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Monday, 26 November 2012

Is the Government subsidy to maize millers benefiting consumers?

The powerful graphic from this recent IAPRI paper clearly shows the answer is NO. Very little of the treasury costs involved in selling grain to millers at abnormally low prices are benefiting Zambian consumers. Particularly note worthy is that the reduction from M8 to M9 is not passed on irrespective of the cost level. The authors put this down to lack of competition in the commercial milling sector, which has paradoxically become more amplified with the rise in subsidies :
Maize subsidies are perceived as government’s indirect support to commercial millers. But it is a well-documented fact that even small millers (hammer mills) play a major role in ensuring competition in the grain milling industry in the country. Therefore, if the playing field is not levelled  their activities are hampered by selective subsidies and as a result lessening competition in the grain milling industry. The end results are high marketing margins between wholesale maize grain and breakfast meal retail prices.

The foregone analysis indicates that selective subsidies conferred to certain players in the market do not necessarily have desired consequences when the market is not fully competitive. If the market were competitive, then subsidies conferred to millers would be passed along fully to consumers, which appear not to be the case in Zambia. Subsidies to maize millers have instead proved to be a drain on the government treasury without trickling down anticipated benefits to intended beneficiaries – urban consumers in this case.

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