Land Value Taxation Campaign

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Farming support

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With Brexit impending, perhaps, UK farming policy is back on the agenda. We need to be clear about the effects of support for farmers, in whatever form it takes. This requires an understanding of the great economist Ricardo, who formulated the Law of Rent.

Farming support has two effects. The first is to keep sub-marginal land in agricultural use. This is equivalent to keeping uneconomic coal mines in operation, with the difference that without the support, the farmland would go over to other uses or be abandoned as wilderness; most probably, the alternative uses would be forestry or recreation.

The second effect is that the benefits do not remain with the farmers as such. This is because rental values reflect the availability of the grants, subsidies or guaranteed prices. Thus, tenant farmers gain nothing from the support. Existing owner occupiers benefit, but the benefit stops with them, because the value of the support is capitalised into farmland prices. Consequently, new entrants have to pay more for farmland than would otherwise be the case, leaving them with the burden of higher repayment and interest charges.

Thus, support is a one-off benefit to farmers and landowners, but a perpetual cost to taxpayers and/or consumers.

 

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