VZCZCXRO7980
RR RUEHLH RUEHPW
DE RUEHIL #3300/01 2911001
ZNR UUUUU ZZH
R 171001Z OCT 08
FM AMEMBASSY ISLAMABAD
TO RUEHC/SECSTATE WASHDC 9323
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHDC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHML/AMEMBASSY MANILA 3035
RUEHBUL/AMEMBASSY KABUL 9252
RUEHNE/AMEMBASSY NEW DELHI 3889
RUEHLO/AMEMBASSY LONDON 8884
RUEHKP/AMCONSUL KARACHI 0457
RUEHLH/AMCONSUL LAHORE 6197
RUEHPW/AMCONSUL PESHAWAR 5031
RUMICEA/USCENTCOM INTEL CEN MACDILL AFB FL
RHMFISS/CDR USCENTCOM MACDILL AFB FL
RUEAIIA/CIA WASHDC
RUEKJCS/SECDEF WASHINGTON DC

UNCLAS SECTION 01 OF 02 ISLAMABAD 003300 
 
SENSITIVE 
SIPDIS 
 
REF: Various USDA-USAID- State emails on Food for Progress and GSM 
102 
 
E.O. 12958:  N/A 
TAGS: ECON EFIN EAID ETRD EAGR PREL PK
SUBJECT: CORRECTED COPY: GSM 102 AND GOP WHEAT SUBSIDIES 
 
¶1. (SBU) Summary: Post, USDA, and the Government of Pakistan (GOP) 
continue to hammer out the details for the Food for Progress 
monetization of wheat. Under the program, the GOP wants to sell US 
donated wheat at USD 195 per ton while USDA regulations prevent the 
sale of donated commodities below local market rate (which is 
currently around USD 300). The GOP has also requested an additional 
USD 400 million under the GSM 102 facility, currently approved for 
USD 100 million to enhance wheat procurement.  The GOP continues to 
subsidize both the domestic production of wheat as well as the 
import of wheat from abroad. Such subsidies, particularly on 
international wheat imports, will only continue to exacerbate the 
GOP's balance of payment problems. Action request see paragraph 11. 
End Summary. 
 
¶2. (U) This cable is an action request. See paragraph 11. 
 
FOOD FOR PROGRESS MONETIZATION OF WHEAT 
- - - - - - - - - - - - - - - 
 
¶3. (SBU) Post appreciates assistance from the Department of 
Agriculture (USDA) to facilitate agreement on the proposed wheat 
monetization, Food for Progress program, for Pakistan. The USG 
commitment to provide this wheat stems from President Bush's 
commitment to Prime Minister Gilani during the July 2008 state 
visit. The GOP has indicated that they will sell the 50,000 metric 
tons of wheat at USD 195 per ton to provincial utility stores in the 
poorest areas of Pakistan and will use the proceeds of such sales, 
anticipated at approximately USD 7.95 million, for poverty 
alleviation and food security programs.  Post understands that USDA 
is concerned that the GOP proposed monetized price of USD 195 per 
metric ton is too low compared to market rates.  USDA has notified 
Post that the GOP has set a floor for locally produced wheat at 
roughly USD 300 per metric ton and that USDA regulations do not 
permit the sale of commodities donated for monetization to be sold 
below local market prices. USDA wants to ensure that USG programs do 
not disrupt local procurement or commercial markets. 
 
¶4. (SBU) After discussion with Post, USAID and the Desk, USDA has 
proposed four options to the current impasse: 
 
(i) The GOP could sell the donated wheat at the USD 300 per metric 
tons level which would allow the GOP to continue to assist needy 
groups within Pakistan; 
 
(ii) The GOP could monetize the wheat at USD 300 and use a portion 
of the proceeds to provide "food stamps" or vouchers within its 
safety net system; 
 
(iii) The GOP could sell the wheat at USD 300 but could offer 
assistance or refunds to the stores that will distribute the food to 
the targeted groups; 
 
(iv) The GOP could distribute all of the donated wheat rather than 
monetize it to ensure the targeting to the most vulnerable; however, 
directly distributing the wheat will not give the GOP money to 
implement developmental activities. 
 
¶5. (SBU) On October 9, Econ Counselor discussed these USDA proposed 
options with Mr. Junaid Iqbal, A Secretary of EAD, and Mr. Shahid 
Hussain Raja, A Sec MINFAL.  Both Secretaries indicated that the new 
proposed price of USD 300 is too high and will not be feasible for 
the GOP plan to distribute the wheat in the Federally Administered 
Tribal Areas and in Balochistan.  Both Mr. Junaid Iqbal and Mr. 
Shahid Hussain Raja noted that they will confer with other GOP 
officials and will respond to Post shortly; however, both 
Secretaries indicated that of these options, they personally only 
perceived the donation without monetization as a viable option. Post 
will report septel on further GOP discussions or decisions. 
 
REQUEST FOR GSM 102 EXPANSION 
- - - - - - - - - - - - - - - 
 
¶6. (SBU) Ambassador received a letter from Ministry of Food, 
Agriculture and Livestock (MINFAL) Secretary Muhammad Zia-ur-Rehman 
 
ISLAMABAD 00003300  002 OF 002 
 
 
requesting an expansion to the existing GSM 102 facility of USD 100 
million for the procurement of wheat.  The letter did not provide 
details as to what sort of expansion was requested, however, MINFAL 
Joint Secretary Faiz Mohammed Faizi clarified and proposed adding 
another USD 400 million to the facility for more wheat over the 
existing two year time period. 
 
GOP SUBSIDIES ON WHEAT 
- - - - - - - - - - - - 
 
¶7. (U) In response to requests on the amount of current subsidies 
provide by the GOP on wheat, Foreign Agricultural Specialists have 
reported the following: 
 
¶8. (SBU) Domestic Subsidies:  In FY 08, the GOP procured 3.9 million 
metric tons of wheat from its farmers through provincial food 
departments and PASSCO (Pakistan Agricultural Services & Storage 
Corporation), a federal agency, at a price of PKR 15625 (USD 200) 
per metric ton (MT).  This was then sold to flour mills and 
government utility stores for PKR 20625 (USD 264) per MT, which 
includes incidental costs such as transportation and storage (both 
at PKR 2500 or USD 32 each). Average prices reported from markets 
are higher, however, highlighting the gap between government and 
market prices.  A survey of current market prices for wheat (per MT) 
across Pakistan is as follows: Lahore at PKR 21310 (USD 273) shows a 
subsidy of PKR 685 (USD 9); Rawalpindi at PKR 21250 (USD 272) 
reveals a subsidy of PKR 625 (USD 8); Quetta at PKR 26000 (USD 333) 
shows a subsidy of PKR 5375 (USD 69); Peshawar at PKR 30000 (USD 
384) reveals a subsidy of PKR 9375 (USD 120); Karachi at PKR 27500 
(USD 352) shows a subsidy of PKR 6875 (USD 88). The open market 
price varies from city to city due to the different transportation 
costs. 
 
¶9. (SBU) The federal government recently announced a plan to 
increase the domestic wheat procurement price in April 2009 from PKR 
15625 (USD 200) to 23750 (USD 304) per MT as part of a GOP plan to 
entice wheat farmers to increase wheat production for the next 
season.  Post will provide more details on this program as they 
become available. 
 
¶10. (SBU) International Import Subsidies: The GOP imports wheat from 
the international market through the Trading Corporation of Pakistan 
based on market rates. The most recent shipments of wheat amounted 
to 210,000 MT and were imported from Ukraine, Russia, and Argentina 
at PKR 28217 (USD 362) per MT. Provinces in need of wheat can 
purchase it from the federal government based on the federal 
procurement rate (PKR 15625 per MT or USD 200).  The federal 
government then absorbs the difference in price. In this case that 
would amount to a subsidy of PKR 12592 (USD 161) per MT. 
 
¶11. (SBU) Action Request:  Embassy requests assistance from the Desk 
to contact the Department of Agriculture on the feasibility of 
whether an expansion of the GSM 102 sovereign guarantee for Pakistan 
is possible and if so, for what amount. Post also requests Desk 
assistance in identifying additional resources, approximately USD 8 
million, which the GOP anticipates raising through the Food for 
Progress monetization program and may now forego, that can be 
utilized for food security and poverty alleviation programs in 
Pakistan. End Action Request. 
 
 
FEIERSTEIN