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

VZCZCXRO6477
PP RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHDK #0523/01 1271457
ZNR UUUUU ZZH
P 061457Z MAY 08
FM AMEMBASSY DAKAR
TO RUEHC/SECSTATE WASHDC PRIORITY 0431
INFO RUEHZO/AFRICAN UNION COLLECTIVE PRIORITY
RUEHNE/AMEMBASSY NEW DELHI 0073
RUEHKO/AMEMBASSY TOKYO 0116
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUEHRC/USDA WASHDC
RUEHLMC/MCC WASHDC

UNCLAS SECTION 01 OF 05 DAKAR 000523

SIPDIS
SENSITIVE

STATE FOR AF/W, AF/EPS, AND EEB/TPP/ABT/ATP FOR JANET SPECK
USDOC FOR 4510/IEP/ANESA/OA/PMICHELINI
USDA FOR FAS/OCRA/SDIABY, FAS/OCBD/PSIMMONS

E.O. 12958: N/A
TAGS: EAGR EAID ECON ETRD EFIN SOCI PGOV SG
SUBJECT: RESPONSE ON IMPACT OF RISING FOOD/COMMODITY PRICES -
SENEGAL

REF: A. STATE 39410
B. DAKAR 521 (NOTAL)
C. DAKAR 497 (NOTAL)
D. DAKAR 471 (NOTAL; FOR GUINEA-BISSAU)
E. DAKAR 424 (NOTAL)
F. DAKAR 386 (NOTAL)
G. DAKAR 236 (NOTAL)

DAKAR 00000523 001.2 OF 005


1. (SBU) SUMMARY: Senegal's 2007-08 cereal deficit is estimated at
1.4 million metric tons (MT), a significant increase from previous
years. The country could face a cereal shortage of 250,000-400,000
MT in the next six months and with low global stocks and high
commodity prices, it is not known how Senegal will close this gap.
The Government of Senegal (GOS) maintains no emergency cereal
stocks. While food is more readily available in urban areas - at
least for the time being - it comes at an extremely high price.
President Wade denies there is any threat of famine in Senegal and
recently announced an ambiguous new deal for India to meet almost
all of Senegal's imported rice demand for the next six years.

2. (U) The GOS has taken steps to lower taxes and control prices on
key commodities, but it is not clear if this will afford enough
price relief to consumers. The budget impact of government measures
is significant. There is currently no emergency food aid targeted
for Senegal, although the World Food Program (in cooperation with
USAID and other donors) and at least two NGOs are considering
contingency plans to address acute hunger. In the short term, the
USG should press for accurate, objective assessments of the food
situation and the inflationary impact to consumers of high food
costs. In the longer term we should look for opportunities to help
Senegal improve its agriculture productivity and unlock its
distribution networks to lower prices. End Summary

FOOD AND AGRICULTURAL COMMODITY DEMAND
--------------------------------------
3. (U) Senegal is a net importer of food and other commodities. In
particular, Senegal is dependent on rice imports to fulfill demand
for this daily staple. Annual rice consumption is approximately
800,000 metric tons, with local production accounting for only
170,000 tons on average. In recent years, the vast majority of
Senegal's rice imports have been low-end scented broken from
Thailand. Overall, Senegal's 2007-08 cereal deficit is officially
estimated at 1.4 million tons. If Senegal follows average
commercial imports (mostly rice) the country could face a cereal
shortage of 250,000-400,000 MT in the next six months. Senegal is
also highly dependent on imports of sugar, vegetable oil, corn, and
milk powder. Of note, the cereal export ban in neighboring Mali -
where food stocks are much more comfortable - is having a negative
impact on prices and availability of cereal in eastern Senegal.

FOOD AND AGRICULTURAL COMMODITY SUPPLY
--------------------------------------
4. (U) Senegal is not self-sufficient in any daily commodities
except for peanuts. Due to a decline in local cereal production,
Senegal will need to import nearly 70 percent of its cereal needs
between October 2007 and October 2008. The greatest concern for
consumers is the local supply and price of rice. On April 23,
President Wade announced he had secured an agreement with India to
supply 600,000 MT of rice annually for the next six years,
essentially meeting Senegal's demand for rice imports. President
Wade also proclaimed that this arrangement will create the bridge
needed for Senegal to become self-sufficient in rice by 2015. The
announcement indicated that Indian rice supplies would be arriving
in Dakar in the coming months, but no details of this agreement have
been released. [Note: Post has heard that India does not have
significant stocks of rice available for export, but will consider
providing some as food aid. The Indian embassy in Dakar cannot
confirm if such a deal has actually been concluded and opposition
leader Abdoulaye Bhatilly held a press conference where he
highlighted press reports that India had already decided to stop all
surplus rice exports in order to meet potential domestic
emergencies. Post would welcome input from Embassy New Delhi to
substantiate Wade's claims. End note.]

5. (U) On April 15, a small shipment (approximately 6,000 MT) of
American and Vietnamese rice was delivered to Senegalese authorities
as part of a 2006 food aid grant from the Japanese government. To
date, no emergency food aid deliveries have been made to Senegal
this year, although some donors (including the USG) provide routine
food aid, such as school feeding programs.

DAKAR 00000523 002.2 OF 005

6. (U) Senegalese local production for other daily commodities
(wheat and wheat flour, corn, vegetable oil, and powdered milk) do
not meet the country's demand and are routinely supplied by
commercial imports.

DOMESTIC POLITICS
-----------------
7. (U) Concerns about food shortages and raising daily commodity
prices have been a constant public debate for the past few months.
One of the starkest ways to describe this time of year, known as the
"soudure," or hungry season, is that about 70 percent of the
population is no longer eating lunch, and before the season is over,
people will be down to one meal a day. This is due both to a lack
of local cereals, as well as a lack of access to imported food due
to high prices.

8. (U) Social tension is high, especially in Dakar where an
unauthorized protest rally by two consumer groups on March 30 turned
violent (Ref F). Mostly peaceful rallies against the high cost of
living organized by Senegal's political opposition parties were held
in Dakar on April 24 and 26, with many marchers holding signs and
sporting t-shirts stating "we are hungry" (Ref B). Similar rallies
have also taken place outside of Dakar.

9. (U) Predictably, the strongest reactions so far have been from
Senegal's opposition Socialist
Party (PS). They fault the government for not taking any steps to
reduce its expenditures or the benefits received by the Presidency,
the Ministries, the National Assembly, and the Senate. For the PS,
the government measures are not sufficient to counteract the price
hikes and the suffering of the population. The PS proposes reducing
the number of embassies and consulates around the world (something
it did while it was in power), eliminating redundant agencies,
decreasing the number of Ministers (currently numbering 29) and the
number of Ministers of State (currently, there are 12), minimizing
government vehicle perks, and implementing a "realistic budget" to
control public expenditures.

ECONOMIC IMPACT
---------------
10. (U) Because it is not an exporter of commodities, high food
prices have deteriorated consumer purchasing power. Senegal's
balance of payments could also be negatively impacted by high import
costs, particularly if remittances from Senegalese living abroad
(and facing their own economic difficulties) significantly drop. At
the same time, Senegal's growing income disparity is threatening the
low-income population's ability to compete for higher-prices
consumer items facing possible scarcity, including rice. Due to
restrictive distribution systems and high taxes, prices for
commodities in Senegal are frequently higher than in neighboring
countries. There are credible reports of gray markets being
established for goods along Senegal's borders with the Gambia and
Mali.

11. (U) The GOS' plan to address rising food prices includes
suspension of customs duties and VAT on imports of main commodities
and continuing various food and energy subsidies. The government is
also trying to control prices with the stated goal of increasing
consumers' purchasing power. The government's steps, regardless of
their efficacy, will bring tremendous pressure to Senegal's already
difficult budget situation.

12. (U) Specifically, the government has reduced income taxes by
five percent which it hopes will provide an additional CFA 6 billion
(approximately USD 14 million) for the population's household
spending. [Note: this added liquidity represents only about one
dollar on a per capita basis, but only 18 percent of the country's
4.5 million workforce pay income tax. End note.] As reported in
Ref C, the government has pledged CFA 10 billion (USD 24 million) to
help rural communities purchase food (although the mechanism for
this aid is not yet known). In addition, customs duties for
important imported commodities have been suspended as well as the 18
percent VAT. The reduction of duties and VAT on main commodities
will cost Senegal's budget an additional CFA 36 billion (USD 86
million).

13. (U) The Wade administration has also touted its subsidies for
cooking butane gas and electricity as positive actions to help
consumers. These subsidies reached CFA 98 billion (approximately

DAKAR 00000523 003.2 OF 005


USD 233 million) in FY08. [Note: The IMF and donors have raised
their concern about the amount of government spending on energy
subsidies, which was estimated at three percent of GDP in 2007. End
note.]

14. (U) The Government has fixed a price ceiling for the most
popular variety of rice at CFA 280 per kilogram (USD 0.67). Since
April 18, the government, with the assistance of police forces, has
seized more than 80 metric tons of rice from "greedy traders" and
speculators in the regions of Dakar, and Fatick. In addition, the
government has announced other control measures, including the
future establishment of "reference stores" with controlled prices
and a number of "central stores" to be administered by unions.

ENVIRONMENTAL IMPACT
-------------------
15. (U) The environmental impacts of President Wade's proposals for
increased agricultural production (as outlined in the following
section) are difficult to predict. While the country can expand its
rice production, it will only do so with massive irrigation efforts
affecting the Senegal River and other watersheds. The same land
that is to be used for the drive to rice self-sufficiency represents
the country's best resource for other food and cash crops.

HOST GOVERNMENT RESPONSE
------------------------
16. (U) With the early arrival of the "hungry season" and the
imminent arrival of the next production season - beginning in June
and July - GOS and donor responses are already relatively late. The
dual nature of the problem will challenge any successful response.
The GOS faces an urgent need to calm the urban masses, while the
food security and access issue is actually worse in some rural
areas. If mass urban migration is the result of the current
situation, the situation may significantly deteriorate. However,
President Wade has stated that "there is no famine, nor will there
be famine in Senegal." He added that Senegal does not need and will
not require food aid. The country would accept, however, technical
assistance, farm machinery, help in acquiring fertilizer and
improved seed, and help in improving irrigation in line with GOS
initiatives.

17. (U) As outlined in Ref B, President Wade recently announced his
ambitious "Great Agricultural Offensive for Food and Abundance"
(GOANA) plan to push for the country's food self-sufficiency. His
plan which aims to produce in 500,000 MT of rice in 2008, compared
to average harvests of around 170,000 MT (but only 80,000 in 2007),
2 million MT of maize/corn compared to 500,000 MT in 2007, 3 million
MT of cassava/manioc compared to 280,000 MT in 2007, 2 million MT of
cereal, 400 million of liters of milk and 43,500 MT of meat. Any
effort to significantly increase agricultural production will
require immediate action, given that the planting season arrives in
30-60 days. President Wade also urged his Ministers, Members of
Parliament, senior civil servants, and private sector leaders to
cultivate at least 20 hectares of land in 2008. How the elite will
acquire this land is not clear. Asked whether the crop expansion
plan is realistic, Prime Minister Soumare stated that "it is really
ambitious, but one has to be ambitious in Africa." A more unlikely
proposal is the purchase of two cloud-seeding airplanes for CFA 10
billion (USD 23 million).

POST PROGRAMS
-------------
18. (U) The U.S. Mission to Senegal has not initiated any emergency
response, but has been in contact with the World Food Program and
other donors about possible emergency steps should that become
necessary. One possible quick response is through existing USG food
aid programs whereby NGOs implementing Title II funded programs are
allowed to utilize 10 percent of their commodity resources for
emergency activities.

19. (U) USAID's Office for Food for Peace (FFP) has funded a
non-emergency program in Senegal since FY 2004. The project, known
as the Bamtaare Fouta-Toro Project, is being implemented by
Counterpart International (CPI) and is expected to end in 2009. The
program aims to reduce food insecurity in 133 vulnerable communities
in Podor Department located in St. Louis region of northern Senegal
through direct food distribution and monetization of food aid
commodities. CPI's strategy is to build local capacity, provide
technical assistance and promote private sector development to
facilitate program sustainability in health, education and

DAKAR 00000523 004.2 OF 005


nutrition.

20. (U) In FY 2008 to date, a total of 29,587 people have received
general food distribution, including 18,784 primary school children,
1,448 pre-school children, 1,156 people living with or affected by
HIV/AIDS and Tuberculosis, and 8,199 maternal and child
health/nutrition beneficiaries as well as other vulnerable people.
In FY 2008, CPI will continue to distribute food commodities and
serve meals to students in 151 schools and 25 pre-schools. A total
of 22,800 children (21,000 primary students and 1,800 pre-school
students) are expected to eat in canteens once a day, four to five
days a week. Furthermore, CPI will focus on health and nutrition
activities at 61 sites, working with approximately 20,447 direct
monetization beneficiaries of which 9,000 will receive food rations.
To date, CPI received a total of 14,566 MT of commodities
(dehydrated potatoes, vegetable oil, lentils and bulgur) for the
Title II program. In total, CPI expects to receive 2,260 MT of
vegetable oil, lentils, bulgur and Corn Soy Blend for general food
distributions in FY 2008. Currently in stock as of end of March
2008 for FFP/USAID: 230 MT of bulgur; 19 MT of Corn-soy blend; 149
MT of lentils; 171 MT of vegetable oil and 61 MT of dehydrated
potato flakes.

21. (U) CPI also implements a monetization program in which USG
food commodities, principally rice and crude vegetable oil, are sold
in the local market to generate funds in support of education,
HIV/AIDS, and maternal child health/nutrition activities in Podor
department and the region of Matam. In FY 2008 to date, the
education component of CPI's monetization program hasfor instance
benefited 18,784 students in 152 primary schools covering 67 percent
of all functioning primary schools in the Department of Podor.
During FY 2008, 36 pre-schools and 1,448 pre-school students
representing 100 percent coverage of "Case de tout petite" and
"Ecole maternalle" in the Region of Saint Louis benefited from
directly distributed and monetized USAID food commodities.

22. (U) CPI also supports a USDA Mc-Govern Dole Food for Education
(FFE) program in the Region of Matam (Kanel, Matam and Ranerou
Departments) using USDA food commodities and was recently awarded a
second Food for Progress program to fund agricultural development
activities in the Department of Podor. To date in 2008, the CPI
implemented USDA funded FFE program benefited 112 schools and 21
pre-schools through the provision of hot meals and a complementary
maternal and child health and nutrition program. In FY 2008, CPI
expects to receive 720 MT of commodities including textured soy
protein, vegetable oil, bulgur and lentils for this program.
Currently in stock at the end of March 2008 for FFE/USDA: 3.4 MT of
Bulgur; 3.2 MT of lentils; 50 MT of TSP and 34 MT of vegetable oil,
as well as some locally purchased food in stock (7.7 MT of dry fish;
4.1 MT of tomato paste and 3.8 MT of rice).

DONOR EFFORTS
-------------
23. (U) The World Food Program (WFP) has been discussing possible
responses with donors, but no food imports have been initiated
because the government has neither declared an emergency nor
requested emergency food assistance. The WFP has already drafted an
emergency response plan which would require approximately 29,000 MT
of cereals for distribution to 660,000 beneficiaries at an estimated
total cost of USD 28.2 million.

24. (U) The FAO has announced plans for a new USD 1 million seed
distribution program. The lack of good quality seed is one of the
primary constraints to a positive supply response across a variety
of crops and FAO plans to buy seeds locally and work with the GOS
for the distribution.

25. (U) Some NGOs have also taken steps to help Senegal deal with
possible food shortages. Catholic Relief Services (CRS) staff based
in Dakar have informed Mission staff that they are working in
Ziguinchor, Kolda, Tamba, Diorbel, Fattick, Thies and Dakar using
other donor funds. CRS is closely watching the food security
situation in these areas and is in the process of developing a
concept paper for fertilizer and rice seed distributions using a
food voucher system. In addition to rice seed multiplications, CRS
is in discussions with the FAO about holding seed fairs, although
the GOS has indicated a preference for direct implementation of
activities by NGOs. World Vision (WV) also works in Kaolack,
Kaffrine, Fattick, Kolda, Tamba in Senegal. The NGO has indicated
to USAID regional staff based in Dakar that they have an emergency

DAKAR 00000523 005.2 OF 005


proposal in place but are waiting for the GOS to declare a disaster
before moving ahead. In the meantime, the NGO is assessing the food
security situation and sensitizing the communities. They are
preparing a concept paper that focuses on ways of improving soil
fertility and regeneration of resources and that promotes support
for Food for Work activities in hard hit areas.

POLICY PROPOSALS
----------------
26. (SBU) President Wade believes his administration can manage
both the impact of raising prices and the threat of food insecurity.
We are in no position to directly contradict the GOS in its efforts
or rhetoric. However, independent assessments indicate that Senegal
could face more severe food shortages than other countries in West
Africa, and these objective analyses must be taken into
consideration by donors and, hopefully, by the government. In the
near term, we should also counsel against government measures that
will put at risk Senegal's fiscal viability. In the longer term,
more emphasis on improving agricultural productivity should be a
priority. Assistance from the U.S., the World Bank, and other
donors could help, but the GOS also needs to focus on its most
pressing needs, including increased production and better
distribution of quality seed, fertilizer, and credit to farmers. We
should also press for clear-thinking assessments and transparency in
GOS schemes, including the goal of rice self-sufficiency, the GOANA
proposals, and other recent ideas. We are concerned that these
could have severe budget consequences in the short term and may not
reflect Senegal's comparative advantage in the long term, and so
diminish opportunities for rural income growth.

SMITH

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