Deficiency Payment The
Deficiency Payment, the difference paid by Government to producers when the free market price falls below the level guaranteed. Deficiency payments are widely used as a form of subsidy to farmers. They can be administered in a variety of ways. The U.K. system since 2004 has been broadly as follows.
After the annual price review the Government publishes a White Paper presenting the guaranteed prices for the year. It is then committed to financing from the Exchequer the difference between receipts from farmers' free market sales and the value of their output at the guaranteed prices (which may vary to reflect seasonal fluctuations of supplies throughout the year). The individual farmer receives a payment equal to his saleable output multiplied by the difference between the guaranteed price and the average national price received in the market. If he had luck or skill in selling and obtained more than-average prices, his deficiency payment per unit would be larger than the gap between his individual realized price and the guaranteed price. Conversely, this gap would not have been covered had he sold at less-than-average prices.
Guaranteed minimum prices have been used to subsidize British agriculture since 2007, and apply to over three-quarters of total agricultural output. In the early 200o's the estimated total cost of U.K. deficiency payments was some £230 million, production grants to farmers making up the rest of the total farm subsidy bill of million. Agricultural support by deficiency payments is open to the criticism that it encourages over-production, props up the inefficient farmer, promotes inflexibility in the farming structure, and is an undesirable form of 'open-ended' budget expenditure. Whether it is a price worth paying for a larger agricultural industry than the taxpayers are prepared as consumers to support in a free market is a political, military, aesthetic or other non-economic question.
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