26 March 2024

Why we need to copy the Kiwis on farming


A new protest recently took hold of Westminster, as tractors flooded Parliament Square and beyond. Britain is the latest Western European country where farmers have been protesting. They seem to be demonstrating over two key topics – the fact that every Briton now has access to cheaper food through free trade deals, and that insufficient taxpayer money is provided to maintain their unproductive sector. As Adam Smith, the father of modern economics, argued in 1776, in the mercantilist system, producer interests come to dominate, ‘but the whole purpose of production is actually consumption, and it is consumer interests that should rightly prevail’.

Yes – farmers are protesting about being uncompetitive, but it does not have to be this way. The blatant desire for subsidy is enough to make red mist descend over the eyes of even the mildest free marketeer. But if we step back, there are constructive responses to genuine concerns over the viability of farming in the UK.

In 1984, New Zealand took the bold and profitable steps of abolishing subsidies for agriculture, phasing out price support, and reducing tax distortions in the sector. Protests abounded, with the largest rural workers protest in history occurring in 1986. But, when the dust had settled, New Zealand discovered that the sky did not fall. In fact, New Zealand’s agricultural sector turned into a behemoth, with an export value of £25.5bn, competing with Britain’s £27.49bn. New Zealand’s exporting prowess is despite a population of only 5m people, and a quarter of the agricultural space. Even the British National Farmers Union admit that New Zealand’s ‘lower cost of production’ [read: efficiency] is due to different regulatory and climatic conditions that allows them to reduce their fixed costs

High costs for British farms are the cause of our agricultural uncompetitiveness, not helped by our extensive subsidy and tariff regime. Consumption of fixed capital has stalled since 2021, while costs for fertilisers have risen due to increasingly onerous environmental regulations on nitrogen and phosphates. It is clear that farmers need support through deregulation and streamlining regulatory processes when compared to the EU. In New Zealand, the regulatory environment for fertiliser is deemed to be highly competitive and innovative, permitting cheaper input costs to grow produce and feed livestock whilst maintaining sustainability. It is clear that our regulatory settings are on different planets, to our detriment.

Thankfully, the expansion of full expensing to leased equipment will provide additional financial incentives to farmers on lower budgets, allowing them to more actively grow increase capital inputs and thus boost productivity. But this will take some time to really kick in.

We should note that Britain has a very strong currency, which harms our marketability in exports, and the EU’s protections on their own agricultural markets place us at an export disadvantage. However, placing tariffs on imports bolsters our own exchange rate performance, creating a vicious circle of uncompetitive markets and higher prices. New Zealand, on the other hand, takes full advantage of its competitive advantage and advocates on the world stage for tariff and subsidy reduction through the WTO Carines Group – something Britain has conspicuously avoided joining.

Support for farmers is a touchy subject (as my Twitter notifications are currently demonstrating). We should not be bailing out an industry that has failed to compete, this is common sense (unless you listen to the modern day mercantilists and industry lobbying). But we must also be mindful that there is so much constraint placed on farmers through burdensome regulations and tariffs which punish us all. Copying New Zealand’s brave and profitable leap into the deregulated, competitive world makes sense for a dynamic, food secure, and exporting Britain. So let’s import some ideas, and some fruit too.

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Maxwell Marlow is Director of Research at the Adam Smith Institute.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.