Course code : BUS 3103

Course title : International Business

Section : 03

Assignment
On
Agricultural Subsidies

Submitted To:
Name: Shafayat Hossain Chowdhury
Senior Lecturer,
Department of Business, ULAB

Submitted By:
Group: 03
Name
Mirza Didarul Islam
Ashnuha Alam Nirjana
Ummay Ayman
Zerin Tasmim Chowdhury
Areen Khan

Submission Date: 15 February 2024

Assuming the current world situation, where a cold war is taking place,relying on other
nations for staple crops poses risks for developed countries. Therefore, providing
subsidies for staple crops is a wise choice. However, when it comes to complementary
crops, it is advantageous to import them from other countries.
In 2021, the United States produced 1.65 billion bushels of wheat
 1. If agricultural tariffs and subsidies to producers were removed overnight,
what would the impact be on the average consumer in developed nations
such as the United States and the EU countries? What would be the impact
on the average farmer? Do you think the total benefits outweigh the total
costs, or vice versa?

Ans: Developed countries generally tend to employ a combination of both methods: subsidising
their own farmers and importing food from other countries. The balance between these
strategies can vary depending on some factors. If agricultural tariffs and subsidies to producers
were removed overnight, it would greatly impact the average consumers and farmers in
developed nations.

Impact on Average Consumers: Considering the impact on the average consumer, if the
subsidies were removed then the price of the imported things would be slightly upward or
downward, as the production cost is comparatively lower in the developing countries. But in the
long run, if somehow the import comes to a halt then the average consumer has to pay higher
prices.

Impact on Average Farmer: Developed nations, such as the United States and the European
Union, heavily subsidise its agricultural producers. Even though the number of farmers is
significantly small in these countries, the government spends billions in financial support for
them and the main reason is to continue the production. If the government stopped giving
subsidies to these farmers, the cost of production would increase. Because of these high costs
many farmers would leave the agricultural sector to pursue a different income source which they
think is more profitable because they would not be able to compete with the lower cost regions.
Domestic production would come to a halt in the developed countries and they would have to
rely completely on the developing countries for agricultural goods. Importing crops would be
their only option.

Conclusion: By removing the subsidies a country can be benefitted in various ways, such as
saving the cost of subsidies & food dumping, focusing on new markets using those manpower
who will leave the agricultural sector and no threats from any agricultural country that they wont
shift their economy to market that can be threat to the developed country. Also if the subsidies
were removed then the price of the imported things would be lower as the production cost is
comparatively lower in the developing countries.

But the highest cost for a country is its sovereignty. if any political unrest rises and countries
they are importing from gets involved into war the importing might get hampered. A shortage of
food and rise of food prices would be the outcome of this situation. Also in the long run, if
somehow the import comes to a halt then the average consumer has to pay higher prices.
 2. Which do you think would help the citizens of the world’s poorest nations
more, increasing foreign aid or removing all agricultural tariffs and
subsidies?

Ans: Removing all agricultural tariffs and subsidies would likely have a more significant and
sustainable impact on the citizens of the world's poorest nations compared to increasing foreign
aid.

Removing Tariffs and Subsidies: In order to maintain food security, developed nations like the
United States and EU countries spend billions in financial support for their farmers. Because of
this, domestic production costs are lower and farmers produce more, resulting in surplus
production. The developed countries dump these on the world market causing lower prices. And
the developing countries cannot sell their agricultural goods at the expected price due to the low
market price.

The United States provides substantial subsidies to its cotton farmers. The US guarantees its
cotton farmers a price of $0.70 per pound for their cotton production. When the US produces a
surplus of cotton due to these subsidies, it often sells this excess cotton on the global market.
As a result, cotton producers in developing countries, such as India or Mali, where production
costs are typically higher and subsidies are not as extensive, find it challenging to compete
effectively in the global market.

If the developed countries stopped giving subsidies to their farmers, then the competition in the
world market would be fair. Developing countries could sell at their expected price, even at a
high price. They could earn millions as the labour cost is low and a huge number of people are
working in the agriculture sector. This could lead to increased export revenues, economic
growth, and poverty reduction in developing countries.

Foreign Aid: Increasing foreign aid could provide immediate relief, but in the long run, it does
not bring permanent solutions. If the countries cannot export their products and earn no real
infrastructure development, there is no economic growth.

If the developed countries removed their subsidies, then it would create a way for proper
competition in the world market, and the developing nations could have a chance at economic
growth.
 3. Why do you think governments in developed nations continue to lavish
extensive support on agricultural producers, even though those producers
constitute a very small segment of the population?

Ans: I think governments in developed nations continue to lavish extensive support on

agricultural producers, even though those producers constitute a very small segment

The following graph shows imports and exports of wheat in U.S. from 2017/18 to 2022/23(in
million bushels)

Though the USA subsidies wheat at $48.4 billion. Considering the current world situation, where
a cold war is taking place,relying on other nations for staple crops poses risks for developed
countries.

Ensuring a reliable and secure food supply is a priority for governments, particularly in
developed nations where food shortages are rare. By subsidising agricultural producers,
governments aim to stabilise food production and prices, reduce dependence on imports, and
mitigate the risks associated with fluctuations in global markets or environmental factors.

Supporting agricultural producers is seen as essential for maintaining vibrant rural communities
and economies. Agriculture contributes to the social fabric and cultural identity of many rural
areas, and government subsidies are often viewed as necessary to preserve this way of life.
Additionally, agricultural production can serve as an economic driver in rural regions, providing
employment opportunities and stimulating local businesses.