Subsidies and the Philippine Economy

Ria Luanne D. Roldan

Ralph Waldo S. Piadozo

Gary Evans O. Lamanilao

Subsidies - A Brief Introduction:

The recent GATT says that both the least developed countries and developed countries should have some level playing field. Likewise it was discussed in the WTO accord that there should be the phasing out of farm subsidies.

Subsidies come in many forms. The U.S. heavily subsidizes irrigations as well as compensates their farmers not to plant when there is market glut. The E.U. adopts a common agricultural policy where it supports farm subsidies. The E.U. also set target prices usually protecting E.U. farmers in producing excessive amounts of farm commodities.

Post Subsidy Scenario:

In the short run post-subsidy scenario it can be assumed that overall agricultural supplies would contract; leading to an immediate price increases of agricultural commodities. This can be attributed more due to recoils in non price factors of production.

1. Agricultural producers in developed countries will most likely be discouraged in producing surpluses. Removal of subsidies will return agricultural commodities prices to normal production costs.

2. Agricultural producers in developed countries employ more efficient methods as compared with those in less developed countries. While agricultural producers in less developed countries will be motivated to produce more due to higher production yields, the additional production will only be as much as it would be profitable.

3. Agricultural commodities consumers, who prior to which enjoyed artificial prices, will most likely suffer the immediate impact of impending price stabilizations.

However, in the long run post-subsidy scenario the progressive shift to a more competitive agricultural system will be beneficial to consumers; both in agriculture consumption and likewise.

1. With the realization of lower trade barriers, agricultural producers will focus more on profitability; the employment of more efficient methods as well as the increasing need for research and development in agricultural production will consequently lower fixed costs; leading to a lower production cost.

2. Generally, phasing out agricultural subsidies will lead to a better economic equity.

a. Developed countries will shift displaced resources to more productive industries; further industry specializations can emerge.

b. Less developed countries will likely enjoy more employment opportunities created by improving local agricultural markets; "real surplus" can be exported. The emergence of a stronger local agricultural supply will also lessen the