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

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SUMMARY
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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.

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Yemen is an FFP Priority Country
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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.

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Hunger Feeds Terrorism
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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.

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USG Coordination with Strong Yemen Stakeholders
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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.

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Commodities Requested and Market Impact
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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.

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Justification
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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.

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Use of Commodities
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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.

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COMMENT
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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