I. How could farm subsidies distort a model of perfect competition?

A. Define farm subsidies

1. Definition
a) Farm subsidies are government funded programs intended to assist
farmers, control production, and manage market prices of crops.
(Ford, 2018)
b) Farm subsidies provide assistance to small farmers and large
agribusinesses (Ford, 2018)
c) Crops like wheat, rice, corn, soybean, and cotton are prioritized
and backed by the support of farm subsidies. (Lee, 2018)
d) The U.S. gov’t spends $20 billion in subsidies per year (Ford,
2018)
e) The U.S. was the largest agricultural exporter in 2013. (Ford,
2018)
2. Types of subsidies
a) Crop insurance to protect farmers during times of low production
or unfavorable weather. USDA funds about 60% of insurance
premium costs. There are no limits, so it’s an easy way to cover up
the fact that farmers are making too much off of subsidies.
(“Agricultural Policy,” 2019)
b) Agricultural risk coverage covers farmers when their revenues are
lower than the average revenue per acre of land. (“Agricultural
Policy,” 2019)
c) Price loss coverage guarantees subsidies will pay farmers for crops
by comparing price to the national average. (“Agricultural Policy,”
2019)
d) Conservation programs pay for acres of land. (“Agricultural
Policy,” 2019)
e) Marketing loans were intended to help farmers during harvesting
time so they could maintain a higher price for crops, but turned
into just another subsidy. (“Agricultural Policy,” 2019)
f) Disaster aid costs taxpayers between $1 to $2 billion per year.
(“Agricultural Policy,” 2019)
g) Market/export programs (“Agricultural Policy,” 2019)
h) Research and development (“Agricultural Policy,” 2019)
B. Define perfect competition
1. A market with perfect competition consists of a high quantity of sellers. In
this case, the sellers are farmers or farming industries such as Dole,
Chiquita, etc.
2. The product is identical in this particular market. The crops are the same;
wheat, corn, potatoes, etc., but the quality may differ between firms.
3. If perfect competition exists in a market, the sellers have no effect on
market price. (Miller, 2014, p. 328)
4. Farmers have the power to control their output. However, they must settle
for the agreed market price, otherwise known as marginal cost
C. Explain the distortion
 1. The farming industry resembles an ideal perfect competition, because the
crops are the same no matter who grows it. However, the farmers have
more control over the pricing thanks to subsidies. The subsidies decrease
the market price and increase revenue, but costs of production remains
constant. This means that farmers in countries with farm subsidies have an
unfair advantage over the farmers in countries without farm subsidies. In a
perfect market, there should be no presence of a monopoly. If it weren’t
for trade barriers, less fortunate countries would be forced to leave the
market due to the vast power that American farmers have.
2. Competitive enough with free entry and exit. Monopolistic competitor's
product is differentiable.
3. The market moves from perfect competition to an oligopoly. An oligopoly
typically has a smaller amount of firms that sell either identical or
differentiated products. In this case, there are not many corporate farming
firms like Dole, Chiquita, and Sunkist in the U.S.A. They all sell produce,
but some farms like Chiquita specialize in bananas while farms in Idaho
specialize in various types of potatoes. Therefore, products are similar
with slight differences in specialty crops. Oligopolistic markets are harder
to enter and the farming industry is harder to enter due to government
subsidies. When it comes to pricing, oligopolies can adjust their prices, but
other firms in the market do not always follow suit. Which means that a
firm could raise prices, but they’d inevitably lose customers. When one
firm decides to decrease prices, so will the rest and demand will be
unaffected since prices are reduced within each company in the market.
Farms resemble oligopolies, because farms across the world can change
their prices to compete with other farms, but the subsidies will always
allow the U.S. farmers to prevail.
II. How do U.S. corn subsidies hurt Mexican farmers? What could be done to address
this problem, and why would the solution be effective?
A. Impact of subsidies on Mexican farmers
1. Subsidies drive market price down
2. Subsidies make it cheaper for American farmers to export crops across the
world, so they can afford to sell crops at a lower price. This makes it
difficult for small, native farmers to compete. (Ford, 2018)
3. Agribusiness use subsidies to buy out local farmers since they cut labor
costs with innovative farming technology. (Lee, 2018)
4. Countries have imposed tariffs on agricultural imports, so that the prices
are more competitive with their local farmers. (Goldmark, 2018)
5. Without subsidies, farmers would have to sell crops at a way lower price
and always operate in a deficiency. (Goldmark, 2018)
6. Trade barriers are established to reduce imports. Foreign countries (i.e.
Mexico) have the power to depreciate the value of a U.S. dollar to protect
domestic producers. (Goldmark, 2018)
B. Potential solutions
1. Decrease/end farm subsidies
a) Tax payers would save money (+)
 b) Farmers in other countries can compete fairly (+)
c) Price of produce might increase (-)
d) Farmers that depend on subsidies will not be able to make a living
(-)
2. Provide subsidies/assistance to all nations
a) Trade barriers would be lifted (+)
b) More farmers would enter the market and the global supply of
crops would increase (+)
c) Taxes would increase internationally (-)
d) Inflation would occur if the subsidies increase in the long-run (-)
3. Restrict trade
a) Taxes/tariffs would bring in more revenue for Mexico (+)
b) Domestic producers are protected from competitive pricing (+)
c) Trade barriers limit imports that could potentially be necessary (-)
C. Best solution and why is it effective?
1. Imposing higher trade restrictions would be a stepping stone in solving
this economic issue. The Mexican farmers are left with little to no
solutions, because they cannot force their government to support/fund
them with subsidies. Limiting trade will leave Americans with a surplus of
crops that would eventually go bad.
2. We don’t want to provoke Mexicans and create a tit-for-tat trade war. In
2018, the trump administration increased tariffs on exports of agricultural
goods, despite the fact that exports make up a substantial amount of the
agricultural revenue. In retaliation, Mexico imposed tariffs on pork,
prepared fruits, cheese, and vegetables. Increases in tariffs result in
decreased imports. Without the proper equipment, farm production costs
could skyrocket since native farmers are now responsible for providing
crops that would otherwise be imported. This made it nearly impossible
for farmers to seek profit without government assistance. (Chinn 2020)
3. U.S., Canada, and Mexico reinstated a free trade agreement in May 2019
in order to reduce/diminish tariffs and resort back to the agreement
outlined in NAFTA. (Chinn 2020)
4. NAFTA is the North American Free Trade Agreement signed by George
H. W. Bush in 1988. This made it free to import or export goods between
Canada, Mexico, and the U.S.
5. The agreement between the three countries was revised and renamed the
United States-Mexico-Canada Agreement (USMCA) was a rebrand that
basically highlighted the same points as the original NAFTA. (

III. Where do you stand on this issue and why?

A. Arguments in favor
1. Food is a global commodity and essential for life. The farmers need to
make enough to support their cost of living, so the government is
obligated to assist. With government assistance, farmers are more inclined
to provide crops. (Goldmark, 2018)
 2. Natural disasters have a negative impact on soil, so harvesting season isn’t
as fruitful for some farmers. Subsidies provide aid for the periods of
economic misfortune for farming families. (Goldmark, 2018)
3. Agriculture can be converted to an energy source, as well. (Goldmark,
2018)
4. The global market for agriculture is unfair due to subsidies, so taking them
away could negatively impact the economy behind the scenes. (Goldmark,
2018)
5. Farmers take loans out in the spring so they can afford to purchase
seed,fertilizers, etc. In the fall (harvesting season), they sell their crops to
pay back these loans. Farming parallels gambling, so poor harvesting
seasons make it challenging for farmers to thrive if they experience more
than one season of failure. Farm subsidies are necessary to help farmers
stay afloat. If too many farmers exit the market, we lose an essential
commodity which is food. (Watson 2020)
6. Inflation and deflation of the U.S. dollar impacts farmer’s revenue.
Foreign exports decrease as the value of the U.S. dollar increases. Inflation
is uncontrollable, but farmer’s lose money since foreign countries won’t
purchase the high cost crops. Subsidies are necessary to offset the loss in
revenue that farmers incur due to inflation. (Watson 2020)
B. Arguments opposed
1. Conservative politicians consider government assistance to be “welfare”
and try to reduce the amount of money allocated towards EBT, WIC, etc.
Farm subsidies provide assistance equivalent to welfare and should be
reduced as well. (Lee, 2018)
2. Agribusinesses are conquering the industry, so taxpayer’s money is going
towards corporations. (Ford, 2018)
3. 2008 US Farm bill proved that increasing subsidies will increase
government control of farm production. (Ford, 2018)
4. Interfere with free market (Ford, 2018)
5. Subsidies incentivize production, which could result in ecological damage
(Ford, 2018)
6. A portion of income tax goes toward subsidies and Americans still have to
pay tax on some agricultural goods, so they inevitably suffer double
taxation. (Lee, 2018)
7. Subsidies decrease the market price of produce, so consumers decide to
purchase cheaper foods with lower nutritional value. (Lee, 2018)
8. Farming machinery improved, so firms save money on labor costs.
Subsidies end up as profit due to the innovations in technology. (Lee,
2018)
9. Subsidies result in overproduction, inflation on the price of land, and
overall damage to the environment. (“Agricultural Policy,” 2019)
10. Subsidy takes money from the poor in the form of taxation to redistribute
to wealthy farmers. (“Agricultural Policy,” 2019)
11. Federal micromanagement prohibits the farmer’s freedom to produce and
undermine marketing mechanisms. (“Agricultural Policy,” 2019)
 12. The possibility of fraud is too likely due to unmanaged government
payments. (“Agricultural Policy,” 2019)
13. Int’l trade is limited, because countries without subsidies impose tariffs on
imports. (“Agricultural Policy,” 2019)
C. My stand on the issue
1. I don’t support farm subsidies for several reasons. The concept of double
taxation is completely heinous. The government acquires a majority of its
revenue from income taxes. Plenty of hard-working Americans must work
harder to make more money, because a significant amount of their money
is allocated to taxes. Also, they are forced to pay taxes toward agricultural
purchases. To add insult to injury, the tax money intended for farm
subsidies benefits farmers that are already wealthy. This means that we, as
Americans, suffer hefty taxation that contributes to the profit of
agribusinesses by means of income supplementation and sales tax. If
subsidies didn’t reach a whopping $20 billion, I wouldn’t mind pitching
into it. This money could be put towards the nation’s deficit.
2. With the recent COVID-19 epidemic, subsidies have been increased to
support the economy during this troubling time. The Coronavirus Aid
Relief Economic Security (CARES) Act was signed on March 27, 2020 to
issue funds to families across the nation due to the steady increase in
unemployment due to the coronavirus. A whopping $350 billion was
allocated solely for the paycheck protection program to small businesses
through the Small Businesses Administration. Small farms are entitled to
compensation to cover expenses from February 15th to June 30th. They,
also, are permitted to apply for loans up to $10 million. (Watson 2020)
3. While the CARES Act is beneficial while the economy adjusts to this life-
threatening pandemic, the subsidies enacted prior to the CARES Act are
still in place and farmers are gaining superior advantage over other small
businesses. It is unfair to taxpayers.
IV. Work Cited
A. Chinn, M., & Plumley, B. (2020, January 16). What is the toll of trade wars on
U.S. agriculture?
B. Farm Subsidies: Guide to Critical Analysis. (2018). Points of View: Farm
Subsidies, 4.
C. Ford, A., & Flynn, S. I. (2018). Farm Subsidies: An Overview. Points of View:
Farm Subsidies, 1.
D. Goldmark, S. M., & Grant, R. A. (2018). Counterpoint: Farm Subsidies Are
Needed For American Farmers. Points of View: Farm Subsidies, 3.
E. Griswold, D., Slivinski, S., & Preble, C. (2006). 6 Reasons to Kill Farm Subsidies
and Trade Barriers. Reason, 37(9), 42.
F. Lee, D., & English, M. (2018). Point: Farm Subsidies Are No Longer Necessary.
Points of View: Farm Subsidies, 2.
G. Milking taxpayers; Farm subsidies. (2019). The Economist, 9170, 49.
H. Stewart, J. B. (2013, July 19). Richer Farmers, Bigger Subsidies.
I. Watson, G., LaJoie, T., Li, H., & Bunn, D. (2020, April 22). Congress Approves
Economic Relief Plan for Individuals and Businesses.
J. 43. Agricultural Policy. (2019, October 8).