Agricultural Subsidies

In: Business and Management

Submitted By tud45485
Words 336
Pages 2
Deeksha Singh
Fundamentals of International Business
September 25, 2012
Agricultural Subsidies and Development
Summary of Case Study: Agricultural Subsidies and Development
The closing case describes the government sponsored subsidies and tariffs on agricultural products in the United States and EU countries. The subsidies and tariffs protect farmers in those countries from low commodity prices, however at the same time, hurt farmers in the developing nations. According to the United Nation, the subsidies and tariffs effectively cancel out the aid provided by the developed world to the developing nations by limiting export earnings from agricultural products. Discussion of this case can revolve around the following questions:

1) If agricultural tariffs and subsidies to producers were removed overnight, what would the impact be on the average consumer in developed nations such as the US and the EU countries? What would the impact be on the average farmer? Do you think the total benefits outweigh the total cost or vice versa?
I believe if agricultural tariffs and subsidies were removed overnight the impact on the average consumer in a developed nation would be, the prices of goods would rise because developed nations would no longer be dumping the surplus of good on the world market. The impact on the average farmer would be that they are no longer protected from international demand and prices. I do not think the total benefits outweigh the cost; they should remove all tariffs and subsidies and make it possible for developing countries to be able to compete in the world market.

2) Which do you think would help the citizens of the world’s poorest nations more, increasing foreign aid or removing all agricultural tariffs and subsides?
The best thing to do would be to remove all agricultural tariffs and subsides and give people in developing nations…...

Similar Documents

Agriculture Subsidies

...The modern agricultural subsidy program in the United States began with the New Deal and the Agricultural Adjustment Act of 1933. With trader barriers already in place for agricultural commodities, this law gave the government the power to set minimum prices and included government stock acquisition, land idling, and schemes to cut supplies by destroying livestock (Benedict, 1953). An agricultural subsidy is a government subsidy paid to farmers and agribusinesses to supplement their income, manage the supply of agricultural commodities and influence the cost and supply of commodities, such as wheat, grain, corn, milk, and soybeans (Agricultural Subsidy, 2012). The government subsidy program was originally designed to protect small family farms against loss of income due to poor crop yields, as well as create lower food prices and stabilize crop supplies. Annual yields are dependent upon factors that farmers often cannot control, such as severe weather conditions. Due to this, it’s contingent upon the government to encourage crop surplus to help guarantee against shortages. The high cost of land, planting, and storage makes it necessary for farmers to borrow and exorbitant amount of money. When the farmers can’t pay this money back because of low crop yields, they rely on these government subsidies to survive. Today’s farm operations have transformed the family farm from a small, self-contained business to a complex, technology-driven enterprise as seen in the......

Words: 1274 - Pages: 6

Subsidies

...utilized. As a result, the burglary problem will be minimized, encouraging more people to travel to the city by car, thereby saving time and fostering economic growth. Though the mayor is responsible for his city’s wellbeing, the rationale does not fit into a government intervention to build and run a parking facility. In fact, during certain times of budget constraints, it could be costly for the local government to initiate such projects or sometimes government initiated projects could be delayed for a longer period of time due the longer bureaucratic processes existing in most government offices. In addition, privation will empirically reduce the burden of public borrowing, since public sector borrowing requires sometimes unnecessary subsidies and through privatization this could easily be eliminated. Moreover, microeconomic theory informs us that incentive and contracting problems create inefficiencies due to public ownership (Eytan Sheshinski 1999). This is widely depicted in many public offices, given that managers of government- owned enterprises could be lobbied to pursue objectives that differ from those of private firms due to political views which could lead to diverting the objective of having the parking facility properly managed and maintained for a longer time. Well- renowned economists have for sometime argued that governments sometimes end up employing managers who are unqualified for the particular job portfolio. These managers are mostly motivated by......

Words: 1504 - Pages: 7

Agriculture Subsidies

...Dope sheet- agricultural subsidies in India 1) What is subsidy? Subsidies are grants given to a specified public to get a desired action from their side, for instance, when government is feeling that the yield per hectare is low which can be increased by using fertilizers, than government gives fertilizers subsidies so that small farmers can purchase the fertilizer. This means that subsidy is changing the price exogenously to alter the demand and supply figures. Most controversial classes of subsidies across the world are fuel subsidies and agricultural subsidies and today we are discussing agricultural subsidies. 2) What are the latest news stories about subsidies? There is omnipresence of this word subsidy. Recently some big stories came out of this word. Some 12 stories came in month of October itself. For example a) Government is worried because they think their subsidy bill will increase this time because of good monsoons. b) Raghuram rajan, chief advisor to prime minister says we are mistargeting subsidies. c) Manpreet sing from shrimoni akali dal (sad) was thrown out of his finance portfolio because he wanted to do away with power subsidies of 3000 crore. Punjab Government is in debt of almost 150000 crore rupees. 3) Why we need subsidy, what are the benefits of subsidy as a policy? a) Inducing higher consumption/ production b) Offsetting market imperfections including internalisation of externalities c) Achievement of social policy objectives including......

Words: 3440 - Pages: 14

Agricultural Tariffs and Subsidies

...If agricultural tariff and subsidies to producers were removed overnight, what would the impact be on the average consumer in develop nations such as the United States and the EU countries. What would be the impact on average farmer? Do you think the total benefits overweight the total costs, or vice versa? A. For decades the rich countries of the developed world have levied subsidies on their farmers typically guaranteeing them a minimum price for the products they produce. The aim has been to protect the domestic industry from the foreign competition and give an impact on the average consumer in develop nations such as the United States and the EU countries If agricultural tariff and subsidies to producers were removed overnight, the average consumer in developed nations would probably see a slight rise in the cost of commodities as the commodity price reached a global equilibrium. The effect on the farmer would be more substantial because they would no longer be protected from international demand and prices. On the contrary also, the removal of tariffs and subsides to developed nation farmers could allow the average consumers to save as well. The prices for these products might become cheaper and the taxes paid would be eliminated because there would no longer be any subsidies to pay for. On the other hand, this would be a negative for the average farmers in these nations. There would no longer be a surplus of goods that could be sold to monopolize the market. Farmers...

Words: 324 - Pages: 2

Subsidy

...Background. What this paper endeavours to illustrate is that government funding is sometimes necessary for the sustainable functioning of the economy and society from a holistic perspective. Firstly, let us define the term “subsidy”, and how this fits in an economic context. Oxford Dictionary defines “subsidy” as follows: “a sum of money granted by the state or a public body to help an industry or business keep the price of a commodity or service low” (OED Add. Ser. Vol. 3, 1997). Subsidising industry is anathema to the concept of free trade as the very foundation of free trade, as we know, is built on the cornerstone of “laissez-faire” capitalism and a limited role for government inasmuch as the market is out of the sphere of influence of the government. Another notion is invoked when discourse on the subject of government intervention regarding an under-performing market manifests; economists appeal to the term “market failure” to dub this phenomenon. A “market failure” can be defined as an occurrence in the market whereby resources are not efficiently allocated (Financial Times Lexicon, 2014). We’ll explore this notion further in the latter part of this essay. Underlying philosophies. The proponents of free trade and free markets, such as Adam Smith, do indeed possess and proliferate legitimate arguments concerning government intervention in the market. To be intellectually honest from a position of advocating government intervention, this admission will be......

Words: 1741 - Pages: 7

Farming Subsidies

...Research Suggests Farm Subsidies are the Reason Americans Pay Higher Food Prices, Higher Taxes, Ending Small-Scale Farming while Destroying our Ecosystem: Michael L Ashcraft Western Governors University Background: Over 70 years ago, The Roosevelt administration announced the onset of government farm subsidies as a temporary emergency measure to help farmers earn a certain level of income. Although there have been dramatic efficiency upgrades within the farming industry, little change has been changed made regarding how the government funds farm subsidies. The basic idea of how government subsidies function, the government spends hundreds of millions of dollars to raise farmers incomes by raising the price of certain farm commodities. This increase in price encourages farmers to produce these subsidized commodities in large amounts, while encouraging consumers to buy them in small amounts (Armey, R. K., 1990). The result of producing large amounts while purchased amounts are low creates a surplus. Once a surplus occurs the government spends hundreds of millions of dollars encouraging farmers to discontinue producing the certain commodities, essentially subsidizing farmers not to farm. This policy creates great inefficiency, under the farm law passed in 1985, the Department of Agriculture has paid dairy farmers to kill 1.6 million cows and take five-year vacations from farming. Regulations have been enforced that have led to the......

Words: 2071 - Pages: 9

Agricultural

...while sustaining our environment. Truly a win-win situation. Copyright 2005 Inquirer News Service. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. BACK IN 1986, I WAS AMONG A GROUP of UP Los Baños agriculturists and economists who prepared a volume entitled "Agenda for Action in the Philippine Rural Sector," which subsequently became known as the Green Book. We produced it with the blessings of then Agriculture Secretary Sonny Dominguez to serve as the "bible" for reforming the agricultural sector under the Cory Aquino administration. Persistent problemsWhat is striking about this work is that most of the problems we described then, some two decades ago, are still very much with us today. Not only have problems persisted; in some cases, things have gotten worse. We continue to lament how small farmers get so little share of the final price of their products paid by end-consumers, while the agricultural traders and processors have continued to reap handsome benefits. We continue to lament the lack of farm-to-market roads, irrigation and post-harvest facilities, and other rural infrastructure vital to the livelihoods of our small farmers. We continue to lament how little credit is accessible to our small farmers, preventing them from improving the productivity of their farms and thereby raise their incomes. We continue to lament how woefully little is devoted to research and development (R&D) in agriculture, when the norm......

Words: 3633 - Pages: 15

Farm Subsidies

...The argument for farm subsidies -- though not the ones we have now By Ezra Klein Mark Bittman makes the case for mending, rather than ending, farm subsidies: Eliminating the $5 billion in direct agricultural payments would level the playing field for farmers who grow non-subsidized crops, but just a bit -- perhaps not even noticeably. There would probably be a decrease in the amount of [high-fructose corn syrup] in the market, in the 10 billion animals we “process” annually, in the ethanol used to fill gas-guzzlers and in the soy from which we chemically extract oil for frying potatoes and chicken. Those are all benefits, which we could compound by taking those billions and using them for things like high-speed rail, fulfilling our promises to public workers, maintaining Pell grants for low-income college students or any other number of worthy, forward-thinking causes. ... But let’s not kid ourselves. Although the rage for across-the-board spending cuts doesn’t extend to the public -- according to a recent Pew poll, most people want no cuts or even increased spending in major areas -- once the $5 billion is gone, it’s not coming back. ... By making the program more sensible the money could benefit us all. For example, it could: -- Fund research and innovation in sustainable agriculture, so that in the long run we can get the system on track. -- Provide necessary incentives to attract the 100,000 new farmers Secretary of Agriculture Vilsack claims we need. -- Save......

Words: 1104 - Pages: 5

Electricyty Subsidy

...TUTORIAL WORK ELECTRICITY SUBSIDY Members: * Roberto Garzón * Ludwin Gutiérrez * Karina Peña * Joseph Valarezo How as electricity subsidy affects families of Guayaquil? INTRODUCTION Ecuadorian economy has shown a sustained growth in recent years, allowing to the Ecuadorian government to invest in health, education, housing, and some projects for the strengthening of the country. However, it is necessary to control and reduce costs as subsidies. There are subsidies, which are targeted to certain groups of the population according to their characteristics. For example, the Solidarity bonus is a subsidy that is targeted to people in the poorest municipalities in the country and whose income is too low. By the other hand, there are also generalized subsidies, which do not make a proper distinction between groups with different characteristics in the population since they reach all citizens. For example, the electricity subsidy in Ecuador This research shows how people who live in the center of Guayaquil is affected by the reduction of the electricity subsidy since this tool has become in the last seventy years the most used in country due to its versatility, cost, availability, and ease of use. These characteristics make it essential in the human activities either in factories or in the houses since the electricity allows turning on appliances or machines for working or facilitating the lives of people. However, removal of fuel subsidy as gas (LPG)......

Words: 1183 - Pages: 5

Subsidies Food

...On Bread and Circuses: Food Subsidy Reform and Popular Opposition in Egypt Ram Sachs Advisor: Professor Lisa Blaydes Center for International Security and Cooperation Stanford University May 21, 2012 ii Abstract In January 1977, Egyptian President Anwar al-Sadat faced tremendous public protest after implementing relatively small changes to the country’s food subsidy regime. In contrast, during the 1980s, and more aggressively in the 1990s, the government of Hosni Mubarak implemented more consequential reductions to subsidies on core food items while avoiding popular protest on a similar scale. I argue that the Mubarak regime engaged in covert price increases, distribution controls, temporary policy reversals, and repression, which allowed it to successfully reduce food subsidies without igniting regime-threatening public opposition during this period. Following the January 2011 revolution, further reform efforts are unlikely as the transitional democratic politics and the increased number of political participants will block change in the short term. iii iv Acknowledgements This thesis has served to unite my academic experience at Stanford. Four years of preparation, and the past year of writing, have produced this exploration of food, politics, and the Middle East. The CISAC Honors Program has provided a fantastic interdisciplinary home for this pursuit. I am thankful to Professors Blacker and Crenshaw for their guidance in this yearlong process.......

Words: 24159 - Pages: 97

Agricultural Subsidies and Development

...1. What philosophical principle did Google’s managers adopt when deciding that the benefits of operating in China outweighed the costs? When it comes to the benefits outweighing the cost in China from a layman perspective, one could easily say that there is no philosophical principle was adopted, but rather, common sense led them to China. Even though China may have censorship everywhere, the Chinese don't have as many regulations as they do in America or other developed nations. Workers in China earn way less and work longer hours. Google is able to buy property for less in China, too. If anything, Google actually gained money by establishing a branch in China. On the contrary, one could also say that Google’s managers adopt utilitarian approach, because according to utilitarian philosophy, “it focuses attention on the need to weigh carefully all of the social benefits and costs of a business action and to pursue only those actions where the benefits outweigh the costs” (Hill, 2009, p. 144). For Google, they have their own legitimate and logical reasons why they should keep Google’s with the censorship by Chinese government. Without a doubt, China is a huge promising and potential Internet market in the world, where Google can make a great number of profits. Also, Google top managers explain that it’s better to give Chinese users limited information than to give nothing. What’s more, Google managers argue that Google is the only searching engine in China telling users that......

Words: 752 - Pages: 4

Agricultural Subsidies and Development

...Agricultural Subsidies and Development For decades the rich countries of the developed world have lavished subsidies on their farmers, typically guaranteeing them a minimum price for the products they produce. The aim has been to protect farmers in the developed world from the potentially devastating effects of low commodity prices. Although they are small in numbers, farmers tend to be politically active, and winning their support is important for many politicians. The politicians often claim that their motive is to preserve a historic rural lifestyle, and they see subsidies as a way of achieving that goal. This logic has resulted in financial support estimated to exceed $300 billion a year for farmers in rich nations. The European Union, for example, has set a minimum price for butter of 3,282 euros per ton. If the world price for butter falls below that amount, the EU will make up the difference to farmers in the form of a direct payment or subsidy. In total, EU dairy farmers receive roughly $15 billion a year in subsidies to produce milk and butter, or about $2 a day for every cow in the EU—a figure that is more than the daily income of half the world’s population. According to the OECD, overall EU farmers receive approximately $134 billion a year in subsidies. The EU is not alone in this practice. In the United States, a wide range of crop and dairy farmers receive subsidies. Typical is the guarantee that U.S. cotton farmers will receive at least $0.70 for every pound of...

Words: 1644 - Pages: 7

Agricultural Subsidies and Development

...Agricultural Subsidies and Development In recent decades, rich countries and organizations have taken measures to preserve their agro industry. In many of the largest countries as a measure to stimulate the production, subsidy is made for the proceedings or part of the necessary crops. Nowadays we are faced in a big question: What is the impact of these subsidies on world market prices and the producers do not receive subsidies for their production? There are many opinions from different parts of the world and it is like that because each country has its own point of view and depends how much are they involved in the situation. I will try to distinguish myself and to be objective. I think that if the subsidies were removed overnight the impact on the average consumer and producer will be very bad. Family farmers will be driven into bankruptcy and this will lead to production falls. With less production the market will have risen on food prices and this will reflect directly to the average consumer. Another thing that will probably happen is that big corporation will continue their growth and they will kill smaller farmers with their prices. This will cause no competition in the agriculture and will lead to unfairly high prices. Another important thing that may occur is the lower quality of the products, because every farmer corporation will try to get as much as they can and they will no longer care about the quality because the competition is gone. I think that the......

Words: 770 - Pages: 4

Agricultural Subsidy

...International Economics BEQM607 "Agricultural Subsidies & Development" Completed by: John Williams - Rosita Tran - Shrey Sharma- 11739401 Word Count: Viraj Bhatti - Introduction Agriculture accounts for 9% of world trade as is therefore not surprisingly top of the list for government policy for many countries, with agriculture industry still being the largest employer in many developing and third world countries. Currently there are many global issues regarding agricultural policies which include subsidies and tariffs, with continues debate whether they are economically beneficial or in fact detrimental to the agriculture trade market. The world is in a current face off involving developed countries such USA and EU and rising developing countries such as Brazil and India. International efforts have been made to solve issues through trade negotiations such as The Doha Round, a current round of trade negotiations among the World Trade Organization members, which have been going on since 2001 due to the complexity of the issues surrounding agricultural industry. The aim of this essay to critically analyse the effects of removing tariffs and subsidies on the average consumer and average farmer in developed countries as well as how it will effect developing countries. Removing Tariffs and Subsidies “The current subsidies distort incentives for the global trade of agricultural commodities in which other countries may have a comparative advantage.......

Words: 2886 - Pages: 12

Impact of Agricultural Subsidies

...      WHO  REALLY  BENEFITS  FROM  AGRICULTURAL  SUBSIDIES?   EVIDENCE  FROM  FIELD-­‐LEVEL  DATA     Barrett  Kirwan   University  of  Maryland       Michael  J.  Roberts   North  Carolina  State  University     February  2010   [Preliminary  and  Incomplete]     ABSTRACT   The   idea   that   agricultural   subsidies   are   fully   capitalized   into   farmland   values   forms   the   foundation   of   the   argument   that   subsidies   are   entitlements   and   removing   them   would   drastically   reduce   farmland   asset   values.     Surprisingly   little   evidence   substantiates   this   claim.    Using  field-­‐level  data  and  explicitly  controlling  for  potentially  confounding  variables   we  find  that  landlords  only  capture  between  14  –  24  cents  of  the  marginal  subsidy  dollar.     The  duration  of  the  rental  arrangement  has  a  substantial  effect  on  the  incidence.    Initially,   landlords   extract   44   cents   of   the   marginal   subsidy   dollar,   but   the   incidence   falls   by   1.5   cents  with  each  additional ......

Words: 4143 - Pages: 17