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Food subsidies by State are unsustainable and ill-advised

By Ken Opalo | Published Sat, May 20th 2017 at 08:00, Updated May 20th 2017 at 00:28 GMT +3

 

Any political economist worth her or his training will tell you most subsidies turn out to be a bad idea. This is for the simple reason that once put into place, it quickly becomes politically impossible to remove them. Who wants to be responsible for rise in the cost of food or fuel? It is for the same reason that politicians will often try to buy votes by promising a reduction in the cost of living – through government subsidies.

But beyond the political hazards of subsidies, they also tend to be bad economics. Consider the example of the ongoing maize subsidy.

First, it is a cynical electoral ploy on the part of the government to make money for millers and their political godfathers, while at the same time earning the Jubilee administration brownie points for reducing the cost of ugali. Second, it distorts the maize market. It is a shame that in 2017, we have not yet developed a market-based system of smoothing our consumption of essential commodities.

It is common knowledge that every year right after harvest, the prices of maize and other farm produce plummet, only to rise a few months later. A sane market-based system ought to have figured out the storage and logistics required to mop up excess maize during harvest for storage and resale during low seasons.

The same market system would have figured out when and how to import maize to meet the excess demand during the low season. The dependence on politically-motivated market-making distorts this whole system, making it impossible for honest middlemen (including millers) to make money. It is the connected import firms that benefit from this political circus. And the taxpayer foots the bill.

Third, instead of waiting to spend money on subsidies, the government ought to redouble its efforts in increasing workers’ productivity, and by extension their wages. It should not come as a surprise that the cost of living is inching higher.

That is the reality of becoming a bigger economy with a bigger population. Demand will drive prices up, just by construction. And to be honest, some inflation is needed to seed investment in specific sectors of the economy. And so instead of promising to keep prices low, what the government ought to be promising is an increase in productivity and earnings. Price stability is not the same thing as low prices.

High productivity will lead to more value creation per unit time. And if a good chunk of the productivity gains are transferred to workers, it will translate in increased earnings, and the ability to afford basic essentials.

Lastly, it is alarming that the government was caught flat-footed by the current drought – and in an election year. One theory might be that this was a cold-hearted cynical plot to kill two birds with one stone: raise money through subsidies to millers while at the same time showing voters that Jubilee cares about their plight.

Another theory might be that the relevant agencies charged with remote sensing and forecasting food demand scenarios failed to do their job. My hunch is that it is likely a combination of both. I wouldn’t put either beyond the Jubilee hucksters and tenderpreneurs that we have all come to know over the last four years.

Lack of seriousness is concerned is reflected in the government’s budget. In the coming year, a paltry 2.8 per cent of the budget is allocated to agriculture, rural and urban development. That is well below the 10 per cent agreed upon under the Maputo Declaration on Agriculture and Food Security. If you would have asked me in 2012, I would have bet the family granary that Jubilee would be the most pro-farmer administration in Kenya’s history. And yet here we are, with a few individuals making obscene amounts of money on the backs of neglected farmers. Such is life.

The writer is an Assistant Professor at Georgetown University. Twitter: @kopalo

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