Identifier
Created
Classification
Origin
07ALGIERS367
2007-03-19 15:30:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Algiers
Cable title:  

RISING WORLD PRICES DRY UP PRIVATE ALGERIAN MILK

Tags:  EAGR ECON EINV AG 
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VZCZCXYZ0002
RR RUEHWEB

DE RUEHAS #0367/01 0781530
ZNR UUUUU ZZH
R 191530Z MAR 07
FM AMEMBASSY ALGIERS
TO RUEHC/SECSTATE WASHDC 3257
INFO RUEHLO/AMEMBASSY LONDON 1551
RUEHFR/AMEMBASSY PARIS 2118
RUEHRB/AMEMBASSY RABAT 1692
RUEHTU/AMEMBASSY TUNIS 6535
RUEHCL/AMCONSUL CASABLANCA 2915
RUEHRC/DEPT OF AGRICULTURE WASHDC
UNCLAS ALGIERS 000367 

SIPDIS

SIPDIS
SENSITIVE

STATE PLEASE PASS TO USTR
RABAT FOR AG ATTACHE

E.O. 12958: N/A
TAGS: EAGR ECON EINV AG
SUBJECT: RISING WORLD PRICES DRY UP PRIVATE ALGERIAN MILK
PRODUCTION

REF: ALGIERS 00207

UNCLAS ALGIERS 000367

SIPDIS

SIPDIS
SENSITIVE

STATE PLEASE PASS TO USTR
RABAT FOR AG ATTACHE

E.O. 12958: N/A
TAGS: EAGR ECON EINV AG
SUBJECT: RISING WORLD PRICES DRY UP PRIVATE ALGERIAN MILK
PRODUCTION

REF: ALGIERS 00207


1. (U) Recent milk shortages in Algeria are likely to
continue in the coming weeks as domestic producers shut down
in response to the rising world price of milk powder. The
state-run Algerian firm GIPLAIT (Groupe Industriel des
Productions Laitieres) controls approximately 38 percent of
Algeria's pasteurized milk market, with the rest in the hands
of private companies. For decades the Algerian government
has managed the price of all fluid pasteurized milk in
Algeria. While other milk products -- including store-bought
milk powder, cheese, and yogurt -- sell at market prices, the
Ministry of Commerce has kept the price of liquid pasteurized
milk at USD $0.35 per liter since 2001. In response to the
crisis, Commerce Minister Djaaboub announced March 4 the
creation of a National Milk Office to maintain the price of
fluid pasteurized milk at the current level. One private
dairy company told us that the new office will likely fall
administratively under Djaaboub and will subsidize both
GIPLAIT and private producers.

HEAVY RELIANCE ON IMPORTS
--------------


2. (U) Algerian Milk Producers Association head Abdelwahab
Ziani described to us March 17 Algeria's reliance on foreign
milk imports. With an average annual consumption of 140
liters per person, Algeria is one of the world's largest
consumers of milk. Although Algerian cows produce around 2
billion liters of milk per year, only 17 percent of this
output is processed industrially. Moreover, fresh Algerian
milk that is available to industrial customers goes almost
entirely into cheese production. With nearly all of its
liquid pasteurized milk coming from imported powder -- an
estimated 1 billion liters-equivalent per year -- Algeria is
the third-largest importer of milk products in the world,
after Italy and Mexico. Milk products account for some 20
percent of the country's total food imports. In 2006,
Algeria imported over USD 25 million worth of nonfat dry milk
powder from the U.S.


3. (U) The world price of powdered milk has soared since last
year from approximately USD 2,000 per metric ton to over USD
3,900. At the same time, efforts to increase Algeria's
domestic milk production have largely fallen flat. Despite
importing 8,000 milk cows in 2006, Algerian milk production
has not climbed much beyond 1.9 billion liters per year.
(Note: The Minister of Agriculture claims that local
production has reached 2.2 billion liters per year.) This
reliance on foreign imports, Ziani explained, is largely a
result of the collapse of Algeria's agricultural capacity
during the "lost decade" of terrorism in the 1990s.


4. (U) The Algerian press has reported in recent weeks that
several private plants that produce milk have closed down at
least temporarily as a result of the skyrocketing price of
powdered inputs. Others are gearing to switch their
production to other dairy products, such as yogurt, which do
not have the same price controls as liquid pasteurized milk.
This essentially leaves state-run GIPLAIT, with its 20 plants
in a broad swath starting near the Moroccan border at Bechar
and running the length of the Algerian coast to the Tunisian
border, as the most important producer of pasteurized liquid
milk in Algeria.

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


5. (SBU) The crisis likely spells the end of any further
privatization of GIPLAIT, which in recent years spun off one
of its plants in the west to an Algerian investor and is in
the process of selling another plant to a French consortium.
Just as PM Belkhadem made clear to the Ambassador that he
intended to continue to protect certain state-run industries
(reftel),his government is not likely to let market reforms
and privatization get in the way of one of the three
household commodities the Algerian state has refused to cede
to market-driven prices. (The other two are bread and
flour.) More broadly, the current milk crisis underscores
the fragility of the Algerian market and its vulnerability to
commodity supply shocks. Outside of hydrocarbons, Algeria
produces relatively little on its own. The milk shortage is

another example of the near reflex reaction of the Algerian
government to look to socialist-era price control mechanisms
and subsidies rather than market-based solutions.
DAUGHTON