VZCZCXRO6243
PP RUEHBI RUEHCI
DE RUEHKT #0669/01 1630734
ZNR UUUUU ZZH
P 110734Z JUN 08
FM AMEMBASSY KATHMANDU
TO RUEHC/SECSTATE WASHDC PRIORITY 8655
INFO RUEHBJ/AMEMBASSY BEIJING PRIORITY 6523
RUEHLM/AMEMBASSY COLOMBO PRIORITY 6847
RUEHKA/AMEMBASSY DHAKA PRIORITY 2144
RUEHIL/AMEMBASSY ISLAMABAD PRIORITY 4886
RUEHLO/AMEMBASSY LONDON PRIORITY 6092
RUEHNE/AMEMBASSY NEW DELHI PRIORITY 2466
RUEHSA/AMEMBASSY PRETORIA PRIORITY 0151
RUEHRO/AMEMBASSY ROME PRIORITY 0169
RUEHCI/AMCONSUL KOLKATA PRIORITY 4210
RUEHBI/AMCONSUL MUMBAI PRIORITY 3895
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RUEHRC/DEPT OF AGRICULTURE WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 KATHMANDU 000669 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ETRD EAGR ECON EAID TBIO IN NP
SUBJECT: NEPAL RESTRICTS WHEAT EXPORTS TO PROTECT CONSUMERS 
 
REF: A. SECSTATE 53353 
     ¶B. 53346 
     ¶C. 52628 
 
Summary 
------- 
 
¶1. (U) In June 4 meetings with the Secretary of the Ministry 
of Commerce and Supplies and the Secretary of the Ministry of 
Agriculture, Emboffs urged the Government of Nepal (GON) to 
remove the existing export ban on wheat and rice.  A 
representative from the World Bank joined in the meeting with 
the Ministry of Commerce to reinforce the message that export 
restrictions would only exacerbate food insecurity.  In 
addition, Emboffs informed the GON officials about the 
President's Global Food Security Initiative and the U.S. 
approach to addressing the food crisis.  Emboffs stressed the 
need to increase market access for agricultural goods and to 
eliminate barriers to trade in agricultural biotechnology 
products. Both Secretaries explained that the GON put the 
export ban in place in response to India's ban on the export 
of rice and wheat and rising global prices in order to ensure 
food security in Nepal. The GON officials acknowledged that 
long-term food security in Nepal was dependent upon increased 
production, availability and accessibility.  The current 
export restrictions, they implied, were a temporary measure. 
The market's response to the export restrictions on both 
sides of the open India-Nepal border has been a significant 
increase in the smuggling of rice and other food grains.  In 
spite of the GON's projections that rice production will 
increase by 17 percent this year, the World Food Program's 
reports on food scarcity in many remote areas are disturbing. 
 Crop failures and rising market prices could quickly plunge 
at risk families into an acute food crisis. 
 
GON Urged To Lift Export Ban 
---------------------------- 
 
¶2. (U) At a June 4 meeting with Mr. Purusottam Ojha, 
Secretary of the Ministry of Commerce and Supplies, Pol/Econ 
Chief, Emboff and Mr. Abhishek Basnet, Research Analyst with 
the World Bank Nepal office, urged the Government of Nepal 
(GON) to remove the existing export ban on wheat and rice. 
The group explained that export restrictions provided less 
incentive to farmers to increase production, encouraged 
smuggling, restricted supply and put additional pressure on 
prices in the world market.  At a separate meeting on June 4 
with Mr. Tek Bahadur Thapa, Secretary of the Ministry of 
Agriculture,  Pol/Econ Chief and Emboff repeated the message 
that export restrictions would only exacerbate food shortages 
and prices increases.  At both meeting Emboffs informed the 
GON Officials about the President's Global Food Security 
Initiative and the U.S. approach to addressing the food 
crisis.  Emboffs stressed the need for a robust agricultural 
agreement through the Doha Round which would increase market 
access for agricultural goods and for the elimination of 
barriers to trade in agricultural biotechnology products. 
 
 
Commerce and Agriculture Secretaries Defend Export Ban 
--------------------------------------------- --------- 
 
¶3. (U) Secretary Ojha stated that the export ban was put in 
place in response to India's ban on the export of rice and 
wheat and rising global prices -- emphasizing that the ban 
was necessary to ensure food security in Nepal.  Ojha 
acknowledged that the export ban would reduce the farmer's 
profits, but explained that the GON was doing its best to 
strike a balance in between the needs of the consumers and 
the welfare of the farmers.  Ojha further explained that only 
big farmers would benefit from wheat exports and the 
consumers and small farmers were ultimately more vulnerable. 
Secretary Thapa explained that prices in Nepal followed the 
Indian market, but since Indian farmers enjoyed subsidized 
inputs, Nepal farmers operated at a disadvantage.  Thapa 
estimated that the costs of production in Nepal were three 
times higher than in India.  Accordingly, when India banned 
exports, the prices in Nepal went up and the consumers were 
the most affected.  To provide some relief to consumers, the 
GON responded by putting an export ban on wheat and rice in 
 
KATHMANDU 00000669  002 OF 002 
 
 
an attempt to balance competing needs.  Thapa noted that 
Nepal's food exports were limited, would be consumed quickly 
and would ultimately have little effect on the market. 
 
Export Ban Temporary - Long-term Need Increase Production 
--------------------------------------------- ------------ 
 
¶4. (U)  Ojha speculated that the Indian wheat ban would be 
lifted soon but restrictions on rice were likely to continue 
to be a problem.  Overall, Ojha emphasized that long-term 
food security in Nepal was dependent upon availability and 
accessibility.  He explained that the production centers were 
fragmented and the movement of surplus food into deficit 
areas was restricted by the country's difficult terrain and 
limited transportation alternatives.  He explained that the 
GON was focused on developing programs to increase food 
security in remote areas through the development of local 
crops, access to seeds and fertilizer and new processing 
methods to reduce spoilage.  He also emphasized that it was 
important to decrease dependence on rice as the primary 
staple.  Secretary Thapa emphasized that the lack of 
effective irrigation systems was the biggest barrier to 
increased production but that farmers also needed seed 
security and access to markets.  Programs were needed to 
address vulnerability and if implemented locally, Thapa 
noted, these projects would provide much needed jobs. 
 
GON Providing Food and Subsidies in Remote Areas 
--------------------------------------------- --- 
 
¶5. (U) Ojha reported that the Nepal Food Corporation (NFC) 
currently had stocks of approximately 20,000 metric tons and 
was currently selling off rice in the Kathmandu valley in 
order to keep prices stable.  In several remote areas, Ojha 
acknowledged there was an acute food shortage and explained 
that the NFC was delivering subsidized rice to these areas. 
Ojha explained that rice production was expected to increase 
by 17 percent in 2008, so food security would improve in the 
fall after the harvest.  Agriculture Secretary Thapa, 
confirmed that crop production was expected to be good this 
year, so after the harvest Nepal would be relatively food 
secure. 
 
Smugglers Benefit From Export Restrictions 
------------------------------------------ 
 
¶6. (U) The Nepali market is closely tied to the Indian market 
and with the open 1,751 kilometer India-Nepal border, 
restrictions in either market are historically very difficult 
to enforce.  It should not be surprising then that soaring 
food prices and export restrictions have introduced a new 
commodity into the illegal trade along the India-Nepal 
border.  Smuggling syndicates are now reportedly carrying 
large quantities of food grains from India into Nepal.  While 
difficult to estimate the actual volume of food grains being 
smuggled from India to Nepal, estimates run into several 
hundred tonnes a month. 
 
Current Food Security Alert 
--------------------------- 
 
¶7. (U) Secretary Oha's and Thapa's projections for a good 
harvest aside, the World Food Program continues to report 
that the current food security situation for many communities 
living in the Mid and Far-West is very worrying.  More than 
300,000 people are facing a precarious food situation due to 
significant localized crop failures of between 20-70 percent. 
 For many of the affected, this is the fifth consecutive 
season of significantly poor crop yields, leaving many with 
few coping mechanisms as they enter the traditional 
three-month lean period.  With failing crops people become 
more dependent on markets for food.  The high cost of food 
items could quickly plunge affected families into severe food 
insecurity as their cash resources will be too small to 
purchase the food they need. 
POWELL