PROPOSAL TO EXPAND GSP COVERAGE

UNCLAS CAIRO 000821 SIPDIS SENSITIVE STATE PASS USTR E.O. 12958: N/A TAGS: ETRD EAGR ECON PGOV EG SUBJECT: PROPOSAL TO EXPAND GSP COVERAGE Sensitive but unclassified. Please protect accordingly. ¶1. (U) Key points: -- Potatoes are grown by smallholder farmers throughout Egypt who have successfully exported their crops to the Gulf and to Europe. Spinach is not widely grown, although analysts believe that this crop might have potential. -- Increased farm incomes are key to alleviating rural poverty in Egypt, and USAID public-private partnerships supporting food production includes work in the potato production sector. -- Egypt is an excellent market for U.S. seed potatoes, and USDA is nearing agreement with the GOE on lifting phytosanitary restrictions on the import of U.S. seed potatoes into Egypt. -- This cable has been cleared by USAID, the Foreign Agricultural Service and Foreign Commercial Service at post. ¶2. (SBU) COMMENT: Egypt is one of the largest producers of potatoes for the region, and the largest importer of seed potatoes. FAS is working with the GOE to resolve remaining phytosanitary issues that will allow U.S. exports of seed potatoes to Egypt. We believe that U.S. producers are competitive in this market. In addition, the U.S. has a very large trade surplus in agricultural goods with Egypt. U.S. agriculture exports in 2008 were about $2 billion, while Egyptian sales to the U.S. were only about $57 million. Egypt is the largest importer of wheat in the world, and a major American market for wheat. Demand is likely to remain high for the foreseeable future given population pressures, Egypt's underdeveloped agricultural capacity, and consumption patterns. To date, the Egyptian press has not focused on the trade imbalance. Given overall trade flows, the GSP program has been a useful talking point in our discussions with GOE trade and other officials. Adding potatoes to this list, a product that Egypt does export, would be helpful. Development Impact -------------- ¶3. (U) Potatoes are a crop grown by smallholders throughout Egypt. Production is marketed in both domestic and export markets. Egyptian farmers have successfully exported potatoes to Europe and the Gulf, and Egypt has a comparative advantage within the region in growing potatoes. Spinach is not currently cultivated in large quantities by smallholders in Egypt. However, agronomists feel that there is a great potential for spinach given soil and climate conditions, Spinach is also a good crop rotation for tomatoes, which are now being produced for processing and export (see para 5). Spinach cultivation requires a small-scale washer to remove sand before packaging. ¶4. (U) Increased farm incomes are a key determinant in alleviating poverty. Increases in high value horticultural production will lead to increased employment up and down the value chain as the need for input suppliers and post-harvest services, such grading, packing, sorting, packaging, and processing develops. Increased employment is another key instrument in addressing poverty alleviation. Increased on-farm production will improve food security both on and off-farm. Increased availability of a wider range of horticultural commodities will lead to improved consumption both on-farm and in local markets. The ability to increase incomes and develop employment opportunities in rural Egypt and in Upper Egypt will also slow emigration to already over-crowded cities such as Cairo and Alexandria. USAID activities -------------- ¶5. (U) Under previous USAID-funded Agricultural Projects such as Agriculture Technology Utilization and Transfer (ATUT),Agricultural Linkages (AgLink) and Agricultural-Led Export Business (ALEB) projects, USAID assistance organized large and small land holding farmer groups in Egypt to collectively produce and market high value horticultural crops, meat and dairy products. ATUT worked closely with potato producers to introduce new types and produce export quality potatoes and also produce export quality processed potato products. All these efforts helped Egypt regain its niche in the potato market in Europe. USAID/Egypt's currently funded Alliance for Progress in Egyptian Horticulture: A Global Development Alliance with H.J. Heinz Company is working with smallholders predominantly in Upper Egypt to grow horticultural crops. While the tomato has garnered much of the publicity, alternate horticultural crops, such as potatoes, grapes, melons, are where small farmers will significantly increase incomes per acre. Implications for U.S. exports -------------- ¶6. (U) The Foreign Agriculture Service (FAS) in Cairo has been working with the Ministry for Agriculture and Land Reclamation (MALR) since August 2008 to resolve the last remaining phytosanitary issues that will allow U.S. exports of seed potatoes to Egypt. This summer,, FAS will sponsor four Egyptian participants (two from the MALR and two from the private sector) to attend the Annual Seed Potato conference in Nevada. The visitors will also visit seed potato farms in Idaho and Montana as Cochran Fellows (FAS /Office of Capacity Building) as part of ongoing USG efforts to open up the Egyptian market. At present Egypt imports its seed potatoes from Europe. Egypt remains one of the largest producers of potatoes for the region, and therefore the largest importer of seed potatoes. We believe that U.S. producers are competitive in this market. Total production -------------- ¶7. (U) Potatoes in Egypt are cultivated in both the summer and along the Nile during the traditional flood season. The two harvests are of the same type of potatoes. According to CAPMAS, Egypt's statistical agency, recent potato planting and crop numbers were as follows: Summer Potatoes (2004-2007) (Figures in thousands) -- 2004 2005 2006 2007 Feddans 97 113 79 86 Metric tons 1137 1338 935 1039 (Note: 1 feddan = 1.038 acres) Source: CAPMAS, December 2008 Nile Valley Potatoes (2004-2007) (Figures in thousands) -- 2004 2005 2006 2007 Feddans 61 46 39 62 Metric tons 504 406 368 589 Source: CAPMAS, December 2008 ¶8. (U) CAPMAS reports the following exports from Egypt of potatoes: Potato Exports (2003-2004) (millions of Egyptian pounds, LE) 2003 2004 2005 2006 2007 LE 262.7 416.3 448.4 374.6 609.0 Source: CAPMAS, December 2008 SCOBEY