Wednesday, 16 April 2008!
HandWritten on; 18:13
One of the worst economics policies:
Agricultural subsidiesIn modern industrialised economies, farmers often
fail to reap the economic benefit. As incomes rise people don't want to buy more potatoes. If farmers increase supply, through better technology, it merely serves to
create a glut in supply and a collapse in price. Lower prices do not help farmers -
people don't want to eat more potatoes just because they are cheaper. Therefore, governments have often felt obliged to
subsidise farming; however, the method that they usually choose has
merely reinforced economic inefficiency.
The Common Agricultural Policy of the European Union(EU) guaranteed
Minimum Prices for farmers. By giving farmers a guaranteed minimum price encouraged them to supply as much as possible. This led to:
Increased use of chemical fertilisers, causing damage to the environment.
It created
oversupply of food produce. Thus the government were
forced to use taxpayers money to buy food nobody wanted to consume.
This led to huge oversupply of foods, the butter mountains, wine lakes e.t.c.
The EU then decided to "
dump" alot of this excess supply on foreign markets. This might be good for consumers of food, however, it is very
bad for foreign producers of food. Because of the extra supply from Europe,
prices plummeted, putting
many farmers out of business.
High tariffs on imports of food. To make matters worse, the EU needed to place tariffs on the import of food, to make them as expensive as the artificially high EU products. Tariffs caused
economic hardship for agricultural exporters, leading to retaliation on EU exporters.
The net effect of these agricultural policies was:
Higher prices for consumers
Cost up to
60% of EU budget to buy surplus.
Farmers in developing countries adversely effected by
import tariffs and
lower world prices from dumping of excess supply
Environment affected by encouragement of intensive farming.
High tariffs have been a stumbling block to world trade.
US agricultural policy has been little better. In the US, the added twist is that the government has often been subsidising the production of sugar and corn starch. In effect they have been subsidising unhealthy foods. Contributing to America's poor diet.
Source:
http://www.economicshelp.org/Review:The
objectives of the Common Agricultural Policy (CAP) were:
1) to increase productivity, by promoting technical progress and ensuring the optimum use of the factors of production, in particular labour;
2) to ensure a fair standard of living for the agricultural Community;
3) to stabilize markets;
4) to secure availability of supplies;
5) to provide consumers with food at reasonable prices.
Not economic efficient: Only 5% of EU's population works on farms, and the farming sector is responsible for less than 3% of the GDP of the EU. Yet it costs much of the EU budget to buy the surplus.
-Jia Hui-
Labels: econs
