IMPACT OF RISING FOOD PRICES: ALGERIA

UNCLAS SECTION 01 OF 02 ALGIERS 000494 SENSITIVE SIPDIS RABAT PASS TO USDA MFAY CASABLANCA PASS TO USCS RORTIZ CAIRO PASS TO TREAS ASEVERENS E.O. 12958: N/A TAGS: EAGR EAIDETRD ECON PGOV PREL AG SUBJECT: IMPACT OF RISING FOOD PRICES: ALGERIA REF: (A) STATE 39410 (B) ALGIERS 3 ¶1. (SBU) SUMMARY: Algeria imports much of the food in consumes, up to 50 percent of some commodities, and the prices of many food items are climbing significantly. The government is using subsidies to prevent price increases for a few food staples, like bread, semolina and milk. Because of this effort, the population has been insulated from the full shock of commodity price increases (ref b), but consumers are definitely feeling a pinch due to non-subsidized food items' rising prices. Higher food prices have not had an impact on USG programs in Algeria. The Algerian government currently spends nearly 10 percent of its annual budget on food subsidies, and has adjusted and expanded its price supports systems as a result of the ongoing, worldwide rise in commodity prices. Algeria has the resources through hydrocarbon revenues to continue price supports in an effort to keep foodstuffs affordable to all Algerians. Algeria exports no significant volumes of food commodities, and has no real biofuels effort. Environmentally, rising food prices may result in a resurgence of crop production in Algeria's long-stagnant agricultural sector, but deforestation and water reallocation would likely be minimal because open farmland is underutilized today, and the government is building several seawater desalination plants for urban water needs. We expect little or no impact on USG programming in Algeria because of world food prices, and recommend a focused bilateral effort to streamline dairy and meat import certifications. END SUMMARY. DEMAND -------------- ¶2. (SBU) The most important food commodities consumed in Algeria are wheat products, particularly for bread, couscous, pasta and other semolina varieties, vegetable oil, milk and potatoes. Algeria is a net importer of its commodities staples: 50 percent of cereals are imported, 40 percent of dairy products, and nearly 100 percent of crude vegetable oil. Bulk products are imported, such as dry milk powder and crude vegetable oil, and processed domestically into consumer products such as boxed milk, yogurts, and refined vegetable oil. Some refined products are then packaged for export, such as vegetable oil and pasta, largely to west and central Africa, and to southern European markets. Recent press reports indicate that average consumer prices of other foodstuffs have increased 10 percent in recent months, and Algerians complain that they are feeling a tighter pinch. We note little change in consumption patterns, again because the government has taken steps to ensure the availability and general price control on staples, but we hear anecdotally that Algerians are consuming less meat because of the rising price of beef. SUPPLY AND GOVERNMENT POLICIES -------------- --- -------------- -------------- ¶3. (SBU). Supply of agricultural commodities remains generally stable. While Algeria remains a net importer of commodities, the government undertook an agricultural revitalization plan in 2000 to enhance regional comparative advantages across Algeria's agricultural zone, and that process continues, albeit slowly. The government recently changed the wheat price support system so that the national wheat board (OAIC) would pay Algerian producers an quote internationally competitive unquote price for their wheat and then resell it to millers at subsidized prices to support the retail price caps on items such as bread and flour. Higher government farm prices may encourage increased acreage devoted to wheat production in addition to its primary function of providing price stabilization, and the government announced in mid-April that Algeria's wheat stocks were currently sufficient, obviating the need for further imports for the next several months. The government is preventing price increases for a few staples, such as bread, semolina and milk. The government is expanding its system of price supports and consumer price controls beyond bread, semolina and milk to include flour, with vegetable oil soon joining them. ¶4. (U) Because Algeria's agriculture sector has been declining for many years, there are no shortages of storage capacity or other bottlenecks in the supply chain. Algeria is researching the potential use of agricultural byproducts for biofuels, but there is ALGIERS 00000494 002 OF 002 no current effort to convert commodities to fuels. Rainfall remains a significant factor in domestic production, with drought conditions hampering production in some areas in recent years, but rainfall levels improved across a wide swath of Algeria during the winter of 2007-08, and should help 2008 production levels. IMPACTS -------------- ¶5. (SBU). There have been no recent protests specifically over food prices, but in some areas of Algeria we have seen reports of sometimes violent clashes between police and demonstrators who were protesting an overall economic malaise; lack of jobs, opportunities, housing and rising cost of living. Presidential elections are scheduled for 2009, and we anticipate that the government will have both the financial means (through hydrocarbons revenues) and the political will to maintain consumer prices through heavy subsidies and head off such protests. There should be little impact environmentally in terms of deforestation or water reallocation because much Algerian farmland remains underutilized and the government has undertaken large, urban seawater desalination programs. COMMENT -------------- ¶6. (SBU) Rising food costs have had no impact thus far on Post programming, and we do not anticipate any impact in the near to mid term. We have been working to make the certification processes easier and faster for the importation of dairy products and for meat products. Such efforts have proven successful regarding import of day-old turkey chicks. We recommend improving these particular certification processes in order to allow for more American sales to Algeria, but also to afford Algeria more, faster and cheaper alternatives to European food products. As long as the price of oil remains high, Algeria should be able to continue its system of price supports and consumer price controls. We do not expect any significant balance of trade problems specifically linked to world food prices under current conditions. However, should world stocks or shipping availability reduce Algeria's capacity to import products on time, food supply protests are possible. ¶7. (U) This cable was coordinated and cleared by USDA FAS Rabat. FORD