Question

Discuss what export subsidies and agricultural subsidies are. And explain how they affect trade in agriculture in US and EU

Answer 1

Answer :

Export subsidies are given by the government to promote export of the goods. These subsidies reduce the price of the said commodity in the exporting country making it cheap for the foreign consumers. This implies that the domestic buyers/consumers pay more for the said commodity than the foreign buyer/consumer. For example, subsidy given to coffee exporters in India.

Agriculture subsidy is a kind of incentive given to agricultural sellers/ agro-businesses or farmers etc. For example, subsidies on fertilizers, water etc. given to Indian farmers by the government. The idea is to supplement the incomes of poor farmers as well as to establish control over the prices of the agricultural commodities. The agriculture subsidies are provided in both developed and developing countries. The motives of giving agriculture subsidies could be different. The developing countries provide subsidies to support the farmers and developed countries offer subsidies to make the products more competitive.

Both export and agriculture subsidies can impact production and trade of agriculture commodities which varies for developed and developing countries.

These subsidies help in making the agriculture commodities of developed countries like US and EU more price competitive thereby driving out the small farmers from developing countries.