REQUEST TO END FOOD STAPLE EXPORT RESTRICTIONS:

UNCLAS SAN JOSE 000475

SIPDIS

DEPT FOR EEB/TPP/ABT AWINTON, EEB/TPP/ABT/ATP JSPECK,
EBB/TPP/MLURIE, EBB/IFD/ODF MSIEMER, PLEASE PASS TO
FAS/OCRA BZANIN, PLEASE PASS TO USDA, PLEASE PASS TO
TREASURY/SGRAY

E.O. 12958: N/A
TAGS: CS EAGR ECON ETRD PREL TBIO
SUBJECT: REQUEST TO END FOOD STAPLE EXPORT RESTRICTIONS:
COSTA RICA

REF: A. STATE 53353 B. SAN JOSE 347



1. SUMMARY: Costa Rica,s rising food prices have had
minimal political impact to date. From 2006 to 2007, wage
increases kept pace with food price increases. Over the past
year, that relationship changed with food price increases
easily eclipsing wage increases (Ref B). Although domestic
food security concerns are gaining strength, most
recommendations focus on increasing domestic production and
productivity. Costa Rica proposed a National Food Plan on
May 7, 2008 which aims to increase local grains production
and provide direct cash transfers to the most vulnerable
members of Costa Rican society. There have been virtually no
calls for export restrictions as a means of dealing with
rising food prices. END SUMMARY

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IS THERE A PLAN?
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2. On Thursday, May 7, 2008, the GOCR presented a National
Food Plan that aims to ensure the availability of basic
staples to the population and support the Costa Rican farm
sector. There are different estimates of the cost of the
government,s plan, ranging from USD 60 million to USD 88
million. The GOCR intends to reallocate existing government
resources and to send an &extraordinary8 budget to the
national assembly (Asamblea) to obtain funding for the
National Food Plan.


3. The government,s strategy establishes short, medium and
long term actions. The main goal is to secure the
availability of basic food staples such as corn, beans and
rice. The goal for rice, as an example, is to expand
production to a total of 73,627 hectares by 2010, in order to
cover 80 percent of domestic rice consumption (up from the
current 50 percent).

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ARE THERE OTHER BENEFITS?
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4. To increase local grains production, the National Food
Plan calls for an increase in crop insurance coverage by
allocating an additional USD 8 million through the National
Insurance Institute (INS). In addition, the GOCR will
instruct the national banking system to increase credit
allocations to small- and medium-size producers for
agricultural equipment and machinery. The resources
available through these programs will be approximately USD 16
million. The plan also incorporates support to producers for
joint seed and fertilizer purchases at lower prices.


5. According to Casa Presidencial, the GOCR,s main concern
is to provide a safeguard to the poorest segments of the
population. The plan intends to increase the number of
scholarship beneficiaries by 42,292 through the National
Scholarship Fund (FONABE). Six million dollars will be made
available for this program through a budget modification.
The plan will also allocate direct cash transfers of USD 100
per month to 16,000 families in extreme poverty for a total
of USD 9.6 million. In addition, the plan will reinforce the
&Let,s Advance8 and CEN-CINAI (Centers for Children,s
Education and Nutrition) programs with up to an additional
USD 20 million. Both programs target the poorest segment of
the Costa Rican population.

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IS THE PLAN AFFORDABLE?
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6. The GOCR will fund the National Food Plan through a
combination of reallocating currently budgeted but unspent
funds and borrowing. Also, the GOCR plans to take advantage
of the savings in debt service that it has achieved over the
past two years. Just this week, after a CenAm, Panama, and
Dominican Republic ministerial meeting with the
Inter-American Development Bank (IDB),GOCR,s Minister of
Finance, Guillermo Zuniga stated that Costa Rica will not
participate in the IDB,s USD 500 million program for
mitigating the impact of the rising food process. Minister
Zuniga will work with the Ministry of Agriculture to make the
most of existing or internal sources of financing. The IDB
noted two possibilities for Costa Rica:

(1) identifying funds for the Plan in an existing IDB rural
development project; and

(2) determining if Banco de Nacional de Costa Rica has the
ability to provide additional financing for small and medium
enterprises (PYME) from its existing PYME portfolio.

In addition, the GOCR seeks an IDB assessment of the fiscal
impact of the proposed insurance program on the budgets of
the GOCR and INS.


7. Based on consultations with Treasury,s Office of
Technical Assistance (OTA) in Costa Rica, Post believes that
the National Food Plan will have limited fiscal impact. The
OTA confirms that government revenues have exceeded
expectations and that spending remains under control. Given
the current fiscal situation, and assuming that revenues and
expenditures continue their recent positive trends, the GOCR
estimates that it will maintain a balanced or near-balanced
budget for 2008.

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THE FISCAL CONTEXT
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8. To help put the proposed cost of the National Food Plan
into context, the maximum estimate of USD 88 million
represents only 0.3 percent of Costa Rica,s 2007 GDP.
According to the OTA, the GOCR finished 2007 with a budget
surplus of approximately USD 173 million, almost double the
National Food Plan,s highest estimated cost. By some
measures of the 2008 budget, the GOCR will finish the year
with over USD 4.5 billion in total revenue. If the
government reaches this target in 2008, the USD 88 million
figure would represent less than 2 percent of total fiscal
revenues.

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COMMENT
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9. We consider the National Food Plan to be a moderate and
reasonable reaction on the part of the GOCR to the recent
increase in food prices. The GOCR is attempting to increase
domestic food production, which is exactly the recommendation
of the USG (Refs A and B). Whether the effort will achieve
its ambitious goals remains to be seen, as producers will
need to be convinced to shift land from crops that have been
quite profitable in recent years (e.g. pineapples, melons,
oranges) to crops that historically generated poor returns.
The GOCR is also attempting to mitigate the effects of
increases in food prices on the most vulnerable members of
Costa Rican society. Based on current projections, the
government can afford its National Food Plan with minimal
fiscal consequences. Both financially and substantively, the
plan seems appropriate given Costa Rica,s current needs and
resources. Most importantly, there are currently no plans to
implement any sort of food export restrictions (Ref A). END
COMMENT.


10. FAS at Post provided the analysis of the GOCR,s
National Food Plan (see paras 2-5).

CIANCHETTE