General Subsidy Programs

Description Indonesia succeeded in stabilizing rice prices through the National Logistic Agency. 

Expenditure FY1991/92 total annual cost of US 1.5 billion, or about 1.2% of GDP 

Sources Alderman (2002b) Perdana and Maxwell (2004) Robinson and others (1997) Timmer 

Description The government purchases wheat from farmers and resells it to flour mills. A portion of the flour is then sold at a fixed price though utility stores at the same price throughout the country. 

Sources Dorosh and Salam (2008) Faruqee (2005) World Bank (2007k) 

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Most of the following disadvantages of general subsidy programs are related to poor targeting and high budgetary costs ... 

General subsidy programs can have a role for poor consumer households when access to essential commodities is threatened by high prices however, adapting them efficiently to local situations is difficult. 

The two biggest challenges to successful implementation of general subsidy programs are reaching the intended beneficiaries and keeping the budget under control. These objectives can be achieved in a variety of ways as follows ... 

Universal price subsides and untargeted sales of subsidized commodities are general measures aimed at controlling the prices of food and other essential commodities. For a list of general price subsidy programs, see table B.3 in appendix B. 

An even simpler way of evaluating a program is to examine the service outputs (for example, receipt and utilization of vouchers) in terms of the socioeconomic profile of the beneficiaries. Doing so avoids the need to quantify the value of these outputs in terms of the level of subsidy going into each. If the same socioeconomic indicators have been measured in other subsidy schemes or for government health expenditure generally, a judgment can be made about the equity impact of the scheme. 

If poor people have access to the commodities subsidized, they can all take advantage of the program, thus errors or exclusions are low. In addition, general price subsidies may be easier to administer and faster to implement than income transfers. Interventions that require modifying tariffs or exchange rates may be quicker to implement and more effective than individual transfers (see the example of Madagascar in box 7.10). 

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