agricultural markets without government intervention

Topics: Mixed economy, Government, Economic surplus Pages: 7 (1083 words) Published: April 21, 2014
The Agricultural Market could be A-maize-ing without Government intervention. The ever expanding gap between the developed and developing world, constantly emphasises the need for intervention, in promoting the positive upliftment of third world society. With 13.1%, of the world’s population suffering from malnourishment, there is continuous pressure on the agricultural market to provide increased amounts of produces to cater for the needs of the yearning populationi. To accommodate the ever increasing demand, governments are often required to intervene. Unfortunately not all governmental intervention has the desired effect, creating distortions that do more harm than benefit. This essay thus explores the damaging effects governmental intervention can have on the agriculture market, with a specific focus on the maize market. Government intervention will attempt to reshape the economy by applying policy measures such as; subsidies and price ceilings to the agricultural market. Governments intervene in the price-setting devices in a variety of ways for various reasons. ii These price distortions do not however benefit the maize industry but in fact hinder it, and will show the harsh consequences of intervening in a highly important food staple. Maize is a vital produce in the agriculture marketiii. It is not only used as a food crop but is also seen as a food stapleiv. The international maize economic market has grown and changed rapidly in the last few decades. Production has increased by nearly 50% over the past two decades.v It’s also one of the most widely traded commodities as it has become incredibly beneficial in the developing countries where agriculture is important. vi In the United States, subsidy programs to aid famers are very costly for the tax paying population as close to $20 billion of their contributions go towards subsidising farms on average per year from 2002 to 2006.vii The intention of the subsidies is for the benefit of the smaller, local agricultural firms. However, the subsidies are being handed out to the wealthier, larger farms which thus create an even larger gap between the struggling rural farmers and the wealthier onesviii. In the United States in 2003, 72% of the government subsidies were handed out to the wealthiest 10 percent of farmers.ix Government subsidies are supposed to bring about rural-development in order to benefit farmers while at the same time contribute towards job creation, however, studies show poor job and population growth in areas where subsidy pay out are at highx. With reference to the situation in Zambia prior to the 1990’s, government intervention did not benefit the population but in fact hindered it more.xi Subsidies were granted for fertilizer and maize seed by the government in an attempt to increase output by reducing the costs of producing and contribute to the long-term goal of self-sufficiency.xii The result was increased yields due to the subsidy for fertilizer.xiii However, there was also a decrease in land that was dedicated to the production of maize resulting in a reduced maize output. They did not achieve self-sufficiency and the Zambian population became reliant on imports, which was far more expensive than local produce.xiv A price ceiling is another government intervention which sets a price that is illegal for producers to exceed.xv From looking at the graph, equilibrium is where q* products are demanded at a price of p*. However, governments intervene and distort the market price by setting a price ceiling. It is now illegal for producers of maize to sell their produce at a price that exceeds the price ceiling.xvi In Zambia this regulation was placed on agricultural products such as maize at the commencement of each new crop season in order to keep the prices low so that it could be affordable to the Zambian population.xvii This intervention resulted in shortages due to the fact that demand increased in relation to the decreasing price....
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