Effects of Agricultural Subsidies (Research Paper Sample)

Title: Effects of Agricultural Subsidies
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Effects of Agricultural Subsidies
As nations endeavor to realize economic development, they tend to greatly invest in some critical economic sectors that seem to have the greatest potential. One of such notable investments includes extension of subsidies in the agricultural sectors, especially in the developing nations. Such subsidies are given to farmers and various related agribusinesses, with a primary goal of supplementing their income and managing the supply of agricultural commodities (United Nations, 2007). However, for a long time now, there has emerged a heated debate as to whether such subsidies have any economic significance. In this line, this paper reconnoiters the impacts of such agricultural subsidies, after which a concise conclusion is drawn.
To begin with, extension of agricultural subsidies results in some positive results. First, such subsidies results to a cheap and stable food supply in many nations. As the products of farm inputs such as fertilizers and pesticides are lowered, farmers are able to reduce their cost of production. Additionally, farmers who could not afford the unsubsidized farm inputs are able to acquire them at the reduced prizes; some able to acquire them through their respective agricultural cooperative societies. As a result, the production and supply of agricultural products increases (Meléndez-Ortiz, Bellmann, and Hepburn, 2009). Consequently, many consumers are able to afford them at low prizes mainly due to the subsidies and due to the interaction of demand and supply which leads to low prices of commodities when their supply is high.
Secondly, the increased agricultural output means that the nation can export the surplus. In such scenarios, the respective nations are able to earn foreign exchange. In return, such nations are able to use such foreign exchange earnings to develop their infrastructure and invest in other economic sectors. In addition, such nations are able to improve and correct their Balance of Payment (BOP), due to the increased exports (United Nations, 2007). Therefore, subsidies plays a critical role in the boosting of exports; thus improvement of BOP.
On the other hand, agricultural subsidies come along with some undesired impacts. To start with, such subsidies lead to an increase of poverty levels amongst farmers, especially those in developing nations. This can be well understood by considering the fact that subsidies are primarily aimed at benefiting the consumers and not the farmers. In this line, the overproduction as a result of subsidies leads to low prices of farm products, thus farmers do not get sufficient incomes (Pinstrup-Andersen, and Cheng, 2009). In addition, it is only wealthy nations that are able to afford domestic agricultural subsidies.
As a result, farmers from nations where agricultural subsidies are not extended cannot be able to compete in the international market with farmers from counties that extend agricultural subsidies. As a matter of fact, many nations, especially the developing ones that do not extend agricultural subsidies act as damping cites for cheap agricultural products from nations that extend agricultural subsidies (Pinstrup-Andersen, and Cheng, 2009). Consequently, farmers from the former nations continue living in abject poverty as they are forced to sell their products at extremely low prices that cannot uplift their living standards.
Secondly, agricultural subsidies hinder innovation and leads to poor utilization of natural resources. As farmers and agribusinesses continue relying on government subsidies, they tend to relax, thus fail to come up with better methods on how to improve their production, or lower their production cost. For instance, India subsidizes farmers to pump irrigation water, thus at any given time, Indian farmers have more than enough water for irrigation. As a result, Indian farmers have become the poorest utilizers of water resources globally (Tokarick, and International Monetary Fund, 2003). The Indian case is just a precursor of what happens in other nations that extend such nations. For that reason, agricultural subsidies...