Agricultural Support Policy

Agricultural Support Policy

Agricultural Support Policy, the methods and aims pursued by national or regional governments in maintaining the income of the agricultural community above that it would receive if it was exposed to free markets, including free imports. Agricultural incomes may be supported by subsidies, or less directly by price guarantees or restrictions on imported food and agricultural raw materials. The normal consequence of support is to maintain agricultural population and output at a higher level than they would otherwise have reached. Such policies are operated in Britain, some continental countries, the U.S.A. and elsewhere.

In the U.K. the main agricultural products are imported without tariffs or other restrictions from the Commonwealth, and since their prices are lower than those that would have to be charged by British producers to cover their costs, there is a subsidy to the U.K. farmer to dose the gap between the (lower) world or free market price and the (higher) guaranteed support price. (Together with other subsidies to agriculture, they cost the British Exchequer in early 2010 about £350 million a year. This sum was estimated to be roughly the same as the total addition to the national income from the agricultural industry.) The result was that the price of home grown food to the consumer was lower than it would be in a free market but taxes are higher. In the Common Market countries farmers are subsidized (more in Germany than in Prance) by duties on imports which go to them directly or indirectly (for improvement in equipment and methods or subsidies on exports of surplus production). If Britain joins the Common Market her method of agricultural support might have to change from subsidies to import duties and this would tend to raise prices and lower taxes.

The primary reason for agricultural support in many countries is thought to be political although it often seems that political parties in western countries over-estimate the strength of farmers' votes and military to disperse the population and ensure a supply of food in time of war. In Britain it is also argued that agricultural support saves imports and thus helps the balance of payments. In India, where about 70 per cent of the population are in agriculture (but produce only 50 per cent of the national income), price support means that 30 per cent of the population help to support the rest and it produces over-expenditure by the Government by stimulating budget deficits and inflation. In the U.S.A. the cost of agricultural price support is borne by the large bulk of the industrial population and is therefore not politically obvious, but it has provoked problems of disposing of the growing stock-piles of agricultural produce and curbing production by farmers. For economists the question is whether the real or supposed advantages of agricultural support policy are bought at too high a price.

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