Economic Evaluation of Selected Agricultural Policy Instruments in the Light of the Model of Overproduction on the Cereal Market

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.