VZCZCXRO0719
RR RUEHROV
DE RUEHAE #0236/01 1201310
ZNR UUUUU ZZH
R 291310Z APR 08
FM AMEMBASSY ASMARA
TO RUEHC/SECSTATE WASHDC 9632
INFO RUCNIAD/IGAD COLLECTIVE
RUEAIIA/CIA WASHDC
RHEHNSC/NSC WASHDC

UNCLAS SECTION 01 OF 03 ASMARA 000236 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
LONDON AND PARIS FOR AFRICA WATCHERS 
DEPT FOR AF/E, EEB/TPP/ABT/ATP FOR JANET SPECK 
 
E.O. 12958:  N/A 
TAGS: ECON EAGR PGOV ER
SUBJECT: RESPONSE: IMPACT OF RISING FOOD/COMMODITY PRICES - ERITREA 
 
REF:  STATE 39410 
 
¶1.  (SBU) The following answers are keyed to reftel.  Point of 
contact is Brian Shelbourn, shelbournbl@state.gov, 291-1-120004. 
 
---------------- 
¶2.  (SBU) DEMAND 
---------------- 
 
Wheat, sorghum, and teff are the most important agricultural 
commodities in Eritrea and are extremely scarce.  World Food Program 
(WFP) statistics show the price of wheat quadrupled since 2004, 
including a 62% increase since February 2007, as well as an 
unexpected increase immediately after the latest harvest.  Eritrea 
is a net importer of these commodities.  In 2007 the Ministry of 
Agriculture (MoA) claimed 80% of Eritrea's food needs were produced 
locally, but the WFP places this estimate at only 60%. 
 
Despite being desperately short of hard currency the Government of 
the State of Eritrea (GSE) directly controls all food imports, 
leaving supplies randomly intermittent.  Eritreans adapt to specific 
grain shortages by combining or substituting wheat, sorghum, teff, 
and maize as necessary.  Most Eritreans consider bread made solely 
from wheat flour to be a luxury. 
 
Farmers are forced to sell their entire harvest to GSE grain traders 
and are not allowed to retain stock for personal use, leaving rural 
areas in even more desperate condition than the cities.  A MoA 
official recently told WFP director Rahman Chowdhury (protect) that 
certain (unspecified) areas of the country were experiencing "near 
famine-like conditions."  There have been reports that during July 
and August many rural residents subsist mainly on the abundant 
prickly-pear cactus fruit known as belez. 
 
---------------- 
¶3.  (SBU) SUPPLY 
---------------- 
 
Eritrea's economy, including the agricultural sector, is directed by 
the government.  WFP reports show a 15% increase in the number of 
hectares (ha) under cultivation in the past 4 years, as well as an 
average yearly production increase of 12% to 20%.  There is no known 
foreign direct investment in the agriculture sector due to the GSE's 
policy of self-reliance and quest for independent food security. 
There are no known bottlenecks in the supply chain.  Eritrea 
confiscated 90,000 metric tons (MT) of foreign donor food aid in 
spring 2006, leaving no operating food assistance programs. 
 
Eritrea is currently facing a chronic diesel fuel shortage, but post 
has received no reports this is affecting either the harvest or the 
GSE's food transportation.  Rainfall in the region has been very 
good for the past three years, but if one of the Horn's frequent 
droughts coincides with current high import costs, WFP and other 
in-country food experts have expressed concerns a food crisis could 
emerge. 
 
Eritreans in Asmara report nearly all grain houses are empty, but 
some grain is available on the black market.  There are reports of 
ample grain supplies available in Tessenai near the Sudan border 
(where there is a thriving grey market), but the GSE maintains 
multiple checkpoints on the roads out of the city and confiscates 
all smuggled commodities.  Sorghum and teff distributed through the 
Hidri Shops (the government-run food rationing system) have recently 
disappeared.  An Eritrean family of five received 40 kg of either 
grain (whichever was available) until February, when the ration was 
cut to only 10 kg before disappearing altogether. 
 
Seasonable vegetables are readily available and relatively 
inexpensive.  The price of goats and sheep has held steady due to 
decreased incomes caused by the deteriorating economy, leading to 
decreased demand. 
 
-------------------------- 
¶4.  (SBU) POLITICAL IMPACT 
-------------------------- 
 
Eritrea has a totalitarian government that vigorously represses all 
dissent.  Although discontent with food prices and availability is 
growing and is often told in confidence to Emboffs, dissatisfaction 
with GSE policies is never expressed publicly in ways that threaten 
host government stability.  The GSE-controlled media blames current 
conditions on the unresolved border with Ethiopia, and by extension 
on policies of the U.S. and UN.  Large segments of the Eritrean 
population accept the GSE's account, given lack of alternative media 
and many people's unquestioning loyalty to a government that 
achieved Eritrean independence. 
 
 
ASMARA 00000236  002 OF 003 
 
 
------------------------- 
¶5.  (SBU) ECONOMIC IMPACT 
------------------------- 
 
Eritrea's international reserves can only support between two and 
four weeks of imports, forcing the government to prioritize. 
Emboffs have noted cycles where at least one commodity is always 
unavailable, suggesting a GSE effort to avoid the appearance of 
shortages.  The GSE has also forced most non-governmental 
organizations out of the country, including those working in food 
aid.  The country's current account deficit is approximately 30% of 
GDP excluding remittances and transfers from international 
organizations, and the IMF projects Eritrea's trade deficit to 
remain above 20% of GDP through 2010.  These indicators denote a 
country with few extra resources available to shift to food 
purchases. 
 
Eritrea has a command economy with minimal private sector 
development.  Farmers are forced to sell their crops to GSE traders 
below market prices.  Commodity price increases create no host 
country beneficiaries other than GSE-tolerated smugglers importing 
food from Ethiopia, Sudan, and Yemen and black market sellers. 
 
------------------------------ 
¶6.  (SBU) ENVIRONMENTAL IMPACT 
------------------------------ 
 
Eritrea was heavily deforested during the 30-year struggle for 
independence, and wood-based charcoal is culturally the primary 
source of cooking fuel.  In addition, Eritrea has historically faced 
water shortages and erosion problems. The few NGOs and UN 
organizations, such as UNICEF, still operating in country focus many 
of their projects on country-wide water and sanitation needs, which 
is also a high priority for the government.  There are no 
indications that these pre-existing, wide spread problems are 
exacerbated by current conditions. 
 
------------------------------------ 
¶7.  (SBU) GOVERNMENT POLICY RESPONSE 
------------------------------------ 
 
On April 17, the GSE made an official statement it would soon 
announce "an efficient consumption program that puts into 
consideration future challenges and their consequences."  The 
statement also noted the consumption of the 2007 harvest would have 
to extend beyond the year, indicating the government recognizes, to 
some extent, the present food security challenge.  Given that 
Eritrea cannot cover its own food needs even in the best 
circumstances, this announcement is a cause for concern. 
 
The GSE extended its control over the economy by recently 
confiscating grain from many private wholesalers and traders. 
Although grain was seized, much of it disappeared into the black 
market.  The GSE has also forced farmers to sell their harvest to 
government traders at deeply discounted prices.  Again, government 
policy forced much of the food supply into the black market. 
 
The price of bread, when available, is strictly set at $.025/100 
grams (pre-baked).  This price control has led to austere rationing 
and frequent unavailability.  The government also either runs or 
tacitly accepts a "free trade zone" in Tessenai.  Although the zone 
alleviates some shortages, its full purpose and operations remain 
unclear. 
 
The IMF and World Bank note the government's emphasis on fiscal 
tightening, although the GSE has not publicly released budget by 
which policy changes can be judged. 
 
--------------------------------- 
¶8.  (SBU) IMPACT ON POST PROGRAMS 
--------------------------------- 
 
Current conditions will have minimal impact on post programs.  The 
GSE ordered USAID to leave Eritrea in July 2005, terminated all 
development and food assistance programs by the end of the year, and 
confiscated 14,500 MT of USG food aid already in country in spring 
¶2006.  The USG continued to support limited humanitarian, 
therapeutic feeding programs funded by USAID/OFDA and implemented 
through the local UNICEF office.  However, GSE restrictions of all 
food aid have closed avenues for food assistance, with the exception 
of these humanitarian programs available only to a small minority of 
the most at-risk populations. 
 
-------------------------- 
¶9.  (SBU) POLICY PROPOSALS 
-------------------------- 
 
 
ASMARA 00000236  003 OF 003 
 
 
In light of USAID's departure and the GSE's current intransigent 
stance towards accepting food aid, the USG can provide minimal 
assistance to Eritrea in its struggle for food security -- at least 
until the government's policies change.  Nonetheless, a poor harvest 
would create severe hardship on a populace which is barely 
subsisting under current conditions.  Post recommends a serious 
analysis of any GSE request to provide assistance if an Eritrean 
food emergency occurs. 
 
-------------------------------------------- 
¶10.  (SBU) LIST OF PREVIOUS REPORTING CABLES 
-------------------------------------------- 
 
ASMARA 221 
ASMARA 225 
07 ASMARA 509 
07 ASMARA 806 
MCMULLEN