It appears that there’s almost nothing that Brexit cannot do as we’re told that the process of leaving Brussels’ embrace will lead to British farmland prices falling by 20%. Given that we like input prices to fall this is good news and those celebrating will be those who wish to go into farming – at, obviously enough, the cost of those currently doing it. The underlying reason for this good news is that we’ll be leaving the most ludicrous farming incentive system yet devised as we leave the European Union. For the effect of that EU system is simply to force up the price of farmland. Something which doesn’t leave farmers any better off anyway – not much of a subsidy system that doesn’t manage that now.
To understand this we need a bit of Ricardo. The capital value of a bit of land is the capitalised net present value of the future income stream that can be gained from it. That’s not the return to farming it – the activity of farming has and should have its own return. Effort and capital’n’stuff are put into trying to grow things. The return to the land, as just the land, is what we call rent.
So, what’s the EU farm subsidy scheme then? If you’ve got some land then here’s some money each year. That’s a rent – it’s an addition to the rent that can be gained by letting out that land for people to farm upon. Thus it increases those capital values of land. And that’s all it does. In turn this means that you need more capital to go into farming as the land you’ll use costs more. And if you need more capital then you’re going to need more subsidy in order to be able to service that capital. Sigh.
So, this is good news:
Brexit will slice nearly one-fifth off the value of Britain’s commercial farms according to forecasters, bringing to an end the decades-long boom in agricultural land prices as EU subsidies are withdrawn. Property experts Savills said farmland was likely to be the worst-hit sector in the entire UK residential and commercial property sector – faring even worse than shuttered high street shops – as common agricultural policy subsidies are withdrawn. It expects that over the next five years, commercial farmland values will fall by 3.6% a year, with many more farmers choosing to sell out. Savills is pencilling in land prices falling to about £13,600 a hectare (£5,500 an acre) compared with the £17,300-plus prices common before the EU referendum. EU direct payments make up about 60% of the profits of UK farmers, rising to 90% for livestock hill farms and are worth £3bn a year in total. After Brexit, subsidies that are currently based on how much land farmers cultivate will be replaced from 2021 by payments to farmers and landowners who deliver environmental benefits.
Of course, there should be no subsidy system at all for farmers or farming. People can’t make enough doing it? Great, that’s the universe’s manner of telling you to go do something else. Can’t make money farming in Britain? Great, we’ll eat that foreign muck smelling of garlic. Need a boost to an income because there’re kiddies in the family? Go for income support like everyone else. There’s nothing special about farming at all which means special payments to people who farm.
And more than this we should celebrate the killing off of an insane system of subsidy. All the EU’s system does is increase the price of farmland, making it more expensive to become a farmer. At which point, ain’t it wondrous how many problems Brexit is solving for us?