RESPONSE: IMPACT OF RISING FOOD/COMMODITY PRICES - CROATIA

UNCLAS ZAGREB 000348 SIPDIS DEPARTMENT FOR EEB/TPP/ABT/ATP Janet Speck E.O. 12958: N/A TAGS: EAGR ECON ETRD PGOV HR SUBJECT: RESPONSE: IMPACT OF RISING FOOD/COMMODITY PRICES - CROATIA REF: A. STATE 39410, B. ZAGREB 310 ¶1. This cable responds to reftel A. ¶2. The most important food and agricultural commodities consumed in Croatia are wheat, corn (as animal feed),sunflower seeds (as edible oil),poultry, beef/veal, pork, and dairy products. Croatia produces enough wheat and poultry for its own needs. Corn is produced in surplus; pork is produced in sufficient quantities but certain quality cuts are imported; oil seeds and dairy products are produced but in insufficient quantities. ¶3. Grain prices in March 2008 on the Croatian market were 49% to 93% higher than in March 2007. High grain prices drove meat and dairy prices up, such that food prices in March 2008 were 10.2% higher than in March 2007. Fruits and vegetables, edible oil, bread, grains, dairy products and eggs saw the largest price increases. Some large meat producers have warned wholesale buyers to expect a 20-30% increase in prices in May. The price increases have not caused a significant shift in consumption towards alternative commodities, though there has perhaps been a decrease in consumption in general. SUPPLY ¶4. Domestic agricultural production is responding to changes in prices. Farmers are shying away from pork production because of high feed prices (mainly corn). Many would like to produce corn, due to the availability of state subsidies and the expectation that the high price will linger. Currently, a shortage of cold storage is contributing to losses of domestic vegetable production. Investment in food production has not increased significantly, nor has the amount of land in use for food production increased or decreased significantly. POLITICAL IMPACT ¶5. Rising food prices, along with fuel prices, have been the primary driver of inflation in Croatia and have raised concern among the public. Inflation and particularly the rise in food prices have received considerable media attention. On April 12, labor unions organized a demonstration in Zagreb that drew about 40,000 people, the largest protest crowd in recent history. The official theme of the demonstration was "together for higher pay," but inflation was also a concern motivating many who attended. The event has had no direct effect on government policies or stability. (reftel B) ¶6. The food price situation has not caused friction between classes, ethnic groups, or urban and rural populations. It has had no effect on attitudes towards biotechnology (still negative),although attitudes towards biofuels are changing slightly from positive to skeptical. ECONOMIC IMPACT ¶7. Inflation grew the last five months of 2007 and reached 5.8% in December, due mainly to high oil and food prices, as well as high prices of agricultural products. Inflation has remained near 6% thus far in 2008. Croatia's economic growth is expected to slow from 5.6% in 2007 to 4.3% in 2008. GOVERNMENT POLICY RESPONSE ¶8. In autumn 2007, in an attempt to prevent a shortage of grain, the GOC placed temporary (until summer 2008) export tariffs on corn and wheat. The GOC has also temporarily lifted import tariffs on specified quantities of corn, wheat, and raw sunflower oil. ¶9. The food price increases have had no significant environmental impact thus far. Nor have the had a major effect on post programs. BRADTKE