Home Environment 6 Key Pros and Cons of Agricultural Subsidies

6 Key Pros and Cons of Agricultural Subsidies

In many areas in the world, the government gives agricultural subsidies to farmers and agribusinesses to supplement their income, manage the supply of agricultural commodities and influence the cost and supply of those commodities. These aforementioned commodities are wide ranging and include items such as wheat, feed grains, cotton, milk, rice, peanuts, tobacco, oilseeds, as well as beef, pork, lamb and mutton.

While they are given to help those in the agricultural sector out, not everyone is agreeing with it. In fact, some view these subsidies as extremely controversial for its complex effects and their political origins which involve lots of lobbying from groups that represent the interests of agribusiness.

Agricultural Subsidies by Region

The European Union spent €57 billion on agricultural development, €39 of which was spent on direct subsidies. Over 40% of the EU budget is formed by subsidies from agriculture and fisheries. The Common Agricultural Policy implements a system of agricultural subsidies and other programs and was introduced in 1962, but has undergone several changes since then. CAP has received a number of criticisms in terms of its cost, as well as environmental and humanitarian impact.

In Africa, the increase in prices for food and fertilizer has exposed the vulnerability f €57 billion of poor urban and rural households. As such, policymakers shifted their focus on increasing staple food crop productivity. One program, the Malawi Government Agricultural Inputs Subsidy Program, implemented in 2006/2007, promoted access to the use of fertilizers for the production of maize and tobacco to increase agricultural productivity and food security. The Overseas Development Institute, the system is an effective way of rationing and targeting subsidy access in order to increase production, as well as economic and social gains. But even so, the program is challenged by many practical and political issues with regards to its design and implementation.

New Zealand, on the other hand, has one of the most open agricultural markets in the world thanks to radical reforms imposed in 1984 by the Fourth Labor Government which stopped all subsidies. It was a striking action given that the country’s economy was more reliant on farming than others.

In Asia, farm subsidies still remain a highly debated issue. Countries such as Japan and South Korea offer programs to benefit their farmers, but still remains a controversial topic.

In the US, the government gives out $20 billion a year to farmers in direct subsidies as “farm income stabilization” through US farm bills. Not everyone loves the idea of subsidies in America though. In an article called Milking taxpayers in The Economist, it states “To this day, to be treated as a farmer in America doesn’t necessarily require you to grow any crops.” That is highlighted by a statistic from the Government Accountability Office gathered from 2007 to 2011 that showed $3 million were given to 2,300 farms which didn’t produce a single crop.

Are Agricultural Subsidies Bad or Good?

Do governments really need to provide subsidies for farmers? As shown by New Zealand, a fairly agriculture-centric country, farmers can exist without them. Yet in many countries across the world, subsidies are still offered to farmers and agribusiness. Is there truly a benefit to handing out agricultural subsidies or are they a burden governments need to get rid of?

To answer that, here’s a look at the pros and cons of agricultural subsidies:

List of Pros of Agricultural Subsidies

1. It lessens the need to source food from outside borders
Sure, not every country is an agricultural one nor do all the residents of one country want to pursue a career in farming. But there are benefits to producing your own food – both for the people and for the economy. A lot of people have put emphasis on locally sourced produce these days and subsidies can help in terms of giving farmers some money to grow various seasonal crops on their land.

As such, a country won’t need to rely as much on international food sources when they have their own. Also, there’s a cost benefit to using your own food sources than importing from other countries. Then again, exporting your local crops does provide some economic benefit as well.

2. It gives farmers access to consistent income
Not all farmers can say they make a good living out of producing food. With farming, you don’t get to see money each day either because the harvest takes too long on certain occasions. You don’t plant corn one day and expect to reap the benefits the following day. Farmers need to wait weeks and months just to raise crops and make them ready for sale.

As such, they can use the help from the government in forms of subsidies. They can set aside their own income for their personal needs and use the subsidies to take care of the farm.

3. It helps manage food supply
Subsidies can be used by governments to ensure that a farm produces the right amount of crops or meat to serve the population.

List of Cons of Agricultural Subsidies

1. It damages the environment
A lot of the complaints against agricultural subsidies is that they’re detrimental to the environment. For one, certain subsidies prefer a certain kind of crop to be grown. As a result, farming techniques such as crop rotation becomes more challenging. This just means that although it’s time for farmers to grow another kind of crop, they are forced to grow a specific crop requested as part of the subsidy.

The result of such practices includes soil depletion, as well as an increase in pests, parasites and blights. Although this can be prevented with proper farming techniques, not everyone can follow through. In other words, the government created a problem they hoped to avoid.

2. It involves government intervention
Protesters of agricultural subsidies believe that governments just want to intervene in things they shouldn’t be a part of. Agricultural subsidies have an effect on the cost and supply of commodities. Many believe that governments don’t want prices to come naturally through supply and demand because that would make agricultural subsidies pointless.

3. It hurts agricultural businesses growing produce not covered by subsidies
Not every farmer grows and produces the same produce. Given that there are certain crops and meats covered by most agricultural subsidies, what happens to those farmers who don’t grow or produce any of those specified? They too need all the help they can get, but since their produce isn’t prioritized, they suffer instead.

As a result of this, their crops are priced higher in the food market. Of course, not everyone is keen on paying too steep a price for certain produce. In effect, the lives of farmers are affected as well.