AG MINISTER RUTO VOWS TO REMOVE DUTIES ON WHEAT IN MEETING

UNCLAS SECTION 01 OF 02 NAIROBI 001336

AGRICULTURE FOR USDA/FAS CJACKSON AND MHOUSE, USDA/FAS/OFSO FRANK
LEE, USDA/FAS/OCBD PATRICIA SHEIKH, USDA/FAS/OCRA CHUCK ALEXANDER,
AND USDA/FAA RON VERDONK

STATE FOR EEB/TPP/MTA CHEVER VOLTMER, EEB/TPP/ABT GARY A. CLEMENTS,
JACK A. BOBO, AND AMY WINTON; EEB/IFD/ODF MARGO SIEMER; AND EEB/TPP
MIKAEL LURIE

STATE ALSO FOR AF/E, AF/EPS, AND EEB/TPP/ABT/ATP JANET SPECK

STATE PLEASE PASS USTR BILL JACKSON AND USAID/EA

COMMERCE FOR BECKY ERKUL AND USITC RALPH WATKINS

LONDON, PARIS, ROME FOR AFRICA WATCHERS

SENSITIVE

SIPDIS

E.O. 12958: N/A
TAGS: EAGR ETRD TBIO ECON EAID EFIN PGOV KE
SUBJECT: AG MINISTER RUTO VOWS TO REMOVE DUTIES ON WHEAT IN MEETING
WITH AMBASSADOR RANNEBERGER

REFS: (A) STATE 53353 (B) STATE 533346 (C) STATE 52628
(D) NAIROBI 1122 AND PREVIOUS
(E) FAS NAIROBI GAIN KE8012

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SENSITIVE BUT UNCLASSIFIED. PLEASE PROTECT ACCORDINGLY. FOR
INTERNAL USG DISTRIBUTION ONLY.


1. SUMMARY: Kenyan Minister for Agriculture William Ruto promised
the Ambassador on May 8, 2008 that he would remove the 35% tariff on
imported wheat as a way to ease inflationary pressures on bread
prices. The Minister also agreed to work closely with the Kenyan
Ministry of Science and Technology to fast track passage of
trade-friendly biotech legislation. END SUMMARY.


2. Ambassador Ranneberger, Agricultural Counselor Kevin Smith, and
USAID General Development Officer Robert Buzzard met with the newly
appointed Minister for Agriculture William Ruto on May 8, 2008 to
discuss issues of agricultural development and reform in Kenya.
Ruto candidly accessed Kenya's agricultural situation as dire. He
stated that post-election violence resulted in the destruction of a
large percentage of corn stocks and displacement of hundreds of
farmers from their land. Many of these farmers have not returned to
plant the long rains crop. The situation has been exacerbated by
the escalating cost of inputs. (See ref D for an extensive account
of the agricultural losses). According to Ruto, the Kenyan
government needs to invest 3.75 billion Kenyan shillings (US$61
million) to assist in a recovery effort. Ruto claims that the Kenya
Commercial Bank (KCB) has agreed make 850 million Kenyan shillings
(US$14 million) available to finance the purchase of fertilizer.
Since the crop has already been planted, the fertilizer will be
applied as a top dressing and should assist in increasing yields.


3. The Minister estimates a deficit of 540 thousand tons of corn for
the current year and fears that at current consumption levels,
stocks will only last until the end of June. Apparently, the
government intends to allow duty free imports of corn to compensate
for shortfalls in production. Ruto expressed a desire to increase
the strategic reserves of corn from 4 million 90 kg bags to 8
million (360,000 tons to 720,000 tons).


4. An initiative the Minister feels will have a major impact on the
agricultural sector is the public/private sector partnership among
Equity Bank, Alliance for a Green Revolution in Africa (AGRA),
International Funds for Agricultural Development (IFAD),and the
Ministry of Agriculture that will provide low interest loans to
farmers for the purchase of inputs and land preparation. Resources
exceeding US$50 million will be made available for this initiative.
Ruto asserted that additional resources from the government would
leverage an additional US$50 million in low interest loans to
farmers from the Cooperative Bank.


5. The Ambassador informed Ruto that US$200 million through the Bill
Emerson Humanitarian Fund has been released to address food security
concerns around the world and that it is possible some of these
resources may be coming to Kenya. He also told Ruto of the
President's request to Congress for an additional US$770 million to
fight hunger (ref C). The Ambassador and Minister agreed that USAID
and FAS would work with the Ministry to coordinate efforts to
revitalize agriculture in Kenya.


6. To assist in addressing the high cost of food, the Ambassador
opined that the high tariffs on wheat and corn should be reduced.
He stated that the 35% tariff on wheat in addition to the doubling
of CIF prices over the past year have passed a heavy burden to
consumers. In addition, flour millers will find it difficult to

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compete as wheat import duties in Uganda and Tanzania of 0% and 10%,
respectively, make the cost of wheat flour production in those
countries much cheaper. The Ambassador urged Minister Ruto to
significantly reduce, if not eliminate altogether, quotas and
tariffs on imported staple foods in order to improve food security
and reduce consumer costs (ref A).


7. Minister Ruto agreed and stated that even Kenyan wheat producers
feel the tariff is too high and fear flour millers may relocate to
countries with lower tariffs. He said that he intends to meet with
the Ministry of Finance to initiate a zero tariff on wheat for the
remainder of the year, then convert to a permanent 10 percent tariff
in December of 2008.


8. As instructed ref B, Ambassador Ranneberger asserted that Kenya
could also help increase its agricultural productivity by employing
new technologies such as biotechnology. He encouraged the Minister
to facilitate the passage of trade-friendly legislation for
biotechnology that will allow the United States to respond quickly
to food aid needs.


9. The Minister concurred and promised to work with the Ministry of
Science and technology to ensure quick passage of a bio-safety
bill.

Ranneberger