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. -------------- Demand -------------- 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. -------------- Supply -------------- 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 -------------- Political Impact -------------- 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. -------------- Economic Impact -------------- 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%. -------------- Environmental Impact -------------- 7.(U) Rising food prices have had no known environmental impact in Benin. -------------- Government Policy Response -------------- 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. -------------- Policy Response/Comment -------------- 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