Harare – In a weekly sitting, the cabinet of Zimbabwe on Tuesday approved proposed producer price increases on a select number of key commodities in a move which is likely to threaten fiscus stability and short to mid-term exchange rate and inflation stability.
Producer prices which in this case will be maize, small grains, wheat, soya beans and cotton farmers have been increased by an average of 130%. Producer price for maize has been increased from $390 to $726 which is an increase of 86%. Wheat price has been revised from $630 to $1089.69 which is an increase of 72%.
Soya bean and cotton producer prices have likewise been adjusted from $610 and $455.9 to $918 and $1950 which are respective gains of 50% and 328% on the prior set prices.
Further to the producer price increase government has deemed it fit to interfere with market forces in a bid to cushion the market from an ongoing price carnage. The state has been forced to sustain the unpopular price subsidy to millers who are the end processors or buyers of the produce.
Government has tabled a 38.5% subsidy to millers across the various grains in order to cushion retail price which effectively is a form of price control albeit coming at a cost to the fiscus.
Despite the effort to contain price surges, the subsidy does not fully maintain prior pegged millers’ prices as data shows maize costs for millers going up by 86.5% above the prior levels. Previously millers procured maize at $250 from GMB while under the new regime, will be paying $446.49.
To maintain margins producers will be compelled to adjust prices and pass on the cost to the already strained consumer thus pushing up inflation. On the other hand, the subsidy on maize alone will likely cost government $223.6 million from an expected 800,000 tones local harvest.
The overall program will cost government between $200 million to $300 million not to mention the free inputs program, thus weighing on the fiscus and putting pressure on money supply growth. Consequently, money supply and inflation will likely respond.
Given that about 700,000 tones will be in net shortfall some millers may be contracted to import the grain in shortfall. The imported grain priced at import parity will demand about RTGS$720 and this cost will further be passed to the consumer.
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