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International Business Environment - Essay Example

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Recent statistics placed the total of world agricultural exports to $852 billion and this accounts for approximately 9 percent of the global trade. (1) It affects one third of the earth’s land…
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International Business Environment
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International Business Environment

Download file to see previous pages... This paper will examine the European Union’s agricultural subsidy: whether it does more harm than good.
According to Myers and Kent, there are several reasons why countries subsidizes agriculture: first is that governments consider it a prime responsibility to keep their citizens fed, so there is the perceived duty to support farmers and double crop production; secondly, farmers worldwide have often been included in the poorest sector of society so policymakers feel that they deserve help.(2, p. 40) All in all, the rationale behind agriculture subsidies is to ensure that there are adequate food supplies, the prices for farm products remain stable and to help the farming sector more competitive and in the process help the poor and develop rural communities.
In the European Union, agricultural subsidies rake billions of dollars of expenditures each year, constituting nearly three-quarters of the annual total budget of the EU. (1, p. 339) Support for agriculture is handled by a Common Agricultural Policy or CAP. Here, the policy uses a variable levy to bring the world price of an agricultural import up to the domestic price level as well as subsidizes exports of its surplus commodities on world markets, driving down prices for other potential exporters. The diagram below demonstrates this:
Agricultural subsidies such as those of the EU’s have devastating effects on the international market, especially on the poor countries. Subsidies lead to over-production that is dumped on the world market, depressing world prices; and these subsidized imports enter developing countries’ markets with lower tariffs as a result of the AoA and IMF and World Bank conditionalities. (4) It is impossible for farmers from poor economies to compete with the low prices of agricultural products and usually go out of business. Unfortunately, this destroys local and rural production as imported and considerably cheaper agricultural ...Download file to see next pagesRead More
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