Let’s Make UK Farming Profitable Post-Brexit – Abolish All Subsidies Entirely

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Quite what we all do with the farmers when we leave the European Union is one of those little conundrums. The farmers themselves will scream blue bloody murder if they stop getting their usual excessive cheques. Varied townies will moan that the countryside won’t look beautiful for them. And everyone sensible will say that this is the golden opportunity to sort out British farming once and for all by doing a full New Zealand. Simply stop all subsidies entirely.

Whether anyone has the political will for that is an interesting question but it’s still consistent with this statement from Defra:

The government will take steps to ensure farms can operate profitably after Brexit, the environment secretary has insisted, as MPs challenged ministers to keep taxpayer funding for agriculture after EU subsidies are withdrawn.

Now, we might say that withdrawal of the subsidies will make farming entirely unviable here. To which the correct answer is nonsense. Yes, it’s true that the subsidy is around and about the same as the total income of the sector. Thus they’re adding no value whatsoever. That’s not quite the right way to look at it:

The government has been criticised for providing “a notable lack of detail” when it comes to its plans to support farmers post-Brexit.

MPs on the environment, food and rural affairs committee have called for “more clarity on funding, delivery and timing” in its report entitled The Future Of Food, Farming And The Environment.

It follows a government consultation published on February, which should have provided reassurance about what will replace the current direct payment system for farmers after the country leaves the European Union.

The correct answer being no funding at all.

Solving that little profit conundrum is easy if we think of it as a business – which is what it is. That is, we need to look at the costs of inputs as well as the value of outputs. The basic truth being that the price of land is too high in Britain for farming to be a profitable occupation. So, lowering the price of land will bring it back into profitability.

What does the current subsidy system do? It offers a flat payment per acre of land under farm management. As anyone who has ever read David Ricardo will know this acts like an addition to the rent that can be received from the land. An addition to the rental value is capitalised. That is, the current subsidy system just pushes up the value of the land. It makes the major input cost into farming higher. If we didn’t do this, if we didn’t artificially push up the price of land, then we’d have just lowered farming costs. And if we lower farming costs then farming becomes more profitable, no?

So, Britain’s post-Brexit farm subsidy program is not to have farm subsidies. As I’ve been known to say before:

Ricardo also pointed out what would happen next. A rise in rental value leads to a rise in the capital value of that thing earning rent. So, the net effect of European Union farming subsidies, as they are, is just to raise the price of land that can be farmed, and nothing more. It doesn’t, simply does not, aid the farmers themselves in their guise as farmers, whatever the effect it might have upon them as owners of land. For, logically enough, the rise in the capital value will be connected to the interest rate, the rise in rent being equivalent to gaining more interest from some other capital asset. Great for those who currently own land. Terrible for those who would like to enter farming by buying some land.

Or, to put the same thing another way, the subsidy system just raises the capital costs of farming, the same thing as saying, as at the top, that we’ve raised input costs. We don’t, as a matter of course, cheer when the price of steel that we put into cars rises, the cost of bricks to make houses increase, or what must be spent upon cotton to fabricate clothes goes up. We see that these are things which make us (if we are not the producers of them) poorer. So it is with farming subsidies. They simply go to landlords as a rise in that land value and thereby make it more expensive to become a farmer – to our more general poverty.

Said it more than once in fact:

We have an alternative policy framework to suggest. Let’s just not have a policy. No subsidies, no payments, no department, no Minister, nothing, nowt, zippedy dooh dah. The New Zealand option. You’ve had it good for a century or more now there’s yer bike and have a nice ride.

Let’s make British farming profitable post-Brexit by not subsidising British farming post-Brexit.

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TD
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TD

NZ has stopped all farm subsidies? Good for them.

TD
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TD

NZ has stopped all farm subsidies? Good for them.

Hallowed Be
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Hallowed Be

I’m imagining cross-legged smock-wearers marching up whitehall and dowsing themselves with cider outside no. 10.

Hallowed Be
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Hallowed Be

I’m imagining cross-legged smock-wearers marching up whitehall and dowsing themselves with cider outside no. 10.

Bongo
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Bongo

It’s that simple. Yes. Fournier and Johansson ( OECD 2016 ) estimated that subsidies reduced potential GDP by 6 times the amount spent on them.

Bongo
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Bongo

It’s that simple. Yes. Fournier and Johansson ( OECD 2016 ) estimated that subsidies reduced potential GDP by 6 times the amount spent on them.

Quentin Vole
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Quentin Vole

The daft CAP has got to go (assuming we ever actually leave the EU – looking more and more doubtful with our useless politicians and civil servants), but that doesn’t mean we can’t make payments to incentivise farmers to farm in the way that we might prefer. If we like to see ‘bare’ green Lakeland fells dotted with Herdwicks rather than scrubby hilltops bereft of life (and want to retain the tourism revenue from folk who do like to see such things), we may have to subsidise shepherds to keep them in place. Ditto keeping hedges, not ploughing right up… Read more »

Quentin Vole
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Quentin Vole

The daft CAP has got to go (assuming we ever actually leave the EU – looking more and more doubtful with our useless politicians and civil servants), but that doesn’t mean we can’t make payments to incentivise farmers to farm in the way that we might prefer. If we like to see ‘bare’ green Lakeland fells dotted with Herdwicks rather than scrubby hilltops bereft of life (and want to retain the tourism revenue from folk who do like to see such things), we may have to subsidise shepherds to keep them in place. Ditto keeping hedges, not ploughing right up… Read more »

Spike
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Spike

“incentivise farmers to farm in the way that we might prefer” – That is the problem! The job is to let farmers farm in the way that they prefer (and they do consider the preferences of their customers). Britain and its appearance should be decided by Britons, not by tourism guides, not by what Yankee tourists expect it to look like. Open the door to meddling by the ignorant and you might as well have a CAP.

Hallowed Be
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Hallowed Be

The lakeland tourist industry may want to subsidise herdwick shepherds but i’m not keen, i also don’t want Natnl Trust bods to be in charge of running the countryside in perpetuity, that’s also in effect a subsidy.

Quentin Vole
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Quentin Vole

If we simply withdraw all farming subsidies, we’ll end up with some parts of the UK countryside resembling Kansas or Alberta, and the rest depopulated and returning to the wild. That may be what you’d like to see, but I suspect not everyone will agree. If a democratic majority would prefer a different outcome, there’s no reason why they shouldn’t get it, even if it may involve (shock, horror) selective ‘subsidies’ for farmers meeting agreed criteria.

Spike
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Spike

No, there is one reason: The land in question belongs to individuals, who might not agree.

By the way, there is nothing hideous about Kansas. Nor about the wild. If you want the entire English countryside to be family farms peppered with Tudor pubs, go to Disney World or something.

Quentin Vole
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Quentin Vole

Individuals remain free to do with their property as they wish, subject to the law. Society is free to provide incentives for them to manage their property in ways that enhance national well-being.

If you like Kansas so much, go and live there. Just don’t try to turn my country into a poor replica of it. Kthxbye

Chester Draws
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Chester Draws

And yet New Zealand hasn’t turned into Kansas. How can that be, given your brilliant analysis?

Subsidies in the US favour large monoculture. They’re not struggling — it’s the smaller farmers that are. If anything it’s subsidies that have caused Kansas, not the reverse!

Spike
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Spike

In fact, massive government intervention would be more likely to make Yorkshire look like Kansas, should a future government obsess about Britain being able to feed itself (versus buying food for less abroad). If someone wants to run a 10,000-acre wheat farm, he will be surrounded by neighbors using their land in different ways. Private property, used without the need for Planning Permission, is the best way to “diversity,” though people who say they are for that usually want a specific, directed outcome instead. Don’t know what “Kthxbye” above wants, only that he doesn’t want to discuss it.

DB
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DB

And surely the same principle applies to the residential housing/Housing Benefit mess?

Government hoses taxpayer cash into fixed-supply market, and then wonders why youngsters can’t afford houses….

Edward Nickerson
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Edward Nickerson

Sadly Ricardo does not apply here as you assume the entire capital value of the land is determine by its output. This is not the case, as land is a commodity like gold, bonds or silver – its value is determined by being a tradable commodity. Land is a safe haven for very long term investment, probably the safest – and there is no new land being produced. It can only inflate in value, so removing the subsidy will not reduce the value of land – although it may reduce the rent a land owner can get, if he stills… Read more »