Abstract
Along with the socio-economic development, agriculture has a natural tendency to increase productivity. Its effect is unfavourable for farmers agricultural overproduction. In this situation, the relatively constant food needs of individual societies are able to be met by an ever smaller number of farms. Prices of agricultural products show a declining trend, which at constant or rising costs incurred by farmers leads to the unfavourable phenomenon of opening of price scissors. Under such circumstances, a growing percentage of households are at risk of bankruptcy. Among farmers, there is even more pressure to improve productivity perceived individually as a way to improve the financial situation of the farm. This is how the vicious circle closes, because further productivity growth will result in even lower prices in the future. In the struggle against overproduction and its consequences, governments decide to subsidize agricultural prices, agricultural income, set production quotas or adopt set-aside policies. This paper asseses the effects of these forms of intervention on cereal producers activity, using the system dynamics method of Bossel (2007). The presented model is a great simplification of the reality, but it allows us to make interesting observations. It provides a multi-faceted look at the social costs and benefits of selected agricultural policy instruments.
Highlights
The modern theory of economics includes a well-established view that the market mechanism, despite many undisputed advantages, is biased by many imperfections
It was concluded that it is the task of the state to take intervention measures which will correct the shortcomings of the market mechanisms by increasing the efficiency of the economy on a general scale, stabilising it and reducing excessive inequalities in the distribution of the social product (Adamowicz, 2009)
The market is still struggling with the economic problem of overproduction of wheat with its increasingly lower price
Summary
The modern theory of economics includes a well-established view that the market mechanism, despite many undisputed advantages, is biased by many imperfections. Its unreliability manifests itself in, inter alia, the socially unacceptable distribution of resources and revenues, a tendency to omit external costs or deepen the unequal rate of economic development It was, concluded that it is the task of the state to take intervention measures which will correct the shortcomings of the market mechanisms by increasing the efficiency of the economy on a general scale, stabilising it and reducing excessive inequalities in the distribution of the social product (Adamowicz, 2009). We often tend to marginalise the fact that in systemic terms these forms are risky interference in the very complex system, which violates the dynamic processes occurring in this system and enforcing the search for new equilibrium which is still unknown Over time, they may reveal unintended and undesirable effects which should be taken into account in the economic calculations of costs and benefits. The following simple model of overproduction in the cereal market matches this philosophy
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