BURKINA FASO SURVEY ON THE IMPACT OF RISING

UNCLAS SECTION 01 OF 05 OUAGADOUGOU 000439

ACCRA FOR USAID WEST AFRICA
DAKAR FOR USAID FOOD FOR PEACE AND OFDA
DAKAR FOR FAS
DEPT PASS TO USAID FOR AFR/DP

SIPDIS

E.O. 12958: N/A
TAGS: EAID SOCI EAGR PGOV UV
SUBJECT: BURKINA FASO SURVEY ON THE IMPACT OF RISING
FOOD/AGRICULTURAL COMMODITIES

REF: A) State 039410 B) Ouagadougou 132 C) Ouagadougou 126
D) Ouagadougou 202 E) Ouagadougou 221 F) Ouagadougou 263
G) Ouagadougou 309


1. Following is Embassy Ouagadougou's response to ref A:

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SUPPLY AND DEMAND
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2. Official statistics released by the Burkina Faso Ministry of
Agriculture, Hydraulics and Fisheries estimated national cereal
production for the 2007/2008 agricultural campaign at 3,736,656
metric tons. Current year agricultural production is two percent
higher than the 2006/2007 agricultural campaign (3,680,674 metric
tons) and eight percent higher than the average of the last five
agricultural campaigns (3,452,717 metric tons). The leading types
of cereals produced in Burkina Faso are sorghum, millet, maize, rice
and fonio (a small species of millet predominantly found in West
Africa).


3. According to the Ministry of Agriculture, Burkina Faso's
estimated 2008 cereal requirements are 2,874,958 metric tons. The
Ministry estimates that the total available supply of cereal is
3,652,176 metric tons which includes 3,139,232 metric tons from
current year production, 200,363 metric tons from national
stockpiles, and 312,581 metric tons from imports and food aid.
Although the Ministry of Agriculture concluded that there was an
overall cereal surplus of 777,218 metric tons, a study done by the
German Technical Cooperation (GTZ),emphasized the provisional
nature of these statistics and questioned why the Ministry of
Agriculture did not publicize their report until the end of March.


4. While Burkina Faso is enjoying a slight surplus in cereal
production, it is important to note that it is not equitably
distributed across the country's 45 provinces. According to the
Ministry of Agriculture, during this year's agricultural campaign 14
provinces noted an increase in cereal production in excess of 10
percent, while five provinces had an increase of less than 10
percent. Despite good harvests in some regions, seven provinces
reported a production decrease of less than 10 percent while 19
provinces experienced decreases of more than 10 percent. A
geographical assessment of supply and demand undertaken by the
Ministry, showed that 20 of the country's 45 provinces would meet
their cereal needs with a production level of 120 percent, 10
provinces would have coverage between 90 and 120 percent and 15
provinces in the central and northern areas of the country would
experience a coverage rate of less than 90 percent.


5. In April 2008, a joint food availability assessment surveyed
marketplaces and farmers in 13 regions served by UNICEF, World Food
Program, FAO, l'Eau Vive, and "Terres des Hommes." According to
this assessment, food availability could be described as "good" in
only three out the 13 regions surveyed. An in-depth analysis of
food availability by cereal type indicated that despite a possible
surplus of millet, sorghum, maize and fonio, the country will still
need to import both rice and wheat to cover its cereal needs. Dr.
Zacharie Segda, an agro-economist at the National Institute of
Agricultural Research (INERA),estimates that Burkina Faso imports
300,000 metric tons of rice annually at an approximate value of 40
billon CFA (US $95.2 million). According to the Ministry of
Agriculture, on average, the country is capable of satisfying only
one-third of its rice demand through domestic production.


6. Since January 2008, cereal prices have increased dramatically in
Burkina Faso. "Afrique Verte," an international organization which
publishes a monthly on-line commodities survey, recently indicated
that "prices in local markets increased significantly between March
2007 and March 2008." At Sankariare, a Ouagadougou market, 2008
imported rice increased between March 2007 and March by 21 percent
from 240 CFA (US $0.57) to 290 CFA (US $0.69); millet increased nine
percent from 115 CFA (US $0.27) to 125 CFA (US $0.30); sorghum
increased 15 percent from 100 CFA (US $0.24) to 115 CFA (US $0.27)
and maize increased 44 percent from 80 CFA (US $0.19) to 115 CFA (US
$0.27) per kilo.


7. Local experts believe that price increases in imported cereals
such as rice can be justified in the context of the world market,
but the increase for dry cereals is rooted in poor fluidity between
regional markets and exacerbated by speculative market behavior. A
recent commodity analysis performed by GTZ concluded that in
addition to external factors, the recent government move to tighten
import controls has exacerbated the situation by further
constricting the supply chain.

OUAGADOUGO 00000439 002 OF 005



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POLITICAL IMPACT
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8. The rising cost of living in Burkina Faso has led to numerous
nationwide demonstrations and union-led strikes protesting "La Vie
Chere." The first signs of public discontent took place on February
20 when spontaneous demonstrations erupted in three major cities
including Bobo Dioulasso, Ouahigouya, and Banfora. Rioters attacked
government offices, burned shops, cars, and petrol stations. On
February 29, 153 protestors arrested during the Bobo Dioulasso riots
appeared in court, 29 of them were convicted of destruction of
property. Prison sentences ranged from three to 36 months. Thibaut
Nana, President of the
Patriotic Youth Movement (MJP),called for another demonstration on
February 28 in Burkina Faso's capital city, Ouagadougou. The
Government of Burkina Faso (GOBF) stated that it did not recognize
the MJP as a legitimate entity and refused to sanction the
demonstration. Despite government warnings, on February 28,
protestors attacked government buildings with rocks and metal bars,
set fire to piles of tires, and set up roadblocks as they demanded
lower prices for fuel and food. The government responded with riot
police and tear gas and 184 protestors were arrested, including Nana
Thibaut.


9. When unsanctioned demonstrations met with government resistance,
unions continued their protests for better living conditions through
a series of official rallies in major cities. The first
government-approved union rally took place on March 15 followed by
nationwide general strikes on April 8-9 and another three day strike
on May 13-15. Unions and the GOBF continue to give vastly different
accounts of Burkinabe strike participation. After the two-day
nationwide strike, Union sources reported 90 percent worker
participation, while the Government disputed the success of the
event and claimed that only 20 percent of workers were present.

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ECONOMIC IMPACT
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10. Rising food prices will have significant macro-economic impact
on Burkina Faso. Gross domestic product (GDP) remained a strong 7.1
percent in 2005 and 5.5 percent in 2006, but in 2007 higher costs of
energy and food, as well as low cotton prices, dampened the GDP
growth rate to 4.2 percent. Although Burkina Faso enjoyed a -0.3
percent inflation rate through the first half of 2007, prices
increases severely impacted Burkina Faso's Consumer Price Index
(CPI),causing it to increase from 118.6 in July 2007 to 122.6 by
the end of December (Ouagadougou 202). Both the GOBF and the
International Monetary Fund (IMF) have forecast an inflation rate of
6.2 percent in 2008. Both the balance of payments and the trade
balance, which were already structurally in deficit, are likely to
widen as Burkina Faso continues to import higher priced goods.


11. In an attempt to fight against corruption, the GOBF hired
COTECNA, a Swiss-based "trade inspection" company, in early 2008 to
verify that the actual value of imported goods matched the
importers' declared value. Once importers were required to pay
increased value-added taxes they decided to maintain their profit
margins by passing their costs onto consumers. In late February, the
GOBF announced a six month suspension of customs duties and
Value-Added Taxes (VAT) on imported cereals. The Customs General
Directorate has not totally assessed the fiscal impact of this
measure, but IMF experts believe that it could significantly reduce
government revenue for 2008.


12. A recent IMF mission to Burkina Faso cautioned that: "2008
fiscal policy must strike a balance between accommodating social
needs and preserving macroeconomic stability." The IMF believes
that although the government has taken steps to mitigate the
negative social impact of higher food and energy prices, it may
become necessary to tighten fiscal policy if price increases were to
lead to accelerating inflation rates. The IMF mission concluded
that in the short term, continued efforts to increase revenue and
reduce the fiscal deficit to less than three percent of GDP, would
be key to preserving debt sustainability.


13. Many Donors have voiced concerns that price increases will have
a profound impact on poverty reduction in Burkina Faso. The GTZ
study referenced a 2006 project by Michael Grimm and Isabel Gunther
addressing the effects of price shocks on pro-poor growth.
According to this study, the cereal food component accounted for
roughly 37 percent of per capita household expenditures for 40

OUAGADOUGO 00000439 003 OF 005


percent of the lowest income households, while it represented only
16 percent for the 20 percent richest of the country. Recent
statistics on poverty reduction show that until 2006, a seven
percent GDP growth rate helped lower the incidence of poverty from
46.2 percent in 2003 to 42.1 percent in 2006 while the 2007 economic
slowdown resulted in a rebound of the poverty rate to 42.6 percent.

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ENVIRONMENTAL IMPACT
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14. No specific environmental impact from increased food prices has
been noted.

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GOVERNMENT POLICY RESPONSE
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15. On April 1, the National Assembly established a 15-member ad hoc
Parliamentary commission consisting of representatives from both
ruling and opposition parties. The commission was tasked to assess
the on-going food crisis and to recommend a viable action plan.
Although the commission has met with importers, traders'
organizations and made numerous field visits to Bobo Dioulasso, it
has not publicly released its findings.


16. The GOBF has taken several measures to address agricultural
commodity price increases. The first measure provided lower cost
cereals to the most impoverished segments of Burkinabe society. At
the end of the 2007/2008 agricultural season, the GOBF decided to
sell subsidized millet, sorghum and maize to the poorest populations
living in deficit localities. On April 27, Prime Minister Tertius
Zongo announced to the National Assembly that the GOBF had
successfully distributed 31,375 metric tons of grain from the
national stockpile. Zongo added that 11,000 metric tons of cereals
had been sold at the subsidized price of 9,000 CFA (US $21.43) per
100 kg in lieu of the market price of 15,000 FCFA (US $35.71). The
GTZ study described this program as "ineffective" and cited
complicated administrative procedures, insufficient quantities, and
the high cost of transportation between the capital and outlying
villages as the reason for the program's mitigated success.


17. In response to growing national discontent, the GOBF decided to
suspend customs duties and Value-Added Taxes (VAT) on certain
agricultural commodities including rice and wheat. Although the tax
break was initially planned for a three-month period from March to
May, the government extended the measure until June. Many critics
feel that this policy had no significant impact on the price of
agricultural products. On May 9, both the governmental newspaper
"Sidwaya" and the independent newspaper "Le Pays" cited the 58
percent increase in the price of imported rice since January and
concurred that the impact of suspended customs duties was
negligible.


18. The Minister of Commerce stated categorically that Burkina Faso
is not restricting food exports. However, several weeks ago World
Food Program (WFP) did not receive an export permit from the
Ministry and had to cancel exporting 2,500 metric tons of cereal to
neighboring Ghana and Niger. Ambassador delivered a demarche on May
28 to the Minister Mamadou Sanou requesting that food exports not be
restricted; Sanou explained that no export restrictions were in
place.


19. Prime Minister Zongo, during his address to the National
Assembly in late March, congratulated the GOBF on its support of
small-scale irrigation projects which enabled farmers to produce
more than 530,000 metric tons of cereals during the dry season.
Zongo opined that this program was an opportunity to extend food
availability to vulnerable populations throughout the year.


20. On April 7-18, the United Nations Food and Agriculture
Organization (FAO) sponsored "Initiative on Soaring Food Prices"
(ISFP) met with the GOBF to offer technical and policy assistance.
Although the FAO initiated this mission, several institutions joined
the effort including: the African Union, the World Bank, the
International Fund for Agricultural Development (IFAD),and the
World Food Program. This group of bilateral development agencies
and the National Permanent Secretary of Coordinating Agricultural
Sector Policies (SP/CPSA) proposed a basic policy framework to
address the food crisis. The initiative recommended three policy
measures: sustained support of improved agricultural productivity;
political and policy measures to encourage agricultural initiatives;
and market driven production of agricultural commodities.


OUAGADOUGO 00000439 004 OF 005



21. The commission estimated that nearly $64 million would be
required for food distribution to vulnerable populations and
financial support for the 2008/2009 agricultural season. The
commission emphasized the urgent need for 500 metric tons of
improved seeds, 340 tons of nitrogen-phosphorus-potassium (NPK)
fertilizer and 200 tons of urea, a low cost nitrogen fertilizer.
The production component of this assistance package would allow
33,000 households to cultivate 45,000 ha of sorghum, millet, corn,
beans and onions. FAO, Spain and the United Nations Office for the
Coordination of Humanitarian Affairs (OCHA) will furnish $1.8
million to purchase improved seed and fertilizer. The World Bank
will finance 3,500 tons of improved sorghum and millet seeds (500
metric tons),corn (2,500 metric tons),beans (500 metric tons) for
140,000 households to cultivate 220,000 ha. The third and largest
aid component seeks to assist 220,000 households develop sustainable
rice production for 30,000 ha. To date, this $7.6 million project
has not yet received financial support.


22. The Ministry of Agriculture reported that their objective for
the 2008/2009 agricultural season was to increase cereal production
by 13.23 percent to 4,231,479 metric tons. The Ministry also plans
to double 2007 rice production from 123,028 metric tons to 247,484
metric tons. On May 9, the newspaper "Le Pays" reported that to
ensure success of this year's agricultural season, the Ministry of
Agriculture had seven recommendations: i) promote effective use of
improved seeds by farmers; ii) government support for the production
of 20 tons of organic fertilizers; iii) government commitment to
purchase surplus rice production; iv) decrease taxes on agricultural
inputs; v) decrease interest rates on agricultural credits; vi)
increase farmers' access to agricultural equipment; and vii)
continued government commitment to purchase rice at the remunerative
prices announced at the beginning of the agricultural season.


23. Despite efforts to improve national food security, Dr. Zacharie
Segda, an agricultural economist at INERA, continued to criticize
the GOBF for inequities in government assistance for various
agricultural sectors. Segda claimed that in 2008 the GOBF has
already paid $15.4 million in subsidies to the cotton sector to
facilitate farmer access to affordable fertilizers while the rice
sector has not received any assistance. Segda is confident that with
financial support of $2.3 million, the rice sector could produce
sufficient quantities to meet the country's needs.


24. On May 9, the USDA Regional Agricultural Attache met with Alain
Kabore a representative from the United Nations' (UN) Food and
Agriculture Organization (FAO). During the meeting, Kabore voiced
concern over insufficient quantities of improved seed for the
upcoming agricultural season. Kabore stated that through the
financial support of Luxemburg, FAO plans to give 240 tons of
improved seeds to the 15 provinces that experienced low cereal
production in 2007. He acknowledged however, that lack of seed
availability would prevent them from realizing more 40 percent of
their initial target. In 2007, national production of improved
seeds was estimated at a mere 5,000 metric tons and demand from the
World Bank and other organizations could not be met through domestic
supplies.


25. In late May, the UN will launch a comprehensive nationwide
survey to analyze food security and its impact on nutrition in
Burkina Faso. The UN will work in conjunction with the Department
of Agricultural Statistics and various NGOs to conduct a month long
survey of 11,800 rural households. A second smaller survey will
assess urban populations in six cities, focusing on neighborhoods
with a high concentration of poverty. It is hoped that this survey
will provide a qualitative understanding of higher prices, including
an analysis of coping mechanisms and their effects on nutrition.

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IMPACT ON POST PROGRAMS
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26. Post Operational Plan objectives are implemented by two
non-governmental Organizations (NGOs),Africare and Catholic Relief
Service (CRS). Both NGOs implement agricultural programs that offer
farmers the opportunity to improve their productivity. According to
the UNICEF joint assessment of food availability in April 2008 all
13 provinces in their survey have reported an increased incidence of
malnourished children. On-site interviews have attested to an
increased trend of malnutrition and in an increase in the number of
low birth weight infants.


27. Millennium Challenge Corporation (MCC) and the GOBF are
currently in the final phase of compact development. The $481
million MCC compact includes activities to enhance agricultural

OUAGADOUGO 00000439 005 OF 005


production and facilitate land ownership. The proposed July 16,
2008 compact signature will be welcomed by both the government and
the population of Burkina Faso. While the MCC compact will not be
realized in time to assist with Burkina Faso's 2008/2009 growing
season, it is hoped that these programs will impact productivity in
future years.

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POLICY PROPOSALS
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28. In recent years, Burkina Faso's agricultural research
capabilities have weakened significantly. The National Institute
for Agricultural Research (INERA),which was initially funded by the
World Bank, has been allowed to languish since the GOBF assumed
control in 2000. After more than eight years of neglect, INERA
lacks the capacity to select new varieties of improved seeds for
farmers. The GOBF needs to bolster its agricultural research
programs in order to improve future agricultural productivity.
Given the current economic climate, it will become increasingly
important for the GOBF to balance its financial support between the
cotton and cereal sectors.


29. The recent GTZ study provided valuable economic analyses on
possible for government measures. Over the short-term, the study
pointed out, that fiscal policies such as lower customs duties,
price subsidies, storage programs, adjustment funds, price
regulation, margin supervision, and income increases will either be
difficult to implement or will have limited impact on soaring
commodity prices. Moreover, GTZ concluded that the public budget
would be unable to sustain many of these measures even over the
short term. The study encouraged the GOBF to enlist the services of
COTECNA in its fight against corruption and proposed the following
fiscal policies: increase revenues through pro-poor growth measures,
increase cereal productivity, reinforce market competition and
integration for food commodities.


30. The GTZ study also suggested that West African Economic and
Monetary Union (WAEMU) members, who share a common regulatory
mechanism as well as common external tariffs, should work together
to tackle the agricultural price issue. After an April 23 meeting,
WAEMU issued a press communique stating that, "In an effort to
coordinate future efforts, the ministers examined previous measures
taken by individual states at the national level. The counsel agreed
to release up to 340 billion CFA (US $810 million) in internal
resources to fund emergency needs and agricultural projects."

JACKSON