GOJ ELIMINATES CUSTOMS DUTIES AND TAXES ON 13 FOOD ITEMS IN

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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