COST OF LIVING

Good policies far better than subsidies

Most subsidies are at the consumer level and not at the production level, which makes them unsustainable in the long run.

In Summary
  • When government subsidises the supplier or producer, it boosts the production of goods and services thus increasing the overall supply of a particular good or service.
  • The net effect is that this lowers the overall price of the good or service, leads to more demand and pushes up production.
Packets of maize flour in a Supermarket shelf.
HIGH COST OF LIVING: Packets of maize flour in a Supermarket shelf.
Image: FILE

The government stepped in this week to bring down the price of unga, which has been on an upward trend since the beginning of the year.

Ugali, which is derived from maize flour, still remains Kenya's staple food and any price distortion leaves many hungry and angry.

Through a subsidy and agreement with millers, the price of flour is now retailing at Sh100 from a high of Sh230.

The government, through the fuel subsidy, has been able to contain the price of fuel from a steep rise.

However most of Kenya's subsidies are at the consumer level and not at the production level, which makes them unsustainable in the long run.

When government subsidises the supplier or producer, it boosts the production of goods and services thus increasing the overall supply of a particular good or service.

The net effect is that this lowers the overall price of the good or service, leads to more demand and pushes up production.

The National Treasury and the Energy ministry have already conceded that the fuel subsidy has placed a heavy burden on state resources and must end by September.

Kenya should therefore subsidise maize farmers and ease the cost of business for fuel suppliers who should subsequently pass on the benefits to consumers.

Quote of the Day: "Feel the needs of others more than your own."

Haile Selassie

The Emperor of Ethiopia (1930-74) was born on July 23, 1892

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