Question

In: Economics

6 discuss the four from of government intervention designed to remedy the problem of low or...

6 discuss the four from of government intervention designed to remedy the problem of low or fluctuating income facing farmers

7 discuss the consumer issues with respect to food and related products

8 discuss'' loan rate mechanism'' as a means to support the farmers income

9 analyze the welfare impact of the ''set aside mechanism'' to stabilize the farmer income

Solutions

Expert Solution

Answer 6

Government intervention in agriculture.

Buffer stocks to help stabilize prices though having minimum and maximum prices. Minimum prices – to guarantee farmers basic income by subsidizing food prices. However, minimum prices may encourage oversupply and lead to wasted food production. Subsidies for farmers who follow more environmentally friendly methods. Tariffs on imports. This increases the domestic price of agricultural produce, but leads to lower trade.

Answer 7

Often farmers don’t share the same benefits of economic growth. As the economy expands, firms don’t see a similar increase in income. Food has a low-income elasticity of demand. As incomes rise, people don’t spend more on food. Also, technological advances can lead to falling prices rather than rising incomes. Many developed economies feel it is necessary to subsidies farmers to protect their incomes.

For a developing economy, their current comparative advantage may lie in producing primary products. However, these may have a low-income elasticity of demand. With global growth, the demand for agricultural products doesn’t increase as much as manufacturing. Therefore, relying on agriculture can lead to lower rates of economic growth.

Answer 8

Banks offer concessional interest rates for the rural credit. However; small farmers are unable to access them because of borrower-unfriendly products and procedures, inflexibility and delay, and high transaction costs, both legitimate and illegal. Thus, Non-Government Organizations (NGOs) are providing alternative means to enhance access to credit by the poor since mid-70’s. RRBs (Regional Rural Banks) primarily cover small and marginal farmers, landless laborers, rural artisans, small traders and other weaker sections of the rural community. However, even after so many years, the market share of RRBs in rural credit remained low and have suffered huge losses.

Answer 9

Set-aside schemes involve farmers and growers being paid to take land out of production, and are used widely in the EU and USA. Set-aside can be effective because it can prevent surpluses happening in the first place, and hence avoid storage, distribution and management costs. Guaranteeing a price to producers, irrespective of the output they produce, is another way of stabilizing prices and incomes. A government or agency can establish a target price, and then guarantee to pay farmers and growers this price, whatever output is produced. If the market price rises above this guarantee, the market price will prevail. But if the market price falls below the guarantee, then the guaranteed price will prevail.


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