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Cablegate: Maize Flour Crisis in Kenya: The Unstable Politics Of

VZCZCXYZ0010
RR RUEHWEB

DE RUEHNR #2878/01 3641139
ZNR UUUUU ZZH
R 291139Z DEC 08
FM AMEMBASSY NAIROBI
TO RUEHC/SECSTATE WASHDC 8072
INFO RUCPDOC/USDOC WASHDC 3156
RUEATRS/DEPT OF TREASURY WASHDC
RUEHRC/USDA FAS WASHDC 1729
RUEHXR/RWANDA COLLECTIVE
RUEHBS/USEU BRUSSELS

UNCLAS NAIROBI 002878

STATE ALSO FOR AF/E AND AF/EPS

STATE PASS USTR PATRICK COLEMAN

STATE PASS USAID/EA

STATE PASS USITC FOR ALAN TREAT, RALPH WATKINS, AND ERLAND
HERFINDAHL

TREASURY FOR REBECCA KLEIN

COMMERCE FOR BECKY ERKUL

SENSITIVE

SIPDIS

E.O. 12958: N/A
TAGS: ECON EAGR ETRD EAID BEXP PINR PGOV KE

SUBJECT: MAIZE FLOUR CRISIS IN KENYA: THE UNSTABLE POLITICS OF
FOOD

REFS: (A) FAS GAIN Report KE8023 (B) Nairobi 2605 (C) Nairobi 2864
(D) FAS GAIN Report KE8024 (E) FAS GAIN Report KE8031
This cable is not/not for internet distribution.

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Summary
-------

1. (U) Rising maize flour prices, up 119 percent from November 2007
to November 2008, combined with the Kenyan staple's reduced
availability and higher prices for other staple foods, are putting
approximately 5 million Kenyans at risk of "severe hunger and
destitution," according to a recent Ministry of Agriculture report.
The crisis, while at its core is directly related to high input
costs and poor agricultural and trade policies, has been severely
exacerbated by post-election violence, corruption, and government
confusion over how to react to the situation. Government decisions
to release strategic reserves, boost maize imports, and drop duties
have begun to bring maize flour prices down. However, these are
short term solutions to a longer term issue. Without comprehensive
action, higher food prices and periodic shortages (real or imagined)
could bring even greater instability to Kenya, particularly when
combined with the slow pace of political and economic reform here.
One positive sign is the December 9 adoption by parliament of the
Bio-Safety Bill which is awaiting President Kibaki's signature. End
summary.

-----------
The Problem
-----------

2. (U) Over the last year, maize flour prices (maize flour is a
staple food for Kenyans) have increased by 119 percent. The impact
on the 46 percent of Kenyans who live on approximately two
dollars/day or less has been significant, with increasing number of
Kenyans blaming the government for mishandling the situation and
being unable to address it. Recent anti-government protests (ref c)
have included anger over high prices. Food prices in Kenya started
rising ahead of the post-election violence earlier in 2008 in
concert with the global price surge. The violence, which occurred
in the major agricultural areas, had a significant impact on the
availability of maize with a reported 2 million of bags of meal
burned and thousands of Kenyans forced off productive farms, halting
planting and ultimately affecting the harvest. Added to this were
prohibitive prices on agricultural inputs such as fertilizer as well
as the increased cost of land preparation, also due to the high
price of fuel. At the same time, ongoing quality issues at National
Cereals Production Board (NCPB) warehouses have exacerbated the
maize shortfall - about 15 percent of grain stored in NCPB
facilities is thought to be lost every year due to poor storage
conditions. Price pressures from the violence and the resulting
maize shortfall combined with high input costs and previously
anticipated shortfalls created opportunities for farmers, traders,
and millers to seek higher prices.

3. (U) In a recent meeting with GOK Ministry of Agriculture
Permanent Secretary (PS) Romano Kiome, he told us there was no maize
shortage in Kenya. The "shortage" and subsequent price increases
had been created by speculation in the market and hoarding by
traders. Kiome denied that the situation had been aggravated by the
post-election violence, asserting that the maize flour "shortage"
was not new. Dr. Kiome was more concerned about a true maize
production shortfall in the June/July 2009 timeframe. He passed us
a Ministry of Agriculture food security update for November 2008
which blamed millers and traders for holding back supplies and
"distorting the market." The report added that rising food prices
are putting approximately 5 million people at risk of "severe hunger
and destitution."

4. (U) Long term (refs a and d), Kenyans, particularly the poorest,
have been hurt by the GOK's agricultural policies. Maintaining a 50


percent duty on imported corn and prohibiting the importation of
bio-tech imported corn has discouraged competition, helped keep
prices high, and dampened the country's ability to significantly
increase production.

----------------------------
Government Solutions/Outcome
----------------------------

5. (U) In recent weeks, the government has begun to take action to
address the short term problem of high food prices, particularly of
maize meal. The government's efforts appear to be paying short term
dividends. Maize flour prices have begun to come down to KSH 70-72
per 2 kg bag of maize flour from a high of KSH 98-105 per 2 kg bag.
The GOK's initial steps to address the address have included:

-- temporarily dropping the 50 percent duty on imported maize as of
November 30 for up to seven million 90 kg bags

-- importing five million 90 kg bags of maize flour itself

-- allowing millers to import another two million 90 kg bags

-- releasing 700,000 bags from strategic reserves

----------------------
Long Term Requirements
----------------------

6. (U) The government's response, however, has not addressed the
fundamentals of Kenya's volatile agricultural production and
distribution system. Dr. Kiome noted that the expected "real" maize
shortage should come by mid-2009. Two elements in particular could
make a difference in Kenya's food security situation in the coming
years. The first element is allowing farmers, importers,
researchers and others to work with biotechnology. On December 9,
the Kenyan Parliament (ref e) adopted the Bio-Safety bill which, if
signed by the President provides for:

-- a legal framework governing activities (research, import,
handling and export) related to genetically modified organisms;
and,

-- establishment of the National Bio-Safety Authority to regulate
all activities pertaining to GMO.

The second element is the elimination of market and production
distorting policies that drive prices up and create periodic
shortages. The permanent elimination of the 50 percent import duty
on imported corn and as well as a halt to corn export bans in Kenya
and the region as a whole would rationalize the maize market.
Combined with the possibility that permission will soon be granted
for the importation of GMO corn, Kenya could see an improvement in
the availability and price for staple foods like maize flour.
Absent such changes, however, Kenya's perennial instability in the
maize market is expected to continue.

-------
Comment
-------

7. (SBU) There are two obvious concerns for policymakers presented
by high maize prices and an unstable market. One is general
instability caused when basic staple foods are in short supply and
increase rapidly in price. Second, the market distorting policies
noted above provide opportunities for corrupt actors to manipulate
the price and availability of maize for personal and/or political
gain. Such activities put Kenya and Kenyans at risk when
accompanied by the still unresolved issues brought up during and
after last year's elections. Long term and systemic political and
economic reforms, including in the agricultural sector are the only
answer to both of these concerns.


RANNEBERGER

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