How Farm Subsidies Work
Farm subsidies are also known for its other name which is agricultural subsidies. These subsidies are permanent and fixed money amounts which are paid to farmers of domestic type in a few developed countries. These are provided by their government which is also the one who guarantees and secure them fixed income with their crops or even livestock, regardless of what their performance is.
In each of the industries that are under the system of free market, those market forces are permitted to drive and make demand, prices, supply, profit, as well as loss.
However, if it will be compared under the system which is supported by the farm subsidies, the latter is more beneficial. This is because farmers under this system are compensated, and this is with no regards as to whether they are doing well with their farms or not. They are even compensated even if they did not produce good products to provide their consumers. You may wonder why. Well this is because the compensation given to these farmers are provided by the government. The government does this at the expense of the tax paid by people.
For example, in United States, the Farm Bills are the ones that keep the farm subsidies alive and going. Aside from the guarantee and security for a price for the farmers’ crop, they also make sure that the farmers acquire extra amount in each of the unit of the food item. As a result, the farm subsidies beneficiaries have noticeably increased from small-scale family farmers during the early part of the 20th century into large-scale farmers of commercial kind. Moreover, the proponents of these farm subsidies have argued against those that criticize them that they serve as the buffers against the international crises, bad weather, wars, and any other external factors that usually jeopardize the world prices of the foods. Well, theoretically speaking, these subsidies strengthen those sectors of domestic agriculture. It also assures them of supply of the domestic foods.
Farm Subsidy Criticism
On the other hand, there are still critics that go against the farm subsidies. They argue that in developed countries, one of the negative effects of the farm subsidies that it deflates the prices of foods. They emphasized that these subsidies generally affect and hurt those smaller farmers since they will have to compete with the global market. And since these farmers do not have the same assistance as that of the farmers under these subsidies which is from the government, competing is very hard for them.
Thus, in order to remedy the problem, some of the developed countries such as the New Zealand have created some effective ways in order to lessen the criticisms against farm subsidies. One of which is making the agricultural markets more ajar and open. They also made means to somehow relax the farm subsidies.