An analysis of the impact of subsidies and tarriffs on agricultural trade - the case of United States and India

Abstract

The agricultural production had been low in many parts of the world, including India and the US, decades ago. The only way to enhance production was to incentivize farmers to bring more area under production and leverage the technological revolution in agriculture to increase yield/ ha. However, this could not have been left on the free markets to evolve with time. The quick results to ensure food security required government interventions to make agriculture seem profitable for farmers. After all, profitability is what prompts a producer to continue his business. Subsequently, the countries started providing price based support to the farmers if the market prices reduced or crashed. The price support was related to market prices, so it began to be considered market-distorting. Even when the market prices were low, the farmers produced the crops because of the provided price support. As such, the production of these countries (mainly US and EU) rose, and they continued to be the major player in the world trade.