Identifier
Created
Classification
Origin
08ISLAMABAD3691
2008-11-24 14:06:00
UNCLASSIFIED
Embassy Islamabad
Cable title:  

AMBASSADOR MEETS WITH AGRICULTURE SECRETARY ON FOOD AID

Tags:  ECON EFIN EINV ETRD ELAB PGOV PREL PK 
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UNCLAS SECTION 01 OF 03 ISLAMABAD 003691 

SIPDIS

REFS:

E.O. 12958: N/A
TAGS: ECON EFIN EINV ETRD ELAB PGOV PREL PK
SUBJECT: AMBASSADOR MEETS WITH AGRICULTURE SECRETARY ON FOOD AID

UNCLAS SECTION 01 OF 03 ISLAMABAD 003691

SIPDIS

REFS:

E.O. 12958: N/A
TAGS: ECON EFIN EINV ETRD ELAB PGOV PREL PK
SUBJECT: AMBASSADOR MEETS WITH AGRICULTURE SECRETARY ON FOOD AID


1. (SBU) Summary. On November 21 MINFAL Secretary Zia ur Rehman and
Additional Secretary Shahid Hussain Raja requested an urgent meeting
with Ambassador to discuss agricultural issues in Pakistan. The
Secretary requested USG assistance on wheat imports, specifically
access to the USDA GSM-102 program. The USDA Food for Progress
agreement, USAID agriculture project and a proposed agriculture tax
were also discussed. Post seeks guidance on the best way to
facilitate Pakistan's ability to import U.S. wheat under the GSM-102
program. Post recommends that the 5 Pakistani Banks listed below be
approved to participate in the GSM-102 program as soon as possible.
Post also recommends providing a waiver to Pakistan for the export
limitation condition under the Food for Progress agreement as soon
as possible. Based on the inflows of private trade, the GOP now
maintains that they need to import 1.5 million metric tons of wheat
at an estimated cost of USD 350 million for this winter season. End
Summary.


2. (SBU) This is an action request. See paragraph 14.

- - - -
GSM 102
- - - -


3. (SBU) On November 21 MINFAL Secretary Zia ur Rehman and
Additional Secretary Shahid Hussain Raja requested an urgent meeting
with Ambassador to discuss agriculture issues in Pakistan.
Secretary Rehman specifically requested USG assistance with wheat
imports. MINFAL is anxious to gain access to the USDA GSM-102
program in order to facilitate Pakistan's ability to purchase U.S.
wheat. Raja stated there is some confusion with the GOP as to how
much credit is available to Pakistan under this program. Local
newspapers have been erroneously reporting that the USG has approved
USD 200 million under GSM-102. EconCouns explained that under
current USDA guidelines the total credit exposure for Pakistani
banks is calculated at USD 48 million. Raja said he would like
something in writing explaining Pakistan's ability to participate in
the program.


4. (SBU) Secretary Rehman confirmed that the GOP still needs to

urgently import another 1.75 million tons of wheat in order to meet
the country's wheat consumption needs until the next wheat crop is
harvested in April/May 2009.


5. (SBU) Comment: Pakistan has identified its annual wheat import
needs at 3.5 million tons, of which 1.75 million tons have been
purchased to date. Due to recent changes in the government's wheat
import policy, the GOP expects private traders to import about
250,000 tons of wheat before the next harvest. The GOP maintains
that in order to purchase the balance 1.5 million tons of wheat
(estimated cost: USD 350 million) international support will be
necessary. [NOTE: On November 20, in response to the country's
deteriorating wheat stock situation, MINFAL instructed the Trading
Corporation of Pakistan to issue a tender for imports of 500,000
tons of white wheat. On November 24, no financing had been made
available to purchase the wheat and, therefore, MINFAL has postponed
the tender. END NOTE]


6. (SBU) Comment continued: Pakistan is eligible as a destination
country under the GSM-102 Regional Program for the Middle East and
Africa. However, Pakistani Banks covered under Pakistan's August
26 Credit Guarantee Assurance (a sovereign guarantee which
specifically guaranteed National Bank of Pakistan, Habib Bank
Limited, United Bank Limited, Muslim Commercial Bank Limited, and
Allied Bank of Pakistan) are currently not eligible to participate
in the GSM-102 program. Post recommends that these 5 banks under
the Credit Guarantee Assurance be approved to participate in the
GSM-102 program as soon as possible, thereby enabling Pakistan to
purchase USD 48 million (200,000 metric tons) worth of wheat under
the GSM-102 program.

- - - - - - - - -
FOOD FOR PROGRESS
- - - - - - - - -

ISLAMABAD 00003691 002 OF 003




7. (SBU) Rehman inquired about the "status of the wheat pledged by
President Bush." EconCouns noted that the U.S. is still awaiting
GOP approval of the USDA Food for Progress agreement draft which
consists of 50,000 tons of donated U.S. wheat. Rehman explained
that MINFAL and the Economic Affairs Division (EAD) have cleared the
draft; however, the Ministry of Commerce has not yet approved the
deal and is concerned over a provision in the Food for Progress
agreement that apparently restricts Pakistan from exporting wheat
while it receives donated wheat from the U.S. Raja further
explained that the Ministry of Commerce believes that by accepting
the Food for Progress wheat, the GOP will not be able to export any
wheat during the current fiscal year. MINFAL would like to get
clarity as soon as possible on whether the GOP is restricted only in
exporting donated U.S. wheat and thus free to export domestic wheat
if available after the immediate shortfall is addressed.


8. (SBU) Comment: AgCouns clarified later that Food for Progress
prohibits the GOP to export wheat in the same fiscal year that it
receives U.S. wheat donations except for exports bound for
Afghanistan. AgCouns also noted that a waiver is necessary to
bypass USDA restrictions on commercial wheat sales. As the GOP has
not met its wheat production target in the past two years, Post
feels that the probability of the GOP harvesting a bumper crop of
wheat is low especially given the water and fertilizer shortages.
Therefore, the GOP will most likely use all of its wheat for
domestic consumption and not be able to export any wheat in the
foreseeable future; however the ability to export wheat to increase
the domestic coffers is a red herring for the GOP and Post would
like to seek a waiver for this provision. Another option would be
to provide a waiver just for private sector commercial transactions
while still limiting government exports. This would send the right
message to the GOP while still allowing Pakistan to benefit in the
unlikely event that there is a wheat surplus. End Comment.

- - - - - - - - - - - - - -
USAID AGRICULTURAL PROGRAM
- - - - - - - - - - - - - -


9. (SBU) Secretary Rehman inquired about the status of USAID's
recent agricultural study with Dr. John Mellor. Ambassador
responded that USD 50 million is set aside for this project and that
the consultant had highlighted extension services and research as
the means to assist Pakistani agriculture. Ambassador mentioned
that USAID is still in the design phase and noted debate as to
whether the program should have a concentrated geographic focus or
if it should be spread throughout the country. The Secretary
expressed his interest to provide input in the USAID program and
that USAID should work "in concert" with MINFAL. Ambassador agreed
and noted that a USAID representative would soon brief MINFAL on the
details of the plan.

- - - - - - - - - -
STRATEGIC DIALOGUE
- - - - - - - - - -


10. (SBU) Secretary Rehman expressed his gratitude for including
agriculture in the Strategic Dialogue. He also noted that the GOP
had raised the wheat procurement price to a reasonable level to
which the Ambassador expressed her appreciation. Additional
Secretary Raja said that MINFAL took the wheat price increase "to
the cabinet 11 times before it was finally approved." The Secretary
asked about any follow up on the decisions following the agriculture
discussions at the Strategic Dialogue and hoped to have greater
interaction with USG officials on agriculture.

- - - - - - - - - - - - - - - - -
SUPPORT FOR A TAX ON AGRICULTURE?
- - - - - - - - - - - - - - - - -


11. (SBU) Ambassador asked about the internal MINFAL views on a
proposed agriculture tax. Secretary Rehman noted that he did not
attend the lively Cabinet meeting debate but voiced his opposition
to an agriculture tax characterizing it as "not a prudent thing."

ISLAMABAD 00003691 003 OF 003


According to him, the agriculture sector is already being taxed by
both provinces and through the income tax. He also noted that 90
percent of the farms in Pakistan are considered small holdings (less
than 10 acres) and would suffer greatly from another tax.


12. (SBU) Additional Secretary Raja noted that he differed with his
superior but that he is in favor of an agriculture tax. Raja
believes that an agriculture tax should focus on the top 2-3 percent
of farmers who are the large landowners but noted that any
implementation will be difficult and must have a "proper mechanism
and set up." The Ambassador inquired whether the GOP had tax
assessment for agriculture. Raja replied that these exist and are
currently used to collect the flat land tax that every farmer pays.
Rehman chimed in saying an agriculture tax is "fraught with
difficulties" because it would tough to figure out who needs to be
taxed and at what amount. Noting that the small farmers do not keep
track of all of their production costs, Rehman pointed out that none
of the leading Western countries, including the U.S., have an
agriculture tax.


13. (SBU) Comment: The wheat supply situation in Afghanistan is
also dire, with stocks reportedly only adequate to meet consumption
needs through January/February 2009. Since Pakistan supplies
roughly 45 percent of Afghanistan's wheat consumption needs, an
improvement in Pakistan's wheat supply situation will have a
positive impact on the food security in Afghanistan. In the absence
of significant wheat imports, prices will rise precipitously and
will potentially lead to further civil unrest. Through the use of
the GSM-102 program, the USG can facilitate the supply of a
substantial volume of wheat into the region, thereby contributing to
price stability and food security. If the GSM-102 program is to be
used to address the regional food security needs of Pakistan and
Afghanistan, a decision needs to be made soon, because the wheat
will need to be purchased by mid-December if it is to arrive in time
to meet the countries' consumption needs until the next wheat crop
is harvested in April/May 2009. End Comment.


14. (SBU) ACTION REQUEST: Post requests guidance on the fastest way
to facilitate sales of U.S. wheat to Pakistan under the GSM-102
program. Post requests clarity from USDA regarding the feasibility
of providing a waiver to the export limitations included as part of
the USDA Food for Progress agreement, and permit the GOP to export
wheat from its next crop in the off chance that domestic surpluses
actually materialize.

PATTERSON