Agricultural Price Supports
Agricultural price supports are government policies designed to stabilize and increase farm incomes by setting a minimum price for agricultural products. This is often achieved through mechanisms such as price floors, subsidies, and import tariffs. While intended to protect farmers from market fluctuations, price supports can lead to surpluses, distortions in production, and higher food prices for consumers.
5 Key excerpts on "Agricultural Price Supports"
eBook - ePub- Andrew Barkley, Paul W. Barkley(Authors)
- 2020(Publication Date)
- Routledge(Publisher)
...The government has the authority to legislate the retail prices of food and agricultural commodities. If the government believes that the market price of an agricultural product is too low, it can pass a law that mandates a price support for the good. Since this policy increases the price, it will be promoted by producers. On the other hand, if the government believes that the market price of a good is too high, it can put a price ceiling, likely sponsored by consumers. This form of government intervention has been common in agricultural markets for many years. 11.1.1 Price supports When the prices of agricultural goods are low, producers often place pressure on politicians to “do something about low commodity prices.” A common reaction of governments is to pass a law that sets a price support, or a minimum price, below which the market price cannot go. In recent years, price support policies have been used to increase the prices of milk, grains, cotton, and other agricultural products both in the US and nations throughout the world. • Price Support = a minimum price set by the government for a specified good or service. When a price is higher than the market price, a surplus results, as shown in Figure 11.1. The government must enforce this market price intervention; otherwise, the surplus would quickly set in motion market forces that would return the market to the equilibrium point, where the quantity supplied equals the quantity demanded. Figure 11.1 A price support for wheat QUICK QUIZ 11.1 What causes this surplus? Figure 11.1 shows a hypothetical price support for wheat, which in this example is higher than the equilibrium market price (P s > P*). A federal law stating that all wheat must be sold at a price at or above the price support level would force an increase in the price of wheat, as shown in Figure 11.1...
eBook - ePub- Kofi Aninakwa(Author)
- 2020(Publication Date)
- Page Publishing, Inc.(Publisher)
...AGRICULTURAL SUBSIDIES Abstracts A griculture subsidies are the payments made by the government to producers of agricultural products. It helps to stabilize food prices and ensure adequate food production. (Gerber, 2012 p.144) It also guarantees farmers’ incomes and strengthening the agricultural segment of the national economy. Agricultural food supplies and prices fluctuate depending on the vagaries of the weather (for example drought situations in California and Australia); in the case of politics (e.g. farm seizures in Zimbabwe). There are wars and other adverse factors that affect crop yields in foreign countries. These fluctuations in levels of production and prices could create vast variations in agricultural revenues and food available to purchase on the global market. Supporting prices and incomes guarantee a high production in the domestic farm sector leading to an adequate food supply. It also soothes farmers’ income over time and ensures that they do not need to maintain a hefty float annually. Agricultural subsidies have the effect of transferring income from the taxpayers to farm owners. Experts have argued in some countries that without substantial support from the government, domestic farmers would not be able to compete with imports. Local farmers will be driven out of business if subsidies are removed. A country that is unable to produce enough food to feed its people will always be at the mercy of the world market. It always becomes vulnerable to trade pressure and global food shortages and price shocks. keywords: agricultural subsidies, production, foreign countries, domestic, prices, incomes Introduction Governments protect infant industries, prevent dumping and protect domestic employment to make the market or economy self-sufficient. According to Alvin, (2010. pp. 272-289), the comparative advantage is a system that helps countries to produce at different levels with scarce resources...
eBook - ePubAmerican Agriculture in the Twentieth Century
How It Flourished and What It Cost
- Bruce L. Gardner(Author)
- 2006(Publication Date)
- Harvard University Press(Publisher)
...7 Government II: Commodity and Trade Policy Although the roots of U.S. governmental action in agriculture go back to the foundation of the Republic, commodity-based farm programs have more recent origins. These policies are aimed at stabilizing and supporting farm commodity markets, principally with the economic interests of farmers in mind. In the intense lobbying for these programs, both their benefits and their costs have been thoroughly questioned. Agricultural economists have been split over their worth, with recent opinion generally running against, although reasonable arguments have been put forward that U.S. commodity support policies have been an important contributor to the growth of agricultural productivity. A Brief History of Commodity Programs Decisive efforts to get the U.S. government directly involved in farm commodity markets began in the early 1920s and culminated in the New Deal farm programs of the 1930s. The programs survive to the present day in their basic premise that it is the responsibility of the federal government to place a floor under farm incomes. Practical difficulties with a succession of commodity programs have chipped away at support for them over the years, however, and the Agricultural Market Transition Act of 1996 raised the possibility of an end to price support activities as a means of farm income support. The series of traumatic events that led to sixty-five years (and counting) of federal involvement in farm commodity markets began with the plunge in commodity prices of 1919–1920. In May 1921 the House of Representatives, and in June the Senate, passed a resolution establishing a commission to investigate the causes of the “agricultural crisis.” The Commission of Agricultural Inquiry’s report (U.S...
- Kym Anderson(Author)
- 2016(Publication Date)
- Palgrave Macmillan(Publisher)
...This meant that food prices have been more volatile in international markets than they otherwise would have been. Since the mid-1980s, though, many developing country governments have been reforming their agricultural, trade and exchange rate policies, thereby reducing their anti-agricultural bias. Some high-income countries have reduced their farm price supports too. Associated with those policy reforms are reductions in the distortions to consumer prices of food products. When placed in historical perspective, the reforms since the mid-1980s are as dramatic as the policy changes in the preceding three decades. Despite those policy reforms, however, the evidence shows that (a) both high-income and developing countries continue to insulate their domestic food markets from the full force of fluctuations in international prices, and (b) plenty of diversity in price distortions remains across countries, and across commodities within each country. In particular, export-focused farmers in developing countries are still discriminated against by farm policies in two respects: by the anti-trade structure of assistance that remains within their own agricultural sector, and by the assistance still afforded farmers in high-income countries. Hence a continuation of the reform process would boost farm trade, ‘thicken’ international food markets, and thus not only raise the average level but also lower the volatility of prices in those markets. It would also ensure that productive resources within the farm sector of each country would be put to their best use. Notes 1. It therefore takes account of not only trade taxes-cum-subsidies but also non-tariff measures (NTMs) that alter prices. Of course some of those NTMs, including domestic regulations and standards, may be introduced to overcome externalities and thus may raise rather than lower national welfare (Beghin et al. 2015 ; Swinnen et al. 2016)...
- Sheela Rai(Author)
- 2011(Publication Date)
- Routledge(Publisher)
...However, as things turned out, the continued support and subsidy policy of the developed countries kept the world prices volatile and low. This has created serious problems for agricultural producers in developing countries. Low and volatile commodity prices have resulted in import surges in many developing countries. Since farmers in developing countries are poor and have a low risk-taking ability, import surges can have serious consequences on the livelihood security of these farmers. 18 There is concern that these problems will intensify in coming years as tariffs are further reduced while economies lack alternative forms of safeguards. 2.1.6 Absence of market-based instruments There is absence of market-based instruments, such as insurance, in developing countries that could cover the risks that face. 2.1.7 Problems with existing safeguard provisions Developing countries lack the institutional capacity to apply the existing safeguard provisions under Article XIX of the GATT and the Agreement on Safeguards. In many developing countries agriculture is characterised by small and subsistence farmers for whom it would be very difficult to fulfil the conditions of the Agreement on Safeguards and establish causal link between increase in imports and serious injury. Another problem with the existing safeguard mechanism is that it is available only against import surges and does not address the issue of price volatility per se. The Special Safeguard under the Agreement on Agriculture, apart from being accessible to a limited number of members, has other deficiencies. It has the fixed reference price built into the price-triggered safeguard. For developing countries having being exposed to inflationary pressures and instances of currency devaluation the fixed reference price in-built in this instrument has no relationship with current trends in prices hampering the possibility of the measure being invoked by the affected countries...
