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secretary has insisted, as MPs challenged ministers to keep taxpayer funding for agriculture after EU subsidies are withdrawn.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.