The Impact of Agricultural Subsidies

Topics: Agriculture, Developed country, World Trade Organization Pages: 6 (1936 words) Published: November 7, 2010
The Impact of Agricultural Subsidies

The Impact of Agricultural Subsidies
Many countries started to negotiate Doha Development Agenda under the World Trade Organization (WTO) in 2001. In July 2004, members in WTO reached agreement to make a reform in agriculture. One of focused things is to cut agricultural subsidies both in developed countries and developing countries. In recent several years, millions of people from both developed and developing countries give in response to eliminate agricultural subsidies. Agricultural subsidies should be eliminated because they distort free trade, damage the local environment.

The meaning of agricultural subsidies
"Agricultural subsidies, financial assistance to farmers through government-sponsored price-support programs." (Columbia Encyclopedia, 2000) In fact, agricultural subsidies are that governments give cash to farmers in order to grow certain product or certain quantity of product. There are two main benefits to set up agricultural subsidies. "Beginning in the 1930s most industrialized countries developed agricultural price-support policies to reduce the volatility of prices for farm products and to increase, or at least stabilize, farm income." (Columbia Encyclopedia, 2000) First is to stabilize the local market food prices, and second is to raise farm income. Farmers could get cash directly from government.

The history of agricultural subsidies
The history of agricultural subsidies help to understand how agricultural subsidies benefit to market and farmers. The first government assistance to farmers was in the United States in 1920s. Because of World War I, the market needed a great amount of food to supply. Government encouraged farmers to increase production during war and postwar time. However, which caused that the grain and cotton was oversupply in the market. The supply of production was over than demand so that there was a big decline in prices. Therefore the United State government used $500 million to set up Federal Farm Board and bought grain and cotton on the open market in order to maintain the prices of grain and cotton. In fact, those money encouraged incentives of farmers to grow more products. Therefore, it became a vicious circle on the market, and the first attempt was failed as end. In 1933 the Agricultural Adjustment Act (AAA) passed to make a reduction and control on supply of certain products. The AAA through giving agricultural subsidies to farmers in order to keep a quota for main crops so that there was a balance between supply and demand on the market again. According to the Commodity Credit Corporation (CCC) in 1937 that "Price-support loans were allowed to give to farmers who grow the designated basic commodities." It included over 100 different products. Until 1960s farmers could get money directly from government for growing certain quantity of products.

The measurement of agricultural subsidies
The measurement of agricultural subsidies help to know extent of agricultural subsidies in developed countries. "General Agreement on Tariffs and Trade (GATT) talks and World Trade Organization (WTO) discussions require quantification of agricultural protection by various countries in order to reduce complicated agricultural trade negotiations to measurable dimensions." (Lingard J. 2000 p. 2) So the tool to measure agricultural subsidies could help people easily analyze impact of agricultural subsidies. Economists use world prices as a reference. For example, if the price of cotton in world market is $200 per ton. America gives its farmers $300 per ton, so the local market is subsidized by $ 100 per ton. "Producer subsidy equivalents (PSEs) are a widely accepted measure of the extent of agricultural subsidization." (Cahill, C., & Legg, W., 1989 p. 16). Cahill and Legg gave us two formulas for calculating the PSEs.

According to the book named Estimation of Agricultural Assistance Using Producer and...
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