US embassy cable - 04SANAA2344

UNCLAS SECTION 01 OF 04 SANAA 002344 
 
SIPDIS 
 
PLEASE PASS TO USDA/FAS/EXPORT CREDIT FOR MARY CHAMBLIS, 
DEPUTY ADMINISTRATOR AND DIRECTOR, PROGRAMMING DIVISION. 
 
E.O. 12958: N/A 
TAGS: EAGR, EAID, ASEC, YM, ECON/COM 
SUBJECT: YEMEN REQUEST - FY05 USDA FOOD ASSISTANCE, PL480 
TITLE I 
 
REF: SECSTATE 172525 
 
1. Summary: USDA food assistance in Yemen is enhancing 
infrastructure, funding agricultural research projects, and 
teaching horticultural marketing and livestock management 
skills.  Since 2000, USDA assistance constituted the bulk of 
USG development aid to Yemen.  In conjunction with USAID 
technical assistance, USDA food assistance programs help 
achieve greater security and stability within Yemen and 
improve bilateral relations.  Yemen is a key U.S. partner in 
the global fight against terrorism.  Post, therefore, 
requests $20.5 million in USDA support for FY 2005. 
 
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PL-480 REQUEST FOR YEMEN 
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2. Post's request for the FY05 PL-480 Title I Grant Program 
is $20.5 million.  Wheat, wheat flour, and soybean oil will 
be easily absorbed into the local market.  If these 
commodities are not available, corn and soybean meal are 
excellent alternative choices for the PL-480 grant program in 
Yemen.  Tier 1 commodities are preferred over tier 2 
commodities due to larger market demand. 
 
Based on current Yemeni market prices, Post requests the 
following commodities: 
 
Tier 1             Amount     Est. Value 
 
Wheat              60,000 MT  $9.0 million 
Wheat Flour        30,000 MT  $7.5 million 
Refined Soybean Oil 5,000 MT  $4.0 million 
 
TOTAL              95,000 MT  $20.5 million 
 
 
Tier 2             Amount     Est. Value 
 
Corn               20,000 MT  $3.4 million 
Soybean Meal        7,000 MT  $1.9 million 
 
3. MARKET DISPLACEMENT: Yemen is a poor country in which only 
the lowest priced commodities will sell.  Yemen imports 1.7 
million MT wheat and 400,000 MT flour.  The majority of wheat 
is imported from India and Australia.  Post,s request of 
90,000 MT would only account for five percent of Yemen,s 
total imports of wheat and flour and will not interfere with 
commercial sales.  Yemen traditionally imports soft white 
wheat, which is used for both milling and direct sale to 
consumers.  Domestic milling capacity is steadily increasing, 
which is reducing the demand for imported flour.  Therefore, 
Post requests a greater ratio of wheat-to-wheat flour. 
 
4. Since the introduction of U.S. flour through the 416(b) 
program, consumers have been exposed to the quality of U.S. 
wheat.  Because the price of U.S. wheat is significantly 
higher than subsidized European flour, Yemeni importers do 
not purchase U.S. flour on the market.  PL-480 would expose 
more Yemeni consumers to higher quality U.S. wheat and in the 
future could expand the market for U.S. agricultural 
products. 
 
5. Yemen remains a net importer of refined vegetable oil, 
bulk palm oil, corn and soybean meal.  Yemen imports refined, 
packaged oil for direct consumer sales.  For food products, 
bulk palm oil and refined vegetable oil are used for 
manufacturing and packaging.  Oil importers who manufacture 
and distribute brand-name oil products may combine refined 
vegetable oils with palm oil to make the finished products. 
Annual imports of corn and soybean meal are approximately 
300,000 MT for corn and 80,000 MT for soybean; these are 
primarily used for chicken feed production.  The Yemeni 
market would absorb PL-480 donations of corn and soybean 
meal. 
 
6. LOCAL PRODUCTION: With its rocky, mountainous terrain, 
Yemen's food production is limited to isolated mountain 
terraces.  Only three percent of Yemen,s land is cultivated, 
with water scarcity severely limiting its expansion.  As a 
result, Yemen will remain import-dependent for the majority 
of its grain and crop demands.  Yemen produces less than 
150,000 MT of wheat annually and this is unlikely to increase 
substantially over the long term.  Yemen imports nearly all 
of its wheat, wheat flour, corn, rice, and soybean oil and 
meal requirements.  With a birthrate of 6.7 children per 
woman and an annual population growth rate of nearly 3.5 
percent.  Demand for agricultural products will continue to 
increase. 
 
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THE YEMEN PL-480 PROGRAM: SPRINGING OFF PAST SUCCESS 
--------------------------------------------- ------- 
 
7. USG development strategy in Yemen focuses on agriculture, 
health and education in the most rural and underserved 
regions of Yemen.  Post will continue to support ongoing core 
development objectives; past and ongoing PL-480 assistance is 
complementary and integral to the mission's overall 
development strategy.  Recognizing the practical results 
achieved from past PL-480 projects, stakeholders such as 
farmers, rural communities, and the Government of Yemen 
continue to request expanded development services. 
8. PAST FOOD ASSISTANCE SUCCESSES: Based on continuing USG 
development objectives outlined in paragraph 10, USDA food 
aid programs are currently funding extremely successful rural 
development projects on which future PL-480 grants will 
expand.  The following are a few examples: 
 
-- The FY 2002 416(b) program financed a pilot irrigation 
project in Marib governorate that significantly cut the cost 
of pumping water, reduced water wastage, and is increasing 
yields due to more efficient water usage.  In addition, the 
food assistance program financed the construction of health 
facilities in many regions of the country and the training of 
medical staff. 
 
-- A large-scale municipal drainage project underway in the 
city of Sana'a will allow rainwater to be directed to 
surrounding farmland for irrigation purposes. 
 
-- The FY03 PL-480 program is financing a project that takes 
research and extension of productivity to the village level 
in eight districts, where multi-disciplinary teams directly 
address the problems faced by farmers and helps introduce 
expanded income opportunities. 
 
The FY 2005 Food for Progress will allow the USG to expand 
these projects to more remote and vulnerable areas. 
 
9. Through a transparent tendering process, PL-480 
commodities received under a Food for Progress program will 
be sold to the private sector.  A Joint Working Group (JWG) 
oversees the USDA food assistance program, consisting of one 
member each from the U.S. Embassy, Ministry of Planning and 
International Cooperation, Ministry of Agriculture and 
Irrigation, and Ministry of Finance.  The JWG monitors the 
tendering and execution of the food assistance programs and 
approves all project proposals utilizing PL-480 proceeds. 
 
10. CONTINUING AND STRENGTHENING USG DEVELOPMENT OBJECTIVES: 
With FY 2005 PL-480 grants, the JWG plans to continue 
directing PL-480 proceeds to rural development projects, 
primarily in tribal areas.  Three main factors influence JWG 
project decisions. 
 
-- First, poverty afflicts the rural areas to a greater depth 
and breadth than the urban areas; most of the Yemen labor 
force lives and works on small, subsistence family farms. 
PL-480 activities must have a measurable, positive effect on 
poverty alleviation and employment generation. 
 
-- Second, water resources continue to diminish and remain 
constrained; water conservation and rain-fed agriculture 
should be given utmost consideration in project frameworks. 
 
-- Third, projects should generate increased economic 
opportunity through agricultural productivity along with 
viable opportunities for women. 
 
In keeping with these objectives, the 2005 PL-480 program 
will fund successful projects designed to expand sustainable 
production of agricultural products, expand markets for 
agricultural products, improve the framework for economic 
growth, and improve health and living conditions in rural 
areas: 
 
a. Sustainable Agricultural and Livestock Sectors: Improve 
crop and livestock specification and growing techniques; 
improve access to, and use of, water and other inputs (e.g. 
seeds, feed); support community-based producers associations; 
study incentives to shift to higher value products; assist 
businesses that support the agriculture sector; terrace and 
soil reclamation/conservation; technical support to women 
food producers. 
 
b. Growing the Domestic Agricultural Markets:  Improve access 
to infrastructure for agricultural related businesses; 
improve product quality, processing and packaging; support 
private sector marketing co-ops; expand access to credit; 
market research and development; expand regional and 
international partnerships. 
c. Economic Growth: Assist Yemeni higher education and 
research institutions to support the private sector; 
technical assistance to the Ministry of Agriculture and other 
ministries and to district and governorate agriculture and 
economic development offices; identify opportunities to 
expand exports and increase investment in new businesses; 
technical assistance to help the ROYG increase trade 
opportunities; assistance to ROYG at all national, 
governorate and district levels to collect and use 
agriculture and other commercial data for planning; improve 
IT applications to support program objectives; improve legal, 
regulatory and institutional environment for economic growth 
and income opportunities. 
 
d. Health and Living Conditions in Rural Areas: Improve 
living conditions, health and productivity of the rural poor, 
who depend on agriculture for their livelihoods; improve 
access to health care and clean water and improve sanitation. 
 
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YEMEN,S QUALIFICATION FOR PL-480 PROGRAM 
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11. SYSTEMIC POVERTY AND UNDERDEVELOPMENT: Yemen is one of 
the least-developed countries (LDCs) in the world and is the 
poorest country in the Middle East.  According to 2004 UN 
estimates, the per capita income in Yemen is $508 a year. 
Yemen ranks 152 out of 174 nations on the UN,s World 
Development Index.  Approximately 40 percent of the 
population lives below the poverty line.  The median age in 
Yemen is 15 years and the rapid population growth is coupled 
with low rate of enrollment in basic education, just 61.3 
percent for boys and 41.1 percent for girls.  The low level 
of basic education leads to high illiteracy rates with 
varying estimates of 65 percent literacy for men and 35 
percent literacy for women. 
 
12. ROYG EFFORTS TO STEM POVERTY AND INCREASE FOOD SECURITY: 
The ROYG is currently implementing its second Five)Year 
Economic and Social Development Plan (from 2001 to 2005) and 
Poverty Reduction Strategy Program (PSRP). Both focus on 
reducing poverty and seek to address national concerns such 
as water scarcity, the absence of infrastructure to support 
agriculture and industrial development (including a reliable 
transport system), rational utilization of the country,s 
fish resources, as well as to increase enrollment in basic 
education (especially for girls) and access to healthcare and 
other social services.  The projects supported by the Food 
for Progress program will complement the objectives of the 
PRSP and the Economic and Social Development Plan. 
 
13. PREPARATIONS FOR WTO ACESSION: Yemen applied for 
accession to the World Trade Organization (WTO) in July 2000. 
 In 1995, Yemen began executing an IMF structural reform 
program and has taken measures to stabilize its economy.  Due 
to this guidance, basic commodities subsidies have been 
removed.  The IMF and World Bank have welcomed this and other 
reform measures implemented to date.  To prepare for WTO 
accession, Yemen will examine reducing import restrictions 
and opening its agriculture sector to the global market. 
 
14. FINANCIAL HEALTH AND STABILITY: Over 90 percent of 
Yemen,s export revenues derive from oil exports.  Record 
high world oil prices over the past year have restored 
Yemen,s depleted foreign currency reserves.  While current 
reserves hover around $5 billion, they could be in danger of 
dramatically collapsing should oil prices fall.  In addition, 
Yemen brought its indebtedness to a sustainable level due in 
part to &exit treatment" at the Paris Club meetings in June 
2001 and a July 2002 Yemen-U.S. agreement to reduce and 
reschedule $73 million in debts.  The current debt burden 
represents 48 percent of its GDP.  Therefore, Yemen meets the 
basic criteria established for the Food for Progress program. 
 
15. LIMITED PARTICIPATION FROM PRIVATE VOLUNTEER 
ORGANIZATIONS (PVOs) AND INTERNATIONAL DONORS: Many PVOs and 
international donors are slowly returning their assistance to 
Yemen.  Much of the low level of participation can be 
attributed to security concerns starting from the 1990 Gulf 
War, the Cole attack, and other events.  Nonetheless even 
European and Japanese aid levels are not high.  In fact, 
Yemen receives a comparatively low level of foreign 
assistance per capita than other LDCs.  The difficulty of 
operating in Yemen,s rugged, mountainous and rural 
environment where security is not easily maintained, 
contributes to reduced donor support.  Without a 
comprehensive PVO/NGO infrastructure, Post continues to 
support a government-to-government program.  Sales of these 
PL-480 commodities can converted to liquid funds for 
JWG-selected projects.  The JWG, which includes Embassy 
representation, identifies projects for support, administers 
transparent tendering processes in which local contractors 
compete, and reviews the progress and outcome of all PL-480 
projects. 
 
16. AN EMERGING DEMOCRACY: Yemen is one of a handful of 
Middle Eastern countries that have adopted a serious and 
sustained program of democratic form.  Following unification 
in 1990, the first Parliament elected by universal suffrage 
convened in 1993.  In 1999, Yemen held its first Presidential 
election, and in February 2001, the first election of local 
councils began the move towards decentralization. The 2003 
Parliamentary elections were technically sound and judged 
&generally free and fair8 by international observers.  In 
addition, the ROYG is cooperating with the USG on sensitive 
counter-terrorism efforts.  Continued assistance through 
PL-480 serves U.S. interests in buttressing democratic reform 
and complementing counter-terrorism efforts by enhancing 
income-generating activities in the rural, tribal areas of 
Yemen where extremists may take refuge. 
 
17. ...AND A COUNTER-TERRORISM PARTNER: The ROYG has 
supported Middle East peace efforts, distanced itself from 
Iraq, and been an active ally of the Operation Enduring 
Freedom coalition against Al Qa,ida.  Most importantly, 
Yemen has cooperated on the investigation into the terrorist 
bombing of the USS Cole in Aden in October 2000, and expanded 
its counter-terrorism efforts following President Bush,s 
November 2001 meeting with President Saleh.  A sign of 
Yemen,s commitment to democratic progress, President Saleh 
attended the June 2004 Sea Island G-8 Conference.  As a 
result, Yemen will co-sponsor with Turkey and Italy the 
Democracy Assistance Dialogue.  Development assistance, 
especially in tribal areas, is important to extend government 
control and deny safe havens for Al Qa,ida.  Ongoing U.S. 
Food for Progress assistance will reinforce U.S. goals of 
democratic reform and counter-terrorism cooperation. 
 
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COMMENT 
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18. USDA food aid continues to exemplify the USG,s overall 
commitment to support Yemen as an emerging democracy and a 
key partner in the war against terrorism.  U.S. assistance 
has expanded USG leverage in both the political and economic 
development spheres.   Post recommends that Yemen be 
considered a very strong candidate for the Food for Progress 
program at a level consistent with PL-480 programs of recent 
years.  This aid is a vital step toward meeting 
well-documented humanitarian needs and will strengthen 
Yemen,s own ability to resist and combat extremist ideology 
in the country and the region.  End comment. 
KRAJESKI