BRUNEI CONSUMERS PARTIALLY INSULATED FROM RICE PRICE

UNCLAS BANDAR SERI BEGAWAN 000118

SIPDIS

SIPDIS
SENSITIVE

STATE FOR EEB/TPP/ABT/ATP (JSPECK)

E.O. 12958: N/A
TAGS: EAGR EAID ETRD ECON PGOV PREL BX
SUBJECT: BRUNEI CONSUMERS PARTIALLY INSULATED FROM RICE PRICE
INCREASES

REF: A) STATE 39410 B)BANDAR SERI BEGAWAN 112

1. (SBU) SUMMARY and COMMENT: Government subsidies are helping to
shield Brunei consumers from the full effect of increase in the
price of rice imported from Thailand. Domestic retail prices for
subsidized varieties of rice have not changed despite their trading
prices on the world market having more than doubled. The increased
cost of subsidies for rice and fuel, along with the weakness of the
U.S. dollar in which Brunei's exports of oil and gas are priced, are
ameliorating the beneficial effects of higher hydrocarbon prices on
the Government of Brunei (GOB) budget and the economy at large. END
SUMMARY and COMMENT.


2. (U) Brunei imports about 80 per cent of its food needs annually.
Local consumption of rice stood at 31,082 metric tonnes in 2006,
with only 3.2 percent produced locally. Rice, as a staple food, is
a price-controlled item, heavily subsided by the government. The
GOB subsidizes three types of rice imported from Thailand: white,
glutinous, and fragrant. Subsidized commodities like rice are
distributed through the government's supply control center, known as
the "State Stores." Despite recent increases of rice in the region,
in early April the GOB announced that there would be no change in
the retail price of rice, and that current rice stocks are more than
sufficient for the nation. Prices for non-subsidized varieties of
rice, such as basmati, and rice-derived products have increased by
approximately one third.


3. (U) According to 2006 statistics, total food & live animal
imports totaled US$278 million, accounting for 14 percent of total
imports into the country, the third largest import commodity.


4. (U) Prices for imported food items have increased significantly
in recent months. The Consumer Price Index (CPI) of February 2008
showed an increase of 2 to 18 per cent on common food items. The
rise in price of cooking oil, wheat and rice flour has created a
slight increase in prices for other food staples like bread and
noodles. According to news reports, flour imports have been
disrupted, due to the short supply regionally. The consumer market
has remained stable however, and we have not observed any shortages
or other significant impact.


5. (SBU) Although it is not clear if global rising food and
community prices was the cause, the Sultan focused on the importance
of developing domestic agriculture in Brunei's economic
diversification plans in his speech opening this year's Legislative
Council session (ref B). US$76 million was allocated over five
years for agricultural development under Brunei's 5-year 9th
national development plan beginning 2007.


SKODON