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Agricultural Subsidies. Group FSC Emelie Erdeljac Andrea Mauri Claire Miller Jenna Timmings. What is a subsidy?. Amount paid to farmers & agribusinesses from the government Supplement income Manage supply of agricultural commodities Influence the cost of supply of commodities.
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Agricultural Subsidies Group FSC Emelie Erdeljac Andrea Mauri Claire Miller Jenna Timmings
What is a subsidy? • Amount paid to farmers & agribusinesses from the government • Supplement income • Manage supply of agricultural commodities • Influence the cost of supply of commodities
Examples of such commodities: • Wheat • Feed grains (maize, corn, sorghum, barley, oats) • Cotton • Milk • Rice • Peanuts • Sugar • Tobacco • Oil seeds • Soybeans
Agricultural Subsidies in the world • Largely present in developed countries • Aim of subsidies protection of farmers from low prices of commodities • Financial support estimated to exceed $300 billion a year for farmers in rich nations
How a subsidy works… • The EU sets a minimum price of butter which is 3,282€ per ton • If price of butter < 3,282€ then EU will pay the difference to farmers • If price > 3,282€, they receive the larger price. Basically Farmers are ensured a minimum price for what they produced.
Who Receives Subsidies? Major recipients of subsidies in the world: • EU farmers $134 billion a year • USA farmers $43 billion a year • Japan farmers $47.4 billion a year
Expenditure on agricultural subsidies have increased over the years in both developed and developing countries
Negative Effects of Subsidies • Unfair international competition reduced prices • Subsidies given by developed countries benefit large farmers rather than small farmers • Strikes and Riots • Collapse of markets Source: WTO Annual Report, 2003
Example - strikes and riots Canadian Ontario Farmers • In 2005, commodity prices were so low farmers were forced to produce below cost of production. • Proposal of “Risk Management program” for subsidies • Rejected by the Government and launched the « Farmers Feed Cities » campaign.
Example - collapsed markets The global rice market • Distortion because of overproduction in the United States lowering prices • Impossible for farmers in Ghana to survive • Ghana rice market has collapsed Cotton market Same situation occurred in Brazil with the cotton market.
Main issue… “Subsidized agriculture in the developed world is one of the greatest obstacles to economic growth in the developing world” from National Center for Policy Analysis
What should be done to eliminate ill effects of subsidies... • US and EU have to reduce their subsidies in order to let producers in LEDCs gain from fairer competition, expanded markets and higher world prices. • Very controversial as USA will not remove its subsidies or even reduce them. In 2005, WTO condemned US subsidies and required US to remove all subsidies but refusal from US.
