Subsidy programme must be transparent

Cheaper unga (maize meal) is now available in the market place, thanks to a costly subsidy programme that was unveiled by the government this week.

That subsidy made a great deal of political sense for the administration because it has allowed the government side to steal the thunder from the much-touted unga revolution, which opposition parties were planning to exploit in the ongoing electioneering campaigns.

Let’s all wait and see how the experiment plays out. One likely scenario is panic buying by consumers and hoarding of the cheap maize by merchants, especially if the supermarkets persist with the habit of rationing the sugar and limiting the amounts a shopper is permitted to buy.

We could end up with more uncertainty and more market distortions. The likelihood of artificial shortages is real indeed.

As it is, we have ended with two distinct parallel markets, namely, the market for subsidised maize sold in government-labelled packaging and a market for maize milled from private sector-sourced maize.

It is a perfect environment for arbitrage and emergence of underground markets.

Thus, depending on how supply and demand conditions play out in the coming weeks - and just in case artificial shortages happen - we could end up witnessing the emergence of a booming under-ground market where subsidised maize is repackaged and sold in supermarkets at market prices.

Admittedly, imaginatively designed general food subsidy programmes for all consumers regardless of ability to afford can help in cushioning both the poor and the rich from skyrocketing food prices.

Subsidies targeting the poor only are usually very difficult to manage because they invariably involve having to design complex eligibility criteria.

Still, one can fault the Ministry of Agriculture for designing a subsidy programme that ignores the fact that the majority of low-income urban and rural households do not buy maize meal from supermarkets.

In the second phase of the subsidy programme - the government should consider off-loading low-cost maize in the open markets where low-income households can access and grind it in the ways the prefer.

We forget that low-income households prefer maize ground in neighbourhood hammer mills.

Why are we forcing the urban poor to buy expensive packaged and super refined maize from commercial millers?

Maize meal ground by hammer mills is not only cheaper but comes with the advantage of allowing you to access the stuff in smaller quantities.

The Ministry of Agriculture needs to introduce more transparency in the subsidy programme. Granted, they have told us that they will pay millers any amount above Sh2,300 for a 90k bag. How much money are we allowing the millers to charge for distribution costs.

Surely, the Sh90 price cannot apply to every part of the country? Secondly, how much milling cost is built into the formula?

Transparency is critical because we are in an environment where millers have basically cornered the government and are in a position where a few powerful millers can dictate terms.

Although several millers have been included in the plan, we all know that the milling industry is an oligopoly dominated by a few families. The big millers are also the biggest importers of grain in this country.

And, considering that maize is currently scarce in world markets, millers and traders will want to manipulate the situation to their advantage.

Indeed, millers are currently playing on both sides of the divide. - on the one hand suppliers of the imported and subsidised maize to the government - and on the other - sellers and distributors of the product.

The Ministry of Agriculture must disclose more information on the terms of engagement with millers because the subsidy programme is funded by taxes and public borrowing.