VZCZCXYZ0004
PP RUEHWEB

DE RUEHAM #1392/01 1290904
ZNR UUUUU ZZH
P 080904Z MAY 08
FM AMEMBASSY AMMAN
TO RUEHC/SECSTATE WASHDC PRIORITY 2518
INFO RUEHGB/AMEMBASSY BAGHDAD 5964
RUEHLB/AMEMBASSY BEIRUT 2838
RUEHEG/AMEMBASSY CAIRO 3639
RUEHDM/AMEMBASSY DAMASCUS 3872
RUEHRH/AMEMBASSY RIYADH 1945
RUEHTV/AMEMBASSY TEL AVIV 1168
RUEHJM/AMCONSUL JERUSALEM 5006

UNCLAS AMMAN 001392 
 
SENSITIVE 
SIPDIS 
 
FOR EEB/TPP/ABT/ATP (SPECK), NEA/RA, AND NEA/ELA 
 
E.O. 12958: N/A 
TAGS: EAGR EAID ECON PGOV JO
SUBJECT: IMPACT OF RISING FOOD/COMMODITY PRICES -- JORDAN 
 
REFS:  STATE 39410 
 
¶1. (U) SUMMARY.  Jordan is a net importer of food, and the global 
increase in food and agricultural commodity prices could not have 
come at a worse time.  Jordan recently embarked on an ambitious 
economic reform program, buying back debt to lower debt service and 
eliminating fuel subsidies.  Add to these moves recent price 
increases in commodities such as wheat and rice, and the result is 
serious budgetary strains.  The GOJ responded to the food crisis by 
eliminating taxes on a number of staples, opening up government 
stores to all citizens, and making cash payments to the neediest. 
Rising inflation, stagnant salaries, and ever-increasing fuel 
prices, however, will soon begin to undermine the cost-saving 
measures.  Jordan has requested the U.S. consider reinstatement of 
PL-480, assistance to defray the high transportation costs of 
American wheat, and emergency credit programs for the purchase of 
wheat and rice.  Post believes that better use of the U.S.-Jordan 
Free Trade Agreement could ward off food shortages with benefits for 
both countries. 
 
Demand 
------ 
 
¶2. (U) Food accounts for 40 percent of most Jordanian household 
budgets, which have been hit hard by rising worldwide food costs.  A 
resource-poor country, Jordan is a net importer of food with 100 
percent of certain consumable items imported from abroad, including 
staples such as sugar, rice, powdered milk, tea, coffee, and palm 
oil.  Ninety percent of wheat, corn, cheese, chick peas, vermicelli, 
lentils, and barley are imported as well.  Prices for all items have 
increased significantly, led by wheat whose price jumped 300 percent 
in the past year.  Accordingly, Jordan's import costs for food, live 
animals, and animal feed have also skyrocketed. 
 
¶3. (U) As prices have increased, Jordan's purchasing power has 
dropped by 25 percent, a result of the decrease in the value of the 
U.S. dollar to which the Jordanian Dinar is pegged.  Further 
complicating matters for Jordanian citizens are increases in fuel, 
electricity, and water due both to global price increases and the 
February 2008 decision to eliminate almost all remaining fuel 
subsidies.  Despite salary increases for some public sector 
employees and cost of living adjustments in the private sector, many 
citizens are faced with difficult decisions regarding consumption 
patterns.  Sales of subsidized bread have increased, more middle 
class consumers are shopping at government commissaries, wholesalers 
are increasingly operating on a cash basis due to a high percentage 
of bounced checks, and tribes in Salt signed an "honorary decree" 
vowing to hold less lavish wedding celebrations.  There are also 
anecdotal reports of increased dumpster-diving. 
 
Supply 
------ 
 
¶4. (SBU) Local agricultural production is insufficient to meet 
Jordan's needs.  Rising fertilizer costs and the effects of a 
January frost have further impacted the ability of farmers to supply 
fresh produce.  For most items, supply has not significantly 
dwindled, but prices are up and quality has deteriorated.  For rice, 
however, there are growing concerns about an impending shortage. 
Jordanians consume annually 135,000 tons of rice of which 40 percent 
historically came from Egypt, 40 percent from the U.S., and the 
balance from other countries.  Local traders report a one month 
waiting list to simply book shipments from the U.S.  To forestall 
severe shortages, the GOJ concluded a deal with Egypt to purchase 
7,000 tons of rice originally slated for Syria, and mandated 
approval from the Ministry of Industry and Trade (MOIT) for the 
re-export of rice as well as sugar, pulses, and eggs. 
 
¶5. (SBU) There is also a perception that USG purchase of fresh 
produce and other items (eggs, soft drinks, milk, juices, chips, ice 
cream and some breads/cakes) for forces in Iraq have further 
contributed to rising prices and some shortages.  In fact, average 
monthly expenditures by the U.S. military are $1.5 million and have 
not negatively affected local stocks. 
 
Political Impact 
---------------- 
 
¶6. (SBU) While grumbling is widespread, Jordan has not seen 
significant public protests, let alone violence, as a result of 
rising commodity prices.  The lack of public protest is largely a 
result of decisive moves (both politically and economically) taken 
by the government to blunt the impact of inflation.  As a result, a 
recent study by the Center for Strategic Studies at the University 
of Jordan showed a continued strong favorability rating for PM Nader 
al-Dahabi's government after 100 days in power.  The same poll, 
however, showed that only 36 percent of Jordanians believe that the 
government is capable of controlling rising prices.  Fifty-four 
percent of respondents indicated that their economic situation had 
worsened in the past three years. 
 
¶7. (SBU) The quietude is also in part a function of government 
efforts to tamp down public airing of economic grievances.  While 
the economic strains, and the government's economic policy, are 
debated openly in the media, since December 2007 the Governor of 
Amman has denied several requests by political parties and 
professional associations (often led by the opposition Islamic 
Action Front and its proxies) to hold protests against the handling 
of the economic situation.  Similarly, think tank Al-Urdun Al-Jadid 
Research Center was denied permission to hold an academic forum in 
which strategies to deal with rising commodity prices would have 
been discussed.  The denials of these requests have raised some 
eyebrows in the media, but produced little in the way of political 
reaction. 
 
¶8. (U) Rising commodity prices in Jordan are impacting the entire 
society - no one ethnic group or class has been affected more than 
another.  The government's economic rhetoric, however, has primarily 
focused on moderating the impact of rising prices on the rural poor, 
who are primarily East Bankers.  Biofuels and agricultural 
biotechnology are not a common subject of public discussion in 
Jordan. 
 
Economic Impact 
--------------- 
 
¶9. (U) Inflation, led by increases in fuel and food costs, has 
steadily risen since the beginning of the year, reaching 10.8 
percent for the first quarter.  GOJ measures to maintain a steady 
food supply have necessitated a $700M budget supplemental.  Ministry 
of Finance officials report that fuel taxes and foreign grants are 
expected to pay for the supplement so that the GOJ does not increase 
its current deficit of $1 billion.  While GOJ efforts to address 
rising food prices have been welcomed by consumers, food traders and 
small businessmen complain government intervention is detrimental to 
their companies.  The head of the Poultry Farmers Union speculates 
that thQx exemption for frozen poultry will lead to the closure 
of at least 1,000 local poultry farms due to their inability to 
compete with cheap imports from Brazil.  Ministry of Agriculture and 
MOIT officials counter that there are distinct markets for imported, 
frozen chicken and fresh poultry. 
 
Environmental Impact 
-------------------- 
 
¶10. (U) Jordan, already one of the world's most water-poor 
countries, is facing a drought and water supplies to Jordan Valley 
agriculture have been cut by 50 percent in 2008.  Permanent crops 
such as citrus, grapes, date palms, and bananas claim the majority 
of limited water resources, resulting in a 50 percent reduction in 
the production of vegetable and cereal crops.  This has further 
decimated local agriculture which has been struggling to overcome a 
January frost that wiped out entire crops.  Additionally, arable and 
forestlands have been damaged by illegal logging.  Following the 
elimination of remaining fuel subsidies, there has been an increase 
in logging as individuals cut down trees to use in home heating. 
 
 
Government Policy Response 
-------------------------- 
 
¶11. (U) The GOJ has instituted a number of measures in response to 
rising food prices: 
 
--  abolishing customs fees and sales tax on 13 common foodstuffs 
(sugar, rice, powdered milk, cheese, tea, coffee, palm oil, chick 
peas, vermicelli, wheat flour, corn flour, and lentils) as well as 
frozen meat and chicken, and feed corn; 
-- lowering the prices of 56 "essential items" sold by the Civil 
Service Consumer Corporation; 
-- calling on the private sector to correspondingly reduce the 
prices of these products and limit their profit margins "as a matter 
of national responsibility;" 
-- establishing parallel markets for the sale of fruits and 
vegetables directly to consumers; 
-- requiring government commissaries to sell at cost; 
 
-- encouraging importers to establish indicator prices for basic 
foodstuffs to thwart price-gouging; 
-- implementing a $424M social safety net program to assist the 
neediest citizens; and 
-- raising taxes on luxury items such as cigarettes and alcohol. 
 
¶12. (U) MOIT is also considering importing eight basic commodities 
to be sold to consumers at cost plus a minimum mark-up to cover 
transportation and administrative expenses.  Furthermore, the 
cabinet formed a committee representing the Ministry of Finance, the 
Central Bank of Jordan, and MOIT to hedge wheat purchases effective 
July 1.  If successful, the program may be expanded to cover 
barley. 
 
Impact on Post Programs 
----------------------- 
 
¶13. (U) Rising prices have further exacerbated problems in Post's 
already limited ability to recruit and retain local staff due to low 
compensation levels.  To date, Post has not been able to match 
salary increases offered by the private sector and international 
organizations.  In February two candidates turned down offers to be 
a telephone operator before the third choice accepted.  In January, 
a newly opened regional office went through two offers of employment 
before finding someone to accept.  Likewise, Post is facing 
challenges in filling professional-level USAID positions, a trend 
which would have a negative impact on development assistance 
programs. 
 
¶14. (U) In addition, of the 23 non-retirement voluntary resignations 
in 2007, 57 percent cited better salary elsewhere as the reason for 
leaving the Embassy.  Thirty-nine percent of all LES employees now 
have loans from the Embassy's Provident Fund.  Just since the 
beginning of the year, the Human Resources Office has issued 
employment and salary verification letters to 20 percent of all LES 
employees, an indication of the number of employees who are seeking 
additional outside bank loans to survive.  Local price increases 
have also forced the American Embassy Community Services Association 
(AESCA) to raise prices on many food items at the Embassy cafeteria 
where a majority of American and LES eat lunch.  LES protested 
attempts earlier in the year to raise prices. 
 
Policy Proposals 
---------------- 
 
¶15. (SBU) The GOJ has been proactive in devising strategies to limit 
the impact of rising world fuel and energy prices on its population. 
 Post further endorses GOJ efforts to replace broad subsidies which 
have benefited all residents, with programs tailored to meet the 
needs of the most disadvantaged.  Such programs, however, require 
money and the GOJ has requested increased and more predictable 
foreign assistance so that it can free up resources to address 
emergency situations.  MOF officials have made discreet inquiries 
about reinstatement of PL-480 for the purchase of U.S. wheat or 
assistance to defray transportation costs of American wheat.  Other 
GOJ officials have called for limited, emergency credit programs for 
the purchase of wheat and rice. 
 
¶16. (U) A longer term solution for Jordan's food needs, with 
benefits for the U.S., is better use of the U.S.-Jordan Free Trade 
Agreement (FTA).  In 2007, of its total annual consumption, Jordan 
imported only $150M in food and agriculture products from the U.S., 
one-tenth of agricultural imports.  The FTA, dinar-dollar peg, and 
Jordan's political stability are all good arguments in favor of 
increased agricultural and commodity trade, particularly for dairy 
products, feed, and de-boned meat.  One significant obstacle, 
however, remains the small size of the market.  With Jordan's 
population of only 5.7M and a GDP of approximately $11B in 2006, 
many American suppliers consider the market too small. 
 
Recent Reporting on Food and Commodity Issues 
--------------------------------------------- 
 
Amman 1149 - GOJ Works to Lessen Impact of Continued Inflation: 
Cutting Prices and Taxes on Key Commodities 
Amman 1034 - Jordan's Grain Subsidy Program:  Insiders Call for Cash 
Payments to the Needy to Replace Market Distorting Subsidies 
Amman 1030 - Poll Shows PM's Popularity Steady Despite Economic 
Worries 
Amman 816 - Livestock Identification Program Underway to Provide 
Accurate Data and Improve Health Standards 
Amman 815 - Nearly Seven Percent Inflation in One Month Reflects 
Fuel Price Increases 
Amman 670 - Rising Prices Reinforce View among Some that Amman Is 
the Most Expensive City in the Middle East 
Amman 518 - Jordan to Compensate Farmers for Crop Losses Due to 
Recent Frost 
Amman 409 - Jordan Prepares for Potential Summer Drought -- Again 
Amman 407 - Jordan's Subsidy-Free Budget Signed into Law; Price 
Increases and Demonstrations Expected 
Amman 26 -- GOJ Eliminates Customs Duties and Taxes on 13 Food Items 
in Response to Rising Costs 
07 Amman 3813 - King Calls for Lower Food Prices during Ramadan 
 
Visit Amman's Classified Web Site at 
http://www.state.gov.sgov.gov/p/nea/amman/ 
 
HALE