Market Effects of Agricultural Subsidies

A farm subsidy is a subsidy granted by the government to farmers and agribusinesses with the purpose of supplementing their income, managing the supply of agricultural products and influencing their cost and supply. They raise a lot of controversy. This is due to their complex effects and also their political inclination which involve a lot of associations that represent the interests of agribusiness.

The government avails a safety net to the farmers with the purpose of helping them because the differences in profits and agricultural production from year to year. This is due to differences in market prices and other factors to make sure that there is a stable supply of food. In exchange for these incentives, farmers are required to meet a certain standard that the government fixes for various crops with the purpose of helping in the regulation of demand and supply. This is also aimed at keeping the economy stable for the state while assisting farmers and businesses in staying afloat and being prevented from being bankrupt.

This practice started during the reign of President Franklin D. Roosevelt during the Great Depression when most private businesses were becoming bankrupt. As it proved to be an effective method in the maintenance of economic stability, subsidies started being embraced by other states other than in the U.S. This support is however, directed toward the five main products of corn, cotton, rice, wheat and soybeans.

In spite of the oratory of the preservation of family farm, many farmers do not gain from government farm subsidy programs (Riedl). Small product farmers are only entitled to a simple pittance, while farmers who produce vegetables and meat are almost fully deprived of the subsidy program. They are given the option of signing up for subsidized crop insurance and regularly receive government disaster payments. For this and more reasons that will be discussed in this paper, farm subsidies have been criticized as ineffective and ones that generates unnecessary economic costs. as Although most of the farmers benefit from them, they also have many negative effects on trade, environment, health and the general market (Ostria). Farm subsidies have brought about negative impacts on market equality, environment, and on the health of citizens.

Initially, farm subsidies were intended to assist the less developed states to stabilize their economies while also helping them in the improvement of their population’s standard of living. The developed states, however, kept using the farm subsidies with the purpose of monopolizing the global free market and keeping the relations in a way that favored them. For instance, in 2005 European farm subsidies were calculated to be worth 49 billion Euros. They thus became powerful by having this much for devotion to this instrument. When developed states use subsidies, their amount of wealth is not comparable to those of the developing states’ that are also using this strategy to ensure the prosperity of their farms and businesses. The developing states lack the resources to keep up with the increasing budgets of the developed countries. In the long run, the free market becomes ineffective as subsidies strengthen the control of developed states while the efforts of the developing states are crippled (McEachern).

Even with the poor countries being assured by the World Trade Organization through the Agreement on Agriculture that there would be drastic reduction in farm subsidies in the developed countries, there is trouble ahead of the farm front. For instance, President Bush signed into law a new bill amounting to $10 billion which was purposed at raising the farm subsidies of the United States to 80 percent annually for the coming ten years. Although such a strategy by the United States is beneficial to its agribusiness even with its citizens catering for the cost, it also harms the developing countries (Neff).

In doing so, the United States forces the developing states to repeal the government subsidies and also reduce import tariffs while it protects itself from foreign competition through increasing its subsidies and maintenance of its tariffs. These strategies have further allowed the United States to dump its agricultural surplus on the global markets. For instance, the country exports corn and wheat at costs 20 and 40 percent lower than the real cost of production. Additionally, the increment of the US farm subsidies will endanger the livelihoods of people in the less developed countries. For instance, developing regions such as Africa mainly rely on agriculture for almost a quarter of their total output, a big portion of it coming from poor families (Ostria).

African exporters will also be impacted undesirably. According to the World Bank, exporters from West Africa by now go at a loss of almost $250 million annually as a result of the subsidies of the United States, and this is bound to increase. Countries such as Mali and Chad, which mainly depend on cotton as a large part of its export earnings, incur losses that are triple the savings availed through debt relief. This is a good illustration of trade policy undermining assistance. Producers of staple food in less developed countries experience particularly depressing forecasts of IMF as they are exposed to stiff competition with imports that have been subsidized (McEachern). For instance, since the barrier imports of Mexico began falling under the North American Free Trade Agreement, the maize imports in the United States have tripled. Mexican small scale farmers have been forcefully removed to the regional markets, thus undermining regional economies and encouraging migration.

Further, import liberalization in markets that have been distorted by subsidies may have implications that are devastating to the efforts aimed at combating rural poverty and improving self-reliance (Ostria). For instance, when the International Monetary Funds forced Haiti into liberalizing its rice markets, Haiti was swamped with cheap United States imports. There was the collapse of the local production, together with main rural source of income. The country that used to be self-sufficient now spends a large portion of its earnings from exports to import rice from the United States.

Environmental Impact of Farm Subsidies

The practice of agriculture as a common major use of land has a significant impact on the environment. This is irrespective of whether there is the use of subsidies or not. The degradation of the environment due to farmers has been a common widespread issue that has lasted for many years. Farmers have, however, been able to learn how to look after the natural resources which they employ in their activities. They have responded to economic inducements in order to protect the natural resources while looking for means through which to sustain their lives. The impact of farming undertakings on the environment becomes apparent in the quality of soil such as its texture, the exhaustion of nutrients, salinity, and the balances of moisture. Other consequences include effects of water systems such as ground and surface water pollution and irrigation, and the quality of air with the inclusion of greenhouse gas emissions. It also affects biodiversity and ecosystems (Ostria).

The effect of agricultural subsidies on the environment is remarkably complex. A majority of the impacts, however, are indisputably damaging the environment. For instance, such practices as the provision of farm subsidies in the form of cash incentives in regions that are tropically forested may promote the clearance of forest land in order to create space for livestock and agricultural production. In other cases, in relation to the irrigation water, it may also negatively affect the environment. Irrigation subsidies in the form of less than total-cost recovery valuing may encourage the excessive use of water that is categorized as scarce. This may result in waterlogging and the salinization of the soil. Farm subsidies on agricultural products such as fertilizers and pesticides often increase the use of these products. They have been widely considered to kill certain organisms living in the soil. They also lead to the constant reduction in the fertility of the soil (Neff).

There is difficulty in defining which particular subsidies are environmentally friendly or hazardous. Steps should be taken by the government to ensure that there is provision of the exact and truthful composition and effects of the particular subsidies. The use of subsidies in agriculture has been considered to promote and encourage the production of injurious pollution and result in the disproportionate use of natural resources (Neff). There is often the failure to include any environmental externalities such as pollution in the profit and loss accounts of agricultural producers, farmers and land users. This may be interpreted to mean that any damage that is caused on the environment is not catered for by the people who are considered directly accountable for the cause of the externality. With the existence of a difference in the private and social costs, the environment and the society are left to incur any costs of repair or face the negative effect. This is habitually made worse by the provision by the government of farm subsidies, which oppose the natural effects of the market to increase the costs of agricultural output. The ultimate result of this is that agricultural production is further encouraged thereby increasing the impact and rate of environmental degradation (Ostria).

The offering of farm subsidies may, on the other hand, impact positively on the environment. For example, those of them that promote and encourage the use of other means of power and fuel such as kerosene consumption are advantageous in the conservation of the environment. These subsidies lead to a reduction in the demand for wood as fuel and shorten the level of deforestation.

Health Issues Arising from Farm Subsidies

The provision of subsidies on agriculture has had an impact on the health of the nation. It has been argued that a majority of the funds and subsidies that are offered by the government to aid agriculture has been used in the production of crops that are mainly responsible for the creation of junk food. The government has always been cautious and hands-on in trying to promote the upbringing of a nation that is healthy. It has been applauded in its move to encourage healthy feeding and lifestyles. Critics have, however argued that they fail to understand this move. There is a distinct inconsistency between the government’s argument and promotion of a healthy nation and whatever the government subsidizes (Neff). With the main goal of providing subsidies being the need to offer food to the citizens at low prices, the government urges farmers to increase their agricultural production.

The problem with the offering of the subsidies by the government is that a significant part of the total agricultural funding is offered to commodity crops such as wheat, corn, and soy. They are primarily used for feeding livestock though they are also used to make sweeteners and other additives. Healthy farm products such as apples and other fruits have received way little than even a third of the amount used in budgets for the farming and production of corn and soy. By doing this, the government is indirectly making unhealthy foods comparatively more attractive to consumers than healthy ones (Ostria). Fruits and vegetables have been consistently going for higher prices as compared to those of corn-based foods like corn syrup and chicken nuggets. With such subsidies resulting in higher yields of the production, the demand has decreased. Manufacturers have, therefore, resorted to using the low cost subsidized produce such as corn, wheat and soy in their production. This has resulted in the decrease in price of these foods and their associated products. For instance, cheap corn has now become an essential ingredient in foods that are highly processed. They include soft drinks, breakfast cereals, and other common types of processed foods. They have been associated with a rise in the rate of diabetes, a condition that is currently extremely widespread. The price of corn products has, in fact, dropped significantly over the last three decades. The price of apples and other fresh fruits and vegetables, on the other hand, has experienced a drastic rise. The ultimate translation of all this is that families and individuals that base their lives on a budget will often base their food choices on the price of the particular foods (Neff).


The issue of providing subsidies by the government has had a major positive effect on the population in general. It has been initially intended to be achieved by the farm subsidies. It is an increase in production of food that is capable of being acquired by all citizens at low and affordable prices. This has been well achieved by the government. The provision of subsidies has, however, been considered to bear dangerous consequences. It has impacted negatively on the environment and the use of land. For instance, it has led to the promotion of deforestation in order to create more space for agricultural use. It has also resulted in the increased use of fertilizers and pesticides, which, with continuous use, have serious dangerous impacts on the soil. They affect its quality by reducing it, killing living organisms that often provide nutrients in the soil, and increase its acidity.

This, ultimately, reduces the productivity of the land. Subsidies have resulted in the overuse of irrigation water that is categorized as scarce. It has led to the failure by farmers to remedy any negative effects they have imposed on the environment. Furthermore, farm subsidies have resulted in an increase in unhealthy eating habits in nations. The provision of increased subsidies that favor the farming of crops that are not mainly consumed by people and often used in processing unhealthy foods has also changed the food choices of people. These crops include corn and soy. These foods have cheaper prices in general.

Contrastingly, healthy foods such as vegetables and fruits are often expensive. Citizens are, therefore, forced to spend their money on unhealthy foods. The use of subsidies on farming processes and input may also impose high agricultural costs upon the consumers. These costs also affect the budgets of the particular governments and the entire taxpayer population. The farm subsidies have mainly favored developed countries forcing developing ones to adhere to policies that are harmful or unfavorable to them. These include such practices as the liberalization of trade.

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