The hidden long-term cost of excessive EU agriculture regulation

The hidden long-term cost of excessive EU agriculture regulation

Séan Rickard is author of Ploughing the Wrong Furrow – the costs of agricultural exceptionalism and the precautionary principle, published yesterday by the Institute of Economic Affairs.

Regulation is a feature of a modern economy and it can serve a positive purpose. However, when it comes to agriculture, regulation under the Common Agricultural Policy (CAP) dominates all other aspects of the policy. Amongst farmers, their suppliers and customers there has grown a widespread belief that regulation has become too burdensome, intrusive and costly. For British farmers the costs of regulation – only half of which arises from the CAP – now costs some £600 million per year: adding approximately 5 per cent to production costs.

The authorities argue that the benefits of this regulation outweigh the costs. But they rarely attempt to fully quantify these benefits and for good reason. Unlike the costs, the benefits to a large extent depend on subjective values which might be based on opinion, misinformation or self- advancement. I will argue below that the costs of regulation greatly exceed the estimate of the addition to production costs. Indeed, the costs of excessive regulation are long lasting and threaten future generations with not only more expensive food but also a higher cost in terms of the loss of natural resources and climate change. Before I explain why this is likely to be the case I must first explain how agriculture got into this situation.

The rising burden of agricultural regulation owes much to the political need to justify high levels of public funding for farm businesses. For its first 30 years, the CAP boosted farm incomes by supporting the prices of farm products their produce above the levels that would have been generated by the market. By 1992 this system had produced chronic surpluses and the associated costs of storing and disposing of these not only threatened to exceed the Community’s total budget but also it was causing tensions with trading partners.

In 1992 the system was reformed by allowing prices to fall nearer market levels and in return the basis of farm support was switched to direct payments, i.e. income subsidies. Given the crisis caused by over-production, it was no longer possible to argue that support was needed to maintain production levels. Under pressure from the powerful farming lobby, the authorities disingenuously argued that continued support was necessary to deliver environmental protection, high levels of animal welfare and ecological sustainable farming systems. This widening of the basis of support under the CAP inevitably opened the door to the involvement of non-farming interest groups in agricultural policy making and it is their involvement that has proved costly in terms of the scope and volume of regulation.

Well resourced, non-farming interest groups, such as Greenpeace and Friends of the Earth, have not only influenced policy but also they have been influential in causing the authorities to place greater reliance on the precautionary principle when it comes to food and farming regulation rather than transparent, evidenced-based risk assessment. The effect of this is that much regulation is now based on opinion and vested interests, usurping science and adding to business costs.

Despite the claims of these interest groups that they represent society’s preferences, there is plenty of evidence that many of the regulations they have pushed for do not align with consumer behaviour. For example, surveys find that around 70 per cent of consumers are concerned about animal welfare or rate ethical food production as important, but such surveys should be contrasted with others showing that only five per cent of consumers include animal welfare as one of their major concerns when buying food.

I noted above that the authorities rarely attempt to quantify the benefits of regulation and that when they do they are both superficial and opaque. But of greater concern is that the estimates of the annual cost to farm businesses amount to serious underestimates of the costs to society. Studies show that regulation adversely influences farm level experimentation and innovation. And upstream the effect is to reduce the number of science-based new products while discouraging new technologies.

Put simply, over time the growth of precautionary-based regulation under the CAP is likely to result in farm level productivity being lower that it otherwise would be; the direct effect of which will be to make food less affordable than it might otherwise have been. Moreover, it is only via high levels of productivity that the industry’s demands on natural resources and global warming emissions are likely to be diminished.

I can demonstrate how excessive regulations threaten the growth of productivity with two examples where the precautionary principle has had a significant effect of regulation; namely, crop protection products and GM technology. Studies show that regulations have greatly increased the cost and uncertainty of turning new knowledge into commercial products with the effect that the development of crop protection in the EU has been arrested.

Yet these products have been at the heart of productivity growth in agriculture, a process that has lowered the price of food and thereby improved the quality of life across the planet. Similarly, the success of non-farming interest groups in bringing about a de facto moratorium on the growing of GM crops in the EU threatens not only future productivity but also enormous opportunities to lower food production costs and reduce the impact of agriculture on the environment. The behaviour of non-farming interest groups towards GM technology gives the lie to their claim that precautionary regulation stimulates innovation and alternative technologies.