JORDAN: FY04 USDA FOOD ASSISTANCE RECOMMENDATION

UNCLAS SECTION 01 OF 02 AMMAN 006504

SIPDIS

USDA FAS FOR MARY CHAMBLISS/ROBIN TILSWORTH
CAIRO FOR FAS - ASIF CHAUDRY

E.O. 12958: N/A
TAGS: EAGR EAID JO
SUBJECT: JORDAN: FY04 USDA FOOD ASSISTANCE RECOMMENDATION

REF: STATE 181481


1. (U) Summary. Post recommends that $20 million in
FY04 P.L. 480 Title I funds be set aside for a
concessional loan that will help the government of Jordan
procure U.S. wheat, with proceeds from the local sale of
the wheat being used to fund agricultural productivity
and rural development programs, including to help farmers
use scarce water resources more efficiently. This level
of assistance would not displace commercial sales or
local production and is consistent with a pattern of
declining U.S. food aid levels as Jordan's economy
becomes increasingly able to meet its food import needs
commercially. End Summary.


2. (U) In recognition of critical U.S. foreign policy
interests in Jordan and the major economic growth and
development obstacles faced by this resource and water-
poor country, Jordan has historically been a major
beneficiary of U.S. food aid. Food aid has helped Jordan
meet the nutritional requirements of its relatively poor
and growing population (per capita income was $1750 in
2002),including during the recent (1999-2001) period of
serious drought. In addition, joint programming of the
local currency generated by government sales of food aid
provided under the 416(b) and P.L. 480 Title I programs
has advanced agricultural reforms and productivity and
promoted development in rural areas.


3. (U) Until 1998, assistance was provided through P.L.
480 Title I loans that Jordan used to procure U.S. grain.
During the drought period between FY99 and FY02, food aid
was provided in the form of wheat grants under the 416(b)
program, with the United States donating 200,000 mt tons
of wheat in FY02. In FY03, food aid was again provided
through a $20 million Title I concessional loan that
Jordan used to procure approximately 135,000 mt of U.S.
wheat. (With annual consumption of approximately 650,000
mt, wheat is the staple of the Jordanian diet.)


4. (U) Along with Jordan's recovery from the recent
drought, economic growth patterns have strengthened since
2001, as the impact of extensive macroeconomic and
regulatory and trade reforms implemented since the early
1990s began to kick-in. Until the conflict in
neighboring Iraq interrupted traditional trade and energy
ties earlier this year, real GDP had been growing at a 5%
annual pace. Analysts expect growth rates to return to
and likely exceed that pace once the economy adjusts to
the disruption caused by the war in Iraq. Nevertheless,
Jordan will continue to suffer from high rates of poverty
and highly unequal income distribution for years to come.
Rural and agricultural areas remain by far the poorest
and least developed parts of the country.


5. (U) Thus, despite economic progress, Jordan will
continue to require U.S. economic assistance for the
foreseeable future. The year 2004 will be an especially
challenging one for Jordan as the economy adjusts to the
loss of oil and trade subsidies formerly provided by
Iraq, with the government budget bearing the largest part
of the adjustment burden. Food aid will remain an
important part of the assistance mix. Local currency
generated by government sales of food aid would continue
to help agricultural and rural populations adjust to
rapid economic change and in encouraging continuing
agricultural reforms. In addition, food aid has helped
develop a lasting market for U.S. wheat and has not been
found to displace commercial sales.


6. (U) RECOMMENDATION: Given these foreign and
economic policy considerations, post recommends that the
level of food assistance be maintained in FY04 at the
same level as in FY03, i.e. that $20 million in P.L. 480
Title I funds be set aside for Jordan for wheat purchases
under the government to government program. As in FY03
and earlier years, local currency proceeds would be used
to help finance GOJ programs that promote agricultural
productivity through market-oriented reforms and more
efficient agricultural use of scarce water resources.


7. (U) This recommendation is consistent with a pattern
of declining food assistance levels as Jordan's economy
becomes increasingly self-reliant, but is also realistic
in recognizing that Jordan will continue to require
foreign assistance to meet its development and
nutritional challenges. In FY04, the challenge of
adjusting to the economic impact of the Iraq conflict
will be particularly acute. In FY05 and beyond, we may
want to continue pursuing gradual reductions of food aid
levels, with a goal of eventually moving Jordan toward
fully market-based procurement of its food needs.
GNEHM