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 000067 
 
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 
NSC FOR JMELINE 
 
E.O. 12958:  N/A 
TAGS: EAID KE EAGR ECON ETRD
SUBJECT:  KENYA EMOP RESOURCES - WHEAT SWAP WITH KENYAN 
MAIZE 
 
REF: NAIROBI 7342 AND PREVIOUS 
 
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      SUMMARY 
      ------- 
 
¶1.  This is an action request.  See paragraph 12. 
 
¶2.  To address the immediate food needs of an estimated 2.5 
million drought victims throughout Kenya, particularly in 
eastern and northeastern pastoralist areas, 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. 
 
¶4.  However, early assessments of current short-rains 
indicate a severe and prolonged dry spell in the arid and 
semi arid areas, particularly in eastern and northeastern 
pastoralist areas, leaving millions more victims of 
drought.  The dry spell has reportedly prompted 5-15 
percent livestock mortalities and acute malnutrition in 
pastoralist areas, and significant loss of crops in 
marginal agricultural areas.  As a result, over 2.5 million 
people are estimated to face severe food shortages in these 
areas.  Multi-agency emergency needs assessments begin on 
January 9 and more definitive estimates of food and non- 
food needs should be available by mid-February. 
 
¶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, increased 
food insecurity due to the failure of short-rains has now 
resulted in additional requirements of emergency food 
resources to meet the immediate needs of over 2.5 million 
drought-affected people.  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 facing an immediate food 
crisis. 
 
¶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 immediate 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 1:1.2 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 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.  According to a Bellmon 
analysis conducted in 2005 for Title II monetization 
program, estimates for imports of wheat and wheat flour are 
about 544,000 MT while local production hovers around 
300,000 MT.  Wheat and wheat flour exports are estimated at 
56,000 MT while consumption needs are about 788,000 MT. 
Thus, local production is expected to cover only about 38 
percent of overall domestic consumption needs(including 
production for export) while imports represent about 69 
percent of requirements.  The proposed amount (12,000 MT of 
wheat) to be swapped is only about 1.5 percent of total 
consumption and about 2.2 percent of imports.  Hence, 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). WFP will reasonably comply 
with Bellmon storage requirements. Secure and appropriate 
storage of WFP?s Title II commodities will be verified 
again by USAID and REDSO/ESA/FFP personnel making periodic 
monitoring visits to the field. 
 
 
 
      ---------------- 
      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