IMPACT OF RISING FOOD PRICES: ALGERIA

UNCLAS SECTION 01 OF 02 ALGIERS 000494

SENSITIVE
SIPDIS

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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
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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
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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
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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