Mozambique government backs down on wheat subsidies

Following up on my post last week about the spike in wheat prices and the rioting in Mozambique that killed (at last count) 10 people, it emerges this morning that the government of Mozambique has backed down and won’t after all try to cancel the 30% subsidy it currently applies to wheat.

That’s going to be pretty horrendous for Mozambique’s Treasury, as Reuters note:

The government will introduce austerity measures to help fund the subsidies by freezing salary and allowance increases for senior government officials and curbing foreign travel.

Analysts said the bread price about-turn would put pressure on an expansionary budget designed to tackle Mozambique’s lack of roads and electricity, a legacy of years of civil war. Consequently, the government would have to rely more on foreign direct investment and external aid flows, both of which could fall victim to another global economic slowdown, said analyst Celeste Fauconnier of FirstRand in Johannesburg. “It will definitely put further strain on the budget,” she said.

A classic case in point, then, as to why targeted social protection measures are a way better option for developing countries coping with unrest over food prices, than economy-wide subsidies, price controls or export restrictions.

Unfortunately, though, there’s often political opposition to social protection: Treasuries worry about the long term fiscal commitment, while middle classes fret that it’ll encourage welfare dependency, a concern not supported by evidence from development research. (For more on social protection and how it relates to hunger, see this WFP report (pdf) from last year, which I co-authored.)

One other interesting angle in all this is the fact that Mozambique’s former PM, Luisa Diogo (profile), is to be a member of the new UN High-level Panel on Global Sustainability, which meets for the first time on 19 September. The Panel, which has a pretty impressive line-up of members, will be an excellent chance to look in the round at improved global management of scarcity issues – and having Diogo on board is definitely a plus for the Panel’s coverage of food security issues.