US embassy cable - 03HARARE653

UNCLAS HARARE 000653 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR AF/S 
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER 
USDOC FOR 2037 DIEMOND 
PASS USTR ROSA WHITAKER 
TREASURY FOR ED BARBER AND C WILKINSON 
STATE PASS USAID FOR MARJORIE COPSON 
 
E. O. 12958: N/A 
TAGS: EAGR, ECON, EINV, ETRD, ZI 
SUBJECT: GOZ Ups Grain Subsidy 
 
Ref: a) Harare 152  b) Harare 489 
 
1. (U) Summary: The GOZ has increased nearly 4-fold the 
amount it pays growers for maize.  By leaving the crop's 
low consumer price intact, however, the cash-starved GOZ 
assumes a weighty subsidy.  End summary. 
 
2. (U) The GOZ also announced an approximate doubling of 
the producer price for wheat.  Through its Grain 
Marketing Board (GMB), the GOZ plays a middleman role 
between growers and millers/retailers.  At present 
prices, the GOZ will subsidize 93 percent of the maize 
cost and 81 percent of the wheat cost. 
 
Candid Assessment from Within GOZ 
--------------------------------- 
3. (SBU) A high-level GOZ official told DCM he was 
scheduled to go to State House and attempt to convince 
the powers-that-be that it is also necessary to raise the 
price of maize to consumers.  He said past arguments for 
a price hike had been rebuffed on grounds that it would 
drive the population toward the opposition.  The official 
argued that shortages and corruption spawned by 
artificially-low prices does the same, minus any 
palliative effect.  He concludes that the point may be 
moot anyway:  The new producer price is still far enough 
below prevailing market prices that he doubts the GMB 
will capture much of this year's harvest. 
 
Comment 
------- 
4. (U) As with fuel (ref a) and energy (ref b), the GOZ's 
intervention in grain markets amid a free-falling economy 
has created a no-win predicament.  At artificially low 
prices, producers/suppliers have no incentive to sell 
fuel, energy and food.  If prices rise to market 
equilibrium, however, most Zimbabweans -- who now take 
home less than US$ 20/month -- cannot afford food and 
transport.  Through the new subsidy, the GOZ seeks to 
avert shortages and mollify consumers (i.e., shift the 
supply-curve outward to intersect with demand at lower 
price levels).  But it has simply swapped one 
macroeconomic distortion (low producer prices) for 
another (an unaffordable subsidy), another futile stunt 
to mask Zimbabwe's dizzying impoverishment. 
 
Sullivan