Dominic Raab goes wild on farm subsidies

by Jack Schickler | 26.02.2016

Government Minister Dominic Raab has taken aim at an apparently easy target: The EU’s wasteful farm subsidies. Writing in the Sunday Times , he claims that “ditching the common agricultural policy would cut food bills by up to 17 per cent.” InFacts would be the last to defend the CAP. But Raab is exaggerating wildly.

The CAP imposes quotas and tariffs on food coming from outside the EU, and these jack up food prices. At the same time, CAP’s support payments induce EU farmers to produce more, bringing prices down. The best way to calculate the overall effect is to compare EU food prices to global food prices – and hence to estimate the “markup” caused by the CAP.  

In 2013 a blog by Kristian Niemietz published by the Institute of Economic Affairs (IEA) put this markup at 17 per cent. This appears to be the source of Raab’s claim.

But the figure is out of date. A more recent IEA study suggests the average EU markup was 15 per cent for the period 2002-2011, but just 6 per cent for 2007-2011.   More recently still, figures from Alan Matthews, professor of European agricultural policy at Trinity College, Dublin, suggest that, for 2010-2014, the markup was just 4 per cent (see chart on page 13). The fall reflects a mixture of CAP reforms and relatively high food prices in the first part of this decade.

Based on the 2010-2014 study, Raab is overstating the CAP mark-up by a factor of four. But his error is actually far larger. The studies cited above refer to food prices at the farm gate. Once you take transport costs, supermarket overheads and so on into account, Matthews reckons that the farmer gets around one quarter of what the consumer pays. So Matthews’ 4 per cent figure means an increase of only 1 per cent in your shopping bill. In other words, Raab’s claim that food bills are inflated by “up to 17 per cent” is off by a factor of up to 17.

The CAP is wasteful, and should be reformed or abolished. But it is disingenuous for Out campaigners to pretend there is some post-Brexit pot of gold on offer when there isn’t.

Raab did not respond to InFacts’ request for comment.

Edited by Sebastian Mallaby

This article was edited on 27 February to more directly reflect the claims made by Dominic Raab