With regard to the agricultural legislation’s effect on the UK economy, the National Farmers Union (NFU) believes membership of the Single market decreases food costs for consumers. The NFU stated that the UK imported £28.9 billion worth of agricultural products from the EU in 2012 and that the cost of imported products from Europe would rise notably for consumers in the absence of the free trade in agricultural products (assuming tariffs would be imposed if the UK were outside the EU). More recently, Peter Kendall, former NFU president, stated in the run up to the EU referendum that “Leaving risks higher prices for families to put food on the table.” It is evident higher domestic prices can ensue as a result of the loss of the hefty subsidy British farmers receive per annum (between £2.4bn and £3bn) from the EU. The loss of this subsidy is likely to increase the costs of production for farmers, reduce the general supply of British agricultural produce to the market and, consequently, raise prices. Legislation within the TFEU that establishes the
‘Common Agricultural Policy’ (CAP) is also of huge economic significance; The UK government aimed to help the UK farming industry become more competitive and responsive to signals of the market, since the CAP (that the UK is subject to) is accompanied with ramifications for the farmers market orientation 4 . The ramifications are the overproduction of agricultural goods by insulating farmers from the market forces of supply and demand, since farmers make up 3% of the EU’s population but still receive circa “30%” of the EU’s total budget through the CAP (according to the European Commission). Although a free market solution would ensure a better allocation of resources, this would be at the expense of the food security that the CAP provides. Without the CAP we would be too reliant on more volatile imports. During a time where global warming is impacting harvest it’s increasingly important that we ensure stable food supplies at reasonable prices through the CAP. Prior to the ‘four freedoms’ 5 being enshrined in EU law by the passing of the Single European Act 6 (1987), all legislation covering the ‘four freedoms’ (that constitute the ‘single market’) had to be agreed unanimously by EU member states. The creation of the ‘Single Market’ involved the establishment of a free trade area (removal of tariffs and quotas between member states) and went further to establish a customs union (creating a common tariff imposed on rest of the world). Theoretically, the establishment of the ‘Single Market’ would mean increased competitive pressure on domestic markets (due to the greater choice available for consumers), increased trade between member states, and general diversion of trade from third countries. Additionally, firms are able to operate on a larger scale whilst engaging in business activity as they would domestically and achieve a better allocation of resources (e.g. by carrying out production where it is most efficient: enabled by the ‘free movement of capital’). Gains with regard to economic performance may be ‘static’. For example, a rise in real national output due to a more efficient use of resources (e.g. due to the free movement of labour) and increased specialisation (due to the fact firms can operate on a larger scale), all of which could see an outward shift in short run aggregate supply.
4 A business approach concerned with identifying and meeting the needs/wants of consumers 5 The free movement of goods, capital, services and people 6 Set the European Community the objective of establishing a single market by 1992, and codified the ‘European Political Cooperation’ (precursor to the European Union’s Common Foreign and Security Policy)
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