THE ECONOMICS OF US FARM SUPPORT PROGRAMS
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Transcript of THE ECONOMICS OF US FARM SUPPORT PROGRAMS
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CASE STUDY
THE ECONOMICS OF US FARM
SUPPORT PROGRAMS
BY Taufeeq Malik
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CONTENTS
Introduction
U.S farm support programs
Analysis
Problems faced
Suggestions and solution
Conclusion
Bibliography
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INTRODUCTION
America has a rich agricultural history, U.S. farmers produceabout $ 143 billion worth of crops each year.
In 2010, $115 billion worth of American agricultural products
were exported around the world.
In U.S one in three farm acre is planted for export.
Americans enjoy an abundant food supply at affordable
prices and among the worlds safest, and largest producers of
agriculture items. Major agricultural crops produced in the United States are
Corn , Soybeans, Hay, Wheat, Cotton, Sorghum (grain) and
Rice.
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The U.S. produces about 10% of the world's wheat and
supplies about 25% of the world's wheat export market.
70% of wheat produced is used for food products, about
22% is used for animal feed and the remainder is used
for seed.
They use highly modern machinery and techniques like
crop rotation, cross crops and high quality fertilizers for
the increased growth in the production.
"Queen Wheat City" is known as the "Wheat Capital"
of Oklahoma and the United States.
U.S has the third largest grain storage capacity in the
world.
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U.S FARM SUPPORTPROGRAMS A farm support program focuses on the development agenda
of the farmers and boost in the Agriculture.
It includes land reform , building storage places etc
The purpose of the programme is:
i. To ensure sustainable support for new and established
farmers.
ii. To focuses on quality and standards of service and advise to
farmers.
iii. To attract investment from the private sector.
iv. To measure the impact as delivered by the Program
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The federal govt. of U.S used three basic methodsto boost farmers income between 1930 to 1973
i. Govt. introduced a price support program i.e to buythe surplus crops from the farmers to increase the
income of farmers and to avoid spoiling of crops.ii. Govt. provided incentives to farmers to
compensate the loss they bear by keeping theirland idle
iii. Govt. started providing direct subsidy to farmers ifthe market price of a certain commodity fall below atarget price to ensure smooth supply and to win
hearts of the farmers.
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ANALYSIS OF THE CASESTUDY America is one of the largest producer of the
agriculture commodities in the world.
To ensure smooth and bumper supply of thecommodities, it tried to reform its agriculture acts
and farm support programs. The govt. used three basic methods to boost
farmers income i,e to buy surplus crops, incentivesand the direct subsidy if in-case market crashes.
In the case, we analysize without the support ofgovt. the farmers produced 2 billion bushels wheatper year and sold at $3 per bushel making the totalincome $6 billion.
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Then the govt. established a floor price of $4 perbushel wheat and farmers could supply 2.2 billionbushels per year.
The increase in the price reduced the demand to
1.8 billion bushels, thus farmers are left with 0.4billion bushels.
As per govt. support programThey can either buy the surplus 0.4 billion bushels
at a support price $4 per bushel for the total cost of$1.6 billion and the extra cost for storing thesurplus.
Thus floor price has effect if the market price
rises above it
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Secondly with direct subsidy, the farmers can sell
equilibrium quantity of 2b bushels at $3 per busheland govt. provide farmers a direct subsidy of $1 perbushel at a cost of $2b ,however, there is nostorage charge.
Thus consumers obtain wheat at the lower marketprice of $3 per bushel.
U.S farmsupport
program
Buying surplusgoods
Incentives
Direct subsidy
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Figure 1 .The Economic Effect of a Price Floor
in the Wheat Market
4.00
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The fair act of 1996 freed the u.s farmers from
govt. production controls but they were left without
govt. subsidies.
In 1998 the price of the commodities fall and it
caused a huge loss to the farmers, however the
farmers lobbied congress and received $3 billion
as emergency assistance.
It continued in 1999 farmers received $7.5 billion,
$9 billion in 2000 and $20 billion in 2001
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It created even more trade friction with the European
countries and developing countries.
The European union and Japan provided even more aid to
their farmers than u.s.a
In 2005 the U.S provided $47 billion, $49 billion by Japan and
$133 in European union.
In 2008, U.S provided $307 billion as a farm support program.
U.S wanted the agriculture as a free market not to be
controlled by govt.
It ended up the same way it was.
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PROBLEMS THAT AROSE
The economic condition of the farmers was poor,
they could not even manage to support their
families
Instability of farm prices
In 1998 due to sudden fall in commodity price ,the
farmers had to bear huge loss. The farmers were left with no other option than to
agitate against government for compensation.
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The farm bill was signed by president G.w.Bush in
2002 that run from 2003-2008, which increased subsidy
even more.
The govt. paid an emergency assistance to
compensate the loss to the farmers.
This caused the trouble as the govt. wanted to liberalize
the agriculture market as per the law of 1996 fair act
The govt ended up at same situation as they were left in
1996.
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Solution & Suggestions
Expensive farm programs will not solve farm
problems.
The U.S should try to provide facilities like latest
technology, better seeds, cheap fertilizers to
farmers.
The farm programs should also benefit the smallscale farmers and help them to flourish their
business
The farmers must be equipped with latest
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There should be equilibrium in prices of the
commodities i,e., floor-prices should be fixed.
Europe and Japan's farm subsidies lower down
American food prices. Americans should welcome
the cheap imports to help common man.
Govt. should let private sector to invest inagriculture which will bring down high taxes, higher
commodity prices and land prices
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The govt. must follow free trade policy to ensure
boost in economy.