Agricultural Subsidy

Topics: Developing country, Developed country, Agriculture Pages: 8 (3026 words) Published: March 21, 2012
Agricultural subsidies and tariffs have been widely debated for several years and this is an issue that is not going away. There is no doubt that the subsidies and tariffs have benefits for some while simultaneously being detrimental to others. The chief area of concern is regarding the faceoff between developed nations, such as the United States and the European Union, and underdeveloped or growing nations, such as Brazil and African nations. What essentially is occurring is that a developed nation comes up with a price that they feel an agricultural product should be bought and sold at in the world market. Once they have this figure, if the going rate of the product dips below the number then the governments respond by giving subsidies to the farmers of their nation. These subsidies offset the dip in price and allow the developed nations farmers to still maintain their profit margin at no extra cost to them, while tariffs protect domestic farmers from cheaper, developing country export prices. If developed nations did not do this, farmers from their respective nations would not be able to compete with the far cheaper producers in developing nations. By doing so, richer nations are covering portions of the costs for the farmers allowing them to compete on the world market and in some cases dominate it. In developed nations if the subsidies were removed, it may in fact benefit the average consumer in those nations. They would be able to get their goods at a lower price while also not have to lose as much in taxes to pay for the subsidies. On the flip side, they might not have as much access to the products because in all likelihood the market for agricultural products would no longer appear feasible, thereby pushing producers out and depressing the supply.  1) background advantages and disadvantages of tariffs and subsidies  2) removal of tariffs and subsidies effect on developed nations     3) removal of tariffs and subsidies effect on developing nations and 4) a conclusion about whether the total benefits outweigh total costs or vice versa This in turn brings in more cash flow for the developed nations because the farmers not only sell their product domestically, but also globally. As a farmer, they understand that these subsidies continue to come in, so they plant more of a product then they will be able to sell in their country on purpose and sell or “dump” the surplus on to the world market. This surplus further depresses the price of the respective product and as a result severely injures the business interests of farmers in poorer and underdeveloped nations. They can no longer sell at a profit in some instances because they are not receiving any subsidies to offset the low selling price as the farmers in richer nations are. As said before, the power of subsidies is not good news for all parties. If there were no dumping of surplus product into the world market by developed nations, the underdeveloped nations would significantly benefit. The revenues these underdeveloped countries lose out on are in the billions of dollars each year. The countries losing out on this revenue are attempting to fight back, but it is not an easy battle. The removal of these subsidies would have an enormous impact; the question is what the impact would actually be. Q1. “The current subsidies distort incentives for the global trade of agricultural commodities in which other countries may have a comparative advantage. Allowing countries to specialize in commodities in which they have a comparative advantage in and then freely trade across borders would therefore increase global welfare and reduce food prices”. (Anderson, Kym; Will Martin (13). "Agricultural Trade Reform and the Doha Development Agenda". The World Economy 28 (9): 1301–1327). Ending direct payments to farmers and deregulating the farm industry would eliminate inefficiencies and deadweight loss created by government intervention. there are arguments for subsidies, it increases...
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