of the Lake District and the hedgerow banks of Exmoor might be preserved by paying for them directly: “we could in these National Park examples channel the money to the respective park authorities and they could contract for the works – from farmers and others, including voluntary bodies”. There is, in other words, no reason that farmers in particular should do this work – what we care about is the end product, not who provides it. Without per-hectare subsidies, much existing farmland might become very cheap, especially if was simply not viable for that land to be farmed commercially.

This would be an opportunity for large new National Parks to be set up quite cheaply by the state or by private organisations like the National Trust. The sort of rewilding that some of us would like could take place in some parts of the country, with others kept the way they are now. One point worth asking is what we really want the countryside for – biodiversity for its own sake, amenity for the public, preservation of traditional ways of life, or something else? Without some agreement or compromise on this, people engaged in this debate will continue to be speaking at cross-purposes with each other.

These principles do not capture every detail, but together they should help us to think clearly about what we want from the countryside after the CAP.