AMBASSADOR RAISES FOOD SECURITY; CHINESE DISCUSS

C O N F I D E N T I A L SECTION 01 OF 02 VIENTIANE 000241

SIPDIS

SIPDIS

STATE FOR EAP/MLS BESTIC
STATE FOR EAP/EP
PACOM FOR POLAD

E.O. 12958: DECL: 04/23/2018
TAGS: PREL EAID EINV UN LA CN
SUBJECT: AMBASSADOR RAISES FOOD SECURITY; CHINESE DISCUSS
THAT LUANG INVESTMENT AT INFORMAL UN DONOR MEETING

REF: A. VIENTIANE 202

B. VIENTIANE 83

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Classified By:
AMBASSADOR RAVIC R. HUSO. REASON: 1.5 B AND D.


1. (SBU) Summary: Topics at an April 10 Informal Quarterly
Donors Meeting co-chaired by the Ambassador included food
security in Laos, focusing on poor governmental policy
choices in the often rice-deficient uplands areas, and the
Chinese-financed development project at That Luang marsh (ref
A). The Ambassador raised problems World Food Program (WFP)
contractor Natural Products International (ref B) has had
with the Lao government, and the WFP Deputy Director noted
that if the government failed to renew NPI's operating
licenses it would be difficult for WFP to find an alternative
source of Corn-Soy Blend (CSB) to provide in-school feeding
to 90,000 children in the north. Should the company be
compelled to close, WFP's plans to expand their feeding
program in the south based on a new USDA Food for Education
grant could also be negatively affected. End Summary.


2. (U) On April 10, Ambassador Huso co-chaired the UN's
Informal Quarterly Donor's Meeting (IQDM). (Ambassadors and
international organization representatives rotate as
co-chairs with the UN Resident Coordinator.) At the
Ambassador's suggestion, the overall theme of the meeting was
food security. During his opening remarks the Ambassador
focused the attendees -- representatives of the donor
community, UN agencies, and international NGOs -- on the
global rise in food prices and requested they consider how
global food inflation would impact Laos. Hanoi-based IMF
representative Bingham presented the IMF's near-term outlook
for Asian and world growth. Focusing on Laos, Bingham noted
that the full effect of rapidly rising regional rice prices
had not yet been felt in the official Lao Consumer Price
Index (CPI),although it did show a rise in the first three
months of 2008. The large influx of dollars stemming from
Lao resource exports, primarily in the mining sector, is
beginning to cause inflation. Regional food price increase
are also to blame: Embassy market surveys shows that rice
prices in Laos for Thai white rice have risen about 43% since
February 2008. For sticky (glutinous) rice, which makes up
the bulk of what the Lao eat, prices in Vientiane have risen
about 8% according to the government and about 16% according
to Embassy market surveys for the highest quality rice. Most
glutinous rice consumed in Laos is also grown domestically,
and the international market for sticky rice is small. The
most recent Lao CPI data shows inflation running at an 8%
annualized rate.


3. (U) The Chinese Political Counselor in Laos, Mr. Li Kewu,
gave a short presentation on the controversial That Luang
Marsh development near the center of Vientiane (ref. A).
Speaking via his interpreter, Mr. Li said that the "Vientiane
New City" was a comprehensive development project, to be
jointly managed by the Lao and the Chinese and was most
definitely not/not a "Chinatown." Mr. Li noted that the
development rights came as a quid pro quo for the China
Development Bank agreeing to fund facilities allowing Laos to
host the 25th South-East Asia (SEA) Games in 2009. In
response to a number of questions regarding the environmental
report and compensation of landowners, Mr. Li had no specific
answers but suggested the Lao Government (GOL) and the
developer remained in negotiations over the comprehensive
development plan for the "New City." (Comment: This evasive
answer could indicate the GOL is attempting to recraft the
concession in the face of widespread public discontent. End
Comment.)


4. (SBU) European Commission (EC) Attach for Economics and
Reform Mel Jones gave a well-received presentation addressing
poverty in the uplands regions of Laos and the food
insecurity that results from governmental policies that are
perhaps well-meaning but often increase food insecurity.
Specifically, Mr. Jones pointed out that the EC believes
research shows that the eradication of slash and burn
farming, combined with governmentally-sponsored village
relocation projects, the rise of land concessions to

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agribusiness, and the constriction of land allocation to
affected villagers, is leading to a rise in food insecurity
and poverty, the opposite of the government's stated goals.
The large number of rubber concessions, according to Mr.
Jones, will likely lead to a competition for land between
rubber or food production. Because so many of the
concessions are granted non-transparently, with the villagers
often the last to know, the potential for further food
insecurity is high.


5. (C) While discussing uplands poverty and food insecurity
the Ambassador raised the status of the U.S. investment
Natural Products International (NPI, ref. B) NPI has been
active in Laos since 1997, and has become the prime
contractor for the World Food Programs school feeding program
in northern Laos. NPI has completed two WFP contracts for
Corn-Soya Blend (CSB),and now has the capacity to produce
all 750 tons of CSB needed by the WFP for its programs in
Laos. The WFP recently won a grant from the United States
Department of Agriculture to begin a school feeding program
in southern Laos. NPI was expected to provide the CSB for
that program as well. However, the Lao government,
especially at the provincial level in Bokeo, has been slowly
squeezing NPI and making them feel unwelcome by refusing to
issue an operating permit and pressuring groups such as the
German NGO GTZ not to make working capital loans to NPI as
they have done previously.


6. (C) Ambassador Huso pointed out that actions taken
against NPI by the GOL were inimical to food security. Not
only did NPI provide CSB for the WFP, it sources its
materials from local farmers. The NPI/WFP partnership is
seen as a model by the local WFP representative. The head of
WFP Laos and the local NPI general manager were unable to
attend the informal donors meeting as they were in Rome
discussing how NPI could expand its operations to other
troubled areas and help provide locally sourced CSB. WFP
Deputy Director Elizabeth Faure told the meeting that if the
GOL allowed provincial authorities to pressure NPI to close,
WFP would find it difficult to source enough CSB from abroad
when school starts in September. Privately, Faure (protect)
told econoff that the WFP was faced with a tight deadline to
source CSB from outside Laos. She stated that WFP was
considering letting the deadlines pass without a resolution
of the difficulties facing NPI and making it clear to GOL
officials that if they closed NPI WFP would not be able to
supply CSB for the school feeding programs when they start in
September. Faure also said WFP was lobbying GOL officials at
all levels in support of NPI, and hoped the threat of hungry
schoolchildren in the news might help derail plans to shut
down NPI, at least this year. The Ambassador and other
Embassy officers have worked closely with WFP and the donor
community to keep this issue in front of senior central
government officials. Whether they will intervene
effectively at the local level remains to be seen. In the
meantime, NPI continues to meet its previous contract
obligations but has not signed new contracts with WFP.
HUSO