Agricultural Subsidies Questions

Agricultural Subsidies Questions

Agricultural Subsidies Case

1. Why do you think that the U.S. government pays subsidies to farmers?
The United States initially began paying subsidies to farmers in the middle of the Great Depression. Many people will probably suggest that the subsidies are still being paid simply because they have been in place for so long. Others however, may note the power of agricultural lobbyists and the fact that without the subsidies, U.S. farmers could not compete in world markets. This suggests that the government has some incentive to continue with its current policies.

2. What is the impact of farm subsidies on the price agricultural products in the U.S.?
The subsidies paid to U.S. farmers currently run around $29 billion annually. They encourage farmers to produce more products than are needed, and in doing so depress global prices. Cotton subsidies for example, pushed the price of cotton to just $0.65 in 2006, about half the 1995 price. For farmers in poor countries, the drop in prices has pushed income levels down over 20 percent.

3. Who are the beneficiaries? Who are the losers?
The beneficiaries of the subsidies are farmers and foreign consumers. As a result of the subsidies, consumers must pay more, and producers in other countries are faced with falling prices, and ultimately lower incomes.

4. What would happen if the U.S. (and other countries) stopped paying subsidies to farmers?
If the United States stopped paying subsidies to farmers, consumers would initially see prices fall. Later however, as some farmers, without the support of the subsidies, went out of business, consumers would probably see prices rise to some degree as supply and demand moved together. Producers in other countries like Benin would benefit from increased demand and higher prices.

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