Agricultural Policy in Australia-Free-Samples-Myassignmenthelp

Question: Discuss about the Agricultural Reforms in Australia. Answer: Introduction In any economy, economic activities are classified into three categories. The three important sectors are primary sectors, secondary sector and tertiary sector. Generally, for developed nation the contribution from the primary sector is the lowest while that from service sector is the highest. However, for Australia despite being a developed nation the primary sector or agriculture sector is an important sector. The sector is important not only for meeting more than 90% of the domestic food demand but also for making its significant contribution through export earnings. This assignment critically analyses a newspaper report on the reform policies for Australian agriculture. Essence of the Story For agricultural sector, Australia adapted a very different strategy from that of other European countries. The policy makers in Australia believe in leaving the sector in the hands o free market economy. This is the reason why Australian government provides least assistant to its food industry. Most countries maintain a subsidized agricultural sector in contrast to a free market structure in Australia (queenslandcountrylife.com.au 2017). There is a long held debate on advantages and disadvantages of regulated or market based understanding for agricultural sector. In United Kingdom and Ireland, farmers receive subsidy or allowance under the Common Agricultural Policy (CAP) of EU. Additionally, they participate in different agricultural program. Besides, agriculture CAP includes range of policies covering rural development, marketing of agricultural product as well as environmental aspect (Rizov, Pokrivcak and Ciaian 2013). EU spends the largest share of its budget on this common agricultural policy accounting nearly 40%. However, subsidies in these countries do not hamper quality of the agricultural product by making farmers reluctant to market prices. Rather they continue in maintaining high quality production of foliage in the world market. Economic theories and concept Agricultural market and Subsidy Agricultural subsidy is the assistance given to farmers to increase their production with maintaining a low price. With subsidy, the effective cost to the farmers has reduced and thus the subsidy is expected to make a positive gain to the producers (Willer and Lernoud 2016). However, the subsidy increases the cost burden of the government and can have a negative impact by reducing welfare. Figure 1: Effect of agricultural subsidy policy (Source: oxfordscholarship.com) Without subsidy, the market price is P. Now suppose a subsidy of $Z per unit of input is given to farmers. This increases the supply of the agricultural product as shown by the outward shift of the supply curve from S to S. In the new scenario, price reduces from P to P. The low price increases consumer surplus shown by the shaded region. Producer surplus also increases because the effective price to producer is P+Z. However, the total cost of the subsidy is indicated by the area dcef. This exceeds the total surplus, which is the sum of consumer and producer surplus (Parikh et al. 2013). Therefore, this explains the resulting dead weight loss indicated by the triangle bce. Free market policy In the free market, resources are used efficiently. In the market equilibrium, suppliers supply exactly the quantity that consumers willing are willing to buy. Any mismatch of demand and supply condition creates disequilibrium in the market. However, the free market equilibrium is a stable equilibrium. There are independent price mechanisms that always restore equilibrium in the market (Kirwan and Roberts 2016). Figure 2: Free market Condition (Source: As created by Author) Demand and supply curve in the free market is explained as DD and SS. E is the free market equilibrium point. At P and Q shows corresponding equilibrium price and quantity. Above the equilibrium price, supply outpaces demand and below that, demand outpaces supply. Both are not desirable in the free market (Mankiw 2014). This is the reason why Australian government prefers free market strategy above the strategy of a regulated market. The country is second lowest in terms of assisting farmers. Agriculture in Australia has made responsive to free market policy (McLachlan 2013). The Australian government is aimed at making agricultural sector and other agro businesses independent and profitable. Independent sustainable policies are designed to keep the competitiveness of the sector. Recommendation Agricultural reforms in Australia are taken keeping in mind the structure of the economy. The status of agricultural sector is stable and progressive. However, government needs to provide some assistance to this sector. Since, subsidy policy is not very effective the government should give indirect assistance to the farmers. Productivity growth is very important for production. In case of agriculture, this becomes even more important given as the supply of major input that is land is limited here. Therefore, advanced technology should be used so that productivity of the land can be increased. For this, government should take initiatives and increase investment for innovation and development of new technology. Assistance can also be given in terms of providing advanced machinery to the farmers. Agricultural support in this way can improve agricultural productivity without creating any distortion. Another thing that can be done is to impose tariff on import of food crops. Tariff is an import tax. It means that domestic consumers face a high price of imported goods than the actual price. The increased price o imported good discourages the consumers to consume imported good and thus increase demand for domestically produced goods. Therefore, this will increase the demand for local farmers produced. However, for cash crop the tariff should be relaxed. Conclusion The paper critically analyses the rationale for a completely different approach to agricultural policy in Australia. Policy makers in Australia rely on free market policies in contrast to regulated market. Market scenario with a subsidy and that of a situation in free market are evaluated using economic theories and concept. The cost of subsidy policy exceeds the resulted gain. Ultimately, the society suffers with a deadweight loss. This takes the policy makers attention towards the free market policy where resources are utilized efficiently without any distortion. Recommendation has been made for indirect assistance of government for this sector. Indirect assistance can include increasing government investment in research and technology, providing advanced machinery to improve productivity and protecting food crops from import competition. References Ag system differences an interesting study. [online] Available at: https://www.queenslandcountrylife.com.au/story/4841904/ag-system-differences-an-interesting-study/ [Accessed 12 Aug. 2017]. Kirwan, B.E. and Roberts, M.J., 2016. Who Really Benefits from Agricultural Subsidies? Evidence from Field-Level Data.American Journal of Agricultural Economics,98(4), pp.1095-1113. Mankiw, N.G., 2014.Essentials of economics. Cengage learning. McLachlan, R., 2013. Deep and Persistent Disadvantage in Australia-Productivity Commission Staff Working Paper. Oxfordscholarship.com. (2017).Agricultural input subsidies: changing theory and practice - Oxford Scholarship. [online] Available at: https://www.oxfordscholarship.com/view/10.1093/acprof:oso/9780199683529.001.0001/acprof-9780199683529-chapter-2 [Accessed 12 Aug. 2017]. Parikh, K.S., Fischer, G., Frohberg, K. and Gulbrandsen, O., 2013.Towards free trade in agriculture. Springer Science Business Media. Rizov, M., Pokrivcak, J. and Ciaian, P., 2013. CAP subsidies and productivity of the EU farms.Journal of Agricultural Economics,64(3), pp.537-557. Willer, H. and Lernoud, J., 2016.The world of organic agriculture. Statistics and emerging trends 2016(pp. 1-336). Research Institute of Organic Agriculture FiBL and IFOAM Organics International.