RISING PROTEST SPURS CLIMBDOWN ON BREAD PRICES

UNCLAS RABAT 001525 SIPDIS SENSITIVE SIPDIS DEPT FOR NEA/MAG, EB/IFD/OIA and EB/TPP/BTA STATE PLEASE PASS TO USTR P BURKHEAD USDOC FOR ITA/MAC/ONE ROTH TREASURY FOR OASIA USDA FOR OCRA CATHY MCKINNELL E.O. 12958: N/A TAGS: ECON ETRD EFIN EAGR PGOV MO SUBJECT: RISING PROTEST SPURS CLIMBDOWN ON BREAD PRICES REF: RABAT 627 Sensitive but unclassified. Please protect accordingly. ¶1. (SBU) Summary: The outgoing government of Prime Minister Driss Jettou moved this week to address a thorny problem that threatens to cloud the debut of its successor with its decision to annul recent increases in bread prices and to subsidize the cost of flour. The government also suspended the taxes it collects in wholesale markets for the period of Ramadan. The decisions come against a backdrop of general anger about rising prices among Morocco's working poor, and at least some demonstrations against the price rises. While the new measures should ensure social peace, the subsidies come at a cost: they will increase the burden on a compensation system that is already burdened with subsidies for goods ranging from petroleum and gas to oil and sugar. End Summary. ¶2. (U) A series of emergency meetings between the government, importers, and millers resulted last week in a government decision to roll back recent price increases on bread, abolish import duties on wheat, and subsidize the price of flour for the nation's bakers. Bakeries had been complaining for months that with the rapid rise in world grain prices, they would not be able to hold the line on the price of bread, and in particular the basic 250 gram loaf that is widely marketed through Morocco for 1.2 MAD (approximately 15 cents) and is an important staple for the poor. Bakers agreed to postpone any price increases until after the September 7 election, but then moved to raise the price of the loaf to 1.5 MAD (approximately 19 cents). The move immediately prompted widespread comment, particularly as it came at a time when prices for many other basic commodities were rising both from international price movements, increased local demand as a result of Ramadan and the new school year, as well as the impact of last year's poor harvest. ¶3. (U) As potential for discontent grew, the government decided to take action. Prime Minister Jettou convened Morocco's price committee, which determines subsidy policy and sets prices for subsidized products. (Note: While the price of the loaf is regulated as part of a gentlemen's agreement by which the government provides subsidized flour for its manufacture, the prices of other higher-end baked goods move freely. End note.) Ultimately, the consultations resulted in a settlement by which bakers would roll back their price increase in exchange for higher subsidies to cushion them from the high price of wheat on world markets, essentially guaranteeing them a certain quantity of soft flour at 250 MAD a hundred weight as well as deluxe flour at a target price of 363 MAD for a hundred-weight (roughly 100 MAD below current world prices). At the same time, import duties were abolished until May 31, 2008. ¶4. (SBU) The move comes at a cost. Not only will the government forgo revenue from tariffs on this year's higher grain imports, which resulted from the shortfall in the 2007 harvest (down to 2 million tons from 9 million a year before),but it will also have to subsidize the flour cost for up to 2 million tons of wheat, at a cost that could reach 300 million MAD a month. The charge will more than double the cost of wheat subsidies, which were initially budgeted at 2 billion MAD. ¶5. (U) The government took further action on September 24 to address other price increases. It suspended collection of taxes in wholesale markets where fruits, vegetables, and other products are sold. The move, which is effective only during Ramadan, should result in prices falling up to 7 percent from their new higher levels. The additional steps followed violent confrontations between marchers protesting higher prices and authorities in the northern city of Sefrou on Sunday, September 23. Local government buildings were targeted and press reports indicate that up to 50 people were arrested, while dozens were injured. ¶6. (SBU) Comment: The protests and quick government reaction highlight the extreme sensitivity here to such price increases, particularly during the Ramadan period with its heightened demand for food products. While the price increase from 15 to 19 cents for the "basic" Moroccan loaf appears trivial, its impact also highlights the precariousness that is the every day lot of a significant part of the Moroccan population. With increasing criticism of the price increases, the outgoing coalition, fresh from its electoral success on September 7, decided it did not wish to return to office in an environment poisoned by a 30 percent price rise in a key element of the daily diet of poor Moroccans. The move will increase the strain on Morocco's overall subsidy system, however, as well as the country's budget balance. End Comment.