The Malaysian government may introduce what seems to be a non-tradable food stamp program to combat high food prices. The goal behind it is noble. While that is so, it must be noted there are at least two ways to improve the outcome of the program. Moreover, the issue of high food prices should be assessed more holistically.
First, tradable food stamp will likely improve recipients’ welfare more than mere non-tradable arrangement can. Tradability will widen the recipients’ choice set and give them the opportunity to smooth their consumption. Furthermore, they may not always require subsidized food. Tradable stamps will allow the recipients to exchange the stamp for other items of need or even cash. Such exchange tradable stamps will widen the welfare-improving effect of the program by implicitly covering those who are not explicitly covered by the program. Whatever the price of sale of the stamp, it is will be lower than the face value of the stamp for otherwise, the stamp will be worthless. This essentially means the uncovered purchasers of the stamps will also be subsidized.
Second and perhaps the natural expansion of the first option is a direct cash transfer. From public finance perspective, this is likely to be the most efficient solution within the restrictive goal of enhancing the welfare of specific group of individuals.
Regardless of the costs and benefits of food stamp, high food prices in general is a wider issue. The wider context is important.
One context is the fuel versus food debate. Government policy on biofuel may have inflationary effect on food prices. As reported by Reuters in March 2010, the biofuel policy was supposed to start in June 2011.
The other more pressing context is monopoly of foodstuffs in Malaysia. Exclusive monopoly and quota granted to specific entities on various foodstuffs cause the very problem that the food stamp program aims address.
There are plenty more examples demonstrating contradictory and convoluted government policy.
Perhaps the problem of high food prices is better addressed by undoing unproductive government interventions in the food market. These interventions benefit only specific parties instead of the wider public. Without these interventions and with a little bit of luck, the rationale for food stamps might disappear. More importantly, public welfare can be improved without spending too much public money.