In countries where agriculture has a significant place in the economy, governments usually take additional measures to strengthen the industry. Even the most efficient market economy cannot do without financial investments in the agro-industrial sector, which usually take the form of regular subsidies.
Are subsidies needed in agriculture
At the dawn of the development of a market economy in modern Russia, there were economists who believed that the capitalist structure in the agro-industrial sector would allow it to do without material support from the state. However, the practice of the world economy shows that even in such developed market countries as the USA, Great Britain, Germany, France or Japan, the agricultural sector is subsidized by the state.
This approach is economically justified, since without financial assistance from the state, agriculture will be doomed to disparity in prices for agricultural products. Price disparity is a violation of the principles of equality and equal benefit in economic relations. It is observed when there is no equal ratio of prices for different goods; at the same time, prices do not correspond to the true value of labor costs.
In the agro-industrial complex, price disparity is the main reason for the decrease in profitability and the appearance of unprofitableness in certain sectors of agriculture. This phenomenon, which is directly related to the subsidy policy of the state, leads to the insolvency of agricultural enterprises and their inevitable bankruptcy.
In the field of agriculture, overcoming price disparities is the central task of stabilizing this industry.
The value of government subsidies in agriculture
The need for subsidies is inherent in the very nature of agriculture, if it develops in market conditions. Within the framework of a separate state and on the world stage, a huge number of individual agricultural producers operate, invariably competing with each other. Competition leads to a price race in which larger agricultural enterprises gain the upper hand.
It is the system of subsidies from the state that helps protect the interests of small agricultural producers.
The point of the subsidy system is to sell agricultural products below their actual cost. In this case, the manufacturer receives the remaining funds in the form of state subsidies. This will ensure the restoration of price parity. As a rule, for the implementation of subsidies, the state is forced to seek additional funds. Most often, their source is the country's population, which consumes food products.
To prevent market mechanisms in agriculture from failing, the state needs to tax the population, and then use tax revenues to pay subsidies to agricultural producers. Such a policy makes it possible to keep food prices at an acceptable level, and also makes it possible to make domestic producers competitive in the world market.
