VZCZCXYZ0001
PP RUEHWEB

DE RUEHDM #0311/01 1261425
ZNR UUUUU ZZH
P 051425Z MAY 08
FM AMEMBASSY DAMASCUS
TO RUEHC/SECSTATE WASHDC PRIORITY 4930
INFO RUEHEG/AMEMBASSY CAIRO PRIORITY 3630
RHEHNSC/NSC WASHDC PRIORITY
RUEAIIA/CIA WASHDC PRIORITY
RHEFDIA/DIA WASHDC PRIORITY
RUEHRC/DEPT OF AGRICULTURE WASH DC PRIORITY

UNCLAS DAMASCUS 000311 
 
SENSITIVE 
SIPDIS 
 
STATE FOR NEA/ELA, EEB/TPP/ABT/ATP JANET SPECK; CAIRO FOR 
FAS/PETER KURZ 
 
E.O. 12958: N/A 
TAGS: EAGR ECON EINF PGOV SY
SUBJECT: RESPONSE: IMPACT OF RISING FOOD/COMMODITY PRICES - 
SYRIA 
 
REF: A. STATE 39410 
     ¶B. DAMASCUS 307 
     ¶C. DAMASCUS 234 
     ¶D. DAMASCUS 132 
     ¶E. DAMASCUS 55 
 
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SUMMARY 
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¶1. (SBU) This cable responds to ref A.  Although rising food 
prices do not portend an economic catastrophe in Syria, they 
are contributing to substantial economic and political 
pressure on the Asad regime.  In the midst of a three-year 
drought, Syria's 2008 domestic wheat production is projected 
to be 60 percent less than average, with Syria's strategic 
wheat reserves estimated to drop by 80 percent over the next 
year.  In response, the SARG has used a menu of standard 
Ba'athist options -- despite a track record of failure to 
contain economic problems -- to try to control prices, 
threaten (and placate) farmers, increase salaries and 
reassure the public.  Syrian consumers have reacted by 
decreasing consumption and seeking cheaper food alternatives. 
 Thus far, only one public protest relating to food prices 
has been observed.  If Syria requires imported wheat in 
2008-2009, U.S. wheat exporters may enter the Syrian market 
for the first time.  Post notes the presence in Syria of 
ICARDA, a prominent international agricultural research 
center.  We understand that USAID proposes to indirectly cut 
funding for ICARDA this year, and strongly advocate for a 
reconsideration of this policy (see paras 14-15). End summary. 
 
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DEMAND 
------ 
 
¶2. (SBU) The major agricultural commodities consumed in Syria 
are wheat, corn, barley, rice, soybeans, fava beans, 
chickpeas and lentils, with poultry being the main source of 
animal protein.  Self-sufficient in wheat production since 
the mid-1990s, Syria may become a net importer of wheat in 
¶2008.  As green pasture has also declined with insufficient 
rainfall, Syria will need to import 1.5 to 2 million tons of 
barley (probably from Russia or Ukraine) in order to feed its 
estimated 20 million sheep and cattle.  Syria produces less 
than five percent of its corn requirement for its expanding 
poultry, starch and glucose industries, and does not produce 
soybeans or rice.  U.S. corn accounts for some 80 percent of 
Syrian imports, with Argentina and Eastern Europe providing 
the remaining 15 percent.  The U.S. and Argentina each 
provide about 50 percent of Syria's soybean requirement for 
both whole beans and mash.  Egypt usually provides between 
80-85 percent of Syrian rice imports, although Syrians are 
concerned that Egypt may not meet its export obligation this 
year. 
 
¶3. (SBU) The SARG sets fixed prices for some of its 
domestically produced commodities, including wheat, corn, 
barley and sugarbeets.  On April 15, 2008, the SARG announced 
a 40 percent increase in the fixed price of wheat, a 30 
percent increase in the price of sugarbeets, and nearly a 100 
percent increase in the prices of both corn and barley. 
However, many Syrian farmers contend that the new set prices 
will not cover their production costs, particularly since the 
SARG increased the price of diesel fuel by 357 percent during 
peak irrigation season (ref B). 
 
¶4. (SBU) While Syria's urban elites have not curbed their 
spending habits, middle class and poor citizens appear to 
have changed their consumption patterns.  Embassy staff 
recently observed normally busy grocery stores in 
middle-class Damascene neighborhoods nearly empty of shoppers 
during peak shopping hours, with some grocers claiming a 75 
percent drop in sales compared with April 2007.  Some 
middle-class Syrians accustomed to buying "tourist" (sliced, 
loaf) bread say they have returned to standing in line at 
government bakeries with poorer people to buy subsidized flat 
bread.  In the face of 100 percent increases in poultry and 
dairy products, poorer Syrians have already turned to fava 
beans and chickpeas as less expensive sources of protein. 
 
------ 
SUPPLY 
------ 
 
 
¶5. (SBU) Normally, Syria produces 4.7 to 4.9 million tons per 
year (mt/yr) of wheat, while domestic demand averages four 
mt/yr.  The latest estimate of the 2008 crop projects a yield 
of only two million tons -- a decline of 60 percent.  Syria 
also maintains a strategic reserve of wheat, thought to be 
the equivalent of one year's supply, or around five million 
tons (based on known storage capacity), although this 
information is not publicly available.  Syria also has trade 
agreements to export 1.2 million tons of surplus wheat to 
Egypt, Jordan and Yemen.  As domestic production has declined 
over the last three years, Syria has drawn upon its strategic 
reserve to fulfill its export obligations.  Consequently, 
industry experts estimate Syria's strategic reserve has 
diminished to between 2.5 and 2.75 million tons, although the 
state-run wheat management company disputes this figure as 
low.  The same experts predict that, should current weather 
and economic trends continue, Syria's strategic reserve could 
decline to below one million tons by June 2009. 
 
¶6. (SBU) Three factors are contributing to a significant 
decrease in Syria's supply of domestically-produced wheat and 
barley this year: the weather, the price of feed, and the 
price of diesel fuel.  As mentioned above, a continuing 
three-year drought coupled with a late spring frost has 
lowered the water table and damaged crops.  In response to 
the weather, Syrian farmers have planted less acreage with 
wheat and barley.  Further diminishing supplies this year, 
many Syrian farmers have begun to sell irrigated crops for 
grazing sheep.  Even with the April 15 increase in commodity 
prices, barley remains 38 percent more expensive than wheat. 
Consequently, wheat farmers can demand a higher price for 
grazing their unharvested crops (as a substitute for barley) 
than they could earn from selling their produce at fixed 
government prices -- especially when faced with higher diesel 
prices for irrigation, harvesting and transportation. 
 
¶7. (SBU) Facing rising irrigation costs, many small farms in 
suburban Damascus have recently been converted (usually 
illegally) for sale as residential real estate.  Emboffs have 
also observed shepherds offering young lambs for sale weeks 
earlier than usual in the hopes of bringing a decent price 
before malnutrition affects the animals' health.  In one 
recently publicized incident near Idlib, a shepherd 
reportedly killed himself in despair after watching his flock 
starve.  In another example, police raided a suburban 
Damascus warehouse that was illegally selling beef and lamb 
meat from unhealthy culled stock to area restaurants for use 
in minced dishes. 
 
---------------- 
 
POLITICAL IMPACT 
---------------- 
 
¶8. (SBU) Inflated food prices are a contributor to the 
substantial economic and political pressure weighing on the 
regime of President Bashar Asad.  A minority-run police state 
with heavy-handed internal security services, the SARG keeps 
a close watch on any civil unrest that could pose a threat to 
the regime.  Thus, it was unusual when some 400-500 tomato 
farmers gathered in Tartous on April 16 to protest the 
previous day's decision by the Ministry of Economy to ban the 
export of tomatoes for 45 days and offer 20 SYP/kg (USD 
0.42/kg) for the spring tomato crop.  The Ministry of Economy 
had taken the decision after market forces had driven tomato 
prices to 55 SYP/kg (USD 1.16/kg).  Internet media photos 
indicated that police used high-pressure water hoses to 
disperse the crowd.  Shortly thereafter, President Asad made 
an unpublicized visit to a Damascus vegetable market, and the 
Minister of Agriculture was dispatched to Tartous to reassure 
the angry greenhouse owners.  While stopping short of calling 
it a mistake, the Ag Minister characterized the Ministry of 
Economy's ban on tomato exports as "not thoroughly studied." 
As a further concession, he promised that his ministry would 
purchase the entire coastal Syrian tomato crop at a 
"reasonable" price, which local experts infer as guaranteeing 
the farmers a 20 percent profit margin.  Ba'ath Party 
officials have recently used local media to issue assurances 
that the SARG will take measures to counteract rising food 
prices and ensure food security for Syria's majority poor. 
 
--------------- 
ECONOMIC IMPACT 
--------------- 
 
 
¶9. (SBU) As reported in ref C, agricultural produce led a 
wave of inflation, popularly described in local media as a 
"tsunami of prices," that hit Syrian consumers hard over the 
past four years.  The Syrian public sector, which employs 
approximately 35 percent of all workers, had not received a 
raise in over two years until May 3 when President Asad 
announced a 25 percent salary and pension increase for all 
civilian and military employees (ref B).  According to an 
early April op-ed in the government daily Al Thawra, minimum 
wage employees in the Syrian public sector had earned an 
average of USD 175/month.  Our estimates indicate that the 
majority of Syrians who comprise the lower class spend some 
70-75 percent of their monthly income on food, while for 
middle class citizens food expenses account for about 20 
percent of their monthly budget. 
 
¶10. (SBU) While Syrian consumers are suffering from food 
sticker-shock, the SARG is struggling to control a burgeoning 
budget deficit (ref D).  In 2007, Syria transitioned from a 
net exporter to a net importer of oil, while the SARG 
continued to sell heavily subsidized gasoline, diesel and 
other fuels.  As oil prices rose, fuel subsidies accounted 
for the largest portion of an expanding budget deficit.  For 
the last five years, Asad's economic advisors have advocated 
eliminating fuel subsidies as part of a gradual shift to a 
"social market economy."  On May 3, the SARG finally took the 
politically unpopular, but economically overdue, step of 
reducing subsidies on diesel (ref B).  Although the new price 
of 25 SYP (USD 0.55)/liter is still some 50 percent below the 
global market value for diesel, it amounted to an overnight 
increase of 357 percent.  The higher diesel prices are 
already being reflected in local food prices, thus further 
compounding the global crisis facing the Syrian consumer. 
 
 
-------------------- 
ENVIRONMENTAL IMPACT 
-------------------- 
 
¶11. (SBU) There has been no obvious immediate environmental 
impact in Syria attributable to rising food prices.  As noted 
in para (6), rising fuel prices have resulted in some 
suburban farm land being converted for sale as residential 
real estate. 
 
-------------------------- 
GOVERNMENT POLICY RESPONSE 
-------------------------- 
 
¶12. (SBU) In early March, the Ministry of Economy banned the 
export of surplus soybean mash in an attempt to control feed 
prices for local poultry farmers.  On April 15, the Ministry 
also banned the export of tomatoes, wheat flour, and other 
staples for 45 days in an effort to lower domestic prices. 
In an attempt to coerce farmers to harvest their crops this 
year rather than sell them as feed, the SARG announced in 
late April that it would fine farmers 5000 SYP (USD 105) per 
dunam for any crop sold for grazing.  Shortly thereafter, the 
SARG took the unusual step of prohibiting farmers from 
transporting wheat from one province to another -- ostensibly 
to dissuade smuggling of Syrian wheat to the black market -- 
under penalty of confiscation of the farmer's entire crop. 
On May 5, President Asad issued Decree 29 establishing the 
Agricultural Support Fund.  Although details of the decree 
remain vague, the fund's announced purpose is to "support" 
the increase in prices of Syria's strategic crops. 
 
----------------------- 
IMPACT ON POST PROGRAMS 
----------------------- 
 
¶13. (SBU) As documented in ref E, the economic conditions 
contributing to agricultural inflation resulted in a 60 
percent increase in the value of U.S. corn and soybean 
exports to Syria in 2007 -- a trend that is likely to 
continue.  U.S. trade sanctions under the Syria 
Accountability Act permit the export of food to Syria, and 
the weak dollar has made U.S. grain more attractive to Syrian 
importers.  Although Syria has never imported American wheat, 
local experts assert that if the prices were comparable, 
Syrian importers would prefer lower-humidity, higher quality 
U.S. wheat to high humidity Black Sea wheat, which is prone 
to fungus and insect infestation. 
 
 
---------------- 
POLICY PROPOSALS 
---------------- 
 
¶14. (SBU) Against a backdrop of a worldwide food crisis, the 
Aleppo-based International Center for Agricultural Research 
in Dry Areas (ICARDA) recently communicated to Post that 
USAID has proposed to cut USD 22.5 million in 2008 from the 
core budgets -- and also significantly cut the project 
budgets -- of 15 international agricultural research centers 
(including ICARDA) under the umbrella of the Consultative 
Group on International Agricultural Research (CGIAR). 
According to ICARDA staff, this decision would result in a 10 
percent decrease (about USD 1.2 million) in ICARDA's core 
funding, as well as additional losses from its project 
budget. 
 
¶15. (SBU) Embassy Damascus feels strongly that ICARDA is a 
vital platform for supporting USG interests in the region and 
plays a key role in responding to regional and global 
agricultural issues.  Since ICARDA's establishment in 1977, 
the USG has been the largest donor, contributing over USD 110 
million total to both core and project budgets, or an average 
of USD 3.67 million annually.  Presently, ICARDA trains 
agricultural researchers from around Africa and the Arab 
world (including from Iraq) and is a premier research 
institute developing wheat strains that are resistant to the 
Ug99 wheat rust disease.  Additionally, ICARDA offers a 
politically acceptable forum to support civil society near 
Aleppo, a major population center that is difficult for Post 
to access.  Consequently, we advocate for maintaining and 
even increasing USG assistance levels for ICARDA. 
CORBIN