Abstract:
In September 2011, the Government of Zambia started heavily subsidizing the price of maize held by the Food Reserve Agency (FRA) to maize millers. The expectation was that, by receiving maize at subsidized prices, millers would pass along the subsidy to Zambian consumers in the form of lower retail maize meal prices. This analysis determines the extent to which marketing margins for maize millers and retailers changed after the miller subsidies were implemented, and the extent to which subsidies to millers were passed along to consumers. Our analysis indicates that, over the eleven-year period from 2000 to 2011, inflation-adjusted retail prices for breakfast meal have declined. However, after the subsidy was conferred to millers in September 2011, the mill-to-retail marketing margins have increased significantly. Retail maize meal prices have remained virtually constant since September 2011. These findings indicate that very little of the treasury costs incurred in providing FRA grain to millers at below-market prices have benefited urban consumers. The study highlights three main policy implications for the consideration of the Zambian government. First, because the FRA maize subsidies to millers have so far not been transmitted to Zambian consumers, policy makers might reconsider the policy of providing maize to selected millers at highly subsidized prices, if the aim of doing so is to reduce the price of maize meal to consumers. Second, selective subsidies to particular millers disadvantage other millers plus many informal small-scale millers who are not able to receive the subsidy. Third, for the Government to achieve its goal of lower maize meal prices to help poor urban consumers, policies should be considered that encourage rather than disadvantage the informal and small/medium-scale food millers and retailers, on whom a large share of Zambian consumers rely.
