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Viewing cable 08BAKU413, RESPONSE: IMPACT OF RISING FOOD/COMMODITY PRICES -

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Reference ID Created Released Classification Origin
08BAKU413 2008-05-01 05:37 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Baku
VZCZCXRO2761
RR RUEHLN RUEHVK RUEHYG
DE RUEHKB #0413 1220537
ZNR UUUUU ZZH
R 010537Z MAY 08
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC 5241
INFO RUCNCIS/CIS COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 2802
UNCLAS BAKU 000413 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EEB/TPP/ABT/ATP JANET SPECK 
 
E.O. 12958: N/A 
TAGS: ECON EAGR EAID ETRD PREL AJ PGOV
SUBJECT: RESPONSE: IMPACT OF RISING FOOD/COMMODITY PRICES - 
AZERBAIJAN 
 
REF: SECSTATE 39410 
 
SENSITIVE BUT UNCLASSIFIED 
 
1. (SBU) The global increase in commodity and agricultural 
prices has had an inflationary effect on consumer prices in 
Azerbaijan, according to both the International Monetary Fund 
and the Government of Azerbaijan.  Since late 2007, some of 
the most important food and agricultural commodities consumed 
in Azerbaijan, such as bread, butter, vegetable oil, flour, 
fruits, and vegetables, have increased significantly in 
prices, including in some instances by 40 to 50 percent. 
According to USAID-sponsored research, over past year prices 
increased by 28.96 percent in Baku and the rural regions. 
Azerbaijan has benefited from high oil prices, potentially 
cushioning any negative effects from global price increases. 
It has amassed more than USD 3 billion in its Oil Fund and 
stands to receive more than USD 12 billion in 2008.  The 
Government of Azerbaijan is aware of the growing price 
pressures and is reviewing its options to ensure that the 
local population is not negatively affected.  Azerbaijan is 
not highly competitive in grain production.  In 2007, the 
Government of Azerbaijan provided approximately USD 50 
million in fuel related subsidies for agriculture imports and 
VAT coverage, and allocated approximately USD 50 million in 
cash payments to grain producers to encourage additional 
production.  The government regulates the prices of many key 
consumer items, including bread, utilities, and gasoline. 
 
2. (SBU) Once Azerbaijan's strongest sector, agricultural 
production has decreased steadily over the past decade.  The 
lack of basic infrastructure hampers agricultural production 
and Azerbaijan has become a net importer of agricultural and 
commodity goods.  According to official statistics, only 60 
percent of domestic consumption is satisfied by domestic 
production.  While the increase in prices has affected all 
socio-economic groups, the overall impact has not led to 
public unrest and the Government of Azerbaijan appears to be 
managing the issue easily.  Within the domestic economy there 
are numerous structural impediments that are contributing to 
higher prices.  In addition, the government's expansionary 
fiscal policy has also contributed significantly to the 
increase in consumer prices.  Azerbaijan's growing inflation 
affects U.S. government programs by increasing overall 
operating expenses and requiring continual adjustments to 
budgets.  For the government, restraining fiscal spending, 
improving agricultural infrastructure and decreasing trade 
restrictions would help alleviate increases in global food 
and agricultural commodity prices. 
DERSE