VZCZCXYZ0002
RR RUEHWEB

DE RUEHRB #1525/01 2681250
ZNR UUUUU ZZH
R 251250Z SEP 07
FM AMEMBASSY RABAT
TO RUEHC/SECSTATE WASHDC 7484
INFO RUEHCL/AMCONSUL CASABLANCA 3539
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHRC/USDA FAS WASHDC 1050
RUEHAS/AMEMBASSY ALGIERS 4543
RUEHTU/AMEMBASSY TUNIS 9410
RUEHNK/AMEMBASSY NOUAKCHOTT 3580

UNCLAS RABAT 001525 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR NEA/MAG, EB/IFD/OIA and EB/TPP/BTA 
STATE PLEASE PASS TO USTR P BURKHEAD 
USDOC FOR ITA/MAC/ONE ROTH 
TREASURY FOR OASIA 
USDA FOR OCRA CATHY MCKINNELL 
 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EFIN EAGR PGOV MO
SUBJECT: RISING PROTEST SPURS CLIMBDOWN ON BREAD PRICES 
 
REF: RABAT 627 
 
Sensitive but unclassified.  Please protect accordingly. 
 
¶1. (SBU) Summary: The outgoing government of Prime Minister Driss 
Jettou moved this week to address a thorny problem that threatens to 
cloud the debut of its successor with its decision to annul recent 
increases in bread prices and to subsidize the cost of flour.  The 
government also suspended the taxes it collects in wholesale markets 
for the period of Ramadan.  The decisions come against a backdrop of 
general anger about rising prices among Morocco's working poor, and 
at least some demonstrations against the price rises.  While the new 
measures should ensure social peace, the subsidies come at a cost: 
they will increase the burden on a compensation system that is 
already burdened with subsidies for goods ranging from petroleum and 
gas to oil and sugar.  End Summary. 
 
¶2. (U) A series of emergency meetings between the government, 
importers, and millers resulted last week in a government decision 
to roll back recent price increases on bread, abolish import duties 
on wheat, and subsidize the price of flour for the nation's bakers. 
Bakeries had been complaining for months that with the rapid rise in 
world grain prices, they would not be able to hold the line on the 
price of bread, and in particular the basic 250 gram loaf that is 
widely marketed through Morocco for 1.2 MAD (approximately 15 cents) 
and is an important staple for the poor.  Bakers agreed to postpone 
any price increases until after the September 7 election, but then 
moved to raise the price of the loaf to 1.5 MAD (approximately 19 
cents).  The move immediately prompted widespread comment, 
particularly as it came at a time when prices for many other basic 
commodities were rising both from international price movements, 
increased local demand as a result of Ramadan and the new school 
year, as well as the impact of last year's poor harvest. 
 
¶3. (U) As potential for discontent grew, the government decided to 
take action.  Prime Minister Jettou convened Morocco's price 
committee, which determines subsidy policy and sets prices for 
subsidized products.  (Note: While the price of the loaf is 
regulated as part of a gentlemen's agreement by which the government 
provides subsidized flour for its manufacture, the prices of other 
higher-end baked goods move freely.  End note.)   Ultimately, the 
consultations resulted in a settlement by which bakers would roll 
back their price increase in exchange for higher subsidies to 
cushion them from the high price of wheat on world markets, 
essentially guaranteeing them a certain quantity of soft flour at 
250 MAD a hundred weight as well as deluxe flour at a target price 
of 363 MAD for a hundred-weight (roughly 100 MAD below current world 
prices).  At the same time, import duties were abolished until May 
31, 2008. 
 
¶4. (SBU) The move comes at a cost.  Not only will the government 
forgo revenue from tariffs on this year's higher grain imports, 
which resulted from the shortfall in the 2007 harvest (down to 2 
million tons from 9 million a year before), but it will also have to 
subsidize the flour cost for up to 2 million tons of wheat, at a 
cost that could reach 300 million MAD a month.  The charge will more 
than double the cost of wheat subsidies, which were initially 
budgeted at 2 billion MAD. 
 
¶5. (U) The government took further action on September 24 to address 
other price increases.  It suspended collection of taxes in 
wholesale markets where fruits, vegetables, and other products are 
sold.  The move, which is effective only during Ramadan, should 
result in prices falling up to 7 percent from their new higher 
levels.   The additional steps followed violent confrontations 
between marchers protesting higher prices and authorities in the 
northern city of Sefrou on Sunday, September 23.   Local government 
buildings were targeted and press reports indicate that up to 50 
people were arrested, while dozens were injured. 
 
¶6. (SBU) Comment: The protests and quick government reaction 
highlight the extreme sensitivity here to such price increases, 
particularly during the Ramadan period with its heightened demand 
for food products.  While the price increase from 15 to 19 cents for 
the "basic" Moroccan loaf appears trivial, its impact also 
highlights the precariousness that is the every day lot of a 
significant part of the Moroccan population.  With increasing 
criticism of the price increases, the outgoing coalition, fresh from 
its electoral success on September 7, decided it did not wish to 
return to office in an environment poisoned by a 30 percent price 
rise in a key element of the daily diet of poor Moroccans.  The move 
will increase the strain on Morocco's overall subsidy system, 
however, as well as the country's budget balance.  End Comment.