VZCZCXYZ0001
RR RUEHWEB

DE RUEHAN #0613 2381017
ZNR UUUUU ZZH
R 261017Z AUG 09
FM AMEMBASSY ANTANANARIVO
TO RUEHC/SECSTATE WASHDC 2781
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC

UNCLAS ANTANANARIVO 000613 
 
DEPARTMENT FOR AF/E - MBEYZEROV 
DOC FOR BERKUL 
TREASURY FOR FBOYE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ETRD ECON EAGR MA
SUBJECT: LOW RICE PRICES COULD PRODUCE FUTURE SHORTAGE 
 
REF: A) 09 ANTANANARIVO 573 
 
¶1. SUMMARY: The farm gate price of rice is 20 percent lower this 
year compared to 2008, dropping from MGA 500 per kilo to 400 (USD 
0.26 to 0.21).  Several factors contributed to this decline; chief 
among them are increased productivity in 2008, reduced demand from 
the country's largest distributor (Tiko), and politically-motivated 
price caps imposed by the current transition government. The low 
prices serve as a disincentive for off-season production, thus many 
households could face difficulties during the next rice shortage 
period beginning in October.  END SUMMARY. 
 
RICE SUPPLY UP, WHILE DEMAND DROPS 
---------------------------------- 
¶2. On the supply side, total production increased by 7 percent, 
growing from 3.9 million tons in 2008 to 4.2 million tons in 2009. 
Following the threat caused by last year's global food crisis, the 
government and foreign donors in Madagascar took measures aimed at 
increasing rice production.  Fertilizers and improved seeds were 
subsidized, and farmers were encouraged to increase their 
production.  Productivity rose to 3.03 tons per hectare from 2.87 
tons/ha in the previous year.  Good weather also contributed to 
bumper harvests in the main rice-growing regions of the country 
during 2009. 
 
¶3. On the demand side, TIKO (the country's largest distributor) 
ceased its activities due to the recent political crisis, driving 
down demand.  Secondly, the transition government (the High 
Transitional Authority, or HAT) has taken populist measures, 
including fixing the consumer price of rice at MGA 500 (USD 0.26), 
and exempting rice imports from value added taxes.  During the first 
semester of 2009, imported rice amounted to 62,000 tons compared to 
only 46,000 tons in 2008 and 51,000 tons in 2007.  As a result, 
small traders imposed low prices on farmers (mainly in the Alaotra 
region), asserting that gate prices must fall to comply with the 
HAT's price caps. 
 
OFF-SEASON PRODUCTION EXPECTED TO BE REDUCED 
-------------------------------------------- 
¶4. Due to the low prices, farmers have fewer incentives to produce 
rice during the off-season period.  Furthermore, because of the 
political crisis, no specific measures were taken to encourage 
production, as was done last year, leading to expectations that 
off-season production will be reduced this year.  The Rice 
Observatory (Observatoire du riz) is currently conducting a survey 
to assess off-season production in order to evaluate the supply of 
rice available for the next shortage period that will begin in 
October. 
 
UNCERTAINTY REGARDING THE STOCK OF RICE 
--------------------------------------- 
¶5. Farmers have extremely limited capacity for storing their 
harvested rice.  They sell most of their production immediately 
after the harvest to big traders, who stock the rice in anticipation 
of the shortage period.  This allows a "smoothing effect" regarding 
the quantity of rice available on the market throughout the year. 
During the last months however, some large traders have had imports 
illegally seized by security forces, and prefer to no longer stock 
rice.  As a result, the supply of rice for the coming months is 
unknown.  In 2004, a similar lack of information led to a rice 
crisis, since the authorities were unable to predict the need for 
imported rice to keep up with demand.  In an August 6 publication on 
food security, the World Food Program and the Food and Agriculture 
Organization predicted that many households will face difficulties 
during the next shortage period. 
 
¶6. The HAT government announced its intention to import 150,000 tons 
of rice to face the shortage period.  However, no final decision 
regarding these imports has been made, as the government currently 
lacks funding.  If the government's rice is sold at MGA 500 (USD 
0.26), there is no incentive for private traders to import rice. 
The overall result will be a low stock of rice for the next shortage 
period, to begin in October, but the HAT has thus far been incapable 
of addressing the issue. 
 
¶7. Comment: The economic impact of the political crisis has to date 
been focused on urban areas and has had only a limited impact on the 
majority of the Malagasy population who live in rural zones.  The 
low number of cyclones in the last year, along with subsidized seed 
and fertilizer, contributed to bumper harvests in the main 
rice-growing regions.  The transition government's populist price 
caps and increased imports could however lead to food insecurity 
throughout the island in late 2009 and 2010 if farmers fail to plant 
and harvest sufficient rice for the future.  End comment. 
 
STROMAYER