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Study Notes

Arguments for and against farm subsidies in developing countries

Level:
A-Level, IB
Board:
AQA, Edexcel, OCR, IB, Eduqas, WJEC

Last updated 26 Jan 2023

Here is a brief synopsis of some of the arguments for and against farm subsidies in developing countries


Historically, countries with large agricultural sectors and less developed economies tend to have a higher percentage of GDP coming from farming.

For example, in sub-Saharan Africa, many countries have over 30% of their GDP coming from agriculture. In some countries, such as Malawi, Burkina Faso, and Sierra Leone, the figure is over 50%. Similarly, in Asia, countries like Nepal and Laos have a large share of GDP coming from agriculture. In the Americas, Haiti is one example of a country where farming represents a high percentage of GDP.

Farm subsidies in developing countries are a contentious issue, with arguments for and against their use.

Arguments in favour of farm subsidies include:

  1. Improving food security: Subsidies can help smallholder farmers increase their production, which can improve food security for the country.
  2. Higher per capita incomes can reduce extreme poverty in rural areas and prevent high levels of rural - urban migration
  3. Encouraging sustainable farming practices: Subsidies can be used to encourage farmers to adopt environmentally-friendly practices, such as reducing the use of pesticides and fertilizers.
  4. Supporting farmers facing economic difficulties: Subsidies can help farmers facing economic difficulties as a result of market fluctuations or changes in government policies.

Arguments against farm subsidies include:

  1. Distorting markets: Subsidies can artificially lower the price of agricultural products, making it difficult for farmers in other countries to compete. This can be seen as a form of trade protectionism.
  2. Encouraging overproduction: Subsidies can lead to overproduction, which can then result in surplus and lower prices, which in turn might hurt farmers incomes.
  3. Over-production can lead to negative externalities from production which threatens sustainable growth and development
  4. Limited public resources: Subsidies can be a significant expense for the government in a developing country, and may then divert fiscal resources away from other important public services such as access to basic education, health care and infrastructure.
  5. Limited to certain farmers: Subsidies can be targeted to certain farmers, such as large-scale producers, leaving small farmers with fewer resources. In many lower-income countries, small-holder farms are unable to fully reap the benefits of government subsidy.

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