Food crisis: IMF warns nations against costly subsidies, urges targeted support

The International Monetary Fund (IMF) has advised governments around the world to avoid relying on broad food subsidies during periods of rising prices, warning that such measures could drain public resources while offering greater benefits to wealthier households.

Instead, the global financial institution urged policymakers to identify the specific causes of food price increases and adopt targeted assistance programmes to protect vulnerable families.

The IMF gave the advice in a blog published on Thursday, titled What Governments Should Do When Food Prices Surge, authored by David Amaglobeli, Rodrigo Cerda, Tewodaj Mogues and Patrizia Tumbarello.

It said the choice between food subsidies, vouchers and direct food distribution was critical, as selecting the wrong intervention could waste scarce resources without adequately protecting those most affected by rising food costs.

The institution noted that food affordability was a major socioeconomic concern, particularly in low-income countries where food purchases could account for more than half of household expenditure.

It said renewed concerns about a stronger El Niño weather pattern and possible disruptions to fertiliser and energy supplies arising from the Middle East conflict could increase pressure on food production and prices.

“When food prices rise, governments face immediate pressure to act, because food affordability is primarily a socio-economic issue with significant impact on income inequality and public health,” the IMF stated.

The institution said policymakers should ask four questions before deciding how to respond to a food crisis: Is food available? Is affordability the problem? Are markets functioning properly? And can beneficiaries be targeted?

It explained that answering these questions would help governments determine whether to provide financial support, food vouchers or direct food assistance.

According to the IMF, governments often turn to price subsidies during crises because they can be introduced quickly and require limited administrative capacity.

However, it warned that subsidies were costly and could disproportionately benefit wealthier households, which generally consume more food and are less sensitive to price changes.

The IMF recommended that price subsidies should ideally be avoided and, where necessary, be exceptional, temporary, transparent and strictly limited.

It advised governments to allow domestic food prices to reflect international costs while protecting vulnerable households and viable small businesses through temporary and targeted fiscal measures.

On food vouchers, the institution said they could provide more focused assistance if governments had reliable systems for identifying beneficiaries.

It noted that social registries and digital payment infrastructure could help direct support to households most in need.

However, the IMF stressed that subsidies and vouchers would not solve food shortages when there was insufficient food available for purchase.

It explained that conflicts, natural disasters and disruptions to supply chains could interrupt food production and distribution, making direct food transfers necessary.

“ When food is physically unavailable, direct in-kind food transfers are essential and can save lives,” the institution said.

It, however, warned that prolonged food distribution programmes could reduce demand for locally produced food, weaken prices and discourage domestic farmers and food producers from expanding production.

The IMF also raised concerns about the financial burden of poorly designed food assistance programmes, particularly in low-income countries.

It said excessive spending on general food subsidies could limit governments’ ability to invest in agricultural research, infrastructure, healthcare and education.

The institution therefore called for clear exit strategies, warning that emergency support programmes could become permanent once beneficiaries began to regard them as entitlements.

It advised governments to plan a gradual shift towards more targeted and efficient assistance as crises ease.

The IMF cited the 2015–2016 El Niño weather event, which affected food security for about 60 million people worldwide.

It also noted that food price increases triggered by Russia’s war in Ukraine pushed about 71 million people into poverty globally within three months.

The institution said the recent global food crises had exposed weaknesses in the food assistance systems of several countries, with some governments relying on expensive measures that failed to reach those most in need.

It stressed that there was no universal solution to food crises, as countries differed in their food supply, market conditions and administrative capacity.

The IMF urged governments to assess their food support systems before crises occur and develop time-bound intervention plans.

“By first properly diagnosing the problem they are trying to solve, governments can choose the best policies to more efficiently protect their most vulnerable citizens, at the lowest cost,” it said.

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