Algerian experts criticize food subsidy policy

Although food subsidy has done much to stabilize a fluid social environment, economists warn that the policy is fraught with danger.

By Ademe Amine for Magharebia in Algiers – 31/07/11

Algeria needs to re-consider its food policy to achieve sustainable development and economic growth, analysts and politicians argue.

The food subsidy measures, adopted in January to blunt widespread social riots, are inefficient and do not favor long-term growth, according to participants in a recent round-table held by monthly magazine Algeria Invest.

"We must not go any further down this path, which is completely suicidal for this country," warned economist Salah Mouhoubi at the July 18th event.

He called for "investing in production sectors instead of handing out subsidies without compensation".

"Although the slight upturn that the country is experiencing makes this policy viable at present, it’s clear that in different circumstances, if the upturn falters, it will bring serious problems for the country," Mouhoubi added.

Forum of Company Directors (FCE) chief Reda Hamiani also criticized the government’s methods of protecting the purchasing power of the poorest segments. "We do not agree with the way these subsidies are being applied at the moment," Hamiani said during another discussion, organized by Algeria Invest on Monday (July 25th).

The subsidies "are not targeted at the least well-off," he said. "This is a general subsidy that benefits both rich and poor, and also neighboring countries through smuggling networks."

In his view, "this support should be given at source – that is, to producers – to help them increase supply, which is the only way of bringing prices down".

The government is trying to ease social problems by "acting like fire-fighters in its attempt to cut prices to a level that everyone can afford", according to Hamiani.

Trade Minister Mustapha Benbada said a few weeks ago on a national radio that "the Algerian government might soon run out of funds to subsidize essential items".

"Subsidies for basic necessities cost the government 300 billion dinars each year," he added. "We need to prepare alternatives to reduce this bill."

The measures were adopted to stem January social riots, which broke out in a total of 24 of the country's 48 wilayas and left five people dead. The unrest, which was triggered by increases in the prices of oil and sugar on the domestic market, caused the government to hold down the costs.

The Algerian cabinet agreed to lower the custom duties and taxes on sugar and other foodstuffs by 41% as a temporary act to cut prices. The subsidies were due to be capped by August 31st but will remain in place for a longer period due to persisting tensions.

The abolition of taxes on raw materials imported for the production of vegetable oil will cost the treasury 27 billion dinars, Benbada said.

In addition to subsidies, Algeria also relies heavily on imports. During the first six months of 2011, the government spent almost US $5 billion on imported food, compared with $3 billion over the same period in 2010, according to the National Centre for Data Processing and Statistics (CNIS).

The bill for crop imports doubled to more than $2 billion over the first half of 2011, according to the same source. This massive importation of durum wheat in order to deal with the concerns over couscous shortages that arose at the beginning of this year appears to be connected to food smuggling, which has become more prevalent across the Tunisian and Libyan borders since the outbreak of political turmoil in these countries.

Source: Magharebia.
Link: http://www.magharebia.com/cocoon/awi/xhtml1/en_GB/features/awi/features/2011/07/31/feature-01.