RESPONSE: IMPACT OF RISING FOOD/COMMODITY PRICES -

UNCLAS SECTION 01 OF 03 YAOUNDE 000428 SIPDIS SENSITIVE SIPDIS STATE ALSO FOR EEB/TPP/ABT/ATP JANET SPECK E.O. 12958: N/A TAGS: EAGR ECON EINV EFIN CM SUBJECT: RESPONSE: IMPACT OF RISING FOOD/COMMODITY PRICES - CAMEROON REF: STATE 39410 ¶1. (SBU) Summary. Cameroon's civil unrest in February highlighted the risk of political volatility caused by rising food prices. Cameroon's high food prices are mostly caused by poor economic planning and management over the long-term. Blessed with enormous agricultural potential, Cameroon could reap tremendous benefits from rising global demand for food. However, food production has not responded sufficiently, largely because of pervasive corruption, especially in key agricultural and planning ministries, a stifling business climate, the high-cost of inputs (especially gas),and the lack of necessary infrastructure (especially farm-to-town roads). The Government of Cameroon (GRC) has responded with a series of short-term measures, suspending taxes and pressuring retailers. In our conversations with Cameroonian interlocutors, we continue to focus on the need to improve governance and economic planning. Post encourages Washington to match the USG's short-term response to the immediate crisis with policies to address the long-term factors underlying the problem. These could include: redoubled pressure for good governance and fighting corruption, policies to reduce the price of gas and encourage new energy technologies, creative ways to foster food production in underperforming countries, and USG funding for infrastructure developments (especially for roads). End summary. Demand ====== ¶2. (U) The GRC's Ministry of Economy and Planning 2007 household survey concluded that rice is "by far, the principal food for Cameroonians." The Food and Agricultural Organization's 2004 statistics show Cameroon imported 300,000 MT of rice at a total value of $85 million, its top import item. Wheat was the second most important import, with 260,000 MT valued at $69 million. Other essential commodities in Cameroon's food economy include vegetable oil (especially palm oil),sugar, fish, corn, plantains, sorghum, yams, beans, potatoes, and cassava. The prices for all food and other commodities in Cameroon have increased substantially in the last twelve months, especially in the last four months. Although Cameroon is a net agricultural exporter, the preponderance of agricultural exports is non-food products like coffee and cocoa and Cameroon is a net 
food importer. Rural communities have been less affected than urban populations because they are more self-sufficient in food. Demand for food in Cameroon is magnified by consumers in neighboring countries who shop in Cameroon because prices are relatively cheaper. Supply ====== ¶3. (SBU) The World Food Program classifies Cameroon as a Low-Income Food Deficit Country. In 1980, Cameroon's coverage of domestic food needs stood at 96 percent; by 2003, it had fallen to 80 percent, illustrating that the food crisis in Cameroon is systemic and long-term. Although the GRC has announced new spending programs to boost agricultural production, there is little evidence that domestic production will respond adequately. Corruption and mismanagement promises to misdirect much of the new funding, and many obstacles to increased production -- substandard infrastructure (especially roads),poor distribution systems, insufficient access to credit and other agricultural inputs, and prohibitive transportation costs -- will require greater planning and a more sustained response. The press has carried some announcements of prospective new investments in industrial agriculture and post has noted an up-tick in American entities seeking investment opportunities in this sector, but most of these projects remain in planning stages. Recent media reporting indicates Chinese companies are exploring large-scale rice production in Cameroon. Most Cameroonian production is done by small-scale farmers who do not possess the capacity to store their production, and as a result many crops are sold at harvest time, when prices are already relatively low. ¶4. (U) Processing delays in Douala port (which serves Cameroon, Chad and the Central African Republic),and pervasive corruption are important bottlenecks to increased production and more effective use of imported goods. Cameroon is receiving a growing number of proposals to convert agricultural land into the production of non-food crops like bio-fuels. According to the IMF, food prices in Cameroon are especially affected by fuel prices because poorly developed infrastructure means fuel costs constitute YAOUNDE 00000428 002 OF 003 an abnormally high percentage of food prices. Political Impact ================ ¶5. (SBU) Higher food and fuel prices played a major role in the violent protests that shook dozens of Cameroonian cities and towns during the week of February 25 and which, according to official figures, left 40 dead. The GRC was able to exert effective control over the troubled areas within several days, but many observers agree that the rare display of social unrest revealed fundamental threats to Cameroon's stability. The problem of high food prices is magnified by other problems in the country -- widespread discontent about President Biya's recent decision to amend the constitution and eliminate term limits, about his long tenure and authoritarian style, about the economy's weak growth and high unemployment -- which could combine with continued food and oil prices to spur further unrest in the future. In the midst of the unrest, there were some isolated statements by public officials that risked igniting ethnic tension. However, although ethnic divisions in Cameroon are still worrisome, the mantra of ethnic divisiveness was roundly condemned by more vocal appeals to reason. Comments from a number of Post's interlocutors suggest that some Cameroonian decisionmakers would be open to considering biotech products. Economic Impact =============== ¶6. (U) Official inflation statistics reflect growing pressure on prices, but the impact is reportedly moderate. However, anecdotal evidence suggests that the impact on the average pocketbook is higher than official statistics indicate. The impact of higher food prices, exacerbated by higher oil prices, will probably be felt more strongly in the coming year. Cameroon's fiscal position will be negatively affected by government decisions to suspend import duties and taxes on basic commodities (and concurrent decisions to raise civil service wages). Environmental Impact ==================== ¶7. (U) Post is currently unaware of a direct impact on Cameroon's environment, but the growing number of proposals to produce biofuels and other products suggest that more land will be consumed by agriculture (and not necessarily for food crops) in the coming years. Government Policy Response ========================== ¶8. (U) The GRC has temporarily suspended import duties and other taxes on basic food stuffs. There have been no quotas or restrictions on exports. There have been no nationalizations or redistributions of farms or industries. The Central African Bank (BEAC) that controls monetary policy for Cameroon and the Central African Economic and Monetary Union (CEMAC) zone has not announced any special measures to curb inflation. The GRC, through the Ministry of Commerce, has negotiated with wholesalers to set new, reduced prices for many commodities. Anecdotal and press reports, however, suggest that few retailers are adhering to the price guidelines. A 50 kg bag of rice that cost 10,000 CFA in 2006 is now selling for between 15,000 and 20,000 CFA, with some analysts predicting 30,000 by December 2008. ¶9. (SBU) Government official concede that these measures can only address food prices in the very short-term, acknowledging that the longer term solution has to focus on boosting agricultural production. The Ministry of Agriculture and other government entities have announced a series of new assistance programs for agricultural producers. In the past week, the GRC held an urgent Cabinet meeting to discuss food prices and ways to improve agriculture. However, given the GRC's poor track record with such programs in the past and the persistence of barriers like poor infrastructure and high fuel prices, there is scant reason to believe these programs will have much impact. There has not been any impact on relations with neighboring countries, and the GRC is likely to avoid confrontation, but high and rising demand for Cameroonian food from oil-rich Nigeria, Equatorial Guinea, Gabon and Chad could enflame nationalist resentments among Cameroonian consumers. Impact on Post Programs ======================= YAOUNDE 00000428 003 OF 003 ¶10. (U) Mounting pressure on the GRC to increase domestic food production has helped remove long-standing bureaucratic bottlenecks to a stalled food-production component of the USDA's FY03 Food for Progress program. A proposed rice-husking factory in the northern Lagdo region had been stalled by political opposition within the GRC. Informal reports from contacts in the GRC and published minutes from Prime Minister Ephriam Inoni's April 24 meeting with the cabinet suggest that the GRC plans to fast-track final approval for the project. Policy Proposals ================ ¶11. (U) For the GRC: In our conversations with Cameroonian interlocutors, we continue to focus on the need to improve governance and economic planning. Cameroonians are demanding meaningful action from the GRC; we may be able to leverage this domestic political pressure (partly, but not fully, resulting from rising food prices) to press for greater movement on broader economic reform and efforts to attract investment. ¶12. (U) For the USG: Post encourages Washington to match the USG's short-term response to the immediate crisis with policies to address the long-term factors underlying the problem. These could include: redoubled pressure for good governance and corruption fighting, policies to reduce the price of gas and encourage new technologies, creative ways to foster food production in underperforming countries and USG-funded infrastructure developments (especially for roads). We could also urge countries like Cameroon to keep more accurate, up-to-date data on agriculture to help with better planning. GARVEY