Negative effects of agricultural price regulation

Andrzej Jędruchniewicz

Village and Agriculture (Wieś i Rolnictwo), 2018, vol. 180, issue 3

Abstract: Prices fulfill many functions in the market economy. The main ones are: information, allocation and income distribution. Therefore, they are a key economic category and the subject of particular interest of buyers and sellers. This also applies to farms. The study is theoretical in nature. Its aim is to present and discuss the negative effects and consequences of price formation in agricultural markets at a level higher than in free market conditions and the state maintaining stable prices of agricultural products. The article contains a discussion of the cost and subjective theory of price, market functions of prices, goals and forms of interventionism in agriculture and the negative effects of interventions aimed at increasing and stabilizing agricultural prices. In discussing these effects, it was pointed out that while leading to an improvement in the economic situation of farms, they simultaneously reduce social welfare through: a decrease in demand for food below the market level at the minimum price, an increase in production above the market level, a suboptimal allocation of production factors from the consumers’ point of view, higher taxation of other sectors of the economy, the use of excessive land areas, the expansion of administration, and thus distraction of people from productive activities, a weakening of entrepreneurial and innovative behaviour of farmers, discouraging them from reducing production costs, difficulties in eliminating economically inefficient farms from the market, and a reduction in the efforts of farm owners to reduce their dependence on natural conditions.

Keywords: Agribusiness (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:ags:polvaa:344531

DOI: 10.22004/ag.econ.344531

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