econ majors help me!?

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econ majors help me!?

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Question by Paul: econ majors help me!?
can anyone tell me the strength and weakness of this subsidy?

WASHINGTON — Imports of processed French fries from Canada depressed prices for the 2003 potato crop, the U.S. Department of Agriculture ruled, and Idaho potato farmers stand to receive government aid payments as a result.

The department last week approved and is expected today to certify a petition by the Potato Growers of Idaho stating that imports of Canadian French fries depressed Idaho fresh-market prices by more than 21% in the 2003 season. The import flood was another blow to an industry already hurting from the low-carb diet craze and a slowdown in the expansion of fast-food restaurant chains, which sell about 90% of the fries consumed in the U.S.

“The last several years have been very brutal for growers in the fresh market,” said Paul Patterson, an agricultural economist at the University of Idaho. The government aid, called trade adjustment assistance, would have no affect on current potato prices, he said.

Trade adjustment assistance, long available to manufacturers hurt by foreign competition, was expanded by Congress to include farmers in 2002. It allows producers to receive up to $ 10,000 in cash as well as technical and marketing training if they can demonstrate to the Department of Agriculture’s satisfaction that foreign countries hurt domestic prices. Petitions are made by individual states.

Idaho growers who sell potatoes in the fresh market have 90 days starting today to apply at their county’s Farm Service Agency to participate in the program.

Once growers are approved for the assistance, they can receive cash benefits based on their production, according to Dennis Fiess, a trade adjustment assistance specialist at Washington State University. The payment comes to 3.5 cents per hundred pounds of potatoes, and Idaho’s Farm Service Agency expects the estimated 285 eligible farmers to collect a total of roughly $ 1 million. There were 818 potato farms in Idaho in 2002, according to the Idaho Agricultural Statistics Office.

Idaho produced 12.3 billion pounds of potatoes in 2003, down from 13.3 billion in 2002. Production rebounded to 13.2 billion pounds in 2004.

Agriculture experts and Idaho growers said imports of processed French fries from Canada surged 24% to 1.72 billion pounds in 2003, displacing 670 million pounds of Idaho potatoes. The fresh potato price dropped to 3.85 cents per pound in the 2003 season, from the five-year average price of 4.9 cents per pound

The government program’s cash benefits will soften the blow of the French fry imports, but in terms of the overall cost for farmers it may not help much, Idaho farmers say. “It’s a drop in the bucket for any average potato farmer’s cost,” said Keith Esplin, executive director of the Blackfoot, Idaho-based Potato Growers of Idaho, who brought the petition. “It won’t anywhere near begin to make up for his losses.”

Mr. Fiess will be working with Foreign Agricultural Service and Idaho farmers to come up with “shotgun” business training for the farmers. It will include workshops, some available over the Internet, on such basic business-management skills as using a balance sheet and cash-flow statement.

“We’re not going to provide them with an M.B.A.,” said Mr. Fiess. “It’s more of an overview.”

Best answer:

Answer by Jurijs Fadejevs
As for any subsidies – it demotivates development (efficient resource utilization) from one side, and helps to survive and protect some local interests under pressure of predationary policy – from another.

What do you think? Answer below!

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