Chapter 5


A replacement of general food subsidies by targeted approaches may also cause social
friction and political problems, as targeting always means that certain population groups are
excluded from the subsidies. A switch from general to targeted subsidies will be particularly
difficult, if politically influential sections of the population are excluded.



Box 5.5: The introduction of targeted food subsidies in Mexico

Mexico's adjustment programme included the elimination of extremely costly global food subsidies. These were
administered by keeping consumer prices at levels- below the procurement and processing costs of agricultural
commodities such as corn, wheat, sorghum, soybeans, sugar, rice barley, beans, cooking oil, powdered mil, and
noodles. All subsidies, except for that on sugar, were administered by the state-owned National Basic Foods
Company, CONASUPO, by either selling products at reduced prices to processors (who themselves were
subject to controlled prices on outputs) or by reimbursing processors directly for costs not covered by sales
revenue. Global food subsidies exceeded 1% of GDP by 1983. They represented enormous transfers to upper
income groups (the richest 30 percent of the population accounted for about 50 percent of national food
expenditures) while benefiting the poor much less (the poorest 30 percent spending only 15 percent). Beginning
in 1983, they were gradually reduced, and in 1987, eliminated altogether with the exception of those on sugar
and corn. (...) By the end of 1986, food subsidies had fallen to 0.02 percent of GDP. Although the poor
benefited less than the rich from global food subsidies, the urban and landless poor suffered most from their
cuts.

To protect the poor, the Government instituted a programme of targeted food stamps for "tortillas", the corn
flatcakes that are a staple of the poor. The tortilla stamps are based on commodity and geographic targeting to
low income urban areas. Two additional targeted programmes were expanded -- one distributes subsidized
reconstituted milk and the other sells subsidized food in poor urban areas. Recipients must queue at fixed times
at distribution outlets: for example, milk is available certain days between 5:30 and 8:00 am. The Government
also relocated a number of CONASUPO stores from middle-class urban areas to poorer rural locations which
are being successfully run by local community organizations. However, these programmes are under-budgeted
and therefore cover a very small percentage of the poor, do not screen beneficiaries adequately and remain only
available to a very limited extent to the most destitute rural poor. A major problem has been the failure to link
the price of tortilla stamps to the price of tortillas during high inflation.

Source: World Bank 1990, op.cit


Targeted food subsidies mean a food-mediated income transfer to the target group (if
effectively reached). The effects of food subsidies on household food security result from a
real income and a substitution effect (see Annex 1, section 4 with Box A-2 for definition).
Both effects imply increased household food demand of the beneficiaries, hence increased
household food entitlement and improved household food security.

Food subsidies may be targeted in various ways:


geographically,
by commodity,
through a special distribution network (fair price shops/ration shops),


4) food stamps,

or any combinations of these methods.


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