MOROCCO DROUGHT FORETELLS ECONOMIC CONTRACTION

UNCLAS SECTION 01 OF 02 RABAT 000627

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR NEA/MAG, EB/IFD/OIA and EB/TPP/BTA
STATE PLEASE PASS TO USTR DOUG BELL AND MARY LATIMER
USDA FOR KATHY MCKINNELL AND AILEEN MANNIX

E.O. 12958: N/A
TAGS: ECON EAGR ETRD MO
SUBJECT: MOROCCO DROUGHT FORETELLS ECONOMIC CONTRACTION

REF: RABAT 00423

Sensitive but unclassified. Please protect accordingly.


1. (U) Summary: Late and insufficient rain has severely reduced the
expected cereal harvest this year and endangered livestock.
Although the GOM has responded with an emergency drought assistance
plan, critics complain the plan lacks substance and is a case of
"too little, too late." With the cereal harvest still two months
away, the economic impact of the drought has only just begun. End
Summary.

--------------
Short Crop, Thirsty and Skinny Livestock
--------------


2. (U) Actual rainfall is more than 50 percent below normal in many
of Morocco's principal cereal growing regions. As almost 90 percent
of Moroccan cereal crop is not irrigated, the shortfall is having a
severe impact on this year's crop. According to the U.S. Foreign
Agricultural Service (FAS),the wheat and barley harvest for 2007
could fall as low as 3.2 million tons, which is well below 2005's
depressed harvest of 4.2 million tons. By comparison, 2006 was an
exceptional year with the 8.9 million ton harvest a principal factor
in the country's record GDP growth rate of 8.1 percent.


3. (U) The drought is also having a dire effect on livestock. With
a shortage of available pasturage, the drought is causing soaring
feed prices. Khmiss Zmamra, between El Jadida and Agadir, is one of
the hardest hit areas, with farmers reporting hay prices double and
corn feed prices triple a year ago. Unable to afford feed, many
farmers have been or will be forced to sell-off their stocks, often
for only a portion of their value a year ago.

--------------
Government to the Rescue - Sort Of
--------------


4. (SBU) In response to the looming crisis, the GOM announced an
emergency drought plan in January. The plan includes compensation to
farmers for debt relief, distribution of drinking water and animal
feed to the hardest hit rural areas, and reduced or eliminated
import duties on a number of feed grains and ingredients. (Note:
In March, the GOM zeroed the import duty for corn, effectively
nullifying the preference rate American producers were accorded
under provisions in the U.S.-Morocco Free Trade Agreement. End
note.)


5. (SBU) Farmers have widely criticized the GOM's response. Ahmed
Ouayach, President of the Moroccan Agriculture Confederation, calls
it short-sighted and wholly inadequate in dealing with the chronic
water problems of Moroccan farmers. According to Ouayach, drought
conditions are the norm in Morocco, with good harvest years, such as
2006, the exception. Yet, according to Ouayach, the GOM reaction is
limited to the year in question, without any lasting effect for
following years. Among Ouayach's recommendations are reform and
expansion of the farmers' cereal production insurance program,
interest-free loans for drought assistance, financial incentives for
the transition to more drought resistant crops, and subsidized
transportation costs for drought areas.


6. (U) Farmers in the Zmamra region are even more blunt, describing
the government's action to date as a joke. During a recent forum
covered by the press, farmers complained of receiving neither food
nor water for livestock. One local leader acknowledged that the
area had been granted a small feed subsidy of 90 tons of barley, but
said it had yet to be distributed and would be wholly inadequate
when it was. He explained that the subsidy is to be divided among
16 communes, resulting in an allocation of 10 kilograms per farmer,
enough to feed a single cow for only three days.

-------------- -
Agriculture Remains Strong Economic Indicator
-------------- -


7. (U) Although Morocco has made major strides in diversifying its
economy, agriculture remains the country's largest employer and a
strong indicator of economic performance, accounting for
approximately 40 percent of all employment and 15 percent of GDP.
In 2005, the cereal harvest was less than 4.2 million tons,
resulting in an agricultural sector contraction of 2.7 percent and
an overall GDP growth of only 1.7 percent. By contrast, the 2006

RABAT 00000627 002 OF 002


cereal harvest of 8.9 million tons resulted in an agricultural
sector increase of 3.0 percent and a record GDP growth of 8.1
percent.


8. (SBU) Comment: The direct consequences of the drought vary
greatly between regions. Conditions in the north and along the
coast are much better than in the south and interior. As
significant to farmers as the amount of rain was the late start of
this year's rainy season, which pushed back planting as much as two
months. Then, many crops in the hardest hit areas were stunted by a
new period of drought. To date, the government response has had
limited impact, outside the zeroing of import quotas for corn and
other livestock feed.


9. (SBU) Comment continued: From the International Monetary Fund to
the Oxford Business Group, everyone seems to agree that the macro
economic fundamentals of Morocco are sound . Nonetheless, if the
2007 cereal forecast of 3 million tons holds true, we can expect
overall growth to again fall below 5 percent. End Comment.

RILEY