Agricultural Subsidies And Globalization

This essay will discuss the effects that agricultural subsidies have on globalization. The main points that will be covered in regards to subsidies and their effects on worldwide productivity, poverty in undeveloped countries, the stance of the World Trade Organization (WTO) and International Monetary Fund (IMF) and some discussion on implementation. First, it would be prudent to define some terms that will be used in this paper.

Globalization is defined by Charles Hill as, “the shift toward a more integrated and interdependent world economy” and includes both the globalization of markets and production. (Hill, 2009, p.6) He goes on to define subsidies as the payments to a domestic producer which takes the forms of grants, low-interest loans, and tax breaks. (Hill, 2009, p.208) With these important points being defined, we can focus on how agricultural subsidies and tariffs provided by governments affect the global marketplace.

Agricultural subsidies are a form of protectionism for the industry by the government. The World Trade Organization (WTO) commenced addressing this in its DOHA Round but prior to that it was on the agenda for the General Agreement on Tariffs and Trade (GATT). Agriculture has typically been given higher tariffs than other manufactured goods or services. This means consumers pay higher prices than needed for imported agricultural products thereby reducing their ability to purchase other goods and services. (Hill, 2009, p.228). The WTO points to the benefit of removing tariff barriers and subsidies is to boost worldwide trade levels, lower consumer prices and increasing economic growth globally since funds could then be used for investment in additional productive resources and other consumption needs. (Hill, 2009, p.228)

As we have seen in previous courses with supply, demand and subsidies, subsidies can be used to promote the underallocation of resources via a subsidy. In agriculture, the subsidies create a surplus supply which is the...