Commentary

Our Politicians Would Be to Blame for a Post-Brexit Food Price Fiasco

Will Brexit mean breakfast is more expensive? Those who fear the UK’s exit from the EU’s customs union believe it will. According to them, a failure to achieve a free-trade deal with the EU and the UK “crashing out” of the EU’s collective tariff wall will see food prices shoot up. Why? Because our government will be duty-bound to impose import tariffs on EU foodstuffs for the first time.

Actually, there are many ways Brexit might affect food prices overall. Uncertainty and changed judgments on the economy’s prospects may affect the exchange rate. A new post-Brexit migration policy might change farmers’ labour costs. The extent and shape of farming subsidies and new domestic regulation will likely alter prices too. But there is nothing inevitable at all about the UK slapping new tariffs on to EU goods if we leave the customs union. That would be a pure policy choice made by our governing politicians.

Uncertainty and misinformation in this area arises because the UK Government has committed publicly to adopt the EU’s tariff schedules at the World Trade Organisation (WTO) to smooth our EU exit. Many wrongly interpret that as saying the UK will maintain all the EU’s existing tariffs on third countries, plus apply them to the EU too, due to the WTO’s non-discrimination principle. The author Peter Crosskey, for example, concludes we must prepare for duties of around 41p on Irish or Danish butter and a 14pc increase in the cost of potatoes crossing into the UK. Cutting tariffs, he says, would take several years and would entail mind-bogglingly complex negotiations with 163 other WTO members.

But this is a misunderstanding. Saying you will “adopt the EU tariff schedules” at the WTO means accepting restrictions on the maximum tariffs you can charge for each product. It says nothing about reducing rates. The UK Government, in other words, is perfectly at liberty to cut tariffs straight away, or even to completely zero them out, so long as these product tariffs are applied equally across countries. There is nothing difficult about this at all, and it entails no negotiations (unlike the more difficult exit negotiation on how to disentangle the UK from EU-wide quotas).

Slashing tariffs is precisely what a nation that wants to, in the words of Theresa May, be “the strongest and most forceful advocate for free trade”, should be doing. Far from increasing food prices, a Brexit where the UK exits the customs union and does this could lower them substantially. It is up to our politicians to deliver.

This would be a boon for our consumers, who would not merely still enjoy the freedom to purchase French cheese or Italian prosecco tariff-free, but also see the price of imported South American steak tumble too. The benefits would not just come in the form of the direct impact on prices either. In the longer term, we would expect a more productive economy, as resources shift towards products where we have a comparative advantage under the discipline of enhanced global competition.

It is all the more baffling to hear the anti-Brexiteers continually pushing this scare story about food prices, given the EU is well known to be heavily protectionist in this area. It currently imposes average agricultural tariffs of 22.3pc on products from the rest of the world, subsidises EU-wide agricultural production through the Common Agricultural Policy, and enforces expensive regulations to try to keep out non-EU competition. No wonder then that between 2002 and 2011 food prices within the EU were, on average, 15pc above general world prices.

Just as with tariffs, a UK Government with repatriated powers post-Brexit could undo the damaging effects of EU policy in these other areas. We could follow the example of New Zealand in phasing out farming subsidies over a five-year period.

This led to a significantly more productive, diversified agricultural sector and improved farming techniques to increase efficiency. We could alter too the significant environmental regulations and abandon the precautionary principle which underpins EU agriculture decisions. These currently restrict the development of GM crops, disable yield-enhancing pesticide use and have a chilling effect on agricultural innovation more broadly.

Farmers are understandably nervous about the Government’s stated aim of restricting net migration and less access to EU low-skilled workers as we exit the single market. But even here the Government would be able to reinstate a variant of the old Seasonal Agricultural Workers Scheme. This saw a supply of migrant workers from Bulgaria and Romania doing short-term, low-skilled agricultural work prior to those countries becoming full members of the EU. One could imagine a similar scheme operating with new countries outside.

The long and short of it is that many Remainers talk as if food prices rising post-Brexit is inevitable. As if the EU is the pinnacle of free trade and cheap food and the UK is totally passive and must accept its fate. In fact, leaving the single market and customs union gives the UK Government considerable power to pursue a supply-side agenda that would benefit consumers substantially. Reducing tariffs on imported foods, reassessing agricultural subsidies and regulations, and setting a migration policy in line with what the agricultural sector needs, could reduce food prices substantially.

Should our politicians choose to do the opposite and maintain or enhance protectionism, it will be they who are to blame for rising shopping bills, and not the constitutional decision taken by voters.

As with so many other areas of policy, the UK’s destiny post-Brexit will be determined by her elected government’s choices.

Ryan Bourne holds the R Evan Scharf Chair for the Public Understanding of Economics at the Cato Institute.