THE NECESSITY OF FARM SUBSIDIES

Farm subsidy is a financial payment that is either as direct payment or a subsidy per unit of production
given by the government to farms to supplement their income, manage the supply of agricultural
commodities and influence the cost of supply. subsidies are important to farmers but are not a must
have incentive for the farmers.

Farm subsidy is a mechanism to ensure countries achieve food sufficiency by the end of the year and
avoid over dependence on relief food. Empowers farmers to fully harness the untapped resources to
alleviate poverty. If governments ended subsidies, this might lead to fall of revenues and profits and
course some farmers to leave the industry. This is due to the fact that producer prices would likely
revert back to lower equilibrium level, lower prices and fall in output would cause fall in total revenue.
Assuming the costs remain unchanged then this would reduce industry profits. if farmers are making
subnormal profits then they opt to leave the industry which will cause a fall in supply. However, farmers
may respond to ending of subsidies by attempting to increase productivity which will cause fall in unit
costs.

Another microeconomics effect of eliminating subsidies could be higher food prices for consumers and
fall in welfare. A subsidy is likely to cause an inward shift of market supply and make food more
expensive at retail level. This will cause in reduction of many families’ real disposable incomes and loss
of consumer surplus. The welfare losses from subsidy free farming will be felt most by low income
families. There is a higher risk that higher food prices might lead to a rise in food poverty and an
increase in under-nourishment. However, although in theory the ending of subsidies may lead to
increased prices for consumers, in practice the impact may be less significant.

Another effect of cutting subsidies is that the government will save a lot of money a year in spending
leading to lower fiscal deficit. This will reduce the gap between what the government spends and how
much tax revenue it takes in. lower fiscal deficit will help the government control the size of national
debt and perhaps release funds for other projects like improvement of transports and
telecommunication in rural areas. And if farming becomes more profitable in the long run, the
government will generate fresh tax revenues n the years ahead. Free market economists argue that
subsidies distort markets and makes country less competitive in the long run.

Although farming contributes in the country’s GDP a major reform of ending subsidies would have
potentially large microeconomics effects. In the case of short-term, ending of subsidies would likely lead
to increase of food imports which will worsen a countries account deficit. Farming will also be under
pressure to increase efficiency and this may cause some jobs to be lost and risk rise in structural
unemployment. But necessity is sometimes the mother of invention; so perhaps without a subsidy the
farmers would be more successful in diversifying production in a sustainable way to increase output and
quality for consumers. That will be an aim of ending farm subsidies.

farmers should learn to diversify the production in a sustainable way to increase quality of output for
consumers with or without subsidies.

farmers should reduce their dependence in subsidies such that when its not available it wont affect too
much of their production.
the government should cut off the subsidies if its sure to a certain point the agriculture sector can
survive without it in the long run.

Farmers should invest in long run farming that according to theory will survive subsidies cutoff.