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