Cablegate: Impact of Rising Food/Agricultural Commodity


DE RUEHLGB #0305/01 1211417
P 301417Z APR 08 ZDK





E.O. 12958: N/A

REF: A. STATE 39410
B. 07 KIGALI 1146
C. O7 KIGALI 1005

1. (U) Summary: For the majority of Rwandans who live in
rural areas, good rains and harvests in 2007/2008 have kept
prices for many staple crops at, or below, last year's
prices. Urban Rwandans have not fared as well and are
suffering from significant price increases -- in some cases
up to 100 percent -- for imported agricultural commodities
such as cooking oil, sugar, beans, rice and wheat. These
increases have prompted the Rwandan government (GOR) to point
fingers at wholesalers hoarding stocks and threaten price
ceilings on key food commodities. What the GOR really needs
is to accelerate the modernization of the agricultural
sector, improve food stock storage facilities to reduce
post-harvest losses and invest in meteorological forecasting
and agricultural commodity market information systems. End

Overview of Food and Agricultural Prices, Supply and Demand
--------------------------------------------- --------------

2. (U) Good rains and harvests in 2007/2008 have benefited
Rwandan subsistence farmers producing staple crops such as
sorghum, cassava, maize, banana, potato and sweet potato. In
the 12-month period from April 2007 - March 2008, prices for
these products in most cases declined when compared to prices
for the similar period in 2006-2007. This is good news for
85 percent of the population who rely on these crops for
their basic food needs. Less encouragingly, prices for beans
and peas, used as a basic protein source for this population,
have risen substantially -- over 40 percent compared to last
year. Much of this increase is due to the increase in the
cost of beans being imported from the Democratic Republic of
Congo (DRC) (ref B) where political instability has disrupted
supplies and higher fuel prices (50 percent increase in the
last semester) have increased transportation costs.

3. (U) Similarly, prices for other imported foods such as
wheat, rice, cooking oil and sugar have increased
dramatically compared to last year. Cooking oil and sugar
have increased by over 100 percent, while wheat and rice have
increased 16 and 40 percent respectively. Landlocked Rwanda
already pays a high premium for imported goods transported by
road from Kenya and Uganda, or Tanzania. By some estimates
it costs as much to ship a bag of flour from Mombassa to
Kigali as it does to ship the same bag from the United States
to Mombassa. Even if international prices for agricultural
commodities were stable, rising fuel costs would force an
increase in the street price of imported food to Kigali.
Local wholesalers and traders have limited storage capacity
and have little choice but to pass increased costs on to
Rwandan consumers.

4. (U) 5. (U) Rwanda's domestic agricultural production
consists largely of subsistence farming on plots of less than
1 acre. Soil erosion, costly fertilizers, limited irrigation
and water management systems, and weak crop storage capacity
leaves Rwanda with low agricultural productivity and extreme
sensitivity to weather fluctuations. A bumper crop today
barely feeds the population, while a poor crop tomorrow could
Qbarely feeds the population, while a poor crop tomorrow could
have a devastating impact on available food supplies. With
prices of agricultural commodities at record levels, Rwanda
would be hard-pressed to compensate for a poor harvest by
importing its food needs.

5. (U) Many imported food products are staples for urbanized
Rwandans thus price increases for such commodities have an
immediate impact on the 15 percent of the population who live
in cities. Urban Rwandans are already suffering
disproportionately from rising fuel costs, rents and school
fees (ref B). While urban Rwandans for now represent a
minority of the population, it is a fast growing segment of
the Rwandan polity and potentially the most politically
active. In the short term, the upper crust will grumble and

poorer city dwellers will likely substitute their consumption
of imported foods for locally grown products. In the medium
and long term, the uncertain availability of local produce
due to weather conditions, leaves Rwanda vulnerable to food
shortages and associated social unrest.

Impact on Domestic Politics, Economy and Environment
--------------------------------------------- -------

6. (U) The GOR has been quick to point fingers at
agricultural wholesalers who they accuse of hoarding stocks
and engaging in "exploitative practices", and has threatened
price-ceilings on key foodstuffs. The Senate has also
publicly "summoned" the Minister of Commerce to explain the
"soaring food prices." The Minister of Commerce, Monique
Nsanzabagnwa admitted to reporters the demand for cereals in
the country is greater than the supply in spite of increased
local production. She blamed the food price increases on
rising international agricultural commodity prices, higher
transportation costs, the declining dollar and food shortages
in neighboring countries such as Uganda and Kenya.
Nsanzabagnwa noted the Ministry of Agriculture through the
Integrated Development Program hopes to improve production
and supply of local agricultural products, encourage farmers
to improve storage capacity for grains, eliminate monopolies
in the distribution chain and establish a market information
system to integrate price information from regional markets.

7. (SBU) Informally, Econoff heard from several sources
including a consultant at the Ministry of Agricultural that
the GOR is extremely concerned about food shortages and is
looking for quick fix solutions. This source predicted if
the situation did not improve there could be serious social
unrest before the end of the year.

8. (U) Rising food prices have contributed to rising
inflation rates across the country. According to the
National Institute of Statistics of Rwanda, the national
annual inflation rate has increased from 9.1 percent in
December 2007 to an estimated 10.3 percent in February.
Inflationary pressures will only increase as imported food
stocks are depleted and replaced at higher cost, and fuel
costs continue to rise. As reported in reftel B, the impact
of inflation on most Rwandans is more profound than indicated
by the national statistics. The vast majority of Rwandans
live on less than $1 per day and can ill afford rising costs
for basic necessities.

Host Government Policies and Post Programs

9. (U) The GOR recognizes the need to modernize its
agricultural sector and is struggling to implement land
reform programs that would allow for more efficient farming
techniques. Densely populated rural communities, with most
available farmland splintered into tiny plots with no land
titles, make this a daunting challenge. With the aid of the
international donor community, the GOR has also been
encouraging better land management including investment in
terracing, irrigation, use of fertilizers and the
introduction of value added crops. Progress has been slow.
While some sectors (such as high value coffee) have shown
QWhile some sectors (such as high value coffee) have shown
solid gains, for the most part agricultural production
continues to be inefficient, highly dependent on weather and
vulnerable to soil erosion and depletion. Crop storage
facilities are inadequate and market distribution weak.

10. (U) USG agricultural development assistance programs have
focused on value added crops such as high quality specialty
coffee. This assistance has been successful but limited in
scope. As a percent of the total country USAID budget,
agricultural development assistance currently represents
about eight percent of total expenditures. USAID also
manages a Title II food aid program averaging $10 million
annually. However, this program is scheduled to be
terminated in 2009. Rwanda desperately needs more

agricultural development assistance to avoid food shortages
with potentially destabilizing political consequences. To
improve agricultural yields, the GOR needs targeted
assistance in implementing irrigation, terracing and land
conservation programs. Assistance in developing effective
crop storage facilities are needed to mitigate the impact of
poor harvests. Current estimates indicate that post-harvest
losses for most food crops exceed 20 percent. Improving
market information systems would provide for more efficient
pricing and distribution between regional markets.
Developing Meteorological forecasting capacity would assist
Rwanda to more accurately predict weather conditions, manage
water resources and take early action against flood and
drought conditions.

How Can We Help ?

11. (SBU) Comment: Most observers believe that the ethnic
tensions that led to the 1994 genocide have not yet abated,
despite an official ideology of political reconciliation.
While the GOR is firmly in control, it recognizes that rapid
economic development and an improved quality of life across
the socio-economic spectrum is an essential balm needed to
achieve national unity. Until now the GOR has largely
delivered on its promises for better economic conditions.
However, inflation and rising food prices are hurting the
average Rwandan and could threaten reconciliation efforts.
The USG can help by investing more resources in agricultural
development. Such investment will have multiplier effects
across the Rwandan economy, support political stability and
ethnic reconciliation and provide trade opportunities for
American companies. Post supports this investment and
recommends increasing the amount of USAID funding allocated
to agricultural development from 8 to 30 percent of total
assistance or $40 million annually. End comment.


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