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Cablegate: Nicaraguan Government Looks to Market to Supply Red Beans

VZCZCXYZ0000
PP RUEHWEB

DE RUEHMU #2375/01 2962000
ZNR UUUUU ZZH
P 232000Z OCT 07
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC PRIORITY 1556
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC

UNCLAS MANAGUA 002375

SIPDIS

SENSITIVE
SIPDIS

USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN
3134/ITA/USFCS/OIO/WH/MKESHISHIAN/BARTHUR
USDA/FAS FOR YWEDDERBURN AND LCERVANTES


E.O. 12958: N/A
TAGS: EAGR ETRD ECON NU
SUBJECT: NICARAGUAN GOVERNMENT LOOKS TO MARKET TO SUPPLY RED BEANS


Summary
-------

1. (U) The retail price of red beans, a staple in Nicaragua along
with rice and corn, has tripled this year, increasing to $0.97/pound
in some local markets from $0.32/pound in January. Adverse weather
conditions have damaged two successive crops and are playing havoc
with the market. Pre-existing export commitments to El Salvador are
also a factor. Instead of draconian measures advocated by some, the
Nicaraguan Government is apparently first looking toward a
market-based solution, announcing on October 18 that a 30% tariff on
beans would be removed for three months to encourage imports. Post
has alerted the U.S. Dry Bean Council of this potential export
opportunity. End Summary.

Beans Triple in Price
---------------------

2. (U) The retail price of red beans, a staple in Nicaragua along
with rice and corn, has tripled this year, increasing to $0.97/pound
in some local markets -- up from $0.65/pound in early October and
$0.32/pound in January. Media have dedicated significant attention
to rising prices and, in true Nicaraguan fashion, rushed to report
rumors as to the cause of the "bean shortage." Some reporters
speculate that unscrupulous traders are hording beans to drive up
prices. Others criticize President Ortega for exporting beans to
Venezuela in exchange for fertilizer. The truth has far more to do
with Mother Nature.

Unusual Rains Affect Plantings
------------------------------

3. (U) Since Hurricane Felix struck Nicaragua in September, the rain
has not stopped in the western regions of the country, where most of
the red beans are grown. Normally, farmers count on two plantings,
with a third possible in areas subject to irrigation or additional
rainfall. The first season begins in May when the first rains come.
This year, however, May was unusually dry, so farmers delayed their
planting until June, pushing back the harvest of the first crop to
August.

4. (U) This delay meant that the second crop of the year was not
sown until September, shortly before Hurricane Felix struck the
Atlantic coast and subsequently northern Nicaragua. Felix was
followed by unusually constant rains, causing extensive flooding and
crop damage throughout the country's bean growing region. What
remains of the second crop will not be ready for harvest until late
November. Until then, Nicaragua will continue to experience a
shortage of supply.

5. (U) Unfortunately, the situation is complicated by pre-existing
contracts for export and strong seasonal demand as large farmers buy
staples to feed workers that they hire to harvest coffee and sugar.
Moreover, farmers looking to plant a third crop will likely find
seeds in short supply, as beans that would have been treated and
offered as seeds are being sold for human consumption as prices for
the food staple soar.

Salvadoran Demand a Factor
--------------------------

6. (U) Nicaraguan exports of red beans have steadily increased in
recent years. In 2006, the Ministry of Agriculture, Fisheries, and
Forestry (MAGFOR) estimated that farmers grew 430 million pounds of
red beans, enough to supply local demand and export more than a
quarter of production. During the first nine months of 2007,
exports totaled 109 million pounds ($34.1 million), up from 96
million pounds ($29.8 million) during the first nine months of 2006.
El Salvador has become Nicaragua's most important export market for
red beans, with many buyers there willing to finance and sign
forward contracts with Nicaraguan farmers to ensure supply.

Government Looks for a Market-Based Solution
--------------------------------------------

7. (U) Government officials are under pressure to lower red bean
prices for local consumers. Options under discussion in some
government and FSLN party circles include imposing export controls,
fixing domestic prices, and reviving a national marketing board to
ensure local supply, all draconian measures characteristic of
economic policy during Ortega's presidency in the 1980s. Commodity
traders believe either solution would produce equally disastrous
results today.

8. (U) Minister of Trade, Industry, and Development (MIFIC) Orlando
Solorzano has publicly stated that the government would first seek a
market-based solution to the shortage of supply. On October 18,
MIFIC and MAGFOR published a joint decree that removes the 30%
tariff on red bean imports for a three-month period. Meanwhile, the
U.N. Food and Agriculture Organization is coordinating an effort to
obtain international assistance for the purchase of $3 million worth
of seeds (red beans and white corn) for the third planting season.
Post has alerted the U.S. Dry Bean Council of potential export
opportunities in Nicaragua.

Comment
-------

9. (SBU) Fortunately, the government is first turning toward the
market instead of intervention to relieve the temporary shortage in
supply of this staple. The result should be far more effective, as
market incentives for Nicaraguan farmers to increase acreage in the
coming year will remain. Minister Solorzano's decision provides
concrete evidence that he supports free-markets and trade, and that
he is able to successfully argue that solution within government
circles.

TRIVELLI

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