Farming in the UK

Expert comment: WTO rules may hamper UK farming policies post-Brexit

Dr Alastair Bailey and Professor Sophia Davidova from the School of Economics respond to the announcement by government that it intends to overhaul farming policies and payments once the UK leaves the EU.

‘Today’s announcement and tomorrow’s speech by Rt Hon Michael Gove, Secretary of State for Environment Food and Rural Affairs, marks the start on the foundations for a new policy for farming and the countryside post-Brexit.

‘The core issues in the debate about the post-Brexit agricultural policy in the UK are at least threefold – how much will be spent on agriculture and rural areas, what will be targeted by this expenditure, and what are the most effective instruments to deliver the support. The competing objectives are numerous – protecting environment and biodiversity, stimulating knowledge and information to boost the competitiveness of the UK agriculture and food industry on world markets; maintaining high standards for animal welfare and food safety, only to mention a few.

‘Today the minister makes two promises to the industry and country. The first is relatively uncontentious but the second is less so. That farmers have been promised that the UK will shadow the CAP for an additional 2 years to 2024 could simply be seen as expedient given the complexity of devising a replacement farm food and environment policy for the UK. Even so, this commitment amounts to tying the hands of any future Government, of course.

‘The second part of the announcement is the more interesting. It is here that the Minister begins to give clues as to the shape of rural policy in the UK post-2024. There are promises to provide support in a number of ways. There is mention of enhanced support for rural areas, which may prelude financial support for the non-farm rural economy and the rural environment. The announcement also promises to discontinue the Single Farm Payment (SFP) system, often termed Pillar 1 of the CAP, which was designed to allow the EU to pay farmers without compromising international trade under WTO rules. Money saved there would be channelled to the rural economy and the environment. So far, so good. However, the detail of WTO rules may become a significant obstacle to achieving this aim.

‘For the state to provide support to an industry which trades with the rest of the world any mechanism of financial support must not be trade distorting. By sleight of hand the SFP system was deemed to not distort trade. However, a policy which could divert inputs of land and labour from the production of say, wheat, to environmental goods or services might alter trade patterns if it promotes significant change. A diversion of the large resource from Pillar 1 mechanisms to environmental payments could be considered distorting to patterns of trade and could face significant legal challenge through the WTO.

‘To illustrate the problem DEFRA may face in delivering these changes, the 1994 WTO Agreements required that agri-environmental payments conform to the “key” criteria of Annex 2 Section 12 of the Agreement on agriculture in order to avoid challenge as trade-distorting:

“Eligibility for such payments shall be determined as part of a clearly defined government environmental or conservation programme and be dependent on the fulfilment of specific conditions under the government programme, including conditions related to production methods or inputs, and

The amount of payment shall be limited to the extra costs or loss of income involved in complying with the government programme”

‘Satisfaction of the first of these would be extremely costly to administer, the latter, however, explicitly rules out using agri-environmental policy as a means of supporting the incomes of farmers.

‘Therefore, while Brexit will free the UK to design its own policy outside the complex regulations of the EU CAP – never warmly loved in the UK – WTO disciplines on agriculture will likely still constrain the feasible policy design.’

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