SURVEY: IMPACT OF RISING FOOD/AGRICULTURAL COMMODITY

UNCLAS STATE 039410 SIPDIS SENSITIVE E.O. 12958: N/A TAGS: EAGR EAID ETRD ECON PGOV PREL SUBJECT: SURVEY: IMPACT OF RISING FOOD/AGRICULTURAL COMMODITY PRICES REF: A) STATE 19145, B) STATE 14920 NOTAL, C) TRIPOLI 101, D) STATE 8902 NOTAL SENSITIVE BUT UNCLASSIFIED ¶1. (U) THIS IS AN ACTION CABLE. See paragraph six. ¶2. (SBU) SUMMARY: Rising food and agricultural commodity prices are having a significant impact on political stability and the economy in many countries around the world. Food and agricultural commodity price rises have wide potential implications on USG policies, and there is a demand at the highest levels of the U.S. government for more accurate and comprehensive information about the impact of these price rises on countries throughout the world to better inform a review of existing food policies. The excellent reporting by many posts has whetted the appetite in Washington for a more comprehensive survey that would compare the impact of rising prices across a broad range of developed and developing countries. Therefore, this cable requests posts to provide short summaries of the impact of food/agricultural commodity price rises on host country and a list of past reporting cables on this subject. Post responses are requested by April 30. Note: Except to the extent it desires to respond, Embassy Baghdad is exempted from this request. End summary. ¶3. (SBU) INTRODUCTION: The prices of basic staples such as wheat, corn, soybeans, and rice, have risen dramatically in recent months. The impact may be a net positive for agricultural commodity exporters, but can be devastating for developing countries that are net food importers. In many poor countries, food expenses comprise more than half of household expenditures, compared to nine percent in the United States. Rising agricultural commodity prices are pushing many in the developing world over the line from poverty into privation or even hunger. Developed countries are also feeling the impact, with rising grain prices hurting downstream industries, such as pork and beef producers, and drastically reducing the buying power of foreign aid and food assistance programs. ¶4. (SBU) Multiple factors appear to be causing the price rises. Studies differ on the relative ranking of these factors; while headlines point to biofuels as a prime culprit in the rise of grain prices, the actual picture is much more complex. The following factors are clearly contributing to the rise in food prices: 1) significant increases in the cost of fertilizer and transportation due to record oil prices; 2) growing demand from a growing middle class in major economies such as India and China, which consume more meat, increasing the use of grain products for feed; 3) poor grain harvests in major exporting countries such as Australia and Canada; and 4) land use substitution from food crops to cash crops (cotton and biofuels are two examples). Record low grain stocks add to an already precarious situation, while increases in grain prices impact feed costs and livestock prices, leading in turn to higher meat and dairy costs. Although some of the recent rises may be speculative, most analysts believe the prices are real and may be long-run. ¶5. (SBU) The excellent reporting from many posts on the economic and political impact of price rises is widely read and greatly appreciated by Washington. However there is a need for information to form a broader, more comprehensive picture of the impact of food and agricultural commodity price rises across a range of developed and developing countries. This information is needed as soon as possible in order to inform policy. ¶6. (SBU) ACTION REQUEST: Posts are requested to provide one or two paragraphs summarizing the impact of food and agricultural commodity price increases on each of the following seven topics: food and agricultural commodity demand, supply, domestic politics, economy, environment, host government policies, and post programs. Posts are encouraged to comment on the policy changes that are needed in their host countries. Suggestions for U.S. policy are also especially welcome. Finally, posts should send a list of previous reporting cables on this subject so that Washington can develop a complete picture of the impact of food price rises. We expect that posts will draw on information from all sections of the embassy, including economic and political sections, USAID, FAS, FCS, Treasury attach,, PAS, and other sections as appropriate. Post may also approach host governments and/or representatives of relevant international organizations for information as appropriate. Talking points on current USG policies to address the impact of food price rises will be sent septel in case governments ask for such information. Post responses are requested by April 30. Posts should respond by cable. (Except to the extent it desires to respond, Embassy Baghdad is exempted from this request.) In the response, the tag line should include EAGR, the slug line should include EEB/TPP/ABT/ATP Janet Speck and the subject line should be: RESPONSE: IMPACT OF RISING FOOD/COMMODITY PRICES - COUNTRY ¶X. Questions on this cable may be sent to EEB/TPP/ABT/ATP Janet Speck, speckjg@state.gov, 202-647-3059. ¶7. (SBU) For posts' guidance only, below is a list of suggested issues, under each of the seven broad topics that post may want to address in discussing price impacts on their host countries. We realize that not every issue will be relevant to every country and posts should not feel obliged to address issues that are not applicable. However, we would appreciate some response, even if the response is that food prices have had no impact, on each of the seven broad topics. This will make comparison between countries much clearer. Posts that have done significant reporting of this issue may draw on previous reporting to accomplish this task. DEMAND: What are the most important, essential foods/agricultural commodities consumed in host country? How have prices changed with regard to these foods/commodities? Is host country a net importer or exporter of those commodities? What percentage of domestic consumption is satisfied by domestic production? Have there been shifts in consumption towards alternative commodities? What are the differences in the impact of rising food prices on different groups (e.g., rich vs. poor, urban vs. rural, ethnic groups),on different regions? How have rising incomes affected consumption patterns? SUPPLY: Is there evidence that domestic agricultural production is responding to changes in prices? Has there been an increase in investment, domestic or foreign, in food production? Is there an increase/decrease in land used in food production? Have higher input costs affected food production/prices? Are there changes in food inventories/stocks? Are shortages of storage or food processing facilities contributing to crop losses? Are there other bottlenecks in supply chains? What is the effect on exports and/or capacity to supply food assistance? Has there been a shift in production between food and non-food commodities or an increase in the use of food crops for non-food purposes (such as fuels)? Are there other factors affecting supply, such as weather or government policies? POLITICAL IMPACT: Have there been public protests or violence? What is the effect on the stability of host government? Has there been an impact on friction between classes, ethnic groups or urban/rural populations? Has there been any impact on public attitudes toward agricultural biotechnology and/or biofuels? ECONOMIC IMPACT: How significant has the rise in food prices been in its impact on inflation, balance of payments, trade balance, the fiscal situation or any other important economic indicator? How might this affect private sector development and medium-term economic growth prospects? Approximately how many poor households are net food consumer who would be impoverished by the food price rises and approximately how many are net producers and could benefit? ENVIRONMENTAL IMPACT: Have rising prices had an impact on issues such as deforestation, water availability and quality, soil conservation, etc.? GOVERNMENT POLICY RESPONSE: Has host government made changes in tariffs, quotas or other import restrictions? Have there been export restrictions? Have there been nationalizations and/or redistributions of private farms or industries? Are there changes in policies on food assistance? How are Central Banks reacting to food-price-driven inflationary pressures? What about price subsidies, cash transfers and other assistance to the population? Are there policy efforts to promote food production? Are there changes in trade, environment, biotech, SPS or other policies? Is there any impact on relations with other countries? IMPACT ON POST PROGRAMS: What impact, if any, has there been on post's programs? POLICY PROPOSALS: What policy recommendations would post recommend to host government? What changes in USG policy would you recommend in order to address the problem of food price rises, given the experience of your host country? ¶8. (U) Minimize considered. RICE