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Cablegate: Response: Impact of Rising Food/Commodity Prices -

VZCZCXRO1462
PP RUEHCI
DE RUEHKA #0485/01 1210253
ZNR UUUUU ZZH
P 300253Z APR 08
FM AMEMBASSY DHAKA
TO RUEHC/SECSTATE WASHDC PRIORITY 6687
INFO RUEHNE/AMEMBASSY NEW DELHI 0615
RUEHIL/AMEMBASSY ISLAMABAD 2141
RUEHLM/AMEMBASSY COLOMBO 8413
RUEHKT/AMEMBASSY KATHMANDU 9649
RUEHBK/AMEMBASSY BANGKOK 8442
RUEHRO/AMEMBASSY ROME 0471
RUEHCI/AMCONSUL KOLKATA 1263

UNCLAS SECTION 01 OF 03 DHAKA 000485

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR SCA/PB, EEB/TPP/ABT/ATP JANET SPECK
NEW DELHI FOR FAS
BANGKOK FOR USAID
ROME FOR FODAG

E.O. 12958: N/A
TAGS: EAGR EAID ETRD ECON EFIN PGOV PREL BG
SUBJECT: RESPONSE: IMPACT OF RISING FOOD/COMMODITY PRICES -
BANGLADESH

REF: STATE 39410, 07 DHAKA 1590, 07 DHAKA 1745, 07 DHAKA 1801, 07
DHAKA 1808, 07 DHAKA 1882, 07 DHAKA 1902, 07 DHAKA 1903, 07 DHAKA
1921, DHAKA 29, DHAKA 64, DHAKA 80, DHAKA 102, DHAKA 128, DHAKA 202,
DHAKA 213, DHAKA 219, DHAKA 242, DHAKA 292, DHAKA 310, DHAKA 360,
DHAKA 442, DHAKA 469

1. (SBU) SUMMARY: Recent natural disasters that strained the
country's food supply have exacerbated in Bangladesh the effects of
high food and commodity prices worldwide. High prices and the loss
of some domestic food supplies and livelihoods threaten the food
security of Bangladesh's desperately poor population, which suffers
from long-term nutritional deficits. Entrenched poverty and high
food prices contribute to a trend of creeping famine in Bangladesh.
Food problems, in turn, threaten the country's weak interim
government, which is trying to preserve a moderate Muslim democracy
in a difficult neighborhood. The discussion below is keyed to
reftel topics. END SUMMARY.

DEMAND
------

2. (SBU) Rice is Bangladesh's main food staple. While Bangladeshis
also consume wheat, pulses, vegetables and edible oils, in times of
food crisis, rice becomes all important. According to the UN Food
and Agriculture Organization (FAO) in Bangladesh the average
wholesale price of rice increased by 61.8 percent in the first
quarter of 2008, compared to the first quarter of 2007. Wholesale
prices for other food items, including flour, edible oil, pulses,
eggs and milk powder rose anywhere from 23 to 68 percent in the past
year. The International Monetary Fund (IMF) estimated food
inflation in Bangladesh to be 14 percent in January, year-on-year.

3. (SBU) Currently Bangladesh is a net importer of food, including
rice. The U.S. Foreign Agricultural Service (FAS) estimates
Bangladesh will need to import as much as 3.2 million tons of food
grain to meet its food needs this fiscal year. (NOTE: The fiscal
year in Bangladesh runs from July 1 to June 30. END NOTE.)
Bangladesh's domestic food production provides only the most basic
subsistence to its population. In this desperately poor country of
close to 150 million people, the World Bank estimates that 84
percent of its population subsists on less than USD 2 a day, and 41
percent lives on less than USD 1 a day. Bangladesh's rates of
undernourishment and stunting are among the highest in South Asia.
According to FAO, 30 percent of Bangladesh's people are
undernourished. Among children under 5 years of age, 48 percent are
underweight and 43 percent are stunted.

SUPPLY
------

4. (U) Food supplies in Bangladesh were affected by natural
disasters in 2007. Two of the three annual rice crops in Bangladesh
were damaged by floods and a cyclone. Rice production for fiscal
year 2008 is projected to be 28.7 million tons. The Government of
Bangladesh (GOB) estimates that 1.4 million metric tons of rice must
be imported to meet crop shortfalls caused by natural disasters in
the past year. In a normal year, Bangladesh only needs to import
600,000 to 900,000 metric tons of rice. In the past Bangladesh's
rice imports have come predominantly from India. India's ban on
rice exports has forced Bangladesh to source rice from other
countries; the ban has also complicated efforts by the GOB to obtain
500,000 tons of rice promised to Bangladesh by India in the wake of
Cyclone Sidr. A potentially positive development in Bangladesh's
food supply situation is the upcoming harvest of the country's
largest rice crop of the year, which farmers will start collecting
in mid-May. Experts predict that, barring any natural disasters,
this crop may result in 16.3 million tons of rice, up from 14.9
million tons last year. The GOB's ability to purchase grains for
public stockpiles is hampered by an inefficient procurement system;
for example, public tenders for wheat are subject to cumbersome
terms and conditions that discourage suppliers from participating in
government tenders.

5. (SBU) Certain populations within Bangladesh are suffering
acutely from food shortages. In southwestern Bangladesh, between 8
and 12 million people had their livelihoods devastated in November
2007 by Cyclone Sidr. The region's only rice crop of the year was
destroyed by the cyclone; residents of Sidr-affected areas will have
to purchase rice until their next rice crop can be harvested in

DHAKA 00000485 002 OF 003


November 2008. Millions, however, lost the means to purchase food
as a result of the cyclone (reftels). In the Chittagong Hill Tracts
in southeastern Bangladesh, close to 130,000 indigenous people face
famine and are scavenging for roots to eat as a result of an
infestation of rats that has decimated food supplies in the region
(reftels).

POLITICAL IMPACT
----------------

6. (SBU) Bangladesh's food crisis threatens the country's fragile
Caretaker Government (CTG). (reftels) In a survey conducted in
March by The Asia Foundation, 80 to 90 percent of Bangladeshis
surveyed said they were worse off economically under this government
than under the previous government. Thirty to forty percent of
those surveyed said they had low or extremely low confidence in the
CTG, up from 20 to 30 percent in February. Since January, thousands
of garment workers have staged protests over high prices and low
wages. The government is especially sensitive to discontent in the
ready-made garment (RMG) sector, which supplies the country's main
export earnings and employs close to 2 million workers. The average
wage for a garment worker ranges between USD 45 and 90 per month.
Food security has political ramifications in Bangladesh and
threatens the stability of an already-weak Caretaker Government
committed to hold elections and restore democracy in the
Muslim-majority nation.

ECONOMIC IMPACT
---------------

7. (U) Rising food and fuel costs are driving inflation in
Bangladesh. Year-on-year inflation reached 11.5 percent in January,
primarily as a result of higher food prices, according to the IMF.
In March the GOB reported a need in the near term to import an
additional USD 600 million in food, fertilizer and other goods to
offset the food crisis caused by natural disasters. The World Bank,
the Asian Development Bank and other key donors have financed about
USD 400 million of this through aid and budgetary support. The IMF
recently granted Bangladesh USD 218 million under its Emergency
Natural Disaster Assistance program to help stabilize the country's
reserves at 3 months of import cover. Bangladesh's trade deficit is
projected to be USD 5.6 billion in FY 2008, up from USD 3.5 billion
in FY 2007, due in large part to the food situation.

ENVIRONMENTAL IMPACT
--------------------

8. (SBU) The environmental impact of Bangladesh's current food
crisis has yet to be measured. In order to meet demand for rice,
farmers are shifting production away from other crops into rice and
are likely utilizing marginal land to eke out as much food
production as possible. The GOB heavily subsidizes fertilizer
prices and has anticipated supplying more fertilizer to help make up
for crop losses.

GOVERNMENT POLICY RESPONSE
--------------------------

9. (U) The GOB is addressing inflation mainly through fiscal and
administrative adjustments rather than through monetary policy. It
is supplying rice to vulnerable groups through its Public Food
Distribution System (PFDS); by March the GOB had distributed about 1
million metric tons of rice through the PFDS. These programs
include the donation of 15 kilos of rice per month to extremely poor
families that have an average of 5 family members. Experts report
that many of these families do not have the means to augment this
donation, which is not enough to feed a family of five for one
month. Experts also doubt that all beneficiaries are receiving even
15 kilos of rice; many families are only receiving 2-5 kilos of rice
per month. The PFDS also includes a program known as "open-market
sales" (OMS), which sells rice at subsidized prices in urban areas.
The GOB has enlisted its border defense force, the Bangladesh
Rifles, to assist in administering open-market sales. Lines at OMS
distribution points, including one outside the Embassy, have
lengthened significantly in recent months, and media reports note
that an increasing number of middle class Bangladeshis are
purchasing rice through open-market sales.

IMPACT ON POST PROGRAMS

DHAKA 00000485 003 OF 003


-----------------------

10. (SBU) Where possible, the Embassy has diverted resources in an
effort to help Bangladesh cope with its food crisis. This includes
calling forward food assistance and increasing livelihood assistance
to those who had livelihoods devastated by Cyclone Sidr and the two
floods. The Ambassador recently declared a disaster in the
Chittagong Hill Tracts to access USD 100,000 in disaster assistance
for the food crisis in that region. Post strongly supports the
proposal currently being considered in Washington to grant USD 10
million in food aid to cyclone victims through the World Food
Program's Cyclone Sidr Emergency Operation (EMOP).

POLICY PROPOSALS
----------------

11. (SBU) In the medium- to long-term, the GOB could take a number
of steps to improve its food situation. It could better utilize
technology, including biotechnology, to improve agricultural
productivity. Currently, the average rice yield in Bangladesh is
3.5 tons per hectare, one of the lowest in South Asia. Bangladesh
farmers should introduce more high-yield varieties of rice, wheat
and corn. It could put its agricultural extension system to better
use; technical experts at the local level now spend more time
administering subsidies than working to improve agricultural
productivity. The GOB should better target subsidies, particularly
fertilizer subsidies.

Moriarty

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