Subsidies in the third World Countries

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Subsidies is any form of support intended at promoting economic and social policy, writes Chungu Kabaso for Zambian Eye. These come in diverse forms which include direct cash grants, interest free loans and indirect support in form of tax breaks, insurance, low interest loans, rent rebates etc.

In Zambia subsidies have been demonized. It is an evil one would dare discuss. It is often pointed to, as the cause of some of the economic ills that the country has been facing and its removal although it may be argued that it has been a home driven initiative, but for all intents and purposes has been orchestrated by the World Bank [WB] and other outside forces. This is in a bid to meet the demands of the WB in order for our government to access the much needed funding for our national budget.

But are subsidies as evil as we tend to depict them. The answer lies in looking at the practice of one of the most industrialized and economically liberalized nations in the world – USA.

America’s subsidies to sick industries

Receiving huge subsidies are the following private companies from the corporate world in the US;
Nike, Shell, INTEL, Alcoa, Boeing and Automobiles: Fiat Chrysler, Ford, General Motors.
These corporate institutions have received subsidies ranging from $2.03 billion to $13.18 billion in order to save these companies from collapse, save American jobs and ripple effects of the American economy and the consequential suffering of the people.

Agricultural subsidies in America

Types of Farm Subsidy
Insurance. Crop insurance is run by the United States Department of Agricultural Risk Management Agency and has become the largest farm program with annual outlays of about $8 billion. Subsidies cover insurance premiums and the administrative costs
Insurance is taken against business risks, i.e. adverse weather, low production etc. More than 100 crops are covered under this scheme, but topping the list is corn, cotton, soybeans and wheat.

Agricultural Risk Coverage

Under this program subsidies are paid to farmers if their revenue per acre, or alternatively their county’s revenue per acre, falls below a benchmark or guaranteed level. Up to $7 billion was spent in 2016 to AMERICAN FARMERS.

Price Loss Coverage

Yet another subsidy program in which farmers are paid subsidies based on the average national price of each particular crop compared to the crop’s reference price.

Conservation Programs.

Under this subsidy program farmers are paid subsidies when they purposely keep their farm out of production. This is one of the several conservations programs which the Department of Agricultural runs and swallows up to $1.7 billion annually.

Marketing Loans

This subsidy is a form of price guarantee program that protects farmers from buyers who may offer a lower price for the crop. It delivers higher payments to farmers when market prices of their crop is low.

Disaster Aid

The government runs countless disaster aid programs for different categories of farmers, from wheat growers, to livestock producers, to orchard owners. This could be both envisaged and at times unexpected.

Marketing and Export Promotion

The Agriculture Marketing Service spends colossal sums of money assisting farmers every year on farm and food promotion activities. This marketing subsidy is done through a number of foreign offices.

Research and Other Support

The US government through US Department of Agriculture spends huge sums of money every year on agriculture and food research to assist the agriculture industry. The department also offers other auxiliary services, such as statistical data and economic studies.

Are subsidies necessary in Zambia?

Although one may contend that the subsidies discussed above is production oriented and not directed at consumption.
How will the remove of subsidies affect;
Production – cost of production goes up. Jobs cannot be guaranteed and secured in every sector
Consumption and support to the poor–when the cost of production goes up more families will have to tighten their belts as if the one meal they used to receive is halved.

Social support is equally compromised.

Sick and limping companies are not likely to survive any longer thus putting jobs of so many on the ice.
Why have countries like America continued with the subsidy programs while arguing through the WB that weaker countries like Zambia cannot continue with the same.
We need to consider what is best for our country and if we can sustain it, continue with it for the common good of the citizenry. Policies that are foreign originated should not be believed as gospel truth. What is good for the goose is good for the gander.
While subsidies have the negative side, does the positive side outweigh the negative side?
How do we continue subsidizing Agriculture for it to grow and for the common good of the person in the street? Our staple food should be affordable and not beyond the reach of the ordinary person and industries and jobs should be preserved.
If American can subsidize its Agriculture to that extent, why can’t Zambia do it? If they can subsidize fossil fuel, where is the problem for Zambia to do it? If America can bail out sick companies, why should our companies be case studies of the worst run businesses in the world?
Lessons learnt from the poor rainfall pattern, drought situation and poor yield in almost half of the country is a clarion call for Zambia to wake up and look at the home grown solutions. Zambia cannot afford to dance at the behest of foreign nations but rather determine her destiny. Where is the spirit of Pan Africanism, where is the spirit of the free liberated nationals?
Zambia cannot afford to let her nationals go hungry because certain areas had poor yield and generally the price of mealie meal is beyond the reach of the majority. In the interim subsidize consumption and in the long term production and we need to learn how other progressive nations have able to deal with subsidies as it relates to the staple food. At all costs leaving the market forces to determine the cost of the staple food without putting any interventions has dire consequences. Let measures be put in place to mitigate the crisis. Yes, austerity measures are necessary, but do not touch what affects most, the common man in the street.

About Author: Chungu Kabaso is Head of faculty of Business and Bio Sciences University of Africa.

Disclaimer: The views expressed in the Article does not reflect the views of the University but the Author.

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Start: 2019-07-01 End: 2019-07-31