YEMEN REQUEST FOR FY08 COMMODITIES DONATION UNDER

UNCLAS SANAA 001801 SIPDIS SIPDIS USDA - PASS TO USDA/FAS/EXPORT CREDITS EXPORT CREDITS DEPUTY ADMINISTRATOR AND USDA/FAS/EXPORT CREDITS FOR RON CROUSHORN, DIRECTOR PROGRAMMING DIVISION. AMEMBASSY CAIRO PASS TO USDA/FAS CAIRO E.O. 12958: N/A TAGS: EAGR EAID YM SUBJECT: YEMEN REQUEST FOR FY08 COMMODITIES DONATION UNDER THE FOOD FOR PROGRESS PROGRAM REF: A. SANAA 1343 ¶B. SANAA 1414 ¶C. SANAA 1347 -------------- SUMMARY -------------- ¶1. The ROYG is currently contending with a looming water crisis, explosive population growth, food insecurity, internal conflict, and increasing terrorist activity in the country. To help ease the burden on the ROYG, a reliable partner in the GWOT, Embassy Sanaa seeks $20 million in FY2008 Food for Progress (FFP) commodities donations. The commodities would be used for rural agricultural development program assistance geared to capacity building and market reform, poverty alleviation through aid and micro-credit financing programs, and meeting critical water needs through environmentally sound projects in water capture and irrigation. An FFP commodities donation is not only well deserved and desperately needed but an excellent mechanism for enhancing the image of the USG as a reliable partner in the eyes of the average Yemeni. END SUMMARY. -------------- Yemen is an FFP Priority Country -------------- ¶2. Yemen has a per capita GDP of approximately USD 723 and has one of the fastest growing population rates in the world at 3.2 percent. The population of Yemen now stands close to 20 million and is expected to double within ten years. More than 75 percent of the population resides in rural areas and more than 50 percent of the children under the age of 5 are moderately to severely malnourished. The World Bank has declared that the water shortage in Yemen is an extreme crisis, citing the country's move toward a market-driven agriculture sector as a contributing factor. Over the past year the prices of wheat and other basic food commodities in Yemen have risen dramatically, causing civil unrest and discontent among much of the population. -------------- Hunger Feeds Terrorism -------------- ¶3. This civil unrest has been expressed through demonstrations and rioting in both cities and rural areas. The food insecurity felt by the people of Yemen may be feeding the recent rise in terrorist activity and conflict in the country. According to local news accounts, the suicide bomber who killed 8 Spanish tourists in Marib on July 2, 2007, was a poor street vendor who had been recruited by terrorists who found him crying outside of a mosque because he could not afford to buy food for his family. All of these factors combine to present extraordinary challenges for the ROYG and the people of Yemen, from the Ministry of Agriculture down to the poor, rural, subsistence-farming families. ¶4. Yemen is a nascent democracy still in transition from the political and economic strife caused by the unification of North and South Yemen in the mid-1990s. The country is the poorest nation in the Middle East and is currently contending with explosive population growth, severe malnutrition, a looming water shortage crisis, increasing tension and public protest against rising prices of basic commodities throughout the nation (ref A),caring for approximately 56,000 persons displaced by an internal uprising (ref B),and increased terrorist activity. (ref C) Amid these challenges, the Republic of Yemen Government (ROYG) has remained committed to establishing democratic institutions, sustainable development and economic reform based upon free market principles. Yemen is a valued partner in USG efforts to combat terrorism. The USDA FFP program would assist the ROYG in its struggle to overcome these challenges and enhance the image of the USG throughout Yemen, especially among the most vulnerable citizens, the very poor and rural population. -------------- --- USG Coordination with Strong Yemen Stakeholders -------------- --- ¶5. Since the beginning of the USDA food aid programs in 1999, the Embassy has worked closely with the USDA/FAS offices in Washington and Cairo in order to accomplish the goals of the program and provide real benefits for the Yemeni people. Additionally, the Embassy has identified and developed strong ties with Yemeni officials in the Social Fund for Development (SFD),the Public Works Project (PWP), the Ministry of Agriculture and Irrigation (MAI) and the Ministry of Planning and International Cooperation (MOPIC). These officials have demonstrated consistently their commitment to the objectives of the food aid program. -------------- Commodities Requested and Market Impact -------------- ¶6. Commodities Requested: Due to the critical nature of the situation in Yemen, Post requests USD 20 million in commodities donations from the Food For Progress program: $15 million of soft white wheat (SWW) and $5 million of wheat flour. ¶7. Market Impact: Due to the rocky and mountainous terrain and desert conditions, Yemen is not, and will never be, a major grain producing country. Local production of wheat in Yemen represents only 5.4 percent of the market, while imports represent more than 94 percent. The amount of wheat and flour imported exceeds two million tons per year. U.S. wheat and flour face stiff competition in the Yemen market from Australian and Russian commodities of lower quality. Due to the current shortage of wheat in the international market, the ROYG is contending with public outcry against the rising price and perceived shortage of this staple commodity.(ref A) A commodities donation of wheat may alleviate this growing tension and create tremendous goodwill throughout the nation, all without having a negative impact on domestic production. Finally, increasing Yemeni consumers' exposure to U.S. wheat and flour will increase demand and allow U.S. wheat and flour exports to command a higher market share in Yemen. -------------- Justification -------------- ¶8. Justification: Yemen is a designated Food For Progress Priority country and the ROYG deserves the continued support of the USG at maximum levels. The ROYG has proven to be a dependable ally in the Global War on Terrorism (GWOT). The ROYG devotes much of its own resources to those efforts while it struggles to achieve its equally important goals of establishing and strengthening democratic institutions, economic reform, sustainable development, and the health and welfare of its citizens. The USDA FFP is ideally suited to enable Post to assist the ROYG in those important efforts. More importantly, FFP donations demonstrate USG appreciation and support for the Yemeni people. The FY08 projects have been selected as those most likely to enhance the image of the USG in the minds of Yemeni citizens while mitigating some of the increasing economic and social challenges facing the ROYG. -------------- Use of Commodities -------------- ¶9. Use of the Commodities: The commodities requested will be used to fund programs with three distinct goals: addressing the critical water shortage, alleviating poverty in rural agricultural communities, and improving capacity in the agricultural sector. The programs will be targeted to improve conditions in the five poorest governorates of Yemen. Through international tenders, Post hopes to work with our Yemeni partners to fund programs designed to accomplish our goals as follows: A) Addressing the Water Crisis: Working with PWP, donation proceeds will fund projects that will address the water shortage through environmentally sound methods of water capture, desalination, and irrigation technology utilizing Yemen's great untapped renewable energy resources. The water shortage in Yemen is at crisis levels. The water table is currently falling at a rate of 20 feet per year and each year 80 percent of Yemen's water is used for agriculture but less than 30 percent of rural residents have access to drinking water. Water availability in Yemen is the lowest in the world, at 136 cubic meters annually per person compared to the world average of 7500 cubic meters per person. The amount of water needed to meet food production requirements for self-sufficiency is 1,000 cubic meters per person annually. Yemen is an excellent candidate for the exploitation and use of renewable energy technology, specifically wind and solar powered desalination, water pumping, and irrigation technologies to increase the availability of water. Yemen has a 2500-kilometer coastline, more than 3500 hours of sunlight per year and, due to the mountainous terrain throughout the country, natural wind tunnels with consistent wind speeds of 8 meters per second. Renewable energy technologies are uniquely suited to provide water and electricity to remote areas lacking necessary infrastructure. These systems will support greater capacity to provide drinking water for the communities served and much-needed irrigation for agricultural crops. A collateral impact of theses technologies will be an ability to utilize the technology for rural electrification and to provide farming communities with clean drinking water. B) Poverty Alleviation: Working with SFD, donation proceeds will go toward poverty alleviation through rural micro-finance institutions and programs designed to provide aid to persons displaced by recent conflicts in rural areas and help them rebuild their communities and their lives. The potential micro-credit market in Yemen is enormous and the sector is only in its infancy. In Yemen, 75 percent of the population lives in rural areas and they depend upon farming as their sole source of earned income. More than 40 percent of the population lives in poverty and less than 1 percent of Yemenis have bank accounts. The micro-finance programs would provide loans to individuals and families. The programs would also aim to increase the involvement of women in the family and community economies. These loans would allow small and micro entrepreneurs to obtain financial support for small private sector initiatives. The programs would enable them to increase their income, create employment and income generating opportunities in their communities, and stimulate local markets. The micro-finance programs funded would be concentrated in rural areas, financing agricultural activities and agricultural community businesses. C) Increased Agriculture Trade Capacity: Under the Integrated Framework for Trade Development Strategy, working with the Ministries of Agriculture and Trade, donation proceeds would go toward trade capacity building measures in the agricultural sector, training programs focused on agribusiness skills, export/import reform measures, market development, and market access programs in agriculture. The agriculture sector in Yemen is underdeveloped. The donation proceeds would be used to fund development programs focused on agriculture trade development and market access, and training in rural communities to increase the agribusiness skills of farmers. Finally, the programs would serve to fund programs focused on reform measures designed to encourage and support greater production in the agriculture sector through agricultural trade capacity development measures and increased market access for agriculture products. By partnering with Yemen on reform and training measures designed to increase trade development activities in the agriculture sector and agribusiness skills in the rural communities, the USG would enhance its image among the individual farmers and farming communities as they realize greater prosperity through increased capacity and market access. -------------- COMMENT -------------- ¶10. The ROYG is at a critical crossroads and the USDA FFP is one of the best opportunities the USG has to assist it at this juncture. Yemen is a desperately poor country. Without assistance, the ROYG has neither the resources nor the capacity to address the growing concerns and development needs of its most remote rural areas, fight terrorism, and create market-oriented democratic reforms in its economy. The ROYG's inability to address the needs of the poor, coupled with rising food prices and a shortage of wheat on the international market, have all contributed to growing discontent and fear among the population of Yemen which, recent events suggest, may be making some of the most poor susceptible to extremists' recruitment efforts. Working with our Yemeni partners, Post would be able to direct USDA FFP funds to the areas most in need of services and most vulnerable to terrorist recruitment and activity. These areas are expanding daily. If there was ever a time to address a problem in Yemen, it is now. If we and the ROYG are unable to counter the lure of extremism with concrete assistance to the people of Yemen, then the tide could easily turn against the established democratic institutions, sustainable development and economic reform achieved by the ROYG until now. The USDA FFP program, more than any other USG program, would make a critical contribution to stability in a key region of the world by enabling the ROYG to address the needs and concerns of its people without compromising its focus on democratic reforms. END COMMENT. SECHE