Subsidies to farmers, practiced especially by rich countries such as the USA and the EU, was meant to even out bad growth years and long recessions, but has had several negative effects:

  • Large amounts of the subsidy go to large businesses and wealthy landowners, especially those with support of big lobby groupsW, making inequality worse. It has in the past created over-production of a few certain crops (such as sugar and dairy) that EU needed to dump at bargain prices to other markets. Between 1992 and 2005 EU have gradually changed their policy. And a further reform is planned and scheduled for 2013.
  • Countries which cannot afford to pay out subsidies to their domestic agriculture cannot compete on the international market. This can be devastating for poor countries which used to grow crops for export and have few other sources of income. (Consumers of these countries can benefit from cheaper food, through the subsidized imports resulting from this policy.)
  • From a market economics perspective, it distorts the market and makes the economy less efficient and less productive. Low-price imported food products flooding the markets in agricultural countries have very harmful effect on farmers in that area not being able to get paid fairly for their products to continue farming. And can cause a severe lack of crops being grown, and with it inflation, when the inflow of cheap food from EU stops.
  • It is government interference, taking money from taxpayers and giving it back to producers - while food prices tend to become lower, the savings are paid for by the taxpayer (and some of the taxes go to the profits of landowners and corporations). This is inefficient. If redistribution is necessary, there are arguably better ways to do it, such as progressive taxationW or even negative income tax.W

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Details of subsidies[edit | edit source]

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Authors Chris Watkins
Published 2007
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