A subsidy for flour

Mar 17, 2022 Features / Columnists, Peeping Tom

Kaieteur News – The price of flour is expected to increase soon by 15 percent. This will add to the woes of consumers already reeling from increases in the price of almost every basic commodity.
The concern over the rising cost-of-living has presented the Alliance For Change (AFC) with an opportunity to call for the price of flour to be subsidized. But it did not spell out exactly how this subsidy was to be applied.
Nothing can be done about the landed cost of the grain. The grain is imported and then milled into local flour and sold locally. At one time, there used to be some imported flours on the market.
There are no duties and taxes on the imported grain or on the flour sold in the markets. Therefore, the government cannot reduce taxes to subsidize the price of flour.
So how can the price of flour be subsidized when consumers are not paying any taxes on the commodity? The only way there can be relief is if the government provides a direct subsidy to the miller for every bag of flour sold, in return for the price of flour not being increased.
Such a subsidy would be tantamount to putting public funds in the hands of the businesses that deal with flour. This was what was done in the past and what is likely to happen again.
In the midst of the global food crisis of 2008, the then PPP/C government took a decision to provide a G$200M subsidy to avoid an increase in the price of flour and bread on the local market. In 2008, the new Guyana Marketing Corporation (GMC) had bought flour from the flour mill and then resold it at a loss. In this way, the government was subsidizing the cost by having the GMC resell at a loss.
At the same time, the government was paying the flour mill as much as G$1,500 a bag to keep the prices at G$6,000 per bag rather than G$7,500 per bag. The bakeries also received some support.
Some bakeries however, took advantage of the situation. While the prices of bread remained the same, some consumers began to complain that at some bakeries, the bread appeared smaller than usual.
It is for this reason that there will be reservations about the government putting monies in the hands of the bakeries. There is no guarantee that all of them will pass on the subsidy to consumers.
And this is the crux of the dilemma which faces consumers. These consumers are concerned about the trickle-down effects of the subsidy. The experiment with the GMC should not be repeated. The GMC does not have the market reach, which would allow most consumers to benefit from lower prices charged by that entity for flour.
The flour mill can reduce prices if government absorbs the increase in prices but there is no guarantee that unscrupulous retailer and bakeries will not try to short-change consumers.
At present, the private sector is benefitting from billions of dollars in avoided taxes. Because of the massive increase in freight costs, the government is allowing importers to pay their import taxes on pre-pandemic freight costs. As such, the government is not collecting the full taxes which would have been due had the importers had to pay the actual freight costs.
But consumers are not convinced that the reduced taxes on freight are being reflected in the prices in the supermarket and in the shops. They have seen some astronomical increases in prices, including for cooking oil.
When imported prices increases, even local producers decided that they too had to jack up their prices. The prices, of almost everything, have increased – bora to bread.
Recently, the price of chicken increased. The explanation which was given was that the Christmas demand caused a shortage. That explanation is not going down well with consumers. They are wondering when the shortage ends if prices will return to the level they were before the shortage. Chicken is retailing currently at more than G$500 per pound while before it was around G$320 per pound.
At present, garlic is in short supply. Even if you are willing to pay a higher price, you cannot obtain garlic. And no one is certain when the shortage will end and whether the prices will remain the same or if it will increase.
It is because of these experiences that consumers are circumspect about subsidies being put in the hands of businesses. It is time for a new approach.
(The views expressed in this article are those of the author and do not necessarily reflect the opinions of this newspaper.)

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