This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 NAIROBI 005126 
 
SIPDIS 
 
AIDAC 
 
USAID/DCHA FOR MHESS, WGARVELINK, LROGERS 
DCHA/OFDA FOR KISAACS, GGOTTLIEB, MMARX, IMACNAIRN, 
KCHANNELL, LPOWERS, CABLA 
DCHA/FFP FOR JDWORKEN, DNELSON, SBRADLEY 
AFR/EA FOR JESCALONA, JBORNS 
ROME FOR FODAG 
GENEVA FOR NKYLOH 
BRUSSELS FOR PLERNER 
STATE FOR JGAFFNEY, NGAREY 
NAIROBI FOR ABEO, REDSO/FFP FOR NESTES 
NSC FOR JMELINE 
 
E.O. 12958:  N/A 
TAGS: EAID KE EAGR
SUBJECT:  KENYA EMOP RESOURCES. WHEAT SWAP WITH 
KENYAN MAIZE 
 
REF: NAIROBI 7340 AND PREVIOUS 
 
      ------- 
      SUMMARY 
      ------- 
 
¶1.  This is an action request.  See paragraph 12. 
 
¶2.  To address the immediate food needs of drought 
victims in the southeastern and coastal lowlands, as 
well as among pastoralists in Northeast Kenya, while 
also supporting Kenya's oversupplied maize market, 
post recommends USAID/FFP/DCHA approval of the World 
Food Program (WFP) request for shipment of wheat 
grain to Kenya to be swapped for locally-produced 
maize for distribution to Kenyan drought victims. 
 
      --------------------- 
      Background of Problem 
      --------------------- 
 
¶3.  Emergency food assistance has been a regular 
feature of Kenya's Arid and Semi-Arid (ASAL) areas 
for the last 20 years.  USAID has been major 
contributor to the WFP/GOK Joint Emergency Operation 
(EMOP) in support of drought victims. Maize 
grain/meal has been the primary commodity provided, 
supplemented by pulses, vegetable oil and corn-soy 
blend.  At present, 1.2 million drought-affected 
persons are being provided relief assistance through 
the ongoing EMOP.  Approximately, 27,000 MT of food 
commodities (mostly cereals) are still needed to feed 
the 1.2 million drought-affected people until the 
next harvest period, which is expected in February. 
 
¶4.  Early assessments of performance of current 
short-rains indicate poor and erratic distribution in 
most short-rain-dependent areas, implying the 
likelihood of prolonged food insecurity in the 
country. 
 
¶5.  While food deficits continue to afflict many 
people in marginal agricultural and pastoral areas of 
the North and Northeast, Western and Central Kenya 
received a large surplus of marketable maize during 
the long-rains harvest period (July/August)earlier 
this year. This has resulted in current low maize 
prices in the market.  In a bid to reduce the 
negative impacts of low maize prices on farmers' 
earnings and future production, the National Cereals 
and Produce Board (NCPB) has procured significant 
maize stocks for its strategic and relief reserves. 
Other donors have also contributed cash towards local 
cereal purchases to meet EMOP requirements while 
avoiding local market disruption. 
 
 
¶6.  While the strategy of encouraging local maize 
purchases for meeting EMOP needs has worked up to 
now, the cereals pipeline is now virtually depleted. 
Furthermore, it seems clear that sufficient donor 
cash resources are not going to be available to meet 
the 27,000 MT of cereals needed for the EMOP between 
now and its anticipated phase-out date in February. 
Given that USAID/DCHA/FFP is only able to provide 
food in-kind, we face a dilemma.  Providing 
additional non-domestic maize in-kind risks 
undermining the market (or at least being perceived 
as doing so).  On the other hand, failing to provide 
additional maize will certainly lead to rupture of 
the pipeline and inability to meet food needs of 
households still struggling to recover from the 
drought. 
 
¶7.  It is post's understanding that USAID/DCHA/FFP 
has allocated funds to provide a new contribution of 
12,000 MT of maize to the Kenya EMOP. 
 
      ------------------------------------------ 
      Recommended Solution for the Maize Dilemma 
      ------------------------------------------ 
 
¶8.  USAID and WFP Nairobi offices discussed 
strategies to solve this dilemma.  One approach 
discussed would be to provide wheat instead of maize. 
This could address the dual needs of meeting 
emergency food requirements while avoiding negative 
impacts on the maize market.  Providing wheat has at 
least two significant disadvantages, however.  One is 
that wheat is not suitable to meet all the 
consumption requirements for all of the drought- 
affected populations.  Another is that a wheat pledge 
would not arrive for a few months (and could not be 
borrowed against in order to make use of maize stocks 
already in-country), too late to meet immediate 
pipeline needs. 
 
¶9.  The WFP and GOK have, therefore, proposed a 
better solution.  They are requesting a PL 480 Title 
II wheat grain pledge which could be swapped with 
local maize purchased by the NCPB.  WFP, NCPB, GOK, 
USAID/KENYA and REDSO/FFP have held several meetings 
to discuss this possibility, and have agreed on the 
modalities of such a swap, pending approval of 
USAID/DCHA/FFP.  The details of how such a swap would 
work are as follows: 
 
A)  Timing and Location:  The NCPB would release 
maize stocks immediately to the WFP from warehouses 
in appropriate locations in the country. The WFP 
would release PL 480 Title II wheat to the NCPB in 
Mombassa port at time of arrival (March/April 2006). 
 
B)  Bags and Markings:  NCPB would provide maize in 
bags, and WFP would use stencils to mark bags as USG 
donations.  PL 480 Title II wheat would arrive in 
bulk and be bagged by the WFP. 
 
C)Specifications and Quality:  USAID/FFP/DCHA 
would provide "hard red winter wheat grade 2 or 
better".  The NCPB would provide maize meeting the 
WFP standard requirements. 
 
D)Swap Rate:  The rate of exchange of wheat 
for maize would be 1:1.07 that was determined based 
on current maize market prices and estimated future 
wheat prices, as well as other important 
considerations(i.e., wheat would arrive later, in 
bulk, and not be transported beyond the port).  The 
actual amount of the exchange will also depend on the 
e 
exact quantity of wheat that USAID/DCHA/FFP provides. 
Post assumes the donation would be approximately 
12,000 MT. 
 
E) Duty:  This swap rate was calculated on 
the assumption that the GOK will not impose the usual 
35 percent import duty on the wheat. This is standard 
practice for commodities donated for humanitarian 
purposes. 
 
 
F)Written Agreement:  A Memorandum of 
Understanding would be signed between the GOK and the 
WFP including agreement on all the conditions 
described above. 
 
 
      ----------------- 
      Expected Benefits 
      ----------------- 
 
¶10.  Benefits of this arrangement would include:  (a) 
uninterrupted provision of food aid to meet immediate 
needs of drought victims and support their recovery 
from the drought; (b) avoidance of negative impacts 
on Kenyan maize market and ensuring that farmers gain 
fair earnings on their produce. 
 
      ---------------------- 
      Bellmon Considerations 
      ---------------------- 
 
¶11.  Post confirms that sufficient storage capacity 
exists in country and that a donation of 
USAID/DCHA/FFP wheat of up to 12,000 MT would not 
have a detrimental effect on local wheat production 
or marketing.  In normal years local wheat production 
accounts for only about one-third of consumption 
requirements, leaving an import requirement of 
roughly 200,000 MT on average.  In addition, post 
confirms that this donation would not negatively 
impact Title II food aid monetization plans, and that 
the total of both donations combined would not exceed 
the usual marketing requirement (UMR). 
 
      ---------------- 
      Action Requested 
---------------- 
 
¶12.  Post requests positive consideration by 
USAID/DCHA/FFP of a requested donation of PL 480 
Title II wheat of up to 12,000 MT for the Kenya 
drought EMOP to be swapped for locally-produced maize 
under the conditions detailed in paragraph 9 above. 
BELLAMY