RESPONSE: IMPACT OF RISING FOOD/COMMODITY PRICES -

UNCLAS SECTION 01 OF 02 PARAMARIBO 000177 SIPDIS STATE FOR WHA/CAR JROSHOLT EEB/TPP/ABT/ATP FOR JSPECK SIPDIS SENSITIVE E.O. 12958: N/A TAGS: EAGR EAID ETRD ECON BTIO NS SUBJECT: RESPONSE: IMPACT OF RISING FOOD/COMMODITY PRICES - SURINAME REF: SECSTATE 39410 PARAMARIBO 00000177 001.2 OF 002 ¶1. (SBU) SUMMARY: Rising food prices, in particular of the Surinamese staple, rice, have received extensive play in the media, but did not result in public disorder or runs on foodstuffs. Political attention was high, with the opposition blaming the government, the government looking towards international conditions, and both sides calling for quick-fix policy solutions which would reduce government revenue with the intent of creating lower prices for consumers. The remainder of this cable addresses selected topics keyed to paragraph 7 from reftel. END SUMMARY. ¶2. (U) DEMAND: Price increases affected all food items, whether locally produced or imported. Suriname imports nearly 75 percent of its food. Price increases for imported food varied depending on product origin. Fifty percent of food imports came from Europe. Fifty percent or higher price increases of European goods were due to increased food prices in Europe, the devaluation of the Surinamese Dollar (SRD) vis-`-vis the Euro, and increased transportation costs due to the price of fuel. (Note: The SRD is linked to the U.S. dollar for foreign exchange. End Note.) U.S.-origin goods increased in price, but more modestly since the exchange rate was stable and because of the closer proximity of the countries. ¶3. (SBU) SUPPLY: Rice is Suriname's most important agricultural commodity. Rice is locally produced. As of March 2008, the supply was double that of local demand; despite this, the price of rice had increased by approximately 100 percent. This was predicted by rice producers and exporters, according to a local banker in Nickerie in January 2008. Producers attributed the price increase to an anticipated world-wide shortage of rice due to Asian crises and the shift of many growers world-wide to biofuel commodities. Sector stakeholders agreed that lucrative rice prices in neighboring Guyana and French Guiana, which are both reporting rice shortages, resulted in Suriname prices skyrocketing. The bulk of Suriname rice exports have traditionally gone to Jamaica and Haiti, with a small portion exported to Europe. World demand for cargo rice as animal feed, due to the high world market price of corn, was another factor cited. �00A;Distributors told us they have not noticed any significant changes in their sales figures, and in a conversation with Post a local businessman shrugged off shortage fears by saying "every Hindustani is keeping two barrels full of rice in his house." (Note: Keeping this amount of rice at home is normal practice for Hindustanis and should not be confused with stockpiling due to the price increase. End Note.) The rice industry has 55,000 tons of rice in stock and has calculated the maximum local need through August 2008 will be only 20,000 tons. This leaves over half the rice currently in stock for the export market. The percentages of the rice crop going toward local or export markets remained the same as in past, the difference is the rice industry received higher profits due to the high value of rice on the international markets. However, local officials and producers are discussing how to maintain social and economic stability in light of high prices. Surinamese rice growers and distributors/exporters advised the government to implement export regulations on rice in order to maintain a stable local market until the September harvest. This is to maintain an optimal market situation, and not to prevent shortages, however. ¶4. (SBU) POLITICAL AND ECONOMIC IMPACT: Loud calls were made for the government to step to the plate and take concrete action. Employers called on the government to stop hiding behind the international market as the cause of the problem. Opposition members voiced dismay of the government's handling of the situation. Although Suriname was fortunate not to have any protests or violence stemming from this food price crisis, labor unions used the rising food prices and ever increasing inflation to demand higher wages, transport subsidies, and other assistance packages. Unions representing civil servants called for wage increases of between 10 and 22 percent. (Note: The 12-month inflation for March hit double digits at 13.8 percent. End Note.) The Governor of the Central Bank of Suriname stepped in and advised employers, both private and government, not to implement any excessive wage increases that might fuel the inflationary pressures on the economy. He advised only wage increases that could be matched by increases in production and exports of natural resources. The government responded to the public's demands with an array of short-term initiatives and quick-fixes to put money back in the hands of consumers (see paragraphs 6 and 7). ¶5. (U) ENVIRONMENTAL IMPACT: Increased food prices did not discernibly impact Suriname's environment. ¶6. (U) GOVERNMENT POLICY RESPONSE - REGIONAL: Through statements made by Vice President Ram Sardjoe, the government acknowledged an economic crisis. On a regional level, Suriname engaged CARICOM member states at the Heads of State meeting where all CARICOM PARAMARIBO 00000177 002.2 OF 002 members agreed to work together to find a collective solution. One suggestion at the meeting was that import duties on non-CARICOM goods under the Common External Tariff be lowered or temporarily suspended. The Government of Suriname produced a list of 48 products it imports from non-CARICOM sources to submit to CARICOM for consideration under this suggested program. ¶7. (U) GOVERNMENT POLICY RESPONSE - DOMESTIC: Political attention to the issue was high. Minister of Trade and Industry Clifford Marica attempted to curb some of the immediate damage. The Suriname government has engaged in price-setting on food staples, and in reaction to rising costs, the government negotiated with business to lower profit margins to seven percent on a list of 44 "basic" food staples -- to be applied to both importers and retailers. Baby food, historically subsidized by the government, was slated to increase only slightly in price. The government will continue to provide foreign exchange for these imports at a reduced exchange rate, as historically has always been the case. Government negotiations with the Bakers' Association resulted in agreements to maintain current bread price levels, and bakers agreed to calculate bread prices (plain white roll, not specialty breads) using an artificially low price. The GOS assigned a group of Ministers to identify problem areas and present further possible solutions, and President Ronald Venetiaan stated that his first priority is to assist low income families. Some opposition members proposed the government suspend fuel taxes, currently around 1 SRD per liter, in order to leave more money in the hands of consumers. Privately, two coalition parliamentarians told Post they also favor a reduction in the government take on fuel sales. ¶8. (U) IMPACT ON POST PROGRAMS: Post has noticed no impact in its programs as of yet although complaints about U.S. rice growing policy as a "subsidy program" that works against exports have been a frequent, if muted, complaint when Post officers visit rural Nickerie, the rice-growing region of Suriname. Most rice growers admitted domestic and local problems are the chief cause of underproduction in Suriname's local rice industry, and complained about U.S. policy only as an addendum. The Speaker of the National Assembly was quoted in the press on April 28 as stating rising food prices were caused by the U.S. war in Iraq. While the food price issue has received extensive play in the media, media attention has focused on government options more than on placing blame. Post continues to monitor local media articles and editorials for positive or negative content regarding the United States and food prices, but has found little to note. SCHREIBER HUGHES