VZCZCXRO2653
RR RUEHBW RUEHPOD
DE RUEHSQ #0317/01 1340749
ZNR UUUUU ZZH
R 130749Z MAY 08
FM AMEMBASSY SKOPJE
TO RUEHC/SECSTATE WASHDC 7335
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUEAIIA/CIA WASHINGTON DC
RUEHTI/AMEMBASSY TIRANA 3636
RUEHSF/AMEMBASSY SOFIA 5165
RUEHPOD/AMEMBASSY PODGORICA
RUEHVB/AMEMBASSY ZAGREB 2389
RUEHBW/AMEMBASSY BELGRADE
RUEHVJ/AMEMBASSY SARAJEVO 0306
RUEHTH/AMEMBASSY ATHENS 1830
RUEHPS/AMEMBASSY PRISTINA 4418
RUESEN/SKOPJE BETA

UNCLAS SECTION 01 OF 02 SKOPJE 000317 
 
SIPDIS 
 
DEPT PLS PASS TO USAID, 
DEPT FOR EUR/SCA P.PFEUFFER AND Y.IVANOVA 
 
E.O. 12958: N/A 
TAGS: EAGR ETRD PREL PGOV MK
SUBJECT: MACEDONIA: IMPACT OF RISING FOOD/AGRICULTURAL COMMODITY 
PRICES 
 
REF: A. STATE 39410 
¶B. SKOPJE 265 
 
Summary 
------- 
¶1.  Food prices in Macedonia have increased significantly over the 
past year, especially for grains, dairy products, meats, cooking oil 
and eggs.  Rapidly increasing prices for these products have led to 
a significantly higher overall inflation rate of 10 percent.  So 
far, however, these price increases have had limited political and 
environmental impact, and have not led to a significant increase in 
domestic production.  The GOM's response has been limited to 
relatively unsuccessful public calls on food producers and retailers 
to restrain the increase in prices for key staples.  End summary. 
 
Demand 
------ 
¶2. For Macedonia, the increase in the prices of wheat and animal 
feed has had the most significant impact.  Domestic production 
satisfies about 60 to 70 percent of the country's total wheat 
consumption, and less than 60 percent of animal feed consumption. 
Feed prices increased 48 percent for the period October 2007 to 
February 2008, compared to the same period the previous year.  This 
has led to higher prices of flour, bread, dairy products and meat. 
There is anecdotal evidence that lower income consumers have reduced 
their consumption of these products, but no reliable statistics are 
available. 
 
¶3.  Macedonia produces sufficient vegetables and non-tropical fruit 
to meet most domestic demand, and exports some of these products. 
Higher production costs, primarily for fuel, and greater export 
demand has led to higher domestic prices for fruits and vegetables. 
 
Supply 
------ 
¶4.  So far, there is no evidence of significant increases in 
domestic agricultural production in response to the higher prices. 
There is no significant foreign investment in agricultural 
production in Macedonia, with the exception of dairy production. 
Over 200,000 hectares of arable land, almost one fifth of the total 
agricultural land, remains un-used.  Macedonia currently does not 
produce any bio-fuel products, though there have been discussions of 
the possibility of growing crops for bio-diesel production. 
 
¶5.  In 2007, Macedonia imported $438 million worth of 
food/agricultural commodities, and exported $385 million worth of 
these products.  Macedonia's most significant agricultural exports 
are tobacco, lamb meat, dairy products, and fruits and vegetables. 
Macedonia's primary agricultural imports are meat (beef, pork and 
poultry), wheat, dairy products and sugar. 
 
Political Impact 
---------------- 
¶6. There have been no reports of public protests or other such 
incidents related to the increase in food prices.  Macedonia will 
hold parliamentary elections on June 1, but so far rising food 
prices have not been a major campaign issue, and public opinion 
polls have shown the main governing party with an imposing lead over 
the opposition. 
 
Economic Impact 
--------------- 
¶7.  Inflation, as measured by the consumer price index (CPI),  has 
risen dramatically in Macedonia over the past year, from about two 
to three percent year-over-year for 2003-2007, to over ten percent 
in February and March 2008.  Rising food and fuel prices have 
contributed the most to the accelerating inflation rate (ref B). 
According to GOM statistics, food prices were 21 percent higher in 
March compared to the previous year.  The largest contributors were 
dairy products (up 15.6 percent from one year ago); bread (up 18.8 
percent); cooking oil (up 26.8 percent); and vegetables (up 40.5 
percent, but from a relatively low base price).  Because food 
products make up a relatively large proportion of the consumer 
products used to calculate the consumer price index in Macedonia, 
rising food prices have had a greater impact on CPI inflation rates 
than in more developed countries. 
 
¶8. Those most affected by higher food prices are the 29.8 percent of 
 
SKOPJE 00000317  002 OF 002 
 
 
the population who, according to the State Statistics Office, live 
under the poverty line.  The GOM estimates that approximately 17 
percent of workers are employed in agriculture and therefore might 
benefit from the increase in agricultural prices.  There is no 
estimate available for what percentage of the poorest households are 
also food producers who could benefit from higher prices. 
 
Environmental Impact 
-------------------- 
¶9.  Because rising food prices have not yet led to a significant 
increase in agricultural production in Macedonia, there has been no 
identifiable environmental impact. 
 
Government Policy Response 
-------------------------- 
¶10.  The GOM has not implemented any export restrictions, nor 
changed tariffs or quotas in response to rising food/agricultural 
commodity prices.  The GOM called on local food producers, 
processors and retailers to limit the increase in food prices for 
key staples, such as milk and cooking oil.  For a few weeks, the 
major supermarkets advertised lower prices on some food products, 
crediting a partnership with producers and the government.  However, 
that advertising campaign has ended and prices on these products 
have again increased. 
 
¶11.  The GOM has increased agricultural subsidies significantly, but 
from a very low base, and this policy was formulated before food 
prices jumped.  Agricultural subsidies increased to 27 million euros 
in 2007 from 17 million euros in 2006, and are slated to increase to 
45 million euros in 2008.  In May 2008 the GOM will start payment of 
subsidies for production of wheat, cooking oil, wine grapes and 
fruit, milk and cattle, and poultry. 
 
Impact on Post's Programs 
------------------------- 
¶12. Post currently supports two agricultural assistance programs: a 
USAID project to increase agricultural competitiveness of private 
producers, and a USDA project to help the GOM implement an 
agriculture market information system (MIS).  For the USAID 
agriculture project, higher regional food prices may provide a 
competitive opportunity to market Macedonian agricultural products, 
but it is still too early to determine how higher food prices will 
affect the project's objectives.  USDA's MIS project will improve 
the GOM's collection and distribution of information on agricultural 
prices in Macedonia, and should enhance agricultural producers' 
ability to respond effectively to domestic market prices. 
 
 
NAVRATIL