Independent businesses are able to be conducted through an exemplary multitude of

differentiated practices. However, whether or not a business is logistically or ethically different

from the next will vary on a specific case basis. Through the underlying scope of microeconomic

principles, there are specific types of organization that individual firms, or even vastly large

quantities of firms, are sorted into.

On one of the ends of the economic organizational spectrum lies the monopoly market. The

main property found in this extreme of the spectrum is that there is only one firm prevailing in a

particular industry that is earning increasingly large profit margins when compared to any

“competition”. However, from a regulatory view, monopoly power exists when a single firm

controls twenty five percent or more of a particular market (Monopoly Market Structure). Due too

this immense control of market power, a monopolistic firm is to be considered a “price-maker”,

meaning that the controlling firm in the monopoly will set the price for its products. Perhaps the

most infamous monopoly in United States history was that of the Standard Oil Company and Trust,

which controlled nearly ninety five percent of oil production in the United States from the late

nineteenth century to the twenty first century.

At the opposing end of the economic organizational spectrum, exists the market structure

called perfect competition. The fundamental characteristics of this extreme are directly opposite

of that of the monopoly market. In perfect competition, there lies a vast quantity of producers

whom share zero net economic profits amongst themselves. Due to there being a bountiful number

of producers of the same product, any increased change in price will result in a perfectly

competitive firm to produce in a region of negative net economic profits. This confers that all firms

share the same price for a product set by the market and any change in price will not result in
beneficial outcomes for a particular firm. A myriad of real world examples of the perfectly

competitive market exist, but the most prevalent of these are the agricultural markets.

Agricultural markets usually tend to receive some sort of economic incentives, or subsidies,

in order to keep production levels stable around the demand for a good. Often times this is done

by the government in order to drive prices lower for consumers. Without these subsidies, the

consumer would bear the full weight of the costs of agricultural production. Prices would be much

higher than consumers would be willing to pay due to the costs of the producer being quite high.

However, this addition of subsidizing producers has been seen to generate a negative economic

scenario, called market distortion.

Market distortion is the direct result of the intervention of a governing body within an

economic system and is not considered to be an economically ideal direction for a market to be

heading. Lawmakers try to seek a balance between the general well-being of all market

participants and market efficiency in the enactment of these policies; though overuse of these

intervention techniques may create complete, or partial, market failure (Kenton). In the general

case of subsidies, an inorganically high level of supply may be created which in turn will cause

prices to drastically decline if inventories are not offloaded onto government supplies or exported

to foreign markets. This is the current state of subsidizing found within the majority of agricultural

markets in the United States.

Not only does this distortion of the market effect the perfectly competitive nature of

agricultural markets, it also favors more established producers over smaller producers. In

November of 2017, the United States Department of Agriculture (USDA) released a study that

states payments have shifted to farms with higher household incomes. This means that large farms

with large gross incomes are receiving the majority of the subsidy payments. The USDA’s report
claims that, “In 1991, half of commodity program payments went to farms operated by households

with incomes over $60,717 (in constant 2015 dollars); however, in 2015, half went to households

with incomes over $146,126. For context, the median income of U.S. households in 2015 was

$56,516, and payments shifted further from the U.S. median throughout 1991-2015.”(McFadden

& Hope). This upward redistribution of wealth not only harms smaller, lower production farms,

but also firms looking to enter the market as well by inflating land prices. Farming welfare has

been seen to make it more difficult for small farms and individuals seeking to enter the industry

by favoring large, high income farms.

One specific agricultural market that such subsidies are granted is the corn production

market. These subsidies, as previously stated, are designed to allow corn farmers to set their price

of grain at a price below what it costs to produce. However, this setting of lower prices does not

only affect domestic market, but, foreign export markets as well. The foreign market that has been

seen to have been affected he most by these low prices (that have been implemented due to

subsidies) is the domestic corn production market in Mexico.

A reoccurring argument used against subsidizing corn crop production in the United States

is that it generates a negative situation for Mexican farmers. Due to provisions agreed to by

Mexico, listed in the North American Free Trade Agreement (1994), nearly one third of all corn

used across Mexican industries (whether that be for human consumption or animal feed) comes

directly as an import from the United States. According to the briefing report, “Dumping Without

Borders…”, presented by Oxfam (a confederation of independent nonprofits aimed at alleviating

global poverty), real corn prices in Mexico have fallen more than seventy per cent since the

implementation of the North American Free Trade Agreement; from seven hundred and thirty-two

pesos in 1994 to two hundred and four pesos in 2001 (Fanjul & Fraser). This flooding of cheap
American corn into the Mexican market and decrease of real corn prices (resulting from the influx

of American corn) pushes the poorest Mexican producers out of business. For producers that are

not forced to close, incomes have drastically diminished; decreasing the overall standard of living

for the already impoverished rural farmers.

Despite these alarming negative byproducts of farming subsides, there are certain

inalienable positives that cannot be overlooked. A portion of the artificially high supply generated

from over production is stockpiled and serves as an insurance policy on the nation’s food supply

should famine or drought occur. This insures that, in the event of a disaster, there is enough ration

to feed the general public for a short time. Commodities, like corn, are also susceptible to

fluctuations in price level since they are traded in an open market exchange. To combat this,

producers can agree on future contracts that guarantee a set price on a specific date. However,

these contracts are determined in U.S. dollars; the strength of the dollar will also affect a producer’s

revenue. If the dollar value rises, then foreign buyers will not buy as much product because it costs

more in their native currency (Amadeo).

Overarching, problematic situations, however, do blatantly surround the enactment of these

farming subsidies. As previously stated, research shows that the enactment of subsidies

redistributes wealth upward; away from smaller income producers that require them most. Not

only does this redistribution of wealth undermine the ideology behind using outdated subsidy

practices, it also shows how unnecessary subsidies are; half of all subsides go to producers already

earning more than twice that of median household income. Subsidies also discredit trade relations

between nations of high economic and low economic status; as they undermine the attempts at

economic growth and reform by countries with lower economic status. The majority of agriculture

subsidies seem to have little to no significant positive impact on the wellbeing of a nation’s
producers; with no positive impact on the producers of other nations as well. This alludes to

educated peoples that the continuation is not only unnecessary but, a detriment to the majority of

world’s agricultural producers.

However, if the continuation of farming subsidies lingers, then some stipulation must be

imposed upon its practice by either the World Trade Organization (WTO) or the United States’

own lawmakers. A proposition to the WTO must be presented so that all rural, agriculturally based

nations, not just Mexico, competing with largely agriculturally subsidized world powers can meet

on a more level field of trade. Statutes of this world wide reform should allocate the right to use

tariff barriers to prevent the entry of subsidized products to all agriculture based developing

economy. However, since the United States is the largest culprit of subsidized exporting, a more

direct measure would be to call legislators of the US Congress to implement fundamental reform

to the agricultural support system. This internal amending of such a support system can not only

curb the overproduction harming foreign countries but, provide equal access to small domestic

producers; stimulating fair, open competition amongst all firms. Without these reforms though, the

negative externalities of agricultural subsidizing by wealthy nations will continue to prove to raise

problems for years to come.

 Works Cited

Amadeo, K. (2019, April 09). How Farm Subsidies Affect You. Retrieved May 6, 2019, from

https://www.thebalance.com/farm-subsidies-4173885

Bakst, D. (2016, April 16). What You Should Know About Who Receives Farm Subsidies.

Retrieved May 1, 2019, from https://www.heritage.org/agriculture/report/what-you-should-

know-about-who-receives-farm-subsidies

Becker, E. (2003, August 27). U.S. Corn Subsidies Said to Damage Mexico. Retrieved May 5,

2019, from https://www.nytimes.com/2003/08/27/business/us-corn-subsidies-said-to-damage-

mexico.html

Edwards, C. (2018, April 16). Agricultural Subsidies. Retrieved May 1, 2019, from

https://www.downsizinggovernment.org/agriculture/subsidies

Fanjul, G., & Fraser, A. (n.d.). Dumping Without Borders: How US agricultural policies are

destroying the livelihoods of Mexican corn farmers(Issue brief). Oxfam. Retrieved May 5, 2019,

from https://oxfamilibrary.openrepository.com/bitstream/handle/10546/114471/bp50-dumping-

without-borders-010803-

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Kenton, W. (2019, March 12). Market Distortion. Retrieved April 28, 2019, from

https://www.investopedia.com/terms/m/marketdistortion.asp

McFadden, J. R., & Hoppe, R. A. (n.d.). The Evolving Distribution of Payments From

Commodity, Conservation, and Federal Crop Insurance Programs(Issue brief). 2017: United
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Monopoly Market Structure. (2019, April 26). Retrieved April 28, 2019, from

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Oxfam America. (n.d.). Retrieved May 4, 2019, from https://www.oxfamamerica.org/