Unga Subsidy-The 1,2,3...Cards.
An incentive provided by the government to people or organizations in the form of money, grants, or tax breaks in order to increase the supply of particular goods and services is known as a subsidy (C.F.I). Consumers can get cheaper goods and commodities thanks to subsidies. Markets with positive externalities—benefits to society beyond what is expected from them—tend to be supported by policy to increase the availability of that item or service.
A 2Kg package of Unga (maize flour) would cost Ksh100 instead of Ksh230 thanks to a recently implemented government subsidy. Four weeks will pass while the subsidy is in effect. The intervention takes place in the midst of a general public uproar about rising living expenses as fuel and food costs set new records. For the first time since August 2017, Kenya's inflation rate reached 7.9 percent in June 2022, above the top bound of the Central Bank's target range of 2.5 percent to 7.5 percent.
The subsidy will be steered by an Oversight Committee which includes
representatives from the National Treasury, Agriculture Ministry, Cereal
Millers Association and Grain Mill Owners Association. Millers will
continue to buy maize available in the market at market rates. An escrow account at the Central Bank of Kenya (CBK) shall be opened
and operated by the Agriculture Ministry to ensure payments are made as
stipulated in the contract to facilitate the subsidy.
The
Agriculture Ministry shall station their representatives at the premises
and depots of millers to verify proof of sale of maize flour into the
market. They will rely on invoices to the millers’ customers for the
flour being sold and delivery/dispatch documents.
The United Grain Millers Association (UGMA), an umbrella
organization for both small and large-scale millers, said the move is
insignificant and will have little impact on consumers."If we can have direct government
talk to scrap export permit levy, then the price of maize will come down and
this will impact on the cost of the final product," said UGMA chairman Ken Nyaga.
According to Corporate Finance Institute, Although increased supply of commodities is one benefit of subsidies, a lack of supply is also a possibility. This is so that manufacturers won't have to work as hard to fulfill a sudden increase in demand that might result from reduced pricing. In the end, it may result in extremely strong demand, which raises prices.
Typically, subsidies are efficient and beneficial. The situation would be different if the government released a report on how well it had used subsidies. This is due to the difficulty in measuring the effectiveness of subsidies.
How will the government raise money to support the industry subsidies? Naturally, by levying larger taxes in the future. Therefore, the general public and businesses are the ones that give the resources needed for the government to reinforce the industry.
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