MOZAMBIQUE: FY05 USDA FOOD ASSISTANCE TITLE I-FUNDED FOOD

UNCLAS SECTION 01 OF 02 MAPUTO 001174

SIPDIS
STATE FOR AF/S - BNEULING
USDA/FAS/EXPORT CREDITS FOR MCHAMBLISS
PRETORIA FOR AGRICULTURAL ATTACHE - SREYNOLDS, RBICKFORD
USDOC FOR AHILIGAS
E.O. 12958: N/A
TAGS: EAGR EAID MZ
SUBJECT: MOZAMBIQUE: FY05 USDA FOOD ASSISTANCE TITLE I-FUNDED FOOD
PROGRESS REQUEST

REF: STATE 172525

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REQUEST JUSTIFICATION
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1. Although it still remains one of the poorest countries in Africa,
Mozambique has been successful in its efforts to encourage economic
growth, attract foreign investment, and revitalize several industries
destroyed by the civil war. Mozambique's agricultural sector has vast
potential, yet many factories sit idle and processing equipment is
damaged and outdated. Several NGOs have provided business and technic
support to promising agricultural sectors such as cashews, flowers,
citrus fruit, and general horticulture. Although agricultural activit
is increasing, the sector is operating far below its potential. The
recent National Assessment of Poverty and Well-Being in Mozambique,
conducted by the Ministry of Planning and Finance, indicated that 60%
of the population still lives in poverty. With these levels of povert
improvements in the standards of living of the poor remain a central
policy objective for the GRM. In this context, Title I is an importan
economic tool to help Mozambique achieve its goals in reducing absolu
poverty by providing a government-to-government food donation and in
turn, using the proceeds from sold commodities to improve access to
rural financial services and expand income generating options for
farmers living and working in rural areas. Receipt of Title I food
commodities may bolster Mozambique's potential to develop its
commercial markets, as the country undertakes measures to improve foo
security and agricultural development. Despite progress in increasin
agricultural production, Mozambique still contains areas of food
insecurity and as the World Food Programme indicates, one third of th
population is classified as chronically food insecure.

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VALUE AND TYPE OF COMMODITY REQUESTED
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2. Mission requests funding for PL 480 Title I-Funded Food for Progre
grants of agricultural commodities, specifically $5 million of crude
sunflower oil.


3. Title I sales of this commodity to Mozambique would not disrupt
normal world commercial trade.

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DESCRIPTION OF USE OF PROCEEDS
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4. Title I commodities will be sold by the Ministry of Industry and
Commerce (MIC). Ninety percent of the proceeds will be jointly
programmed by MIC and USAID to support the Center for the Promotion o
Rural Financial Services (CPSFR). This program works with existing
financial institutions (commercial banks, leasing companies,
microfinance institutions) to cover some of the costs associated with
obtaining greater outreach in rural areas fostering access,
competition, better services, and collection of domestic savings in t
financial sector. Mozambican banks have little incentive to expand
outreach in rural areas given the high costs of rural transactions an
the possibility of making money on speculative transactions. With a
goal towards building capacity in the rural finance sector, the CPSFR
is designing and implementing pilot projects that expand the access o
financial products in rural areas. Local stakeholders include the
banks, leasing companies, micro finance institutions and NGOs, the
Central Bank (Banco de Mocambique),the Ministry of Agriculture and
Rural Development, the Ministry of Industry and Commerce (MIC),and t
Ministry of Planning and Finance. The CPSFR has been successful in
establishing guarantee funds to small-scale cashew processing plants
and two local leasing companies (BIM Leasing and BCI Leasing). The
Center is currently negotiating the extension of lines of credit for
soya production. Additionally, it intends to provide credit funds to
local commercial bank, Novo Banco, to expand its provision of financi
services outside of Maputo(also under negotiation). The joint
programming of money under this program contributes to commercial
market development in Mozambique by promoting investments in high-
growth industries such as horticulture, cashew, soya, and garments. T
CPSFR is funded by the Act Reflow Account and Title III proceeds.
Additional funding from Title I proceeds will strengthen the program'
impact. The GRM, specifically the Minister of Industry and Commerce,
Carlos Morgado, is highly supportive of the CPSFR program and is
dedicated to joint-programming of Title I proceeds.


5. The remaining ten percent of the proceeds will be used to support
USDA's collaborative research program. This program will facilitate
research between US and Mozambican scientists on specific issues.
Initial discussions with USDA (FAS Pretoria),identified areas for
possible cooperation in improving quality control on Mozambican seafo
exports and identifying ways to improve food security.


6. The GRM has demonstrated great interest in an FY05 Title I-Funded
Food for Progress program, especially given that Mozambique did not
receive Title I commodities in FY03 or FY04. Mission urges approval o
this request, which we believe will program resources in a concerted
and coordinated manner with other USG initiatives in support of
expanding free enterprise in the agricultural sector.


7. This request has been coordinated with FAS Pretoria.
LA LIME