RESPONSE: IMPACT OF RISING FOOD/COMMODITY PRICES - BENIN

UNCLAS SECTION 01 OF 02 COTONOU 000255

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EEB/TPP/ABT/ATP JANET SPECT AND AF/W DANA BANKS

E.O. 12958: N/A
TAGS: EAGR PGOV BN
SUBJECT: RESPONSE: IMPACT OF RISING FOOD/COMMODITY PRICES - BENIN

REF: (A) STATE 39410 (B) COTONOU 5

1.(U) Please find responses keyed to questions in Ref A below.

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Demand
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2.(SBU) Cornmeal is Benin's primary staple. According to Benin's
National Food Aid and Security Office (ONASA),the price of cornmeal
increased from 125 CFA ($.30) a kilogram in April 2007 to 240 CFA
($.57) a kilogram in April 2008. This 90% increase in a little more
than a year has had a deleterious effect on the food budget of the
average Beninese family. Benin is a net exporter of corn. Embassy
contacts in ONASA and Benin's Ministry of Agriculture attribute much
of the increase in the price of corn to increased demand from
Nigeria and Niger after below average harvests in those countries.

3.(SBU) Other food commodities, which are important in the Beninese
market include rice, wheat flour, tomato paste, and oil. Benin
imports the vast majority of these commodities. According to ONASA,
during a normal year Benin ill run a rice deficit of 50 thousand
tons and iport between 300 - 400 thousand tons to meet this eficit
with the rest re-exported to Nigeria. Risng food prices have hit
hardest poor city dwelles and those living in rural villages with
weak 207 crop yields.

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Supply
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4.() All basic food commodities are available in suffcient
quantities in Benin's market albeit at highr prices. After a
delayed start to the rainy seaon the 2008 growing season has just
begun and itis too early to tell if farmers are responding to he
increasing price of corn to put more land int cultivation. Any
attempt to increase cultivatedland would be hobbled by a lack of
access to theseed and fertilizer necessary for such an increase

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Political Impact
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5.(SBU) Benin has not witnessed signifiant protests or violent acts
in response to risin food prices. While many blame the government
fr not acting to limit increasing food prices, the overnment has
deflected some criticism by going ublic early, in December 2007,
with its concerns over rising food prices and the actions it was
taking in response (Ref B). In recent municipal elections the party
most closely associated with President Yayi, Force Cowrie for an
Emerging Benin (FCBE),did reasonably well throughout Benin despite
the increase in food prices.

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Economic Impact
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6.(U) The economic impact of rising food prices is felt across
Benin including in some unsuspecting places. While increasing food
prices are often linked to stressed family food budgets, they also
affect the economic livelihoods of the many women who make their
living selling prepared foods and bread on the streets of Benin's
major cities. A strike by bakers last fall, called in response to
the rising price of flower, caught many women who re-sell bread
unprepared for a three-day hiatus in their income. As prices inch
upward their bottom line becomes more difficult to sustain. While
the prices of staple goods have certainly increased inflation has
not skyrocketed. According to Benin's National Institute for
Statistics and Analysis, the inflation rate in January 2008 (the
most recently available measurement) stood at 1.3%.

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Environmental Impact
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7.(U) Rising food prices have had no known environmental impact in
Benin.

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Government Policy Response
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8.(SBU) As detailed in Ref B, the government began to respond to
rising food prices in early December 2007 by dropping taxes on
imported foodstuffs, including rice, wheat, and dried milk, in
return for the imposition of price controls. The Ministry of
Commerce estimated the costs of these tax credits at $6.6 million a
month. After almost four months of this policy the market price for
rice, and the other controlled goods, remains higher than the price
set by the government. For example, the government price for a 50

COTONOU 00000255 002 OF 002


kilogram bag of rice is 13,000 CFA ($31) or a per kilogram cost of
260 FCFA ($.62). The market price is now 450 FCFA ($1.07). Apart
from a few well-publicized visits to major markets by high ranking
government officials, there appears to be little political will to
force market sellers to reduce their prices.

9.(SBU) In addition to the attempt at price controls the government
directed ONASA in December 2007 to use 480 million FCFA ($1.15
million) to build a strategic reserve of corn for use as prices
increased during the period before the 2008 harvest. ONASA was able
to constitute the reserve with purchases on the local market. The
government ordered ONASA to begin selling the corn on April 2 at a
price of 165 FCFA ($.39) a kilogram, which is well below the market
price of 240 FCFA ($.57). The government recently requested that
ONASA make a further corn purchase of 266 million FCFA ($636,000) to
increase the quantity held in the strategic reserve. ONASA is
having difficulty finding the corn to buy on the local market,
according to an embassy source at ONASA.
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Policy Response/Comment
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10.(SBU) Benin's increasing food prices seem to stem from a reduced
harvest in 2007, increasing worldwide prices, and an increase in
demand for corn from its neighbors. The government's attempt at
price controls has been ineffectual and any real effort to force
market sellers to limit their prices will result in social unrest.
A better use of the government's money might be to increase the use
of fertilizers on food crops during the upcoming growing season.
According to the Ministry of Agriculture, only 41% of the area under
cultivation received the appropriate amount of fertilizer in 2007.
Better use of fertilizer and other improved farming techniques could
increase Benin's corn yield from a paltry 24 bushels an acre in 2007
(the average U.S. corn yield in 2007 was a 151 bushels an acre) to a
higher yield in the coming years. The increase in crop yields in
Benin has traditionally only kept even with population growth which
leaves little margin for error in years with too little rain or
other adverse conditions.

11.(SBU) Road construction in rural areas would also be beneficial
as it could induce farmers who cannot now send their food to market
to grow more as a cash crop. ONASA reports that it is not selling
its subsidized corn in some areas of Benin because the market price
of corn in those areas is below its subsidized price. This points
to inefficiencies in food distribution and lost profits for
farmers.

12.(SBU) Rising food prices require a regional response in West
Africa. The food markets of Benin are closely linked to the demand
of its neighbors. USG policy in response to rising prices should
advocate that West African countries keep their borders open to the
import and export of food as that will keep prices lower across the
region and urge countries to take the steps necessary to increase
crop yields.

BROWN