Agriculture seems to be a difficult sector to manage for most
governments. Developing countries face tough dilemmas in deciding on
appropriate price poli- eies to stimulate food production and maintain
stable, preferably low, prices for poor consumers. Governments in
developed countries face similar difficult deci- sions. They are called
upon to give income guarantees to farmers whose incomes are unstable and
relatively low when compared to those in the nonagricultural sector.
These guarantees often lead to ever-increasing budgetary outlays and
unwanted agricultural surpluses. High prices make new investments and
the application of new technologies more attractive than world prices
warrant, and a process is set in motion where technological innovation
attains amomenturn of its own, in turn requiring price policies that
maintain their rates of return. Surpluses are disposed of with subsidies
in domestic markets or in the international market. Price competition
reduces the market share of other exporters, who may be efficient
producers, unless they are willing to engage in subsidy competition.
This lowers export earnings and farm incomes or depletes the public
resources of developing countries that export competing products.
Retaliatory measures have led to frictions and further distortions of
world prices. Every so orten the major agricultural exporters - the USA,
the EC, Aus- tralia, or Canada - accuse one another of unfair
intervention. Though they have agreed to discuss agricultural trade
liberalization under GATT negotiations, if anything, the expenditure on
farm support has continued to increase in both the EC and the USA.
