VZCZCXRO7159
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHTO #0399/01 1280832
ZNR UUUUU ZZH
R 070832Z MAY 08
FM AMEMBASSY MAPUTO
TO RUEHC/SECSTATE WASHDC 8861
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHLO/AMEMBASSY LONDON 0155
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MAPUTO 000399 
 
SIPDIS 
 
STATE FOR EEB/TPP/ABT/ATP 
 
E.O. 12958: N/A 
TAGS: EAGR ETRD ECON EAID PGOV MZ
SUBJECT: IMPACT OF RISING FOOD/COMMODITY PRICES - MOZAMBIQUE 
 
REF: A. STATE 39410 
     ¶B. MAPUTO 231 
     ¶C. 07 MAPUTO 1341 
 
¶1.  This message responds to the request (ref A) for Mission 
Maputo's analysis on how rising food and agricultural 
commodity process are affecting Mozambican society.  As 
instructed, it also lists post's recent cables on 
agricultural issues. 
 
------ 
Demand 
------ 
 
¶2.  Mozambique's most important food commodities are corn and 
cassava, trailed by rice and wheat.  While the country 
produces corn, cassava, wheat and rice, it primarily meets 
its needs for wheat and rice through imports.  According to 
the Ministry of Agriculture, the country will import 1.25 
million tons of grain in 2008.  Retail prices for these goods 
have increased significantly this year.  For example, a 50-lb 
bag of rice has tripled from approximately USD 12 to USD 36 
in the past 12 months.  The GRM, which sets ceiling prices 
for bread, mostly an urban staple, raised the price of the 
least expensive loaves by 125 percent at the beginning of the 
year.  The GRM has urged for consumption substitution, and 
Eduardo Mondlane University researchers have created an 
ingredient mix that replaces 15 to 25 percent of wheat flour 
for lower-cost cassava in bread.  While this type of 
innovation has met with some success, in general breadmakers 
have responded to the higher costs and concomitant price 
ceiling by reducing the size of loaves.  As the vast majority 
of Mozambicans live below the poverty line, price increases 
have had an inordinately negative effect on the urban poor. 
 
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Supply 
------ 
 
¶3.  The food crop sector has experience sustained growth over 
the past decade, during which total cereal production has 
more than doubled.  However, increased national output masks 
a mixed performance at the regional level owing to erratic 
seasonal rains and periodic drought and flooding.  The south 
and southern-central parts of the country have been most 
affected over the past three years.  The northern-central and 
northern provinces, which are the most productive areas of 
the country, have continued to produce bumper crops.  Initial 
data does not yet indicate whether domestic production is 
responding to the most recent changes in prices.  The sector 
remains affected by serious weaknesses, including poor 
infrastructure, low productivity, market fragmentation, and 
unpredictable weather conditions.  Although many roads have 
been rehabilitated, large parts of the country, particularly 
the more fertile northern regions, are isolated and often 
inaccessible during the rainy season.  Internal marketing of 
surpluses from northern provinces is also restricted by the 
large distances over which food has to be transported, and 
provinces in the south are more competitively supplied by 
South Africa. 
 
---------------- 
Political Impact 
---------------- 
 
¶4.  Maputo suffered violent protests on February 5 after the 
GRM increased bus fares in response to rising fuel prices. 
The bus fare increase occurred after bread prices were also 
raised in January, and the rioting was viewed as a 
culmination of urban frustration in the face of these 
changes.  The government's immediate response to the rioting 
was inadequate, though in the longer term, the GRM appears to 
be making some efforts to address sustainable economic growth 
for the country, and has installed new ministers with 
reputations as competent technocrats in several ministries 
with economic development oversight. 
 
--------------- 
Economic Impact 
--------------- 
 
¶5.  Initial data for 2008 from the GRM does not yet indicate 
that rising food prices have had a significant effect on 
inflation, balance of payments, trade balance, or the fiscal 
situation.  Nonetheless, in late April the GRM queried 
international donors about the possibilities for access to 
programs that could provide commodities at reduced prices or 
 
MAPUTO 00000399  002 OF 002 
 
 
funding for commodities, and officials have expressed concern 
publicly that the GRM may have to begin subsidizing food 
prices (bread) this year.  The GRM has expressed interest to 
mission officials in rejuvenating a PL480 Title I program, 
even though GRM officials understand that no 
government-to-government program can be contemplated until a 
farm bill is passed in the U.S. Congress. 
 
--------------------- 
Gov't Policy Response 
--------------------- 
 
¶6.  The GRM has publicly made food crop production a national 
priority, and much of Mozambique's arable land remains 
uncultivated.  From a total request of 3 million hectares by 
private companies to produce biofuels, the GRM has authorized 
only 30,000 hectares of Mozambique's arable land to this 
purpose.  In late April, the cabinet-level Council of 
Ministers approved guidelines for a program for the country 
to increase food production (wheat, rice, potatos and 
cassava), food processing and production and use of 
fertilizers aiming at ensuring stability.  The program 
includes an increased budget for agriculture (through 
revision of the general budget), fiscal incentives, 
investment in research and in agro-processing, massive 
training of agricultural extensionists, electrification of 
rural areas, and local production of fertilizers.  An 
inter-ministerial commission led by the Ministry of 
Agriculture is to coordinate this program.  The GRM also 
plans to launch in the near future a market friendly (smart 
subsidy input provision program) to increase the use of 
improved food crop seed and fertilizer.  USAID is providing 
technical assistance to develop and implement this program. 
 
----------------------- 
Impact on Post Programs 
----------------------- 
 
¶7.  The current situation does not affect ongoing USG 
projects/activities in the country from a policy perspective. 
 Indeed, several of the activities under PL480 (Borlaug and 
Food for Progress, for example) are specifically designed to 
address the needs and support the government's activities 
noted above.  However, inflation and increased expenses while 
funding levels have remained static means that some programs 
can no longer provide as much concrete support as before. 
 
---------------- 
Policy Proposals 
---------------- 
 
¶8.  The mission continues to encourage the GRM's long-term 
plans to increase agricultural production through investment 
and development.  Meeting the immediate, serious impact on 
poor and low-income consumers is probably best handled 
through targeted assistance, cash transfers, or other direct 
means of support that will get food on their tables, but not 
interfere with the market price signals that tell farmers to 
produce more. 
Chapman