VZCZCXRO9763
OO RUEHLH RUEHPW
DE RUEHIL #0404/01 0541209
ZNR UUUUU ZZH
O 231209Z FEB 09
FM AMEMBASSY ISLAMABAD
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1593
INFO RUEHBUL/AMEMBASSY KABUL 9888
RUEHLO/AMEMBASSY LONDON 9738
RUEHNE/AMEMBASSY NEW DELHI 4511
RUEHKP/AMCONSUL KARACHI 1125
RUEHLH/AMCONSUL LAHORE 6815
RUEHPW/AMCONSUL PESHAWAR 5742
RHEFDIA/DIA WASHINGTON DC
RUEKJCS/JOINT STAFF WASHINGTON DC
RHEHNSC/NSC WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC
RUMICEA/USCENTCOM INTEL CEN MACDILL AFB FL
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC

UNCLAS SECTION 01 OF 02 ISLAMABAD 000404 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAGR ECON PREL PK
SUBJECT: FOOD CRISIS WEATHERED, BUT BOTTLENECKS, 
INEFFICIENT GOVERNMENT POLICIES REMAIN 
 
REF: ISLAMABAD 383 
 
 ¶1.  (SBU)  Summary.  Based on information provided by 
Pakistan's Ministry of Food, Agriculture and Livestock 
(MinFAL), it now appears evident that the GOP has been able 
to avoid a potential food crisis by stepping up wheat 
imports.  Since December, the GOP has purchased nearly one 
million tons of wheat from Black Sea sources, thereby 
ameliorating the country's wheat supply shortage.  In light 
of recent imports and the pending domestic wheat harvest, 
Post recommends against an additional wheat donation to 
Pakistan under the U.S. Department of Agriculture (USDA) Food 
for Progress (FFP) program at this time.  Post will continue 
to monitor Pakistan's wheat supply situation to determine 
whether an FFP donation might become necessary during the 
2009/10 consumption year.  End Summary 
 
¶2.  (SBU)  Last summer, the GOP approached USG officials 
expressing serious concern about the country's wheat supply 
situation and the potential for food shortages prior to the 
country's next wheat harvest in April 2008.  In response, the 
USG made $48 million available in credit guarantees for the 
purchase of U.S. wheat (200,000 tons) under the USDA's 
GSM-102 program, and donated 50,000 tons of wheat under the 
USDA's FFP program.  The USG also gave serious consideration 
to approving an additional FFP donation of 800,000 tons of 
wheat. 
 
¶3.  (SBU)  The GOP had earlier estimated Pakistan's marketing 
year (MY - May through April) 2008/09 wheat import needs at 
3.5 million tons.  However, taking into account the nearly 
one million tons of Black Sea wheat purchased since December 
2008, largely facilitated by lower world wheat prices and GOP 
receipt of the multi billion dollar first tranche of its IMF 
loan, Post now estimates Pakistan's MY 2008/09 wheat imports 
at three million tons (2.75 million tons purchased by the 
government, and 250,000 tons of private sector imports), or 
about 14 percent lower than the GOP's earlier projections. 
Due to timing considerations, however, it is unlikely that 
the GOP will utilize the USDA's GSM-102 program any time 
soon, as the wheat harvest will be in full swing prior to the 
potential arrival of any U.S. wheat. 
 
¶4.  (SBU)  In MY 2008/09, the GOP purchased a total 6.65 
million tons of wheat (3.90 million from the domestic crop 
and 2.75 million tons from international markets).  As of 
February 10, they had disbursed 5.15 million tons of wheat to 
the provinces and flour mills, leaving a balance of about 1.5 
million tons of wheat to meet domestic demand through the end 
of April.  (Note:  Off-take from government stocks is 
estimated at between 500,000 and 700,000 tons per month.  End 
Note).  Hence, it now appears that the government will have 
barely sufficient stocks to meet their near-term wheat 
consumption needs until the new crop is harvested beginning 
in late March.  The government will rebuild stocks through 
the purchase of new crop wheat from the domestic harvest. 
 
¶5.  (SBU)  An informal survey done by Embassy and constituent 
posts in February confirms indications that the feared wheat 
crisis has failed to materialize.  There are no widespread 
wheat or flour shortages.  The overall quality of available 
flour appears to have dropped, perhaps a reflection of the 
poorer quality red wheat imported from Russia, and in some 
places the price differential between government stores and 
the private market has widened.  The only areas where major 
shortages have been reported have been in upper Sindh, 
however.  Even in Peshawar, where it had been rumored that 
there were shortages, supply appears to be plentiful. 
 
¶6.  (SBU)  Comment:  As reported reftel, the GOP's 
involvement in commodity markets is not particularly 
efficient and can have unintended negative consequences. 
Although its response to the potential food crisis was 
commendable (if somewhat tainted by suspected kickbacks 
associated with the Black Sea wheat purchases), the GOP's 
ability to anticipate the market is not infallible. Last 
year's GOP-set prices were below market, causing hoarding and 
smuggling by farmers, while this year's are above market, 
greatly increasing the cost to the GOP and potentially 
 
ISLAMABAD 00000404  002 OF 002 
 
 
advantaging large-scale land owners at the expense of small 
farmers.  Policy reform of the agricultural sector is 
urgently needed, and USAID's new program in the agricultural 
sector is addressing some of these concerns. 
 
¶7.  (SBU)  If not for the availability of cheap Black Sea 
wheat and IMF money, however, the GOP would have found itself 
in a very precarious situation, and it appears doubtful that 
the USG could have provided assistance in a timely fashion 
had a food crisis emerged.  Although Post no longer 
recommends an additional FFP donation for Pakistan at this 
time, an inter-agency review of the proposal could prove a 
valuable exercise in assessing the preparedness of the USG to 
respond to a pending food crisis here.  Food security is of 
paramount importance to both the government and people of 
Pakistan.  It is estimated that of the 56 million people 
living in Pakistan's urban areas, about 21 are food-insecure. 
 As the USG prepares to match resources to the challenges 
posed in the part of the world, Post strongly recommends that 
the issue of food security be afforded due consideration. 
This episode also demonstrates the efficacy of balance of 
payments assistance, as foreign exchange inflows allowed the 
GOP to meet critical fuel needs as well as to import wheat. 
FEIERSTEIN