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Cablegate: Goz Ups Grain Subsidy

This record is a partial extract of the original cable. The full text of the original cable is not available.

011443Z Apr 03

UNCLAS HARARE 000653

SIPDIS

SENSITIVE

STATE FOR AF/S
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER
USDOC FOR 2037 DIEMOND
PASS USTR ROSA WHITAKER
TREASURY FOR ED BARBER AND C WILKINSON
STATE PASS USAID FOR MARJORIE COPSON

E. O. 12958: N/A
TAGS: EAGR ECON EINV ETRD ZI
SUBJECT: GOZ Ups Grain Subsidy

Ref: a) Harare 152 b) Harare 489

1. (U) Summary: The GOZ has increased nearly 4-fold the
amount it pays growers for maize. By leaving the crop's
low consumer price intact, however, the cash-starved GOZ
assumes a weighty subsidy. End summary.

2. (U) The GOZ also announced an approximate doubling of
the producer price for wheat. Through its Grain
Marketing Board (GMB), the GOZ plays a middleman role
between growers and millers/retailers. At present
prices, the GOZ will subsidize 93 percent of the maize
cost and 81 percent of the wheat cost.

Candid Assessment from Within GOZ
---------------------------------
3. (SBU) A high-level GOZ official told DCM he was
scheduled to go to State House and attempt to convince
the powers-that-be that it is also necessary to raise the
price of maize to consumers. He said past arguments for
a price hike had been rebuffed on grounds that it would
drive the population toward the opposition. The official
argued that shortages and corruption spawned by
artificially-low prices does the same, minus any
palliative effect. He concludes that the point may be
moot anyway: The new producer price is still far enough
below prevailing market prices that he doubts the GMB
will capture much of this year's harvest.

Comment
-------
4. (U) As with fuel (ref a) and energy (ref b), the GOZ's
intervention in grain markets amid a free-falling economy
has created a no-win predicament. At artificially low
prices, producers/suppliers have no incentive to sell
fuel, energy and food. If prices rise to market
equilibrium, however, most Zimbabweans -- who now take
home less than US$ 20/month -- cannot afford food and
transport. Through the new subsidy, the GOZ seeks to
avert shortages and mollify consumers (i.e., shift the
supply-curve outward to intersect with demand at lower
price levels). But it has simply swapped one
macroeconomic distortion (low producer prices) for
another (an unaffordable subsidy), another futile stunt
to mask Zimbabwe's dizzying impoverishment.

Sullivan

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