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In Mozambique, subsidy curbs spark worries

Gretchen Wilson Jun 16, 2011

Kai Ryssdal: There’s a G20 economic meeting in Paris this coming Monday. No finance ministers or central bankers; it’s agriculture ministers this time, and how to keep rising global food prices at least a little bit under control.

A lot of poor countries subsidize everyday items. This month, the government of Mozambique in southern Africa is going to stop helping out with food and gas costs. Those are subsidies that have been in place for years, as Gretchen Wilson reports.

Gretchen Wilson: Mozambique is a coastal nation bigger than Texas, with about as many people. But most of those people live on less than $2 a day. The country’s still recovering from a brutal civil war. So when global food prices skyrocketed a few years ago, the government chipped in just so people could eat.

Catherine Grant: It’s about how do we ensure people have access to food.

Catherine Grant is with the South African Institute of International Affairs. She says Mozambique has to import two-thirds of its food. That’s expensive. So for years the government set artificially low prices on things like bread, and paid the difference up to the true market price.

Grant: So it’s a big cost on a government. It’s a big benefit for consumers.

World Bank and IMF economists don’t like these subsidies. Once they’re in place, they’re really tough to take away. In fact, Mozambique’s government tried to cut its food subsidies last September. That pushed up the cost of bread more than 20 percent. Here’s what happened…

Yelling, chanting, chaos in streets of Maputo.

For three days, residents in the capital, Maputo, burnt tires in the streets and looted shops. Police opened fire. The riots left more than a dozen people dead and 600 injured. The government reinstated the subsidies just to end the unrest.

But how does a poor government keep this up? As global food prices continue to rise, what’s happening in Mozambique illustrates a larger story of developing countries trying to find a balance between fiscal responsibility and keeping citizens fed.

Dean Yang is a developmental economist at the University of Michigan.

Dean Yang: Really, the subsidies are targeted at urban consumers — a minority of the population, but a more politically influential subset of the population.

In other words, governments use subsidies to appeal to the urban poor, whose protests can shut down a city. In Mozambique, many people live in rural areas and eat the food they grow themselves. The government’s food subsidies don’t help them because — effectively — they don’t even live in a cash economy.

Yang: So these food subsidy programs really arise from political motivations rather than economic motivations, rather motivations to help the poorest of the poor in the country.

Yang says the rural majority would benefit more from subsidized fertilizer. But that wouldn’t stop unrest. This month Mozambique is again cutting its food subsidies. But some poor families will still be able to buy food baskets with bread, beans, and tinned fish at lower-than-market prices. No one knows if that will be enough to prevent new riots in Mozambique, or if the country will remain a tinderbox.

Lyal White is a political economist at GIBS, the business school of the University of Pretoria.

Lyal White: Food security is definitely one of those catalysts that can ignite a nation, especially here in Southern Africa. It can literally change overnight. A riot or protest in the streets of Mozambique could trigger off something far more drastic.

That should give Mozambique’s government food for thought. The other countries where food subsidies have been deeply entrenched are places like Egypt, Bahrain and Libya.

In Johannesburg, I’m Gretchen Wilson for Marketplace.

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