The International Monetary Fund (IMF) has cautioned governments against relying heavily on broad food price subsidies to cushion households from rising food costs, warning that poorly targeted interventions could put additional pressure on already constrained public finances.
The Fund said governments facing food price shocks must first determine whether the main challenge is food availability, affordability, market disruptions or the ability to identify and support vulnerable households.
It said the distinction was important because the wrong intervention could consume scarce public resources without adequately protecting those most affected.
The IMF said food security was facing renewed risks from the possibility of a stronger El Niño and potential disruptions to fertilizer and energy supplies linked to an escalation of the conflict in the Middle East.
It noted that food price shocks can have significant social and economic consequences, particularly in low-income households where food can account for more than half of family expenditure.
According to the Fund, the 2015-16 El Niño affected the food security of about 60 million people globally, while food price increases following Russia’s invasion of Ukraine in 2022 pushed about 71 million people into poverty within three months.
The IMF also said fertilizer prices increased by almost 50 per cent when the Middle East conflict began earlier in the year. Although prices have since normalised, it said the increase coincided with planting seasons in several countries and could continue to affect agricultural incomes, yields and food prices during the current harvest.
Targeted support
The IMF said price subsidies could be deployed quickly during a crisis but often benefited higher-income households that consume more food and could place a significant burden on government budgets.
It therefore recommended that subsidies be used only as exceptional and temporary measures, with clear limits and exit strategies.
Instead, governments should allow domestic prices to reflect international costs while using targeted fiscal support to protect vulnerable households and viable small businesses, the Fund said.
Food vouchers could provide more targeted assistance where governments have adequate social registries and digital payment systems to identify beneficiaries, it added.
However, the IMF stressed that financial assistance alone would not solve shortages where food was physically unavailable because of conflict, disrupted supply chains, natural disasters or damaged agricultural production.
In such situations, it said direct food transfers could be necessary to save lives, although prolonged use could weaken incentives for local farmers by suppressing demand and prices.
Need for early planning
The Fund warned that poorly designed food assistance programmes could divert resources from longer-term investments in agriculture, health, education and infrastructure.
It said governments should establish clear exit strategies because temporary subsidies introduced during emergencies could become permanent once they were viewed as entitlements.
The IMF urged countries to assess their food support systems before the next price shock and strengthen administrative systems needed to identify vulnerable groups.
It said there was no universal model for responding to food crises, but governments could improve their response by determining whether the problem was availability, affordability, market functioning or administrative capacity before selecting an intervention.
