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.