VZCZCXRO7407
RR RUEHLH RUEHPW
DE RUEHIL #2403/01 1971438
ZNR UUUUU ZZH
R 151438Z JUL 08
FM AMEMBASSY ISLAMABAD
TO RUEHC/SECSTATE WASHDC 7790
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHRC/USDA FAS WASHDC 4248
RUEAIIA/CIA WASHDC
RUMICEA/USCENTCOM INTEL CEN MACDILL AFB FL
RHMFISS/CDR USCENTCOM MACDILL AFB FL
RUEKJCS/SECDEF WASHINGTON DC
RUEHRO/AMEMBASSY ROME 3712
RUEHBUL/AMEMBASSY KABUL 8856
RUEHNE/AMEMBASSY NEW DELHI 3513
RUEHLO/AMEMBASSY LONDON 8288
RUEHKP/AMCONSUL KARACHI 0019
RUEHLH/AMCONSUL LAHORE 5762
RUEHPW/AMCONSUL PESHAWAR 4538

UNCLAS SECTION 01 OF 02 ISLAMABAD 002403 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EAID EAGR ETRD PGOV PREL PK
SUBJECT: FOOD AND AGRICULTURE POLICY REFORM OBJECTIVES 
 
      REF: A.ISLAMABAD 0669 
       B.ISLAMABAD 1705 
       C.ISLAMABAD 1715 
       D.ISLAMABAD 1914 
       E.ISLAMABAD 2061 
  F.ISLAMABAD 2107 
       ¶G. KABUL 1254 
  ¶H. ISLAMABAD 2250 
  ¶I. ISLAMABAD 2233 
  ¶J. ISLAMABAD 2400 
 
¶1. (SBU) SUMMARY - Pakistan's current food problems are the result 
of high world market prices and serious policy distortions that are 
a disincentive to farmers. The World Bank is currently addressing 
some of the most difficult food pricing policy issues with the USD 
500 million budget support loan under negotiation with the GOP.  Any 
U.S.-supported food aid programs will help mitigate short-term 
effects on the most vulnerable groups, and should be used to advance 
a policy dialogue agenda.  For medium and longer-term results, Post 
is currently designing a five-year $300 million ESF-funded 
agricultural development program that will address impediments to 
agriculture production, including much needed policy reforms.  END 
SUMMARY. 
 
¶2. (SBU) As noted in reftels, Pakistan's current food crisis is 
caused by a) high world market prices of wheat and b) policy 
distortions that discourage increased production and private sector 
participation in the grain trade.  Nearly all of Pakistan's 27 
million poorest who live on less than a dollar a day are affected. 
The World Food Program (WFP) and other UN agencies are finalizing 
the report of the June 7-27 Assessment Mission that conducted 
surveys throughout the country to identify the numbers and locations 
of possible additional food assistance recipients.  WFP analysis 
corroborates Post's observations that food price increases have had 
a serious effect on overall food security levels.  Preliminary 
results indicate that the numbers of people who are "severely 
malnourished" (i.e., consumes less than 1,700 calories per day) 
increased from approximately 37 million to over 45 million and that 
poverty levels have increased since a year ago.  The Assessment 
Mission used as a baseline for comparison the GOP's national 
"2005-06 Household Income and Expenditure Survey." 
 
¶3. (SBU) We recommend against attaching policy reform measures to 
any emergency relief food assistance, such as World Food Program 
(WFP) emergency operations.  However, if the USG approves a USD 20 
million USDA monetization program, we can include in the provisions 
a strong policy dialogue component that addresses some of the needed 
policy reforms.  Post is also currently designing a five-year food 
and agriculture project that will include substantial involvement in 
agriculture policy reforms, including those described above. 
 
¶4. (SBU) We believe that US food aid in the short run, and USAID 
agricultural development programs in the longer run, can be used 
effectively to address some of Pakistan's underlying food policy 
problems.  Below is a list of fundamental food policy reform 
objectives that could have a positive impact on Pakistan's food and 
agriculture systems: 
 
(a) Eliminate all untargeted wheat subsidies and increase the price 
paid to wheat farmers and the prices of wheat charged to consumers 
to international levels; 
 
(b) Lift all GOP and provincial government restrictions on the 
internal and external movement of food; 
 
(c) Reduce the role of the provincial Food Departments and Pakistan 
Agricultural Storage and Services Corporation (PASSCO) in the 
procurement and sale of wheat.  These state-owned bodies now buy and 
sell about 60 percent of the nation's commercially available wheat 
supply.  Reducing their role and maintaining prices at international 
levels would allow the private sector to become more actively 
engaged in food trade at market prices; 
 
(d)  Reduce the role of the Trading Corporation of Pakistan (TCP) 
which has a monopoly on the import and export of food. In 
conjunction with the pricing reforms mentioned in 
 
ISLAMABAD 00002403  002 OF 002 
 
 
(a) above, this would allow the private traders to enter the 
market; 
 
(e) Encourage the TCP to establish a level playing field when 
issuing tender specifications to import wheat and other commodities. 
 Currently TCP manipulates its procurement technical specifications 
and the inspection process to direct procurements to selected 
international suppliers, effectively cutting out competition and 
reducing the U.S. market share. 
 
¶5. (SBU) The food and agriculture policy distortions are well-known, 
documented and discussed in Pakistan.  The World Bank is currently 
negotiating a $500 million budget support loan which includes 
eliminating untargeted wheat subsidies by June 2009 and lifting all 
trade restrictions on wheat. These two major reforms would increase 
wheat prices to both farmers and consumers by significant amounts. 
 
 
¶6. (SBU) Despite widespread agreement that such reforms would 
increase food supplies and agricultural production in the long run, 
it is unlikely that either the GOP or World Bank will succeed in 
achieving these targets within one year - by June 2009.  The 
objectives could more realistically be achieved gradually over a 
three-year time span.  Nevertheless, MINFAL and other GOP 
policymakers, PASSCO, the provincial Food Departments, and TCP will 
resist.  The provincial Food Departments, for example, currently 
procure, store and sell 50% of Pakistan's marketable surplus. They 
zealously guard their independence, and are interested only in 
protecting provincial consumers. 
 
PATTERSON