US embassy cable - 04ROME818

UNCLAS ROME 000818 
 
SIPDIS 
 
 
FROM U.S. MISSION IN ROME 
 
TBLISI FOR AMBASSADOR MILES AND USAID DIRECTOR 
STATE FOR AS/PRM DEWEY, PRM/P, IO/EDA BEHREND AND KOTOK, 
EUR/CACEN HOAGLAND AND LU 
USAID FOR A/AID, AA/DCHA WINTER, DCHA/FFP LANDIS 
GENEVA FOR RMA AND NKYLOH/USAID 
USDA/FAS FOR U/S PENN, CHAMBLISS, TILSWORTH 
 
    E.O. 12958: N/A 
TAGS: EAID, EAGR, PREF, GG, WFP 
SUBJECT: GEORGIAN FOOD PIPELINE CONCERNS 
 
1. SUMMARY: WFP HAS PROVIDED A FUNDING PROPOSAL TO THE 
US MISSION ROME THAT PROPOSES AN EXCEPTIONAL FOOD 
DISTRIBUTION TO GEORGIAN HOUSEHOLDS SEVERELY AFFECTED 
BY RISING WHEAT FLOUR AND BREAD PRICES.  WITH THE PRICE 
OF BREAD KEPT ARTIFICIALLY LOW AND THE SUPPLY OF 
SMUGGLED FLOUR DWINDLING, A SHORTAGE OF FLOUR IS ALSO 
LIKELY BECAUSE OF THE INFEASIBILITY OF COMMERCIAL 
IMPORTATION.  AN EARLY, ADDITIONAL CONTRIBUTION OF 
COMMODITIES WOULD PROVIDE MAXIMUM EFFECT AT A CRITICAL 
TIME FOR THE NEW GOVERNMENT OF GEORGIA (GOG).  END 
SUMMARY. 
 
2. WORLD MARKET PRICES FOR WHEAT ARE UP.  OF PARTICULAR 
IMPORTANCE TO GEORGIA IS THAT WHEAT HARVESTS IN UKRAINE LAST 
YEAR WERE PARTICULARLY BAD, AS WERE HARVESTS IN SOME OF THE 
REGIONS OF RUSSIA, E.G., KRASNODARSKI KRAI, THAT 
TRADITIONALLY EXPORT WHEAT TO GEORGIA.  THUS FAR, THE GOG 
HAS TAKEN INFORMAL BUT EFFECTIVE STEPS TO STABILIZE THE 
PRICE OF BREAD.  BAKERS HAVE BEEN ABLE TO DEAL WITH THIS 
THROUGH USING SMUGGLED RUSSIAN AND TURKISH WHEAT FLOUR. 
 
3. RECENTLY, RUSSIAN FLOUR HAS BECOME MORE EXPENSIVE BECAUSE 
OF THE POOR HARVEST AND WORLD MARKET CONDITIONS.  BECAUSE OF 
RISING BREAD PRICES IN RUSSIA, THE RUSSIAN FEDERATION HAS 
PLACED A 25 PERCENT EXPORT DUTY ON WHEAT AND, ACCORDING TO 
US EMBASSY TBLISI, WHEAT FLOUR.  REPORTS ALSO INDICATE THAT 
OTHER, UNSPECIFIED RESTRICTIONS MAY ALSO APPLY TO THE 
    EXPORTATION OF WHEAT AND WHEAT FLOUR.  THESE CONDITIONS ARE 
LIKELY TO CAUSE PRICE INCREASES, AS IS THE GOG'S 
INCREASINGLY EFFECTIVE ANTI-SMUGGLING CAMPAIGN. 
4. THE LATEST ESTIMATE OF THE WHEAT BALANCE IN GEORGIA IS 
THAT STOCKS RUN OUT IN MARCH.  GEORGIAN GRAIN IMPORTERS ARE 
RELUCTANT TO PURCHASE WHEAT BECAUSE OF THEIR FEAR THAT THE 
DONOR COMMUNITY WILL PROVIDE THE SHORTFALL.  THE MAIN 
CONCERN IS THAT WITH THE PRICE OF BREAD KEPT ARTIFICIALLY 
LOW AND THE SUPPLY OF SMUGGLED FLOUR DWINDLING, THERE IS A 
RISK OF A CRISIS-LEVEL SHORTAGE OF FLOUR IN GEORGIA BECAUSE 
OF THE INFEASIBILITY OF COMMERCIAL IMPORTATION. 
 
5. ANECDOTAL INFORMATION FROM THE LOCAL MARKETS INDICATES 
THAT WHEAT FLOUR COMING FROM TURKEY -- PRESUMABLY SMUGGLED 
TO AVOID VAT AND IMPORT DUTIES -- SEEMS TO BE REPLACING 
RUSSIAN WHEAT FLOUR AND MAY AVERT A MAJOR CRISIS IN FLOUR 
AVAILABILITY.  NEVERTHELESS, BECAUSE TURKISH FLOUR IS MORE 
EXPENSIVE THAN RUSSIAN FLOUR, IT IS COMMERCIAL INACCESSIBLE 
TO THE POOR. 
 
6. WFP HAS AROUND 7500 METRIC TONS OF STOCK IN GEORGIA THAT 
IT CAN BORROW FROM AGAINST A PLEDGE TO ENABLE AN IMMEDIATE 
RESPONSE.  WFP ANTICIPATES PROVIDING 350 GRAMS PER DAY FOR 
60 DAYS FOR ABOUT 370,000 VULNERABLE PEOPLE, ABOUT 8 PERCENT 
OF THE POPULATION, FOR 2 MONTHS.  THE RECENT CONTRIBUTION 
FROM THE EUROPEAN UNION PLUS AN ADDITIONAL CONTRIBUTION OF 
5,000 METRIC TONS OF WHEAT FLOUR FROM USAID/FFP TOGETHER 
WOULD PROVIDE MAXIMUM BENEFIT AT THIS EARLY, CRITICAL TIME 
FOR THE NEW GOG. 
 
7. COMMENTS: PER WFP, THE POOREST GEORGIANS ARE LIKELY TO 
    EXPERIENCE SIGNIFICANT HARDSHIP WITHOUT AN ADDITIONAL 5,000 
METRIC TON FFP/USAID CONTRIBUTION.  US MISSION ROME AND 
USAID MISSION TBLISI SUPPORT WFP'S REQUEST.  HALL 
 
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 2004ROME00818 - Classification: UNCLASSIFIED