eBusiness Weekly
Kudzanai Sharara
Finance and Economic Development Minister Professor Mthuli Ncube, has pressed ahead with plans to remove subsidy on maize, replacing it with a roller meal subsidy in an exercise that will see Government saving at least $200 million per month.
Yesterday Minister Ncube announced that Government will now move away from the old model of subsidising maize at Grain Marketing Board’s level and replacing it with a new mechanism that will see subsidies being provided for roller meal only.
In a statement, Minister Ncube said: “As you may be aware, His Excellency the President Mnangagwa announced that subsidies on maize has been restored in order to cushion the vulnerable groups of our society from the negative impact of increases in basic food prices.
“In this regard, the new subsidy model will therefore target the production of roller meal resulting in the retail price of ZWL$50 for a 10kg bag.”
The move is in line with what Minister Ncube proposed in his 2020 National Budget Statement where he said the previous subsidy policy whereby Government funds the procurement of grain at market price and sell this to registered grain millers at subsidised price, has been open to abuse and placed a huge burden on the fiscus.
He said “at times the intended beneficiaries do not enjoy the benefits of the subsidy from Government”.
To address these distortions, Minister Ncube proposed that Government, will, with effect from January 2020 remove the existing grain marketing subsidies for maize and wheat, that were being provided to Grain Millers through the Grain Marketing Board.
“The intervention will see GMB selling wheat and maize at market prices, with Grain Millers having an option to either import or purchase grain from GMB.”
The change in the subsidy policy has, however, been moved forward and instead of coming into effect in January 2020, will now be implemented with immediate effect.
Secretary in the Ministry of Finance and Economic Development George Guvamatanga, who is on record saying subsidies should be quantified, budgeted and targeted said Treasury will save at least $200 million per month through the new subsidy policy.
He said a reimbursement system will be implemented in order to extend the subsidy to the producers of roller meal through something similar to a rebate system.
He reiterated that the target is to subsidise for approximately 40,000 tonnes that is required by millers per month.
“Government, through GMB will purchase maize meal at market price and sell to millers at the same price. In fact, millers can even buy from the market or import, but what we will provide subsidy for is the roller meal,” said Guvamatanga.
He said the previous model was inefficient and prone to abuse and arbitrage with some millers finding no reason to mill as it was quicker and profitable to resale to the GMB.
“This will end the abuse of the previous subsidy model where some millers would buy and resale maize to the GMB,” said Guvamatanga.
He said the “new arrangement” will, however, target just roller meal and a mechanism has been put in place with the Grain Millers Association of Zimbabwe who make up 95 percent share of the roller meal market.
In an interview with Business Weekly, Guvamatanga also took the opportunity to highlight strides Government has made in removing most of the subsidies that were major sources of distortions in the market.
He said the Finance Ministries’ implementation of subsidy policies was very good despite lots of other issues that it has to deal with as a ministry.
“We have removed distortions on fuel, grains and there is now proof that free markets are very efficient,” said Guvamatanga.
He said there is lot of rent seeking behaviour and inefficiencies that are associated with market subsidies that are not “quantified, budgeted and targeted”.
Market distortions associated with subsidies present an additional risk to macroeconomic and fiscal stability. In particular, subsidies on fuel, electricity and agriculture have, in the past, led to large and often unpredictable expenses.
Where subsidies are deemed essential and can be financed, these will need to be clearly targeted and reflected in the Budget with adequate budgetary provisions.
