CASE ANALYSIS: Agricultural Subsidies

Case Analysis Read the  CASE ANALYSIS: Agricultural Subsidies (page 144).


Write a 5 page paper (1500 or more words)  in APA format in response to these questions at least siting four peer reviewed journals articles


  1. Provide an overview of this case analysis; summarize the key points


b.Discuss how the Uruguay Round and the Doha Development Agenda impact  agricultural subsidies.


c.Discuss the findings in Table 7.3 (page 145). How would you address the findings in a presentation?




Below is a recommended outline.


  1. Cover page (See APA Sample paper)




a.A thesis statement


b.Purpose of paper


c.Overview of paper


  1. Body (Cite sources using in – text citations.)


  1. Provide an overview of this case analysis; summarize the key points


  1. Discuss how the Uraguay Round and the Doha Development Agenda impact agricultural  subsidies.


  1. Discuss the findings in Table 7.3 (page 145). How would you address the findings in a  presentation?






–Summary of main points


  1. Lessons Learned and Recommendations




  1. References


– List the references you cited in the text of your paper according to APA format.


(Note: Do not include references that are not cited in the text of your paper)





The Logic of Collective Action Given that the costs to consumers are so high for each job saved,why do people tolerate tariffs and quotas? Ignorance is certainly the case for some goods,but for some


tariffs and quotas,the costs have been relatively well publicized.For example,many people are aware that quotas on sugar imports cost each man,woman,and child in the United States between $5 and $10 per year.The costs are in the form of higher prices on candy bars,soft drinks,and other products containing sugar.Few of us work in the sugar industry,so the argument that our jobs depend on it is weak at best.


In a surprising way, however, we probably permit our tariffs and quotas because of a version of the jobs argument.The economist Mancur Olson studied this problem and similar ones and noticed two important points about tariffs and quotas.First,the costs of the policy are spread over a great many people.Second,


the benefits are concentrated.For example,we all pay a little more for candy bars and soft drinks,but a few sugar producers reap large benefits from our restrictions on sugar imports.Olson found that in cases such as this,there is an asymmetry in the incentives to support and to oppose the policy.With trade protection,the benefits are concentrated in a single industry and,consequently,it pays for the indus-


try to commit resources to obtaining or maintaining its protection.The industry will hire lobbyists and perhaps participate directly in the political process through running candidates or supporting friendly candidates. If people in the industry think their entire livelihood depends on their ability to limit foreign competition, they have a very large incentive to become involved in setting policy.


The costs of protection are nowhere near as concentrated as the benefits because they are spread over all consumers of a product.The $5 to $10 per year that sugar quotas cost each of us is hardly worth hiring a lobbyist or protesting inWashington. Thus, one side pushes hard to obtain or keep protection, and the


other side is silent on the matter. Given this imbalance, an interesting question asks why there are not more trade barriers.




C A S E  S T U D Y


Agricultural Subsidies


Agricultural issues have long sparked conflict among the members of the WTO.


Some cases have pitted high-income countries against each other, among them disputes between the United States and Japan over apples and EU-U.S.disputes over bananas. More recently, the WTO’s Doha Development Agenda has tried to address agricultural issues that are central to relations between developing and industrial countries. In particular, three issues are on the table: tariffs and quotas (market access), export subsidies given by countries to encourage farm exports,and production subsidies granted directly to farmers.


Direct subsidies are viewed as harmful because they lead to overproduction, squeeze out imports,and in some cases result in the dumping of the surplus product



Chapter 7 Commercial Policy 145


TABLE 7.3 Agricultural Subsidies, 2007


Agricultural Subsidies


(Millions of US$)                         As a Percent of


Farm Receipts


Australia                                              1,827                                       6


Canada                                                7,001                                       18


European Union                                  134,318                                   26


Japan                                                   35,230                                     45


United States                                      32,663                                     10


The EU provides the largest subsidies, both in absolute terms and as a share of GDP but


Japanese farmers are more dependent on agricultural subsidies.


Source: OECD, Producer Support Estimate by Country.




in foreign markets. The original GATT agreement included language on agriculture, but there were so many loopholes that it had little impact. Not until the Uruguay Round was finalized in 1993,nearly 50 years after the signing of the original GATT agreement, were significant changes made in the rules for agricultural trade. Many quotas were converted to tariffs, and industrial countries agreed to reduce their direct support for the farm sector by 20 percent.Indirect supports such as research and development and infrastructure construction were recognized as necessary,desirable,and permissible.


While direct-support payments were curtailed, the Uruguay Round left intact direct payments to farmers that theoretically do not increase production, are part of a country’s environmental or regional development plan, or are intended to limit production. If you think these are a lot of loopholes, you are right. Consequently, the current round of trade negotiations, the Doha Development Agenda,has taken up the issue of agriculture again,and developing countries in particular are pushing to limit government practices that block their access to markets in high-income countries or that subsidize production by industrial countries.

Table 7.3 shows the range of direct-support payments to agricultural producers in many industrial nations. The twenty-seven members of the EU are grouped together because their trade and agricultural policies are formulated at the EU level,not at the national level.In terms of both absolute support and the percentage of its GDP that it transfers to farmers,the EU is the biggest subsidizer.Japan is close in percentage terms but is at about one-half the level in absolute dollar amounts.The United States is also a large subsidizer, and Canada is similar. Not all countries subsidize agriculture, however. Australia’s supports are less than one-half the level of the United States as a share of GDP, , and despite the lower support levels,it uses its comparative advantages to be among the top fifteen agri-cultural exporting countries in the world.