Market matters
Sir: With regard to Mr Douglas Jay's recent letter in reply to Mr Wistrich's comments on his article, may I, as a practising economist dealing with EEC matters, add some possibly helpful comments. The argument is, of course, being conducted in thoroughly misleading terms, with both parties concentrating on the immediate impact of the CAP on Britain's balance of payments and cost of living.
As long as the argument is conducted in these terms proand enti-marketeers can both seize on those areas of the CAP's present operation which happen to suit their arguments. Thus it is true that as world food prices decline the immediate 'impact effects' on Britain are increased, assuming that world prices drop below EEC levels. It is also true that there is a cyclical world overproduction of beef at presenrated consequently that world prices are extremely low; the impact of which the Community is endeavouring to avoid by maintaining the prices it pays its farmers at higher levels as a means of reducing the losses many of them are making on their cattle sales at present. The only difference between the Community's action now and that of British Governments in time past is that while both would have the same objective, British farm support came from taxpayers, whereas Community farm support comes from consumers.
But pro-marketeers in their turn can point out that the CAP has been turned on its head in the last year and it has operated recently to protect Community consumers of cereals, rice and sugar by taxing Community producers. This flexibility of the CAP and its mutation to an instrument designed to insulate both producers and consumers from world markets — producers from low world prices, and consumers from high world prices — is often ignored in Britain. Incidentally, protecting consumers in times of high world prices is something the old British deficiency payments system could not do (apart from the special case of sugar).
Rather more important for Britain should be the long-term relationship between CAP prices and world prices. Thus, if world prices go down then the CAP will once again look high-priced and protectionist. 'But in my view — shared by other commentators — world prices for agricultural products are unlikely to drop to the levels of the early 1960s, Certainly some have dropped recently, given the severe inflation of the last few years, which is now built into cost structures, however, it is extremely difficult to see how producer-countries can ever allow prices to drop too far.
Thus if world cereal prices come back a great deal, which, so far, they show little sign of doing because of present minimal world stock levels and doubts as to the exact size of harvests, it can be expected that North American farmers in particular will restrict their cereal acreages in favour of other competing crops. For sugar 'average' world production costs (if such a concept is possible) now seems likely to be near an f.o.b. `raws' equivalent of the full Community intervention price for refined. There again for beef, world prices are at present extremely low, but given the inevitable cynical response by producers in the shape of increased slaughterings, they can be expected to be rising strongly in 1976.
In general, Community farmers have received singularly little benefit from the world commodity price explosion of the last two years. Instead they have ' endured something of a 'cost price' squeeze as CAP prices have been raised very much less than the general pace of inflation. Thus while the annual average increase in Community agricultural prices has been almost six per cent, (1971/72 to 1974/75), the equivalent rise in world food prices has been about twenty per cent (based on the FAO price index for food and agricultural commodities between 1970 and 1973). Given British membership of the Community with our commitment to restraining consumer prices, and the German commitment to keep down Community expenditure (on farm support, like anything else) this trend to moderate the rise in CAP prices is likely to be maintained.
A further important point must be that the pattern of UK food consumption and production will adjust to the change in Community or world prices as appropriate. Consequently as a result of the Community export tax of up to £40 a ton on soft wheat during most of last winter, so keeping our wheat prices below world levels by nearly, if not all, this amount, British useage of soft wheat in the bread grist has increased markedly. In recent years the proportion has been increasing slightly at somewhere just over one third, whereas this season the proportion has been nearer half. Obviously the result has been to keep our bread cheaper than it would otherwise have been. An estimate of the gain from this change in our consumption habits, plus the effect of the Community export tax in keeping British wheat prices down, must be of the order of E40 million or so, or say lp on a standard loaf (if all loaves were this weight), This is understated to allow for the higher useage ot Communtiy wheat which would probably have occurred in any case because of the good protein contents in 1973/74.
A final point which I have not seen mentioned before is that as a result of being a member of the Community we have greater security of supply. Even in the enlarged Community of nine the overall food self-sufficiency ratio if some ninety per cent as against the UK's about two-thirds ratio in temperate products. Quite how one values greater security of supply 1 am not sure, but it surely should be an element worth mentioning at a time when traditional suppliers to the British market are successfully diversifying to other markets and the Caribbean sugar producers are having difficulty in filling their Commonwealth sugar quotas.
If argument about the CAP is to be a central part of any 'great debate' (which Heaven forbid, as it is a distraction from the political issues) then at least let it be concentrated on the long term position rather than the price of butter today!
Simon A. Harris 64 Fawe Park Road, London SW15.
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