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SPEED-Notes-2011-005 Food Basket Subsidies

SPEED-Notes-2011-005 Food Basket Subsidies

The government’s decision to mitigate adverse effects of subsidy elimination and world price of foodstuff increases on the most poor families is well justified. The proposed instruments are: the “Cesta Básica” (food-basket) subsidy, and a subsidy to transports.

The main comments to these policy instruments are:

  • Complicated and hardly implementable administration procedures, particularly in the short-run, , which could even cost more than the subsidies themselves. Identifying and registering some 1.8 million potential beneficiaries is not possible in the expected 15 days.
  • The “Cesta Básica” includes setting up maximum ceilings for profit margins, which will be an administration of markets. This could cause price increases (contrary to the objectives) and create a parallel market.
  • A significant part of informal sector beneficiaries does not receive monthly wages and cannot buy the Cesta at once. No mechanisms have been established for these cases.
  • With the transport subsidy, the main provider is the private sector. Engaging only the public sector would imply a negligible impact.
  • With the transport subsidy, it is not clear how the 25 percent private sector’s participation will happen, nor how tax deductions will be applied, creating an understanding that their contribution will just be an increased cost.

Possible alternatives:

“Cesta Básica” – aiming at reducing the identification and registry time, and decreasing the number of process and procedures, two alternatives of social safety net instruments are recommended:

  • School feeding program – it would require (1) identification of schools by MINED and municipalities, (2) number of students in these schools – an additional registry would not be required and (3) tendering companies that would supply the snacks to schools/students; and
  • Subsidy to women – all women above 19 years of age and living in the poorest suburbs would be entitled to receive a quarterly cash transfer on the amount of 150 MT. This alternative requires a registry.

Subsidy to transports – issue transport passes by zones with tickets that would be used daily. These transport passes would be acquired in advance and would include a subsidy component. These would have 52 daily tickets (26 days per month and 2 trips per day) per month. Tickets would be surrendered to bus driver/ticket collector at the time of use. Received tickets would allow transport companies to collect their subsidies daily if they wished so.

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