Identifier
Created
Classification
Origin
08ULAANBAATAR205
2008-05-02 07:57:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Ulaanbaatar
Cable title:  

IMPACT OF RISING FOOD/AGRICULTURAL COMMODITY

Tags:  EAGR PGOV SOCI EAID ETRD ECON PREL MG 
pdf how-to read a cable
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RR RUEHLMC RUEHVK
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ZNR UUUUU ZZH
R 020757Z MAY 08
FM AMEMBASSY ULAANBAATAR
TO RUEHC/SECSTATE WASHDC 2123
INFO RUEHBJ/AMEMBASSY BEIJING 6129
RUEHUL/AMEMBASSY SEOUL 3326
RUEHKO/AMEMBASSY TOKYO 3002
RUEHMO/AMEMBASSY MOSCOW 2219
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RUEHSH/AMCONSUL SHENYANG 0505
RUEHDBU/AMEMBASSY DUSHANBE
RUEHNT/AMEMBASSY TASHKENT 0059
RUEHAH/AMEMBASSY ASHGABAT 0055
RUEHEK/AMEMBASSY BISHKEK 0097
RUEHTA/AMEMBASSY ASTANA 0015
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC
RHEHAAA/NSC WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC
UNCLAS SECTION 01 OF 10 ULAANBAATAR 000205 

SIPDIS

SENSITIVE

SIPDIS

STATE FOR EAP/EX, A/OPR/ALS, A/HR/OE/CM
STATE PASS PEACE CORPS, USTR, OPIC AND EXIMBANK
USDA FOR N. SAKHLEH
BEIJING FOR AGATT
USAID FOR DEIDRA WINSTON
BANGKOK AND MANILA FOR USAID
TREASURY FOR T.T. YANG
COMMERCE FOR ZGCROSS

E.O. 12958: N/A
TAGS: EAGR PGOV SOCI EAID ETRD ECON PREL MG
SUBJECT: IMPACT OF RISING FOOD/AGRICULTURAL COMMODITY
PRICES ON MONGOLIA

Ref: STATE 39410

SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION

UNCLAS SECTION 01 OF 10 ULAANBAATAR 000205

SIPDIS

SENSITIVE

SIPDIS

STATE FOR EAP/EX, A/OPR/ALS, A/HR/OE/CM
STATE PASS PEACE CORPS, USTR, OPIC AND EXIMBANK
USDA FOR N. SAKHLEH
BEIJING FOR AGATT
USAID FOR DEIDRA WINSTON
BANGKOK AND MANILA FOR USAID
TREASURY FOR T.T. YANG
COMMERCE FOR ZGCROSS

E.O. 12958: N/A
TAGS: EAGR PGOV SOCI EAID ETRD ECON PREL MG
SUBJECT: IMPACT OF RISING FOOD/AGRICULTURAL COMMODITY
PRICES ON MONGOLIA

Ref: STATE 39410

SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION


1. (SBU) 1. SUMMARY: Prices of Mongolia's chief staples have risen
more than 33% over the last year, with flour spiking nearly 45%
year-on-year. As most of these staples are imported, Mongolia has
suffered from inflation related to rising energy and related
transport costs. Other factors exacerbating the situation include
severe weather, internal distribution bottlenecks, the dollar's
depreciation, and the Chinese Yuan's appreciation. Public
discontent, especially from the urban and rural poor, has bubbled to
the surface but not turned violent. A recent demonstration drew
nearly 4,000 citizens, who demanded that the government take
immediate action to lower costs of flour and other staples. The GOM
has responded by setting up a Price Council to consider ways to
lower prices on key foodstuffs; this may involve subsidies, price
fixing and strategic reserves of key commodities. In addition, the
GOM has proposed a US$400 million program to rehabilitate farmland
and enhance farming methods. However, funds for both schemes are
limited, and in the case of the farm program, the results are
months, if not years away. END SUMMARY.


2. (U) List of past reporting cables on food prices and related
topics:

-- 2008:
Ulaanbaatar 177: IN MONGOLIA, THOUSANDS DEMONSTRATE AGAINST HIGH
FOOD PRICES

Ulaanbaatar 129: LIVESTOCK FORAGE PREDICTION IN MONGOLIA
TRANSFORMED THANKS TO USG ASSISTANCE

Ulaanbaatar 116: IMF: 17% INFLATION THREATENS MONGOLIA'S ECONOMIC
STABILITY

Ulaanbaatar 115: MONGOLIA PLANS AMBITIOUS AGRICULTURAL EXPANSION, AS
FOOD PRICES CLIMB

-- 2007:
Ulaanbaatar 686: MONGOLIA EXPERIENCES HIGHEST INFLATION IN OVER A

DECADE

Ulaanbaatar 679: MONGOLIANS BELIEVE CLIMATE CHANGE WREAKS HAVOC ON
MONGOLIA
Ulaanbaatar 475: MONGOLIA'S RAILROAD WOES: CONSTRUCTION, OTHER
MATERIALS STACK UP AT CHINESE BORDER FOR LACK OF LOCOMOTIVES, RAIL
CARS
DEMAND
--------------

3. (U) What are the most important, essential foods/agricultural
commodities consumed in host country?

-- The Ministry of Food and Agriculture of Mongolia (MoFA) considers
wheat and flour, dairy products, and meat as strategic food staple
items. UN surveys of household incomes and expenditures find that
these three product categories make up some 86% of a Mongolian's
daily caloric intake.

4. (U) How have prices changed with regard to these

ULAANBAATA 00000205 002 OF 010


foods/commodities?

-- According to GOM (Government of Mongolia) figures, the average
price of bread, flour and cereals in March 2008 rose 45.8%
year-on-year (y-o-y); meat and meat products (mostly of domestic
origin) rose 27.9%; and vegetables (most imported from China) rose
26.3%. Overall, prices for food and non-alcoholic beverages rose
33.3% over the past year (16% since January 1). The price of a
55-pound bag of flour had risen to $21.40 from $7.70 four months
earlier.


5. (U) Is host country a net importer or exporter of those
commodities?

-- Mongolia imports 70% of its wheat from Russia, mostly from
western Siberia. The quality of these imports is generally poor,
often categorized in Russia as unfit for human consumption. 20%
comes from Kazakhstan, 9% from China. United States is donating
25,000mt in 2008.

-- 98% of Mongolia's imported rice comes from China. Mongolia
imported US$1.9 million worth of rice in the first three months of

2008.

-- Although Mongolia produces 350 to 400 million liters of milk per
year, all of which is consumed locally, only 5% of this milk is
processed through pasteurization. Milk is produced in Mongolia on a
seasonal basis, with most of annual production occurring in June,
July and August; production is promptly consumed for lack of
refrigeration. Poor infrastructure - including an absence of proper
storage facilities, and inefficient distribution networks -- creates
milk shortages in big markets (the main cities). These shortages
have to be offset by importers, which bring in around 20 million
liters of milk and milk products annually (largely in dry-milk form,
which is reconstituted in-country, or long-life UHT milk.)

-- The country exports 5% of its domestically produced meat (some
90% of it beef) to Russia, Saudi Arabia and Japan. Meat to Russia is
in the form of unprocessed carcasses; Saudi Arabia, in the form of
lamb; and Japan, in the form of horsemeat and pet food.

-- Mongolia is self-sufficient in meat, and therefore imports few
meat products, except for some pork, mainly for sausage production;
some poultry, fish, eggs (30-40% of total egg market); and some
vegetables, principally during the winter months.

6. (U) What percentage of domestic consumption is satisfied by
domestic production?

-- According to GOM estimates for 2007, total demand for wheat
reached 298,468mt, of which only 121,200 mt (40%) was met by
domestic producers. Mongolia expects to import 91,071.43 mt, mostly
from Russia, leaving a supply deficit of 27% or 81,715.32 mt.
However, it is important to note that at least half of wheat demand
goes for alcohol production (mostly vodka),rather than for direct
human consumption.

-- Mongolia's meat demand is primarily for beef and mutton and is
fully met by domestic producers. Mongolia's poultry meat industry
is modest, although it produces between 60-70% of its own egg

ULAANBAATA 00000205 003 OF 010


supplies.

-- The country mills only about 30% of its flour supply. Although
Mongolia is capable of supplying 100% of local flour demand through
domestic millers, the shortage of wheat -- and the lack of storage
facilities - keep producers from running their mills at full
capacity.

-- Mongolian producers supply 80% of potato market and 30-40% of
vegetables, primarily cabbage, carrots, cucumbers, and onions.

7. (U) Have there been shifts in consumption towards alternative
commodities?

-- The government considers rice and potatoes as alternatives to
flour. Potatoes are grown domestically, and Mongolia supplies about
80% of total demand for potatoes locally. But GOM statistics show
that imports of potatoes since January are down nearly 50% over
figures from the same period last year, mainly because of soaring
prices for imported potatoes, suggesting that domestic suppliers are
currently filling 90% of local demand. There is no indication,
however, that users of flour have turned to potatoes because of
rising flour prices.

-- The situation with rice may become problematic because nearly
100% of Mongolia's rice imports are from China. MoFA officials
expressed concern, based on statements from counterparts at the
Chinese Embassy in Ulaanbaatar, that China might act to ban rice
exports in the future. (Note: Post has not been able to confirm this
statement. End Note.)

8. (U) 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?

-- Food price increases are hitting poorer consumers harder, and
among these, the rural and urban poor bear most of the shock. World
Bank surveys show that poor, rural households devote the highest
share of their consumption basket to food (58 percent),while the
urban poor dedicate 46 percent of their income to food products.
Non-poor households devote 35 percent of incomes to food.

-- Since the beginning of the year, price increases for food have
been steepest in the southwestern part of the country (Bayankhongor
and Ovorkhangai provinces, at 35% and 25%, respectively).
Ulaanbaatar's inflation rate for food items hit 16% in January,
which is close to the national average.

9. How have rising incomes affected consumption patterns?

-- There is no information available yet, anecdotal or otherwise,
that shows any noteworthy change in consumption patterns.

Supply
--------------


10. (U) Is there evidence that domestic agricultural production is
responding to changes in prices?

-- Recent price rises have sensitized the GOM to food security
concerns (see Ulaanbaatar 115); and so, it wants to increase wheat
and vegetable production to become self-sufficient by 2010. It

ULAANBAATA 00000205 004 OF 010


wants to reduce import dependence, especially on Russia and on food
donations. It wants to extend loans to farmers for technology,
seeds, and equipment, to increase yields.

11. (U) Has there been an increase in investment, domestic or
foreign, in food production?

-- The government is working with commercial banks to support
investments in the crop farming sector by subsidizing part of the
loan interest. This will allow farmers to receive loans at almost
half of the current commercial-loan interest rate. The GOM has
strongly encouraged private banks to immediately offer at least
US$50 million in loans to the Mongolian farmers. (Note: American
managers of two of Mongolia's largest banks have refused to pump
cash into a sector that they argue is not economically viable. End
Note.)

-- In March, the Minister of Food and Agriculture rolled out the
GOM's "Crop Rehabilitation Third National Mobilization" (CRTNM) to
restore self-sufficiency in wheat/flour and vegetable production by

2010. The CRTNM calls for investment of about US$413 million over
three years, starting this year. The agricultural sector, long
dominated by the state (either directly or indirectly),has
attracted little investment from the GOM's budget or the private
sector in recent years; the price rises do not seem to have
encouraged investment into the current system.

12. (U) Is there an increase/decrease in land used in food
production?

-- In fall 2007, domestic wheat production declined due to drought
in the agriculture-intensive provinces of Khentii, Selenge, and Tuv.
This reduced supply and put further upward pressure on prices.

-- There is no indication that land under recent cultivation has
either decreased or increased in response to price fluctuations.
However, food price increases have motivated the government to
propose the Crop Rehabilitation Campaign (CRC) to increase crop
production by restoring and using old, abandoned crop lands.

13. (U) Have higher input costs affected food production and prices?


-- MoFA believes that higher fuel-driven transport costs for bread
and cereal products imported primarily from Russia have contributed
to at least 3.3% of the 16% inflation since September 2007. MoFA
infers the same general effect for all food imports.

-- Costs involved in transporting livestock from the field to the
city have contributed at least 3% to cost increases. In particular,
the increase in the price of domestically-produced meat accounted
for more than 3% of the observed 27% jump from last year. (The rest
is attributed to speculators and distribution bottlenecks.)

-- Overall, because Mongolia's agricultural sector has been too
cash-starved to use many modern inputs in its production, recent
price increases have not impacted production or prices.

14. (U) Are there changes in food inventories/stocks?

-- The GOM has developed a plan to create reserves of 15,000mt of
flour and 100,000mt of wheat this year. However, the GOM has not
funded the proposal, saying no money is available at this time.

ULAANBAATA 00000205 005 OF 010



15. (U) Are shortages of storage or food processing facilities
contributing to crop losses?
-- MoFA officials state that inadequate storage capacities do not
allow efficient use of the crops grown. This year, the government
approved building or restoring 190 storage facilities across the
country.

16. (U) Are there other bottlenecks in supply chains?

-- Over the past year, Mongolia has experienced tremendous
bottlenecks for goods and supplies coming in on the sole
single-track rail line from China. Part of the blame lies with an
ambitious housing scheme and construction boom that has reduced
tariffs on imported construction materials, spurring sharp increases
in imports of these materials (at the expense of other imports). In
addition, Mongolia's aging, under-invested railway system cannot
keep pace with transport demands. These weaknesses have affected
the importation of other products, including food items,
contributing, in turn, to price hikes. (Note: Efficiency
improvements are the central objective of the $185 million
Millennium Challenge Account (MCA) railroad project, but work and
the flow of funds will begin only later this year; it will not have
much impact on this problem in the near term. The total MCA
expenditure will total roughly $285 million. End Note.)

-- For meat products, 100% supplied by domestic producers, a
gray-market system for transporting meat to market has allowed
middle-men, aka "changers," to artificially drive up prices by
hording meat or slowing delivery.

17. (U) What is the effect on exports and/or capacity to supply food
assistance?

-- Mongolia is not an exporter of food/agricultural commodities or a
supplier of food assistance.

18. (U) 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)?

-- MoFA is looking for possibilities in biofuel production. However,
Mongolia completely lacks the technical, legal, regulatory and
financial infrastructure to actualize such grandiose ambitions.

19. (U) Are there other factors affecting supply, such as weather or
government policies?

-- Weather remains a limiting factor. Mongolia has long winters and
dry springs, while summers -- although relatively wet -- are too
short for many crops. Droughts that damage crops and kill livestock
are common, as are harsh, livestock-killing winters. In 2007,
drought in Khentii, Selenge, and Tuv provinces caused 2007 domestic
wheat production to decline, reducing supply and placing further
upward pressure on prices.

-- Herders' growing preference for raising more profitable
cashmere-producing goats exacerbated stress on pasturelands; alleged
price-fixing among grey-market meat suppliers; and a rise in demand
as net income increases.

POLITICAL IMPACT
--------------


ULAANBAATA 00000205 006 OF 010



20. (SBU) Have there been public protests or violence?

Sharply rising prices for staple foods prompted approximately 4,000
demonstrators to take to the streets April 18 in the heart of
Mongolia's capital, Ulaanbaatar. (Note: Press reports of 20,000
demonstrators were inaccurate. End Note.) Protestors demanded
price cuts of 40-50% for bread and flour, and threatened a
nationwide strike if the government failed to act. Since April 18,
no other protests or actions have occurred.

21. (SBU) What is the effect on the stability of host government?

-- A recent survey found that "inflation on goods" ranked third on a
list of voter concerns, behind unemployment and corruption. The
issue was not among the top concerns six months ago. So far, there
is no indication that current price rises translate into government
instability, and it is unclear how they will affect nationwide
Parliamentary elections on June 29. (Comment: Populist candidates
may attempt to use price increases to attack their opponents in the
upcoming election, accusing the ruling coalition of not doing enough
to limit price increases for staples and fuel. End Comment.)

22. (SBU) Has there been an impact on friction between classes,
ethnic groups or urban/rural populations?
-- While no ethnic friction has occurred, food price increases will
surely hurt the urban and rural poor. As a result, one may see
increasing disparities between the poor and non-poor, if food prices
continue to rise. Many of those running for office or currently in
power come from privileged backgrounds. These elites drive luxury
SUVs and wear fancy clothes and jewelry. Even before recent price
increases, Mongolians talked about a widening income gap. If
current price trends continue, poor voters may grow increasingly
resentful of the rich urban and wealthier rural classes, for having
so much when they can barely afford staples.

23. (SBU) Has there been any impact on public attitudes toward
agricultural biotechnology and/or biofuels?

-- The Ministry of Food and Agriculture has told us that they
support the use of Genetically Modified Organisms (GMO) as a
possible solution to increased food costs and concerns over food
security, but it says the public is opposed. There are currently no
regulations in place, and MOFA does not know how to commercialize
products under research.

ECONOMIC IMPACT
--------------


24. (SBU) 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?

-- According to the GOM, food items constitute 41% of Mongolia's
Consumer Price Index (CPI) consumption basket. In 2007, price hikes
for food accounted for 70% of total inflation. The 15.1% inflation
rate, which Mongolia experienced in 2007, was the highest in a
decade, and mostly driven by food items.

-- Global inflation and the Tugruk's depreciation against the
Chinese Yuan (CNY) have driven prices for all imported foods higher.
(Note: The IMF recently classified the Tugruk's de facto peg to the
U.S. dollar as the major reason for the depreciation. End Note.)

ULAANBAATA 00000205 007 OF 010


Since March 2007, the Tugruk lost 10.5% of its value against the
CNY. A continued appreciation of the Chinese Yuan will push
Mongolian prices up further. For reference, as of May 1, the USG's
official rate was $1=Tugruk 1170.

-- However, Mongolia's exports of copper, molybdenum, fluorspar,
skins, cashmere, and gold have generated a positive balance of
trade, balancing out some the effects of a declining dollar.

25. (SBU) How might this affect private-sector development and
medium-term economic growth prospects?

-- Mongolia's economy grew 9.9% in 2007, thanks to impressive gains
in the service, agricultural, banking and construction sectors.
This growth has so far managed to outpace the impact of these price
hikes.

26. (SBU) Approximately how many poor households are net food
consumers that would be impoverished by the food price rises, and
approximately how many are net producers and could benefit?

-- The impact of food price increases is harder on poor consumers,
and among them, the urban poor bear most of the brunt. Household
surveys undertaken for the World Bank's Poverty Assessment in
Mongolia show that 28% of all households in Mongolia are rural
agricultural producers, from which one might infer that 62% of the
population will be affected by food price increases. However, as
urban and most rural dwellers, rich and poor alike, must use
imported grains and other imported, processed staples, all will be
affected to some degree by price increases. (Note: Embassy Locally
Employed Staff have expressed concern about rising food costs, which
they note have increased about 20-25% over the past several months,
coupled with static incomes in the absence of a salary increase. We
have already lost a few key employees recently for these reasons.
End Note.)

ENVIRONMENTAL IMPACT
--------------

27. (SBU) Have rising prices had an impact on issues such as
deforestation, water availability and quality, soil conservation,
etc.?

-- MoFA's "Third Crop Rehabilitation Campaign" national program is
confined to rehabilitating old crop fields and currently does not
include plowing new lands, which could result in ecological damage
to the environment. Environmentalists had threatened to oppose the
measure unless this proviso was included. The plan also focuses on
re-cultivating abandoned farmland, which could help hold back
desertification.

-- Besides increasing livestock production, pig and poultry farming
is growing and being supported to meet the demands for meat. This
could lead to an exacerbation of overgrazing and result in increased
water use, which is contributing to desertification.

GOVERNMENT POLICY RESPONSE
--------------


28. (SBU) Has host government made changes in tariffs, quotas or
other import restrictions?


ULAANBAATA 00000205 008 OF 010


-- The GOM has proposed a price stabilization program and set up a
Price Council. This Council is chaired by the Finance Minister and
consists of the Tax office, various line Ministries, Customs
Authority, the Bank of Mongolia, the Unfair Competition Agency,
Consumer associations, the Minerals and Petroleum Authority,
Employer's federation, Federation of Trade unions and Police. The
Council is expected to closely monitor inflation and analyze its
impact; submit a proposal to exempt wheat imports from VAT and
customs taxes; re-negotiate the imported oil price with the Russian
oil company as well as seek alternative oil sources in the Middle
East; conduct financial audits of petrol importing companies; and
continue to subsidize domestic wheat producing farms. So far,
however, the Council has not acted on any of the new proposals.

-- In connection with the flour price increase and shortage of
wheat, the Mongolian Government struck an agreement with Russia on
buying 100,000mt wheat with zero Russian export tax, and zero
Mongolian import tax and VAT. This measure is expected to reduce
flour price from US$0.89 down to US$0.65 per 1 kg.

-- On December 30, 2007, Parliament amended the VAT Law, exempting
wheat imports and 40,000mt of flour for the period of January 1,
2008 to July 1, 2008 from the tax. The Parliament also exempted
imports of wheat and 40,000mt of flour from Customs tax from January
1 until July 1, 2008.

29. (SBU) Have there been export restrictions?

-- No restrictions are in place, because Mongolia exports little in
the way of agricultural food products. Major agricultural exports
are cashmere and wool, for which certain export taxes apply (but no
export restrictions).

30. (SBU) Have there been nationalizations and/or redistributions of
private farms or industries?
-- No.


31. (SBU) Are there changes in policies on food assistance?

-- Mongolia is not a food donor country.

-- As a recipient of food aid -- for instance, USDA-funded 416B
wheat, French wheat, Korean rice, etc. -- Mongolia continues to
welcome such aid.

32. (SBU) How are Central Banks reacting to food-price-driven
inflationary pressures?

-- As noted early, the IMF re-classified Mongolia's exchange rate
arrangement as a conventional peg, which acknowledges the de facto
peg of the Mongolian Tugruk to the US dollar. This has limited the
flexibility of the central bank, the Bank of Mongolia (BOM),to
combat inflation on imported food goods as the Tugruk depreciates
against world currencies in sync with the dollar. Consequently, the
Tugruk has lost 10.5% of its value against the CNY since March 2007,
making Chinese vegetables, fruit, and rice imports more expensive.

33. (U) What about price subsidies, cash transfers and other
assistance to the population?
-- The government is pushing commercial banks to support investments
in the crop farming sector by subsidizing part of the loan interest,
a call which the main commercial banks seem to have rejected.
-- There has been talk by the GOM of offering life-line subsidies,

ULAANBAATA 00000205 009 OF 010


low-cost, or even free flour to populations affected by extreme
poverty, especially pensioners on limited incomes, but nothing has
been formally presented, let alone approved.


34. (U) Are there policy efforts to promote food production?

-- The Government designated 2008 as the Year of Food Supply and
Food Safety. Also, the government has launched a Third Crop
Rehabilitation Campaign.


35. (U) Are there changes in trade, environment, biotech, SPS or
other policies?

-- MoFA is looking for possibilities in bio-fuel production.
However, at the moment, Mongolia lacks the technical, legal,
regulatory, and financial capacity to implement any plans in this
area.


36. (SBU) Is there any impact on relations with other countries?
-- Countries willing to help Mongolia secure its food supply at a
reasonable price would likely find Mongolia reasonably supportive of
that country's efforts in other fields of endeavor, and possibly in
international fora. As Russia and China are the best positioned to
assist Mongolia with food-supply concerns, they may derive the
lion's share of gratitude from Mongolia -- if they are accommodating
with their exports of wheat/flour and rice, respectively. There is
a risk, should China ban rice exports, that long-standing prejudices
against Chinese could flare-up.

IMPACT ON POST PROGRAMS
--------------


37. (SBU) What impact, if any, has there been on post's programs?

-- Post is keenly interested in maintaining or increasing the levels
of the USDA Food for Progress program. Post's LES and American
personnel have also suffered from skyrocketing food prices. Not
only are the American staff without the benefit of a COLA, they are
spending more on food at a time when post's differential was
inexplicably slashed from 25% to 20%.

-- We are seeing more press coverage about U.S.-related food price
increases, so there is a risk that some of the blame for high local
food prices may be directed at the U.S.

POLICY PROPOSALS
--------------


38. (SBU) What policy recommendations would post recommend to host
government?

-- Urgent Measures to Address High Food Prices:


A. Increase agricultural productivity by deploying available science
and technology (esp. related to livestock and higher yield, drought
resistant plant varieties and seeds); enhance resource management
(esp. sustainable range management); and increase educational
alliances in support of the two previous items.


ULAANBAATA 00000205 010 OF 010



B. Alleviate transportation, distribution, and supply chain
bottlenecks by developing trade and transport corridors, and
increase access to capital development.


C. Promote sound, market-based principles by implementing sound
agricultural and food policies, and develop contingency planning.


39. (SBU) 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?

-- Post is consulting with USDA and USAID regarding recommended
changes. In 2006, the Embassy explored with the GOM the possibility
of using USDA General Sales Manager (GSM) food export credits, but
the GOM, per the IMF's instructions, would not/not offer GOM
guarantees for local banks, a policy the IMF has partially backed
away from, saying limited, carefully controlled guarantees are
appropriate now given Mongolia's financial state. It may be time to
revisit this prospect as a possible source of rapid, short-term
funding for needed imports.

-- USDA might look at what commodities, such as rice, that it might
be able to supply/sell should China ban exports.

GOLDBECK