Who benefits from the CAP

Who benefits from the EU’s Common Agricultural Policy? It is not farmers, but regular followers of this site will know the answer. Landowners.

Subsidy pushes production below the natural margin. The rest can be deduced from Ricardo’s Law of Rent. The rentals on all other sites rise by an amount equal to the amount of the subsidy. If the farmer is a tenant, he must pay this rent, which then goes to the landlord. If the farmer is an owner, his additional income is imputed rental income. Whichever the case, the increased rental income is capitalised into land prices at around 20 times the amount of the annual subsidy. So the benefit of the subsidy all accrues to landowners. It is a wicked and unjust policy.

But that is not quite the entire story. Existing taxes have an effect on the margin. Land that would be marginal in the absence of taxes becomes sub-marginal when taxes on production inputs are imposed: labour, fuel, etc. Thus subsides are necessary to counteract the effect of taxes as the margin, and as the struggling show, the subsidies may not be enough to compensate.

The real answer is to stop taxing at marginal locations then there would not be any need to fork out subsidies. The way to do this is to shift taxation off labour and services and onto the rental value of land. At marginal locations, land has no rental value and under a system where land value taxation is the main tax, the economy can operate in the most efficient way, without distortions or costs to the taxpayer.

Detailed information can be found on this web site

The table below is an extract, listing the top 20 UK beneficiaries.