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Cablegate: Kenya Emop Resources. Wheat Swap With

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

UNCLAS SECTION 01 OF 03 NAIROBI 005126

SIPDIS

AIDAC

USAID/DCHA FOR MHESS, WGARVELINK, LROGERS
DCHA/OFDA FOR KISAACS, GGOTTLIEB, MMARX, IMACNAIRN,
KCHANNELL, LPOWERS, CABLA
DCHA/FFP FOR JDWORKEN, DNELSON, SBRADLEY
AFR/EA FOR JESCALONA, JBORNS
ROME FOR FODAG
GENEVA FOR NKYLOH
BRUSSELS FOR PLERNER
STATE FOR JGAFFNEY, NGAREY
NAIROBI FOR ABEO, REDSO/FFP FOR NESTES
NSC FOR JMELINE

E.O. 12958: N/A
TAGS: EAID KE EAGR
SUBJECT: KENYA EMOP RESOURCES. WHEAT SWAP WITH
KENYAN MAIZE

REF: NAIROBI 7340 AND PREVIOUS

-------
SUMMARY
-------

1. This is an action request. See paragraph 12.

2. To address the immediate food needs of drought
victims in the southeastern and coastal lowlands, as
well as among pastoralists in Northeast Kenya, while
also supporting Kenya's oversupplied maize market,
post recommends USAID/FFP/DCHA approval of the World
Food Program (WFP) request for shipment of wheat
grain to Kenya to be swapped for locally-produced
maize for distribution to Kenyan drought victims.

---------------------
Background of Problem
---------------------

3. Emergency food assistance has been a regular
feature of Kenya's Arid and Semi-Arid (ASAL) areas
for the last 20 years. USAID has been major
contributor to the WFP/GOK Joint Emergency Operation
(EMOP) in support of drought victims. Maize
grain/meal has been the primary commodity provided,
supplemented by pulses, vegetable oil and corn-soy
blend. At present, 1.2 million drought-affected
persons are being provided relief assistance through
the ongoing EMOP. Approximately, 27,000 MT of food
commodities (mostly cereals) are still needed to feed
the 1.2 million drought-affected people until the
next harvest period, which is expected in February.

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4. Early assessments of performance of current
short-rains indicate poor and erratic distribution in
most short-rain-dependent areas, implying the
likelihood of prolonged food insecurity in the
country.

5. While food deficits continue to afflict many
people in marginal agricultural and pastoral areas of
the North and Northeast, Western and Central Kenya
received a large surplus of marketable maize during
the long-rains harvest period (July/August)earlier
this year. This has resulted in current low maize
prices in the market. In a bid to reduce the
negative impacts of low maize prices on farmers'
earnings and future production, the National Cereals
and Produce Board (NCPB) has procured significant
maize stocks for its strategic and relief reserves.
Other donors have also contributed cash towards local
cereal purchases to meet EMOP requirements while
avoiding local market disruption.


6. While the strategy of encouraging local maize
purchases for meeting EMOP needs has worked up to
now, the cereals pipeline is now virtually depleted.
Furthermore, it seems clear that sufficient donor
cash resources are not going to be available to meet
the 27,000 MT of cereals needed for the EMOP between
now and its anticipated phase-out date in February.
Given that USAID/DCHA/FFP is only able to provide
food in-kind, we face a dilemma. Providing
additional non-domestic maize in-kind risks
undermining the market (or at least being perceived
as doing so). On the other hand, failing to provide
additional maize will certainly lead to rupture of
the pipeline and inability to meet food needs of
households still struggling to recover from the
drought.

7. It is post's understanding that USAID/DCHA/FFP
has allocated funds to provide a new contribution of
12,000 MT of maize to the Kenya EMOP.

------------------------------------------
Recommended Solution for the Maize Dilemma
------------------------------------------

8. USAID and WFP Nairobi offices discussed
strategies to solve this dilemma. One approach
discussed would be to provide wheat instead of maize.
This could address the dual needs of meeting
emergency food requirements while avoiding negative
impacts on the maize market. Providing wheat has at
least two significant disadvantages, however. One is
that wheat is not suitable to meet all the
consumption requirements for all of the drought-
affected populations. Another is that a wheat pledge
would not arrive for a few months (and could not be
borrowed against in order to make use of maize stocks
already in-country), too late to meet immediate
pipeline needs.

9. The WFP and GOK have, therefore, proposed a
better solution. They are requesting a PL 480 Title
II wheat grain pledge which could be swapped with
local maize purchased by the NCPB. WFP, NCPB, GOK,
USAID/KENYA and REDSO/FFP have held several meetings
to discuss this possibility, and have agreed on the
modalities of such a swap, pending approval of
USAID/DCHA/FFP. The details of how such a swap would
work are as follows:

A) Timing and Location: The NCPB would release
maize stocks immediately to the WFP from warehouses
in appropriate locations in the country. The WFP
would release PL 480 Title II wheat to the NCPB in
Mombassa port at time of arrival (March/April 2006).

B) Bags and Markings: NCPB would provide maize in
bags, and WFP would use stencils to mark bags as USG
donations. PL 480 Title II wheat would arrive in
bulk and be bagged by the WFP.

C)Specifications and Quality: USAID/FFP/DCHA
would provide "hard red winter wheat grade 2 or
better". The NCPB would provide maize meeting the
WFP standard requirements.

D)Swap Rate: The rate of exchange of wheat
for maize would be 1:1.07 that was determined based
on current maize market prices and estimated future
wheat prices, as well as other important
considerations(i.e., wheat would arrive later, in
bulk, and not be transported beyond the port). The
actual amount of the exchange will also depend on the
e
exact quantity of wheat that USAID/DCHA/FFP provides.
Post assumes the donation would be approximately
12,000 MT.

E) Duty: This swap rate was calculated on
the assumption that the GOK will not impose the usual
35 percent import duty on the wheat. This is standard
practice for commodities donated for humanitarian
purposes.


F)Written Agreement: A Memorandum of
Understanding would be signed between the GOK and the
WFP including agreement on all the conditions
described above.


-----------------
Expected Benefits
-----------------

10. Benefits of this arrangement would include: (a)
uninterrupted provision of food aid to meet immediate
needs of drought victims and support their recovery
from the drought; (b) avoidance of negative impacts
on Kenyan maize market and ensuring that farmers gain
fair earnings on their produce.

----------------------
Bellmon Considerations
----------------------

11. Post confirms that sufficient storage capacity
exists in country and that a donation of
USAID/DCHA/FFP wheat of up to 12,000 MT would not
have a detrimental effect on local wheat production
or marketing. In normal years local wheat production
accounts for only about one-third of consumption
requirements, leaving an import requirement of
roughly 200,000 MT on average. In addition, post
confirms that this donation would not negatively
impact Title II food aid monetization plans, and that
the total of both donations combined would not exceed
the usual marketing requirement (UMR).

----------------
Action Requested
----------------

12. Post requests positive consideration by
USAID/DCHA/FFP of a requested donation of PL 480
Title II wheat of up to 12,000 MT for the Kenya
drought EMOP to be swapped for locally-produced maize
under the conditions detailed in paragraph 9 above.
BELLAMY

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