Will #British #food and #farming die at #Russia's hand or the #Commonwealth's after #Brexit?

There are only two "benefits" from Brexit that might be concrete rather than flag waving vapourware about "sovereignty" without power. One is changing the source of unskilled immigrants from Eastern Europe back to the Commonwealth which will be addressed in another blog. The other benefit might be cheap food.

After two major wars where political survival depended on convoys of food crossing the ocean, British farmers have been heavily subsidised. The Common Agricultural Policy of the EU replaced earlier forms of subsidy and now the average UK subsidy is about the same as the average UK farm's net income (link at bottom). Senior Leavers from the Tories and UKIP have promised to maintain these subsidies (so much for £350m to the NHS anyway).

However, there two other forms of protection for farmers. Tariffs and regulations. Tariffs are far more significant. There are tariffs against imported food to protect EU farmers from low cost foreign products. Although the EU has the lowest tariffs in the world on most industrial products. It has high tariffs on food. On average 22%. On New Zealand lamb outside quota (most of the quota goes to France these days, all that cheap lamb will come back to the UK), the tariff is 57%.

The UK will inherit the EU's tariffs on entry to the WTO. WTO rules require members to charge the same tariffs to everybody, including of course EU suppliers who were previously selling tariff free to the UK. Without a moderating influence, UK food imported from the EU (about half of UK food) will go up 22%, so an overnight increase in food prices of about 11%. There has already been an overnight 16% devaluation of the Pound. Similar devaluations may lie ahead with each transition on the way out of the EU which means even larger price rises in food costs. There may be a 10 year transitional arrangement, such as the UK joining EFTA/EEA to avoid an immediate rise in food prices but this will be seen by Brexiters as staying in the EU (Unfortunately, it isn't as the Treasury report in April 2016 explained - link below).

As the EU's non food tariffs, motor cars and some textiles apart, are already rather low there is not much scope for cutting them.  So the only potential benefit of Brexit is, after a very rocky transition, cheap food.

For further information about subsidy and tariffs read the link to the report by Savills at the end of the blog.

The third protection provided by the EU for British farmers is regulation. The EU bans GMO's of all sorts, chlorine washed chickens, ractopamine fed beef. It requires livestock to be transported humanely. It bans or severely regulates many pesticides and herbicides. It requires land to be managed for environmental purposes. The 250 pages of EU regulations on cabbages, beloved of UKIP (but actually non existent) keep out Egyptian and Moroccan cabbage growers. Brexiters want to abandon these regulations. To quote Rees Mogg "if it's good enough for India it's good enough for us", although Indian concerns are quantity (enough to eat) not quality. Abandoning regulations for imported food will allow us to import fruit and veg from the whole world grown to any standards.  We could also abandon regulation on home grown food to cut costs slightly. Red tape was a major objection in the farm community to the EU. If the UK removes regulations to protect the food chain, our food exports to the UK will drop.  Processors and farms wishing to keep their markets in the EU will have to pay for inspectors to verify that they meet EU standards (which may somehow become more exacting anyway). Many will chose not to despite their price advantages with a devalued pound. Our, not inconsiderable, food exports will drop.

So, after hard Brexit to the WTO, the government will be facing an inflationary disaster as food prices soar and devaluations bite. George Osborne anticipated the Brexit vote devaluation and proposed an Emergency Budget to cope. He didn't have the chance to implement it so all the inflation triggers were pulled and we will already have to live with the consequences of the first round of Brexit. (Already the lowest growth in the EU and almost on the whole continent - thank you Russia, Belarus and Macedonia for being worse).

The government could be tempted to sacrifice British farming to manage inflation.  The long peace created by the EU has made "Dig for Victory" irrelevant.  Cheap food will look an attractive quick fix during a bad patch once we are outside the EU. As the poor would benefit from reduced food prices the most, this would even be socially progressive, although it might be matched by a Benefits freeze. Done over the long term, this would be an excellent move. It will be done very quickly as a crisis move as part of our transition to the WTO and will fail. Russia imposed sanctions against EU and North American food in 2014. No large scale sources of supply have been able to switch enough production to Russia to replace the lost produce. Import substitution has largely failed or not had time to respond. Russia has become self sufficient in pork and chicken because demand has dropped in response to price rises. A hard Brexit Britain faces the same options but has less land on which to hope for import substitution. Partly these things take time. Partly they take expertise which also needs time to develop.

The Tory Brexiters such as Davies (MP for Howden & Haltemprice yes, but not himself a farmer - and so the others), Fox, Cash, Duncan-Smith, Redwood, Rees-Mogg, Gove, Hannan are ideologically committed free marketers. They admire New Zealand. New Zealand became one of the world's low cost agricultural producers by abolishing all farm support. Only the efficient, now running very big consolidated farms, survived. The Tory party is strongest in the shires, Here, the Brexiters face members of the County Landowners Association. The mothers-in-law of the County Landowners tend to be core supporters of local Conservative Associations.

Will the Brexiters be able to deliver on the promise of cheap food? Should they?

In favour of cutting most of subsidies, tariffs and regulations is the lure of cheap food to paper over some of the inflation that will be triggered by Brexit (ironic as escaping inflation was a reason for joining the EU). This is a big plus.

Against is the ending of the "Archer" lifestyle, rural depopulation plus extinction of many Welsh and Gaelic communities. Also against, is the loss of the only significant group of tariffs that the UK can drop in exchange for market access for say, UK financial services, in negotiations with food exporters like the USA, most Commonwealth countries and those BRICS not in the Commonwealth already - Brazil, Russia and China. (There's not much of the world economy left outside that list and the EU). Brazil and China are regularly rocked by food supply chain scandals. China notoriously does not offer any kind of level playing field in trade. There is not a lot of merit in dropping our food protections to accommodate them. China is also losing its allure as its working age population declines rapidly.

If the UK decides to abandon its farmers, it can eventually do trade deals with the USA and the Commonwealth countries. However, both the US and Australia have said that they will do deals with the EU first. The country with pressing needs to do a trade deals that matches the UK's own is Russia, in its disguise as the Eurasian Economic Union (EaEU). Russia is a middle technology country trying to transition to higher levels. We have what they don't have for example civil jet engines to make their plans for an aircraft industry come alive and advanced pharmaceuticals that could be made (although not developed for our own preservation) in Russia. Russia has a need for infrastructure (for example Russia is already a big buy of coated steel from the UK. UK companies lead in solar roof tiles on steel substrates - what if we could double that?) and a growing agricultural sector. Russia is now #1 grain exporter in the world. Russian milk prices are lower than the UK's and yet the farmers still make profits. Russia can't make cheese though. The UK can. The Russian beef herd is 7 times bigger than it was in 2008. Russia now exports chicken and pork. Unlike Brazil or even Canada, Russia is close in regulatory standards to the EU. All the beef  is growth hormone free. There are no GMOs. A trade deal with Russia/EaEU would be much quicker and easy to set up than any other large country because Russia is under a lot of pressure from sanctions. Above all, Russian sevice industiries, at which the UK is world leading are very underdeveloped. There are few points of economic conflict. Russia needs a friend. But even so, a trade deal with Russia would destroy British farming and cause strong emotions in the USA.
So, do we want cheap food after hard Brexit? Alternatively do we want our one and only tool for negotiating trade deals secured, food security, a populated countryside, living Welsh and Gaelic speaking communities and traditional crop and pastureland wildlife and continued Tory votes in the Shires? If you think that you know the answer please comment.

Links
Report by Savills
HM Treasury on Brexit options EEA, EFTA, WTO
A blog on this site about The Commonwealth as an option
Rexit - Russia's sanctions against the EU

Comments

  1. The EU has the world's best regulations on the (mis) use of antibiotics in agriculture.
    I am not looking forward to the disaster of multiply resistant infections driven by overuse of agricultural antibiotics. They don't stay on the farm long.

    ReplyDelete

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