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Cablegate: Sudan: Impact of Rising Food/Agricultural Commodity Prices

VZCZCXRO3125
PP RUEHGI RUEHMA RUEHROV
DE RUEHKH #0665/01 1221419
ZNR UUUUU ZZH
P 011419Z MAY 08
FM AMEMBASSY KHARTOUM
TO RUEHC/SECSTATE WASHDC PRIORITY 0695
INFO RUCNFUR/DARFUR COLLECTIVE
RUCNIAD/IGAD COLLECTIVE
RUCNDT/USMISSION USUN NEW YORK 0191
RHMFISS/CJTF HOA

UNCLAS SECTION 01 OF 03 KHARTOUM 000665

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR AF/SPG, S/CRS
DEPT PLS PASS USAID FOR AFR/SUDAN AND DCHA/FFP

E.O. 12958: N/A
TAGS: EAGR EAID ETRD ECON PGOV PREL SU
SUBJECT: SUDAN: IMPACT OF RISING FOOD/AGRICULTURAL COMMODITY PRICES

REF: A) STATE 39410
B) KHARTOUM 109
C) KHARTOUM 294

1. (SBU) SUMMARY: The rising global price of food and agricultural
commodities is having an impact on food prices in Sudan, mainly with
staple commodities, such as wheat and sorghum. While not fully
quantifiable, domestic agricultural production seems to be
responding to the changes, and the Government of National Unity
(GNU) has taken action through the formation of a new committee and
has reduced the taxes imposed on wheat. Political unrest is not
significant at this point, though protests have taken place in
Khartoum, and editorials are appearing in the print media. Price
increases of commodities in the U.S. have impacted the total budget
for the USAID/Food for Peace (FFP) program, though there has not/not
been a decrease in the overall size of the program in Sudan in FY08.
END SUMMARY.

DEMAND
------

2. (U) The most important agricultural commodities in Sudan are
sorghum, wheat, millet, tubers (sweet potato and cassava), and
pulses (fava beans and lentils). In terms of cereals, the demand
for wheat has steadily grown during the last two decades,
particularly in Khartoum and other urban areas. The increasing trend
in demand for heat is`a rasult(of apidupbaoizatkon,0wmreiojcm^q5edrs rrefEr$Fc
w5n{!Qoln!p.M c'nte'1b olmUz|lmQQ'l}q\"s'y8s#ehQu%LDa6U'rcs`gQc.oc*e Qf$qzQAk"cQ|J&U6y, o4E$
December 2006 to December 2007; conversely, the price of sorghum,
during that same time, has remained stable. Furthermore, between
January and March 2008, prices have increased by 30 and 12 percent,
respectively, though some of this may be due to seasonal price
fluctuations.

4. (U) Sudan is a net importer of wheat, with domestic production of
wheat estimated at 700,000 metric tons (MT) per year on average, and
total national annual consumption is estimated at 1.9 million MT,
according to U.N. Food and Agriculture Organization (FAO). Sorghum
and millet consumption is estimated to be three million and 500,000
MT per year, respectively. Sorghum used for animal feed is
estimated at 500,000 metric tons annually. Sudan is a net exporter
of sorghum, mainly to the Arabian Peninsula for animal feed.

SUPPLY
------

5. (U) There is evidence that domestic agricultural production in
Sudan is responding to price changes, albeit slowly and to a minimal
degree thus far. This year, wheat was planted for the first time in
Khartoum State. The national area under wheat production has
increased by 6 percent, or 48,000 feddans (one feddan equals roughly
1.03 acres) from last season. The production figures have not yet
been released. For the past few years, the National Wheat Program
has given incentives to farmers through subsidies of fertilizers and
diesel fuel to plant wheat.

6. (U) Sorghum and millet, the traditional {tNe NMQzum and millet to these commodities directly
influences farmers' decisions as to which type of crops to plant.
Currently, the government does not mandate to individual, private
farmers any requirement to plant specific, staple crops such as
sorghum and millet. In the irrigated schemes, many of which are
parastatals, this may not be the case; post does not currently have
specific information on this subject.


KHARTOUM 00000665 002 OF 003


8. (U) On March 13, the Government of National Unity (GNU) formed a
specialized committee of experts from the Tax Chamber, Customs,
Central Bank of Sudan, Ministry of Finance, Ministry of Agriculture,
and other concerned authorities to study the effect of global price
increases and suggest proposals to reduce the impact on the Sudanese
economy and consumers. This year, with respect to wheat, the
Ministry of Finance and the Ministry of Foreign Trade plan to import
500,000 metric tons to cover the consumption gap. Similar to past
years, the majority of wheat imports will be handled through private
traders.

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

9. (SBU) Rising food prices have a potential to cause political
unrest in the fifteen months leading up to the national election in
July 2009. Since the beginning of 2008, rising bread prices have
resulted in a number of angry newspaper articles, as well as
spontaneous, non-violent protests in Khartoum in February. On
February 28, the new Minister of Finance and National Economy, Awad
al-Jaz, in his first major action in his position, announced a
significant tax break package, which will return bread prices to
their December 2007 levels (ref b). Al-Jaz announced the
cancellation of the value-added tax imposed on wheat, as well as a
reduction in the following taxes: standardization and metering,
the customs import, the harbor, and the agricultural quarantine.
(Note: Although not known currently, food price increases may impact
on the attitudes of various governmental entities, such as Ministry
of Agriculture and the Sudanese Standards and Metrology Organization
(SSMO), toward the use and importation of genetically-modified
organisms (GMO) seeds and commodities, which are currently banned.
End note.)

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

10. (SBU) As expected, rising commodity prices have had an impact on
Sudan's inflation rate. According to Sudan's Central Bureau of
Statistics (CBS), the annualized inflation rate in Khartoum State
successively increased from 13.4% in May 2007 to 20.6% in March
2008. In recent years, agricultural production as a whole has
suffered from underinvestment, leading to deterioration and/or
underdevelopment in basic infrastructure. Major bottlenecks in the
supply chain include poor transport infrastructure, weak markets and
market information, and minimal food processing facilities

11. (SBU) Higher input costs have not had a significant impact on
Sudanese food production costs, due to the relatively minimal use of
inputs. For example, fertilizers and insecticides are seldom used
in the rain-fed farming areas, which comprise the majority of
cultivated land. Conversely, at least five percent of food
harvested is lost due to poor storage facilities and techniques,
according to FAO.

12. (U) ENVIRONMENTAL IMPACT: Increased prices have not yet had a
significant environmental impact in the short term.

13. (U) GOVERNMENT POLICY RESPONSE: The GNU has adopted a new
four-year agricultural initiative, chaired by Second Vice President
Ali Osman Taha, which is intended to promote Sudanese
self-sufficiency in essential commodities (i.e wheat, sorghum,
groundnuts and millet). This program highlights wheat and sorghum
as strategic commodities, and instructs the Central Bank of Sudan,
as well as commercial banks, to facilitate micro-lending to small
farmers.

14. (U) IMPACT ON POST PROGRAMS: The rising global commodity
prices have impacted USG programs in Sudan, specifically USAID's
Title II food aid program. Currently, USAID/Office of Food for
Peace (FFP)'s largest food aid program is in Sudan, with more than
75 percent of the food assistance dedicated to meeting critical
needs in response to the Darfur crisis. In both FY07 and FY08,
USAID/FFP met 50 percent of WFP's appeal, measured in metric
tonnage, not cash value of the commodities. This year, due to
commodity and transport increases, that commitment resulted in a
mid-fiscal year budget increase of approximately $30 million. This
increase has been absorbed into the USAID/FFP budget for Sudan, in
light of the magnitude of the emergency food needs and the high
priority of the program. On the other hand, much of WFP's other
donors provide cash, not in-kind contributions, so the impact has
been felt more immediately. Fortunately, other donors, including
the EC, have been discussing the possibility of increasing their
contributions to help offset the price increases. In addition, with
early commitments from these other donors, WFP procured a
significant amount of the commodities it needed for the 2008 program
back in late 2007, when the prices were lower, so the impact has

KHARTOUM 00000665 003 OF 003


been less significant thus far than might have been expected.
Projections of future impact on USAID/USG programs have not been
fully developed as yet. Post will continue to monitor the impact of
this worrisome trend over the coming months, and will provide
updates as warranted.

FERNANDEZ

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