Notes From The Margin

February 12, 2008

Concerns On The Cost Of Living

We have been watching with interest the efforts of the government to contain the rising costs of food, and while we see a genuine effort being made we have serious concerns about how sustainable that effort is.

Pinnacle Feeds warned about the impending price increase and was asked by the Minister of Agriculture to hold off pending talks with stakeholders. After intially stating that Governement could not subsidize the industry the minister went to bat at cabinet and the following statement appeared in the press today.

The Thompson administration agreed to the price increase but promised financial support to poultry and dairy farmers. When contacted, Minister of Agriculture Haynesley Benn assured farmers they would not be out of pocket.

“We have assured the farmers that they would be compensated. A mechanism has been worked out where there will be a price support for the farmers. A sub-committee met on Friday afternoon with farmers’ representatives and they will report to the Minister of Trade who will meet with them along with the Ministers of Finance and Agriculture.

“We would’ve worked out by that time how the farmers would be compensated. We will get back to the farmers’ representatives as to how soon compensation will come,” he said.

While we applaud the aims of the Government, this clearly cannot be a long term solution particularly in the face of a global rise cost of grain.

Now to be fair the subsidising did not start with this Government, the BLP subsidised domestic power prices by way of a subsidy on the fuel charge. At the time we on the margin chalked up to being an election gimmick that we felt would quickly disappear. However this spreading of subsidies into a new area gives us pause.

Economics cannot be denied.

The upward pressure on prices is mostly exogenous in nature, that is, caused by factors outside of the Barbados economy. There would appear to be a “perfect storm” contributing to these raises including increasing oil prices, increased use of food for fuel, demand for raw materials such as steel etc. by the rapidly developing economies of China and India, and the list goes on. In the face of these forces a policy of subsidization simply is not sustainable, it is at best a stopgap measure that has the potential to damage the economy if it is allowed to continue beyond its limits.

We on the margin are not saying that the government should NOT subsidise, but we would be more comfortable if there was some public indication that the government acknowledged where the limits to this policy are.

Marginal

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