IMPACT OF RISING FOOD PRICES IN BOLIVIA

C O N F I D E N T I A L SECTION 01 OF 03 LA PAZ 001045 SIPDIS E.O. 12958: DECL: 05/01/2018 TAGS: EAGR EAID ETRD ECON PGOV PREL SUBJECT: IMPACT OF RISING FOOD PRICES IN BOLIVIA REF: A. SECSTATE 39410 ¶B. 07 LA PAZ 2791 ¶C. 07 LA PAZ 3259 ¶D. LA PAZ 589 ¶E. LA PAZ 638 ¶F. LA PAZ 670 ¶G. LA PAZ 1006 ¶H. LA PAZ 313 ¶I. 07 LA PAZ 3236 ¶J. LA PAZ 111 Classified By: EcoPol Chief Mike Hammer for reasons 1.4 (b) and (d). -------------- Summary -------------- ¶1. (C) Attempting to control food price inflation is clearly a priority of the Morales administration. However, policies to date have not helped stimulate production, but rather are likely to dampen domestic agricultural activity in the future. Higher food prices have provoked protests, but by and large Bolivians are focused on larger, national political issues. Correspondingly, government responses to rising food prices have been largely political, aimed at either punishing opposition groups or rewarding supporters. Post continues to work with the government to strengthen the agricultural sector, but programs have been hampered by Morales administration's resistance to U.S. assistance. End summary. -------------- -------------- Food and Agricultural Commodity Supply and Demand -------------- -------------- ¶2. (C) Currently the greatest concern for Bolivia is a shortage of wheat. According to Val Schaffer, General Manager of Archer Daniels Midland (ADM) in Bolivia, the shortage is primarily due to poor planning in wheat import programs, both in the public and private sectors. Moreover, Argentina's export policies are also partially responsible for wheat scarcity in neighboring countries. For 2008, Bolivia's wheat consumption is estimated at 600,000 tons (400,000 tons will be imported and 200,000 produced in country, up from 150,000 tons in 2007). Shortages of bread have been sporadic and the price of the basic unit of bread has been of particular concern. Prices have risen between 50 to 70 percent this year and loaf size has been shrinking. Minister of Production Hurtado is now calling for all bread products to be sold by the kilo. ¶3. (C) There does not appear to be a solution for wheat shortages in the short term (120 days out). Come August, however, Schaffer predicts increased harvests of Bolivian wheat. He also noted that sales of wheat seed for the upcoming planting season were much higher than ADM (a seed supplier) had expected. This may, in part, be a reaction to government incentives, but Schaffer points to a two year trend in replacing soybeans with wheat (due to a plague which infects soy production). However, according to Reinaldo Diaz, President of the Association of Seed Oil Producers (ANAPO),production of soy and sunflowers will also increase in 2008, despite government actions; international prices are just too high to ignore. He anticipates a two fold increase in sunflower production and a small boost in land dedicated to soy. ¶4. (SBU) While Bolivians are hesitant to expand their land holdings, many Argentineans look favorably on Bolivian growth prospects. As a result, most of the new land purchases in the productive eastern lowlands over the last year have been made by Argentinean farmers looking to avoid export taxes and take advantage of the comparatively low land prices. LA PAZ 00001045 002 OF 003 ¶5. (C) In large part due to 2007 flooding in the north eastern parts of the country, rice is also in short supply. Imports from Paraguay and Argentina are expensive and of relatively low quality. While prices of other food commodities have risen substantially, they may well be just caught up in the general inflationary environment of Bolivia (Ref. B). According to Schaffer, while there have been sporadic price jumps for other popular foodstuffs (meat, chicken, potatoes, corn, and other vegetables),there are no significant supply shortages. In general, there is no indication that Bolivian eating patterns have changed significantly as a result of price. -------------- Political Impact and Policy -------------- ¶5. (C) According to the Confederation of Bolivian Entrepreneurs (CEPB),since 2007 there have been 15 decrees which have negatively impacted the productive agricultural sector in Bolivia. Many of these decrees appear politically motivated (Ref. C, D). Five of the decrees have simply cut tariffs on agricultural imports, but more controversially exports have also been frozen. The government points to its prohibition on chicken exports as having successfully brought down the price of poultry. Prices for chicken came down before the ban was lifted about one month ago. The head of the largest poultry cooperative however, told Ecopol officer that prices are now at production costs, and will soon begin to rise again. The most high profile decree was the prohibition on cooking oil exports (Ref. E, F, G). While the government has claimed that the result has been a fall in prices to within the desired price range, over the month that the ban has been in place, international prices for cooking oil have also fallen. ¶6. (C) While the government is now emphasizing that the only way to control food prices is through increased production, the methods it favors are questionable. Morales' approach to economic policy is state-oriented, and it appears that it will approach increased agricultural production with the same philosophy. To date, actions have included having the armed forces bake bread and cultivate wheat (a few months ago several new ovens were ordered by the military); running a soy crushing plant and selling un-bottled cooking oil at subsidized prices; and opening several milk processing plants (without increasing milk production (Ref. H)). These types of policies are unlikely to change in the near future. In fact, in a March meeting with Minister Hurtado told us that "the market is not good at designating prices." Hurtado thought that where private enterprise can't work, state enterprises were the answer. The plans he gave to increase production were joint public/private enterprises that would "later be passed on to private industry." ¶7. (SBU) Another clear tendency that is emerging from the government in response to the food crisis to push for agricultural self-sufficiency. In a press interview, Minister of Agriculture Rivero denounced the neo-liberal model of agricultural production which emphasizes agro-industrial production, often for export. This administration wants to encourage production for the domestic market. In terms of wheat, Rivero blames imports and donations for destroying Bolivian producers. Over the next year, the cental government will attempt to match domestic consumption and production through incentives and payments to (mostly small) producers. ¶8. (C) Politics also play a heavy hand in decisions affecting agricultural production. A priority of the Morales administration is to push forward plans to redistribute lands, primarily in the eastern lowlands and to the indigenous communities that live there. All lands which do not fulfill their "social function" are subject to state LA PAZ 00001045 003 OF 003 appropriation (Ref D). Rather that stimulate investment, producers complain that the vague new agricultural laws create uncertainty and caution in the sector. While the government continues to announce large sums of money destined to small producers, to date the money does not appear to be reaching the producers themselves. Moreover, it is unclear how a "common front" between the Boliviarian Alternative for the Americas (ALBA) nations of Bolivia, Cuba, Nicaragua and Venezuela announced in the last week of April to address the food crisis will increase national production. In the meantime, large producers in the department of Santa Cruz complain that the national government has done nothing to improve rural infrastructure especially following the devastating floods at the beginning of the year. One concrete action that the government has taken in recognition of rising food prices is to reduce the weight that foodstuffs play in the basket of goods used to measure overall inflation. For April, the foodstuffs will represent 39 percent of the basket as opposed to 49 percent in the previous formula. According to the La Paz think tank the Millennium Foundation, the food bill for the average Bolivian household rose by more that 20 percent in 2007. -------------- Post Programs -------------- ¶9. (C) In general terms, USAID agricultural programs assist small farmers in improving production and linking to high-value niche markets. Additionally, they have helped farmers supply school feeding programs in many Bolivian municipalities. Title II programs, which have been important sources of U.S. agricultural commodity donations, are set to close down at the end of 2008. Title I programs finished in 2005, but a residual USD 6 million in counterpart funds is held in a account jointly administered by a board composed of an Ecopol officer, the USDA agricultural counselor (based in Lima),and two representatives from the Ministry of Agriculture. Over the past year, cooperation has been rocky (Ref. I, J). While the board had approved some $4 million in funding for specific food safety programs, the government has been unwilling to fund the projects. Food safety programs run by the Food and Animal Health Safety Agency (SENASAG) have been partially shut down and an administrative control unit has been disbanded. As a result, now even approved technical programs cannot be funded. Furthermore, while the president of SENASAG has approached U.S. representatives on the board for funding to support a redesigned agency, the plan appears purely political. Given that the plan aims to further centralize SENASAG and use U.S. funds to gain temporary independence from department (state) funding and department-run food and animal health programs, we have withheld our support. GOLDBERG