Agricultural Subsidies and Development

The removal agricultural tariffs and subsides, according to Oxfam, would benefit developed nations because their consumers would benefit from lower domestic agricultural prices and the elimination of the taxes they must pay in order to support the subsidies. The producers in the developed world would lose this government protection from competition as well as the financial incentives. I believe there would be a net benefit from changing our agricultural policy because:  the government program distorts a functioning market.

A functioning market allows capital (investment) to flow where it can gain the highest return. If a good or product can be produce more efficiently outside of the United States, the producer and consumer benefit. The benefit to the consumer in lower prices, improved product quality and lower taxes, helps the US economy by increasing the consumer’s buying power. The higher purchasing power changes the US consumers’ outlook on their personal wealth, and thereby their future spending. The so-called wealth effect occurs when consumers’ perception of their finances allow them to spend more of their income.

This higher propensity to consume by US consumers should offset the loss of domestic spending on agricultural products. ? The increase of trade also enables the more efficient producer to reciprocate in buying products or services from the US where we have a competitive advantage. Therefore, in addition to the gain in consumer spending from the improvement of consumer purchasing power, the US will gain additionally from purchases from their new trade relationship. I believe that removing agricultural tariffs and subsidies will help the citizens of the world’s poorest nations.

As one UN official has noted. “It’s no good building up roads clinics, and infrastructure in poorer areas if you don’t give them access to markets and engines for growth. ” Increasing demand for their products will allow their economy to expand. The increase of employment, and thereby their domestic consumer spending, will have a similar effect as I described above. The higher income will spur domestic spending for other local goods and services. The net effect will be increased domestic wealth, expansion of their consumer spending, and thereby the local economy.

Unfortunately foreign aid is frequently poorly managed, although necessary. The most effective program is one that enables the local economy to produce a product or service that is demanded by consumers (locally and / or internationally). 3. Historically government programs protected our agricultural business by creating the necessary supports to make farming a sustainable business. Today developed nations continue to lavish extensive support on agricultural producers in spite of the fact that the agricultural production in most developed countries is self sufficient.

In the US, the agricultural industry in many states has a very powerful political lobby. Both political parties will agree to support government subsidies in order to win the support of the agricultural lobbies. 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 sentiment is still believed by many voters, as some small farms do exist, but the vast amount of the $300 billion in subsidies per year go major agricultural businesses.

Perhaps one reason why this is overlooked is due to the efficiency of US agriculture. The highly efficient businesses in most developed counties produce products at historically low prices. Today’s US consumer spends less than 10% of their income on food. As food prices rises, due to the falling US dollar, and the growing global economy increases demand for food products, we may be forced to spend more of income on food, and then the focus on the agricultural subsidies and tariffs may get more attention.