Agricultural Subsidies

Group FSC

Emelie ErdeljacAndrea MauriClaire 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.

How a subsidy works…

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 marketsThe 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 marketSame 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.

THANK YOU FOR YOUR ATTENTION. Questions?