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Cablegate: Yemen Request - Fy05 Usda Food Assistance, Pl480

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 04 SANAA 002344

SIPDIS

PLEASE PASS TO USDA/FAS/EXPORT CREDIT FOR MARY CHAMBLIS,
DEPUTY ADMINISTRATOR AND DIRECTOR, PROGRAMMING DIVISION.

E.O. 12958: N/A
TAGS: EAGR EAID ASEC YM ECON COM
SUBJECT: YEMEN REQUEST - FY05 USDA FOOD ASSISTANCE, PL480
TITLE I

REF: SECSTATE 172525

1. Summary: USDA food assistance in Yemen is enhancing
infrastructure, funding agricultural research projects, and
teaching horticultural marketing and livestock management
skills. Since 2000, USDA assistance constituted the bulk of
USG development aid to Yemen. In conjunction with USAID
technical assistance, USDA food assistance programs help
achieve greater security and stability within Yemen and
improve bilateral relations. Yemen is a key U.S. partner in
the global fight against terrorism. Post, therefore,
requests $20.5 million in USDA support for FY 2005.

------------------------
PL-480 REQUEST FOR YEMEN
------------------------

2. Post's request for the FY05 PL-480 Title I Grant Program
is $20.5 million. Wheat, wheat flour, and soybean oil will
be easily absorbed into the local market. If these
commodities are not available, corn and soybean meal are
excellent alternative choices for the PL-480 grant program in
Yemen. Tier 1 commodities are preferred over tier 2
commodities due to larger market demand.

Based on current Yemeni market prices, Post requests the
following commodities:

Tier 1 Amount Est. Value

Wheat 60,000 MT $9.0 million
Wheat Flour 30,000 MT $7.5 million
Refined Soybean Oil 5,000 MT $4.0 million

TOTAL 95,000 MT $20.5 million


Tier 2 Amount Est. Value

Corn 20,000 MT $3.4 million
Soybean Meal 7,000 MT $1.9 million

3. MARKET DISPLACEMENT: Yemen is a poor country in which only
the lowest priced commodities will sell. Yemen imports 1.7
million MT wheat and 400,000 MT flour. The majority of wheat
is imported from India and Australia. Post,s request of
90,000 MT would only account for five percent of Yemen,s
total imports of wheat and flour and will not interfere with
commercial sales. Yemen traditionally imports soft white
wheat, which is used for both milling and direct sale to
consumers. Domestic milling capacity is steadily increasing,
which is reducing the demand for imported flour. Therefore,
Post requests a greater ratio of wheat-to-wheat flour.

4. Since the introduction of U.S. flour through the 416(b)
program, consumers have been exposed to the quality of U.S.
wheat. Because the price of U.S. wheat is significantly
higher than subsidized European flour, Yemeni importers do
not purchase U.S. flour on the market. PL-480 would expose
more Yemeni consumers to higher quality U.S. wheat and in the
future could expand the market for U.S. agricultural
products.

5. Yemen remains a net importer of refined vegetable oil,
bulk palm oil, corn and soybean meal. Yemen imports refined,
packaged oil for direct consumer sales. For food products,
bulk palm oil and refined vegetable oil are used for
manufacturing and packaging. Oil importers who manufacture
and distribute brand-name oil products may combine refined
vegetable oils with palm oil to make the finished products.
Annual imports of corn and soybean meal are approximately
300,000 MT for corn and 80,000 MT for soybean; these are
primarily used for chicken feed production. The Yemeni
market would absorb PL-480 donations of corn and soybean
meal.

6. LOCAL PRODUCTION: With its rocky, mountainous terrain,
Yemen's food production is limited to isolated mountain
terraces. Only three percent of Yemen,s land is cultivated,
with water scarcity severely limiting its expansion. As a
result, Yemen will remain import-dependent for the majority
of its grain and crop demands. Yemen produces less than
150,000 MT of wheat annually and this is unlikely to increase
substantially over the long term. Yemen imports nearly all
of its wheat, wheat flour, corn, rice, and soybean oil and
meal requirements. With a birthrate of 6.7 children per
woman and an annual population growth rate of nearly 3.5
percent. Demand for agricultural products will continue to
increase.

--------------------------------------------- -------
THE YEMEN PL-480 PROGRAM: SPRINGING OFF PAST SUCCESS
--------------------------------------------- -------

7. USG development strategy in Yemen focuses on agriculture,
health and education in the most rural and underserved
regions of Yemen. Post will continue to support ongoing core
development objectives; past and ongoing PL-480 assistance is
complementary and integral to the mission's overall
development strategy. Recognizing the practical results
achieved from past PL-480 projects, stakeholders such as
farmers, rural communities, and the Government of Yemen
continue to request expanded development services.
8. PAST FOOD ASSISTANCE SUCCESSES: Based on continuing USG
development objectives outlined in paragraph 10, USDA food
aid programs are currently funding extremely successful rural
development projects on which future PL-480 grants will
expand. The following are a few examples:

-- The FY 2002 416(b) program financed a pilot irrigation
project in Marib governorate that significantly cut the cost
of pumping water, reduced water wastage, and is increasing
yields due to more efficient water usage. In addition, the
food assistance program financed the construction of health
facilities in many regions of the country and the training of
medical staff.

-- A large-scale municipal drainage project underway in the
city of Sana'a will allow rainwater to be directed to
surrounding farmland for irrigation purposes.

-- The FY03 PL-480 program is financing a project that takes
research and extension of productivity to the village level
in eight districts, where multi-disciplinary teams directly
address the problems faced by farmers and helps introduce
expanded income opportunities.

The FY 2005 Food for Progress will allow the USG to expand
these projects to more remote and vulnerable areas.

9. Through a transparent tendering process, PL-480
commodities received under a Food for Progress program will
be sold to the private sector. A Joint Working Group (JWG)
oversees the USDA food assistance program, consisting of one
member each from the U.S. Embassy, Ministry of Planning and
International Cooperation, Ministry of Agriculture and
Irrigation, and Ministry of Finance. The JWG monitors the
tendering and execution of the food assistance programs and
approves all project proposals utilizing PL-480 proceeds.

10. CONTINUING AND STRENGTHENING USG DEVELOPMENT OBJECTIVES:
With FY 2005 PL-480 grants, the JWG plans to continue
directing PL-480 proceeds to rural development projects,
primarily in tribal areas. Three main factors influence JWG
project decisions.

-- First, poverty afflicts the rural areas to a greater depth
and breadth than the urban areas; most of the Yemen labor
force lives and works on small, subsistence family farms.
PL-480 activities must have a measurable, positive effect on
poverty alleviation and employment generation.

-- Second, water resources continue to diminish and remain
constrained; water conservation and rain-fed agriculture
should be given utmost consideration in project frameworks.

-- Third, projects should generate increased economic
opportunity through agricultural productivity along with
viable opportunities for women.

In keeping with these objectives, the 2005 PL-480 program
will fund successful projects designed to expand sustainable
production of agricultural products, expand markets for
agricultural products, improve the framework for economic
growth, and improve health and living conditions in rural
areas:

a. Sustainable Agricultural and Livestock Sectors: Improve
crop and livestock specification and growing techniques;
improve access to, and use of, water and other inputs (e.g.
seeds, feed); support community-based producers associations;
study incentives to shift to higher value products; assist
businesses that support the agriculture sector; terrace and
soil reclamation/conservation; technical support to women
food producers.

b. Growing the Domestic Agricultural Markets: Improve access
to infrastructure for agricultural related businesses;
improve product quality, processing and packaging; support
private sector marketing co-ops; expand access to credit;
market research and development; expand regional and
international partnerships.
c. Economic Growth: Assist Yemeni higher education and
research institutions to support the private sector;
technical assistance to the Ministry of Agriculture and other
ministries and to district and governorate agriculture and
economic development offices; identify opportunities to
expand exports and increase investment in new businesses;
technical assistance to help the ROYG increase trade
opportunities; assistance to ROYG at all national,
governorate and district levels to collect and use
agriculture and other commercial data for planning; improve
IT applications to support program objectives; improve legal,
regulatory and institutional environment for economic growth
and income opportunities.

d. Health and Living Conditions in Rural Areas: Improve
living conditions, health and productivity of the rural poor,
who depend on agriculture for their livelihoods; improve
access to health care and clean water and improve sanitation.

----------------------------------------
YEMEN,S QUALIFICATION FOR PL-480 PROGRAM
----------------------------------------

11. SYSTEMIC POVERTY AND UNDERDEVELOPMENT: Yemen is one of
the least-developed countries (LDCs) in the world and is the
poorest country in the Middle East. According to 2004 UN
estimates, the per capita income in Yemen is $508 a year.
Yemen ranks 152 out of 174 nations on the UN,s World
Development Index. Approximately 40 percent of the
population lives below the poverty line. The median age in
Yemen is 15 years and the rapid population growth is coupled
with low rate of enrollment in basic education, just 61.3
percent for boys and 41.1 percent for girls. The low level
of basic education leads to high illiteracy rates with
varying estimates of 65 percent literacy for men and 35
percent literacy for women.

12. ROYG EFFORTS TO STEM POVERTY AND INCREASE FOOD SECURITY:
The ROYG is currently implementing its second Five)Year
Economic and Social Development Plan (from 2001 to 2005) and
Poverty Reduction Strategy Program (PSRP). Both focus on
reducing poverty and seek to address national concerns such
as water scarcity, the absence of infrastructure to support
agriculture and industrial development (including a reliable
transport system), rational utilization of the country,s
fish resources, as well as to increase enrollment in basic
education (especially for girls) and access to healthcare and
other social services. The projects supported by the Food
for Progress program will complement the objectives of the
PRSP and the Economic and Social Development Plan.

13. PREPARATIONS FOR WTO ACESSION: Yemen applied for
accession to the World Trade Organization (WTO) in July 2000.
In 1995, Yemen began executing an IMF structural reform
program and has taken measures to stabilize its economy. Due
to this guidance, basic commodities subsidies have been
removed. The IMF and World Bank have welcomed this and other
reform measures implemented to date. To prepare for WTO
accession, Yemen will examine reducing import restrictions
and opening its agriculture sector to the global market.

14. FINANCIAL HEALTH AND STABILITY: Over 90 percent of
Yemen,s export revenues derive from oil exports. Record
high world oil prices over the past year have restored
Yemen,s depleted foreign currency reserves. While current
reserves hover around $5 billion, they could be in danger of
dramatically collapsing should oil prices fall. In addition,
Yemen brought its indebtedness to a sustainable level due in
part to &exit treatment" at the Paris Club meetings in June
2001 and a July 2002 Yemen-U.S. agreement to reduce and
reschedule $73 million in debts. The current debt burden
represents 48 percent of its GDP. Therefore, Yemen meets the
basic criteria established for the Food for Progress program.

15. LIMITED PARTICIPATION FROM PRIVATE VOLUNTEER
ORGANIZATIONS (PVOs) AND INTERNATIONAL DONORS: Many PVOs and
international donors are slowly returning their assistance to
Yemen. Much of the low level of participation can be
attributed to security concerns starting from the 1990 Gulf
War, the Cole attack, and other events. Nonetheless even
European and Japanese aid levels are not high. In fact,
Yemen receives a comparatively low level of foreign
assistance per capita than other LDCs. The difficulty of
operating in Yemen,s rugged, mountainous and rural
environment where security is not easily maintained,
contributes to reduced donor support. Without a
comprehensive PVO/NGO infrastructure, Post continues to
support a government-to-government program. Sales of these
PL-480 commodities can converted to liquid funds for
JWG-selected projects. The JWG, which includes Embassy
representation, identifies projects for support, administers
transparent tendering processes in which local contractors
compete, and reviews the progress and outcome of all PL-480
projects.

16. AN EMERGING DEMOCRACY: Yemen is one of a handful of
Middle Eastern countries that have adopted a serious and
sustained program of democratic form. Following unification
in 1990, the first Parliament elected by universal suffrage
convened in 1993. In 1999, Yemen held its first Presidential
election, and in February 2001, the first election of local
councils began the move towards decentralization. The 2003
Parliamentary elections were technically sound and judged
&generally free and fair8 by international observers. In
addition, the ROYG is cooperating with the USG on sensitive
counter-terrorism efforts. Continued assistance through
PL-480 serves U.S. interests in buttressing democratic reform
and complementing counter-terrorism efforts by enhancing
income-generating activities in the rural, tribal areas of
Yemen where extremists may take refuge.

17. ...AND A COUNTER-TERRORISM PARTNER: The ROYG has
supported Middle East peace efforts, distanced itself from
Iraq, and been an active ally of the Operation Enduring
Freedom coalition against Al Qa,ida. Most importantly,
Yemen has cooperated on the investigation into the terrorist
bombing of the USS Cole in Aden in October 2000, and expanded
its counter-terrorism efforts following President Bush,s
November 2001 meeting with President Saleh. A sign of
Yemen,s commitment to democratic progress, President Saleh
attended the June 2004 Sea Island G-8 Conference. As a
result, Yemen will co-sponsor with Turkey and Italy the
Democracy Assistance Dialogue. Development assistance,
especially in tribal areas, is important to extend government
control and deny safe havens for Al Qa,ida. Ongoing U.S.
Food for Progress assistance will reinforce U.S. goals of
democratic reform and counter-terrorism cooperation.

-------
COMMENT
-------

18. USDA food aid continues to exemplify the USG,s overall
commitment to support Yemen as an emerging democracy and a
key partner in the war against terrorism. U.S. assistance
has expanded USG leverage in both the political and economic
development spheres. Post recommends that Yemen be
considered a very strong candidate for the Food for Progress
program at a level consistent with PL-480 programs of recent
years. This aid is a vital step toward meeting
well-documented humanitarian needs and will strengthen
Yemen,s own ability to resist and combat extremist ideology
in the country and the region. End comment.
KRAJESKI

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