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IdentifierCreatedClassificationOrigin
08AMMAN26 2008-01-06 09:19:00 UNCLASSIFIED Embassy Amman
Cable title:  

GOJ ELIMINATES CUSTOMS DUTIES AND TAXES ON 13 FOOD ITEMS IN

Tags:   EAGR ETRD PGOV BTIO JO 
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RR RUEHWEB

DE RUEHAM #0026/01 0060919
ZNR UUUUU ZZH
R 060919Z JAN 08
FM AMEMBASSY AMMAN
TO RUEHC/SECSTATE WASHDC 1339
INFO RUEHEG/AMEMBASSY CAIRO 3459
RUEHRH/AMEMBASSY RIYADH 1873
RUEHDM/AMEMBASSY DAMASCUS 3768
RUEHLB/AMEMBASSY BEIRUT 2761
RUEHRC/USDA FAS WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC
					  UNCLAS AMMAN 000026 

SIPDIS

SIPDIS

STATE FOR NEA/ELA AND EEB/TTP/ABT
CAIRO FOR FAS AGMINCOUNS PKURZ
FAS FOR OFFICE OF GLOBAL ANALYSIS
FAS FOR OFFICE OF TRADE PROGRAMS
FAS FOR GRAIN & FEED DIVISION

E.O. 12958: N/A
TAGS: EAGR ETRD PGOV BTIO JO
SUBJECT: GOJ ELIMINATES CUSTOMS DUTIES AND TAXES ON 13 FOOD ITEMS IN
RESPONSE TO RISING COSTS

REF: A. 07 AMMAN 4682


B. 07 AMMAN 4622

C. 07 AMMAN 3813



1. SUMMARY: Jordan's Cabinet agreed on January 2 to abolish customs
fees and sales tax on 13 common foodstuffs in response to rising
world food prices. Prime Minister Dahabi also called upon the
private sector to lower its prices and profit margins on these
products or risk government pricing. Food accounts for 40 percent
of Jordanian household budgets, and 90 percent of food is imported.
The Cabinet is also working to eliminate fuel and fodder subsidies
while simultaneously helping citizens by creating a social safety
net. While rising food prices have had a negative effect on the
local economy, a growing interest in American products, combined
with the Free Trade Agreement, may present a new opportunity for
American food and feed suppliers. END SUMMARY.



2. In response to rising food prices, Jordan's Cabinet decided
January 2 to abolish customs fees and sales tax on 13 common
foodstuffs including sugar, rice, powdered milk, cheese, tea,
coffee, palm oil, chick peas, vermicelli, wheat flour, corn flour,
and lentils. All of these products are considered staples, are
imported from abroad, and do not compete with local products. Prime
Minister Nader al-Dahabi called upon the private sector to
correspondingly reduce the prices of these products and limit their
profit margins "as a matter of national responsibility." Dahabi
added that non-compliance would result in government pricing, and
said that Ministry of Industry and Trade (MOIT) regulations allow
for mechanisms to specify and control commodities. The Cabinet also
abolished customs fees on feed corn. Wheat and barley are already
tax exempt, and both are imported exclusively by the Jordanian
government. Previous attempts to dampen the impact of rising world
food prices included cutting costs within state-run stores and
launching open air markets so that farmers could sell directly to
consumers (Refs B, C).



3. Food accounts for 40 percent of most Jordanian household budgets
which have been hit hard by rising worldwide food costs (Ref A). A
resource-poor country, Jordan is a net importer of food with 90 per
cent of consumable items imported from abroad. In 2007, Jordan
imported 95 percent of its wheat, whose price jumped 300 percent;
all of its rice needs, which increased in price by 30 percent; 100
percent of its powdered milk, which doubled in price; and a variety
of other dairy products whose average prices increased 60 percent.
Accordingly, Jordan's import costs for food and live animals have
skyrocketed. They almost doubled from JD 530 million ($747M) in
2002 to JD 928 ($1.3B) million in 2006, and are projected to reach
JD 1.3 billion ($1.8B) for 2007. As prices have increased, however,
Jordanian purchase power has dropped by 25 per cent, a result of the
decrease in the value of the U.S. dollar to which the JD is pegged.



4. Within this context, the new Cabinet is committed to
implementing an ambitious economic reform plan, which includes
lifting subsidies on fuel and fodder, yet is dedicated to softening
the impact of reform measures on average citizens. To offset
expected price increases, the GOJ plans to implement a $424M social
safety net program and the Prime Minister has vowed to improve
citizens' living conditions, including through examining the role of
the Civil Service Consumer Corporation (CSCC), once a government
tool for maintaining price controls and a barometer of economic
conditions. The GOJ is now considering issuing credits to the CSCC
and its counterpart, the Military Service Consumer Corporation
(MSCC), to cover both outlets' purchases of bulk supplies at lower
prices, a savings that can be based on to the consumer. The 2008
budget also includes raises for government workers and pensioners to
offset cost of living increases.



5. While rising prices, anticipated inflation, and economic reform
present challenges for Jordanians and the GOJ, there are business
opportunities for American food and feed suppliers. Of its total
annual consumption, Jordan has imported only $150M in food and
agriculture products from the U.S., one-tenth of agricultural
imports. Given the Free Trade Agreement and a growing desire for
American products, the potential for bilateral trade is much higher.
One significant obstacle to increased trade, however, is the small
size of the market. With Jordan's population of only 5.7M and a GDP
of approximately $11B in 2006, many American suppliers consider the
market too small. For those who do not share this opinion, there
are market opportunities in dairy products, feed, and de-boned meat.


U.S. cheese imports to Jordan jumped from zero to 70 tons in 2006
and are expected to continue to increase. The local poultry
industry, the most sophisticated agri-business in Jordan with more
than $1.4B in investments, satisfies 85 percent of local
consumption. It is dependent on imported corn, soybean cake, and
barley. Similarly, the Jordanian food processing industry is
totally dependent on imported, mechanically de-boned meat (MDM) to
produce poultry mortadella; current sources for the industry's MDM
input are the U.S., Brazil, and Israel. Local importers have
already approached post about increasing their purchases from the
U.S. and the MOIT is examining credit programs for the purchase of
wheat and other fodder.


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