By: Jessica Weimerskirk

 Subsidy – Government financial assistance to a domestic producer.  2 forms ◦ Agricultural ◦ Non-Agricultural  Subsidies given to Boeing and Airbus.

 Subsidies can come in many different forms ◦ Cash Grants ◦ Low-Interest Loans ◦ Tax Breaks  Main Goal of Subsidies = Lowering Production Costs ◦ Benefit domestic producers in two ways  Competing against foreign imports  Gaining export markets  Exist Mainly in Industrialized Countries ◦ Out of $300 billion, $250 billion spent by 21 developed nations  Agriculture is one of the largest beneficiaries in most countries.

 Agricultural subsidies tend to protect the inefficient and promote excess production ◦ Allow inefficient farmers to stay in business ◦ Encourage overproduction of subsidized products ◦ Encourage the growth of products that can be grown cheaper elsewhere ◦ Reduce international trade in agricultural products.

 First appeared in the U.S. in the 1930’s  December 2007 the congress passed bills raising the total annual subsides from $20 billion to $29 billion for next 10 years.

 Largest single recipients have been cotton farmers ◦ Receive $5 billion for a crop worth $4 billion  Without these subsidies American farmers would not be able to compete in the world markets.

 Cost to produce a pound of cotton in the U.S. is 3 times higher than in cotton producing countries  By shielding U.S. farmers from international competition, U.S. cotton subsidies result in over production, which depresses the world price for cotton.  A global surplus of cotton has driven down the average price per pound from as high as $1.20 in mid-1995 to only $0.65 a pound in mid-2006.

 Benin – 95% live on less than $1 a day, a 40% reduction in the price of cotton reduces income to cotton growers by 21%  Assumption – U.S. cotton subsidies have contributed to that reduction and therefore data suggests that U.S. subsidies contributed significantly to the economic devastation in poor producing 3 rd world nations  The loss suffered by Benin due to low cotton prices caused by U.S. subsidies and excess production exceeded the foreign aid that the country received from the U.S.

 Agricultural subsidies play a dual role in international trade. ◦ They are intended to help the industrialized countries compete in foreign markets and gain more exports. ◦ However, agricultural subsidies are nearly eliminating 3rd world markets and pushing 3rd world countries further into poverty.