Chris Blake analyses the UK energy market and looks at how a similar approach could be applied to strengthen domestic food production.
This is the second of two articles examining food production in the UK and why reforming efforts should look at the energy market. You can read Part 1 here.
In the first part of this essay we explored the conflict between the political imperative of cheap food and the environmental damage that this causes. But there may be a solution close to hand.
The electricity supply industry
There are greater similarities between the food and electricity industries than may be immediately apparent.
Both food and electricity are essential for modern life. Both are the products of place – coal, uranium of gas from the ground, wind turbines, PV panels or crops in the fields. Both need massive, state-provided infrastructure to distribute the product across the UK – the transmission and distribution grids for electricity, the road network for food.
Both industries are dominated by global corporations and for food and electricity the UK is dependent on imports to a large extent. Currently around 50% of the food consumed in the UK is imported. 40% of our electricity generation is from natural gas (the majority of which is now imported) and a further 5% of electricity is directly imported through international interconnectors.
But since the 1990s, the UK’s climate change commitments have required Governments to operate within a very clear policy framework, the so called “energy trilemma”.
“The figures for 2019 show that the UK exceeded the targets with 37% or electricity supply being from renewable sources.”
This requires Governments to find a balance between three, potentially conflicting, objectives: low cost energy, security of supply, and low carbon energy. The challenge of making electricity affordable, keeping the lights on, and moving to renewables has been the policy challenge of the last 10 years.
The Government set an ambitious target in the UK Low Carbon Transition Plan published in 2009. To get from just 6% of electricity supply from renewables in 2009 to 30% by 2020.
In fact, the figures for 2019 show that the UK exceeded the targets with 37% or electricity supply being from renewable sources.
There is still a long way to go to reach our legally binding agreement for net-zero emissions by 2050 but to have delivered a six-fold increase in the proportion of electricity from renewable sources is a remarkable achievement.
How has this transformation been achieved and is there anything we can learn to help us tackle the systemic change needed in the food industry?
In essence, the Government subsidised the production of renewable electricity. This was achieved through the Renewable Obligation (RO) and, from 2010, the Feed-in Tariff (FIT) which was aimed at supporting smaller, distributed generators.
These schemes are a direct production subsidy that gives additional income to the renewable generator above the wholesale market price. The cost of this subsidy does not come from general taxation but from a levy on consumers’ electricity consumption. This currently adds about 20% to the average domestic electricity bill in the UK.
Faced with the challenge of the energy trilemma (cheap, secure, low carbon) the Government sacrificed the goal of the cheapest energy for a more secure and lower carbon supply. Ten years and £10bn was enough to bring about a material and systematic change in the way electricity is generated in the UK.
It is important to point out that the policy wasn’t perfect. The Feed-in Tariffs were poorly priced and led to a boom and bust in the renewables industry. Fuel poverty is a real and growing problem. Also, the largest energy users were excluded from the charges to maintain international competitiveness.
This production subsidy compensates for the fact that the market price for electricity is below the cost of production for smaller, distributed renewable electricity generators. The production subsidy (for example, the Feed-in Tariff) is an additional payment for each kWh produced.
“The corners of the food trilemma are affordability; security of supply; and sustainability.”
This ensures that the market price (the export price) plus the subsidy (e.g. FIT) exceed the production cost. Because a profit can be made there has been enormous investment in new renewable generation capacity.
Investment that has transformed the way we produce much of our electricity. It is also important to note that because the majority of schemes supported through these policies were connected to the local distribution network (rather than the high voltage national transmission network) this local production is being consumed locally.
An energy production subsidy, paid for by consumers, that stimulated investment in new low carbon generation, that was primarily for local supply.
A production subsidy for food
Food policy in the UK is (although it is not often acknowledged) bounded by a similar trilemma to that constraining energy policy. The corners of the food trilemma are affordability; security of supply; and sustainability (by which I mean the sustainability of both farm economics and environments).
We don’t recognise the trilemma because for as long as we can remember the drive has been for cheap food with little or no regard to the issues of security or sustainability. Cheap imported food is preferred regardless of the impact on local production or the unseen environmental impact.
So, let’s imagine how a Feed-in Tariff (do I dare call it a Feeding Tariff?) could be applied to the UK food production. As with the energy industry, this would have the goal of rebalancing the food trilemma away from a sole focus on cost to a more balanced policy that also recognises the importance of food security and sustainability.
The core of the scheme would be a production subsidy paid directly to farmers for products that go into the local supply chain provided they meet a specified environmental production standard.
Like the feed-in tariff for electricity, this production subsidy for food would give farmers an economic incentive to invest in new, sustainable production methods.
Farmers would be getting a fair price for what they produce and not just what the global market dictates.
“Food policy is constrained by trade agreements and State-Aid obligations will still be a factor in the new post-Brexit future.”
But how do we pay for this production subsidy? It could be funded from general taxation, or, taking a lead from the electricity market, it could be reclaimed from consumers through a levy on food purchases.
In the electricity sector the levy is a fixed cost per kWh for domestic consumers, and a more complex allocation for commercial customers that reflects the shape and timing of the demand curve, although the largest industrial users are exempted.
But for the food sector we could design a much more flexible means of recouping the production subsidy from consumers. Differential VAT rates could be used to collect the levy on selected foods.
Basic staples and foods produced in the UK to the specified environmental standard can be exempted. The levy could be imposed on the added value items, the convenience foods, the out of season imports, the products with high environmental externalities that are not included in the current price.
I can imagine a future where, under this production support scheme, farmers have the confidence to invest in agroecological production and are supplying a local market without having to match global prices. That alongside the local farm produce on the supermarket shelf are added-value items whose purchase will be supporting local production and supply chains.
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If this seems unlikely, then remember that that the owner of the electrically heated hot tub is paying for local renewable generation through the green levy on his electricity bill! There is a potential of fewer food miles and less waste.
A stronger price incentive to buy the basic ingredients rather than the ready meal with advantages for diets, health and obesity. A chance to re-forge the link between food and place.
I know there are immense challenges in the implementation of such a scheme. Food policy is constrained by trade agreements and State-Aid obligations will still be a factor in the new post-Brexit future.
I also know that the powerful global corporations that control food brands and food retailing will bring all of their considerable lobbying power to disrupt any proposal that taxes the manufactured, added value products but not basic ingredients.
Similarly, the agrochemical industry and global food distribution companies will argue against any preferential treatment for local, sustainable farm produce over farm products that are the have been created with a large helping of greenhouse gases, chemicals, and capital.
But anticipating that reaction makes me think this is worth exploring further.
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