There is mention in political circles that the UK is keen to abolish subsidies to its agricultural sector. They have already insinuated that they intend to freeze agricultural spending at 2013 levels until 2020 with the long-term goal of eventually abolishing all assistance to farmers. The EU currently spends €55bn for the farm budget each year and this accounts for 40% of its total budget – more than any other sector.
This action would certainly put New Zealand on a level playing field with the UK and make its produce much competitive than previously. With New Zealand going through the same process of removing subsidies nearly two decades, the UK will agricultural sector will find it difficult to adjust. However it has allowed New Zealand farmers to be far more focused on the essentials of the market rather than being driven by the subsidies from government. Farms became bigger and more efficient as economies of scale became hugely important in maintaining a competitive edge. What the subsidies did in New Zealand was to encourage people to develop land that was not really suitable for any agricultural use. However as they got a subsidy from the government efficiency or quality didn’t feature as a major factor in maintaining competitiveness. Here is what happens when the subsidies are taken away – supply curve to the left.