Agricultural
Subsidies
Group FSC
Emelie Erdeljac
Andrea Mauri
Claire 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
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?
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 markets
The 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 market
Same 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?