This chapter is intended to ensure that students understand why agricultural policies are needed in both developing and developed countries. It will also shed light on the major forces that cause policy change, reasons for government involvement in agriculture and the place of agricultural policies in the future.

1. CBU 5205
Agribusiness Marketing
Agricultural Policies and its
effects on Agribusinesses
Daisy Odunze

2. Introductions
 Governments have influenced agriculture directly
through the following mechanisms; health
regulation programs; price support laws and
production controls; and the collection and
distribution of agricultural statistics.
 In addition to the general policies of the nation as
a whole, agriculture is specifically affected by
inflation, unemployment, and foreign policy.

3. Introductions
 Agricultural policy describes a set of laws relating
to domestic agriculture and imports of foreign
agricultural products.
 Governments usually implement agricultural
policies with the goal of achieving a specific
outcome in the domestic agricultural product
markets.
 Outcomes can involve, for example, a guaranteed
supply level, price stability, product quality,
product selection, land use or employment.

4. Introductions
 Agricultural policy outlines the steps that will be
taken to reach certain goals in the food and fibre
economy.
 Typically such policies affect the resources,
production, and markets related to agricultural
products and services.
 They often are concerned with the safety,
consumption, and nutritional value of food.
Agricultural policy like most national-level
policies is influenced by economic, foreign, and
environmental policies and considerations.

5. Goals of agricultural policy
 Maintaining a profitable, viable, efficient, and
environmentally safe agricultural production sector
capable of meeting demands for food and fibre while
providing satisfactory incomes to producers for use of
their land, labour, capital, and management.
 Providing for an efficient, profitable, and dynamic
agribusiness sector, including input suppliers and
agricultural output sector.
 Providing consumers with an abundant, varied and
safe supply of food and fibre at the lowest possible
cost consistent with other goals.

6. Goals of agricultural policy
 Operating a food and fibre economy within the
framework of a democratic society, relying on the
free market system as much as possible consistent
with other goals.
 Maintaining and enhancing the competitiveness
of the country’s agricultural product in the global
market.

7. Forces that cause policy change
 Price instability: one major problem faced by
producers is instability of prices and incomes.
Changes in supply and demand can and do affect
farm prices.
 Globalization: the cultures, politics, and
economies of countries around the world have
become more interdependent.
 Technology: advances in technology have forced
changes in agricultural policy

8. Forces that cause policy change
 Food safety: most countries are concerned with the
safety of their nation’s food supply.
 Environment: agricultural policy is often changed to
respond to issues related to the environment.
 Agricultural industrialization: Policy focus in this
area is on how the traditional family farm is affected
by these sweeping changes.
 Politics: politics plays a significant role in
determining all policies, including agricultural policy.

9. Different Policy Tools
 Agricultural subsidies is a governmental subsidy
paid to farmers and agribusinesses to manage the
agricultural industry .
 The conditions for payment and the reasons vary
with farm product, size of farm, nature of ownership,
and country among other factors.
 Enriching peanut farmers for political purposes,
keeping the price of a staple low to keep the poor
from rebelling, stabilizing the production of a crop to
avoid famine years, encouraging diversification and
many other purposes.

10. Types of Farm Subsidy
 Direct Payments. Direct payments are cash subsidies
for producers of crops such as: wheat, corn, sorghum,
barley, oats, cotton, rice, soybeans, minor oilseeds,
and peanuts.
 Marketing Loans. The marketing loan program
provides large subsidies by paying guaranteed
minimum prices for crops.
 Countercyclical Payments. provides larger subsidies
when market prices are lowlike marketing loan.
However, countercyclical payments are tied to a
measure of historical production, whereas marketing
loan subsidies are tied to current production.

11. Types of Farm Subsidy
 Conservation Subsidies: farmers are paid not to
grow crops, but to cultivate ground cover such as
grass or trees on retired acres. A large share of land
idled under the CRP in America are owned by retired
farmers, thus one does not even have to be a working
farmer to get these subsidies.
 Insurance. Also in developed countries, both “yield”
and “revenue” insurance are available to farmers to
protect against adverse weather, pests, and low
market prices

12. Types of Farm Subsidy
 Disaster Aid: in case of crop damage. millions of
dollars given to farmers, whether or not particular
farmers actually sustained substantial damage.
 Export Subsidies. Subsidies on exports are any
payments, direct or indirect, to producers
resulting in export prices that are below domestic
prices. Used in this sense we can say that exports
of a number of American farm commodities are
subsidized.

13. Impact of Subsidies
 Farm subsidies have the direct effect of
transferring income from the general tax payers to
farm owners. The justification for this transfer
and its effects are complex and often
controversial.
 Global food prices and international trade
 Poverty in Developing Countries
 Impact on nutrition
 Corporate farms
 Non-farming companies
 Public Economics Implications

14. Tariffs
 Tariffs are Government taxes on imports that raise
the price of foreign goods and make them less
competitive with domestic goods.
 Because they raise the price of the foreign-made
goods, they make them less competitive.
 Tariffs are also used to raise revenue for a
government.
 Tariffs impose a cost on all products that cross a
border, thus raising prices within the country that
imposes the tariff.

15. Tariffs
 Higher prices affect supplies as farmers respond
by increasing output and affect demand as
consumers buy less. Countries apply tariffs
primarily to protect domestic industries.
 The domestic market effects of tariffs can also
spill over onto world markets as the combined
effect of more supply and less demand reduces
imports.

16. Tariffs
 If the country imposing the tariff is a large
importer, then world prices can fall. Thus, the
case against tariffs has two components: the
distortions created within the country via higher
domestic prices and the costs imposed on other
countries via lost export sales and lower world
prices.
 The costs and benefits from a single tariff can
spill over to other commodities as well.

17. Why Countries Use Tariffs
 Providing protection against competition from
imports for a specific commodity or sector
 Temporary use of tariffs has been justified in order to
protect new or infant industries and to provide a
window to become established in the market
 Managing the balance of payments by restricting
imports is another rationale developing countries use
to apply tariffs.


18. Quotas
 A quota is a Government-imposed restrictions on
the quantity of a good that can be imported /
exported over a period of time. imposes limits on
the quantity of a good that can be imported over a
period of time.
 Quotas are used to protect specific industries,
usually new industries or those facing strong
competitive pressure from foreign firms

19. Quotas
 A government can erect trade barriers to limit the
quantity of goods imported (in the case of a Quota
Share) or monopolise trade in certain
commodities.
 Quotas take two forms.
 An absolute quota fixes an upper limit on the amount
of a good that can be imported during the given period.
 A tariff-rate quota permits the import of a specified
quantity and then adds a high import tax once the limit
is reached.

20. Embargo
 An extreme form of quota is the embargo
 A quota that bans the import or export of certain
goods to a country for economic or political
reasons., which, for economic or political reasons,
bans the import or export of certain goods to or
from a specific country.

21. Other Tools
 Price control: Price floors or price ceilings set a
minimum or maximum price for a product. Price
controls encourage more production by a price
floor or less production by a price ceiling.
 Discriminatory government and private
procurement policies: These are the rules and
regulations that discriminate against foreign
supplies and are commonly referred to as "Buy
British" or "Buy American" policies.
 .

22. Other Tools
 Restrictive customs procedures : The rules and
regulations for classifying and valuing
commodities as a basis for levying import duties
can be administered in a way that makes
compliance difficult and expensive

23. Reasons for Governmental Involvement in
agriculture
 National security
 Environmental Protection and Land Management
 Rural poverty and poverty relief
 Fair trade
 Food supply and food safety

24. Arguments against market intervention by
government
 Dumping of agricultural surpluses
 "Consider a farmer in Ghana who used to be able to make a
living growing rice. Several years ago, Ghana was able to feed
and export their surplus. Now, it imports rice. From where?
Developed countries. Why? Because it's cheaper. Even if it
costs the rice producer in the developed world much more to
produce the rice, he doesn't have to make a profit from his
crop. The government pays him to grow it, so he can sell it
more cheaply to Ghana than the farmer in Ghana can. And
that farmer in Ghana? He can't feed his family
anymore."(Lyle Vanclief, Former Canadian Minister of
Agriculture (2003)

25. Arguments against market intervention by
government
 According to The Institute for Agriculture and
Trade Policy, corn, soybeans, cotton, wheat and
rice are sold below the cost of production, or
dumped. Dumping rates are approximately forty
percent for wheat, between twenty-five and thirty
percent for corn (maize), approximately thirty
percent for soybeans, fifty-seven percent for
cotton, and approximately twenty percent for rice.
For example, wheat is sold for forty percent
below cost.

26. Arguments against market intervention by
government
 Market Distortions
 Market interventions may increase the cost to
consumers for agricultural products, either via
hidden wealth transfers via the government, or
increased prices at the consumer level

27. Conclusion
 Despite valid arguments made by supporters of trade
controls, most experts believe that such restrictions as
tariffs and quotas—as well as practices that don’t
promote level playing fields, such as subsidies and
dumping—are detrimental to the world economy.
Without impediments to trade, countries can compete
freely. Each nation can focus on what it does best and
bring its goods to a fair and open world market.
When this happens, the world will prosper. Or so the
argument goes.