US embassy cable - 02HARARE2427

UNCLAS SECTION 01 OF 04 HARARE 002427 
 
SIPDIS 
 
STATE FOR AF, AS KANSTEINER AND PDAS BELLAMY AND JIM DUNLAP; 
AF/S FOR DELISI AND RAYNOR; 
NSC FOR SENIOR DIRECTOR FRAZER 
USAID FOR ADMINISTRATOR NATSIOS; 
AFR FOR AA NEWMAN, MARJORIE COPSON, AND KAREN POE; 
DCHAA FOR ROGER WINTER; 
DCHAA/FFP FOR LAUREN LANDIS, LESLIE PETERSON, DALE SKORIC, 
AND JOHN BRAUSE; 
USDA FOR MARY CHAMBLISS; 
ROME FOR FODAG, AMBASSADOR TONY HALL AND TIM LAVELLE; 
PRETORIA FOR FCS RICK HELM AND AID PAT DISKIN 
 
E.O. 12958: N/A 
TAGS: EAGR, EAID, ETRD, ZI 
SUBJECT: DISCUSSION WITH UNDP ON POSSIBLE USE OF U.S. WHEAT 
IN ADDRESSING HUMANITARIAN FOOD CRISIS 
 
 
1.  Summary. Charge met with UNDP Resident Representative 
Victor Angelo on November 4 to review recent developments in 
the humanitarian food crisis in Zimbabwe.  Angelo was 
particularly interested in discussing a possible donation of 
U.S. wheat/wheat flour to the World Food Program (WFP), which 
would in turn monetize this commodity and thereby involve the 
private sector in helping to address the food crisis, at 
least in the urban context.  The discussion centered on 
possible complications, policy considerations (positive as 
well as negative), and logistical issues.  While nothing 
concrete was proffered, nor committed to, by either side, it 
is our view that provision of U.S. wheat/wheat flour could 
yield important benefits, both programatically and 
policy-wise.  We request that Washington examine the 
feasibility of such an intervention and look into the 
availability of wheat/wheat flour that could be donated to 
WFP for monetization.  End Summary. 
 
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The Situation 
------------- 
 
2.  Angelo underlined that the lack of food in rural areas 
remains the principal focus of the UN's Consolidated Appeal 
for Zimbabwe (CAP).  However, there is also a growing food 
crisis in the cities that is projected to put 850,000 persons 
at risk, and possibly more if the ongoing rural to urban 
migration expands.  Certain commodity staples, such as maize 
meal, are increasingly unavailable, and potential substitute 
commodities are simply too expensive for the poorest, most 
food-vulnerable urban population to buy.  In the past, bread 
was the principal alternative to maize meal, but it too is 
increasingly in shortage due to dwindling wheat/wheat flour 
stocks and looks to remain so for the foreseeable future. 
The reasons for this are manifold. 
 
3.  In an average year, Zimbabwe produces approximately 
300,000 metric tons (MT) of wheat against consumption needs 
of 400,000 MT.  The difference is normally covered by imports 
of approximately 100,000 MT of hard wheat, which is required 
for blending purposes with softer local wheat varieties. 
Virtually all of Zimbabwe's domestic wheat production has 
traditionally come from commercial farms, much of it as 
irrigated winter wheat.  Disruption of the commercial farming 
sector by President Mugabe's purported "land reform" has 
seriously damaged this production cycle.  While there is not 
yet an accurate figure for how much winter wheat will be 
harvested from the past winter's crop (by the end of 
November), the Food and Agriculture Organization is 
projecting about 100,000 MT total for the year, leaving a 
shortfall of 250,000 MT, taking into account planned imports 
of hard wheat. 
 
4.  At this point, there is no prospect that the GOZ's Grain 
Marketing Board (GMB), the parastatal that monopolizes both 
the import of cereals and the purchase of local cereal crops, 
will be able to cover this shortfall.  A critical lack of 
forex has thus far hampered GMB attempts to purchase enough 
maize to cover the massive shortage of that commodity; in 
this context, sourcing of sufficient wheat to meet normal 
demand appears highly unlikely.  It is a fact, however, that 
demand has not fallen.  In urban areas the demand for bread 
has increased as a substitute for unobtainable maize meal at 
a time when the supply of wheat/wheat flour is actually 
diminishing.  The results are predictable. 
 
5.  The GOZ's attempts to impose a fixed sales price for a 
basic loaf of bread, as well as a fixed price at which 
millers and bakers purchase the wheat to produce bread, have 
floundered.  The fixed profit margin between purchase price 
of flour and the sale price of bread has become nonsensical 
as the exchange rate of the Zimbabwe dollar has plunged, 
increasing the cost of imported inputs.  Many domestic inputs 
have also risen.  As a result, millers and bakers complain 
that they can hardly produce basic loaves of bread without a 
loss, if the bread is sold at the mandated price. 
 
6.  This has led to a number of defensive market strategies, 
including selling bread at double or more the set price, 
easily accomplished in an environment where product shortage 
dominates.  Millers have also reportedly used the inadequate 
supply of wheat allotted them by the GMB to mill cake flour, 
which is used to produce premium breads, bread rolls, and 
other products that are non-price controlled and offer a 
higher profit margin.  Bakers add onion flakes to dough or 
prepare special crusts, declare the product a specialty item, 
and thereby also sidestep GOZ controls.  The end result are 
products that are priced beyond the reach of the poorest and 
most food vulnerable segment of the urban population. 
 
7.  Aware of this problem, the GOZ has reacted in its usual 
ham-handed statist manner.  November 5 newspapers published 
statements by Ministry of Industry and International Trade 
Permanent Secretary Comberbach ordering millers to desist 
from milling cake flour and producing higher-priced products 
until wheat supplies return to normal.  This begs the 
question of when this might occur.  There is little room for 
optimism that next year's winter wheat crop will reach past 
levels, given the continuing destruction of the commercial 
farming sector.  It is also implausible that the GOZ will 
generate sufficient forex reserves to source future wheat 
purchases on international markets, given the concomitant 
reduction in the production of tobacco and other cash crops. 
In sum, all government directives and decrees aside, 
Zimbabwe's urban poor are about to receive a painful, 
first-hand Macroeconomics 101 lesson on the law of supply and 
demand. 
 
------------------------------ 
The Solution and the Mechanism 
------------------------------ 
 
8.  Angelo and DCM strategized over how this problem might be 
overcome, at least until next year's maize crop is harvested 
and hopefully provides some relief countrywide, assuming 
normal rains and rebounding communal maize production. 
Angelo said that the provision of wheat to the private sector 
would be the ideal solution, since it has the advantage of 
keeping the private sector in the urban food game (and the 
GOZ out of it) and limits the need for the UN or others to 
establish elaborate targeting, distribution, and monitoring 
mechanisms in urban areas.  It is obvious, however, that the 
GOZ-imposed prices for wheat and bread, and the diminished 
purchasing power of the poorest urban consumers, would 
require some degree of subsidy if such an approach were to be 
viable.  Otherwise, millers and bakers would be 
unwilling/unable to import wheat/wheat flour at world market 
prices because the penury of their customers would mean that 
there would be no market (or profit margin) for their end 
product. 
 
9.  The best solution would be a delivery of subsidized wheat 
that would sidestep GOZ control and go directly to the 
private sector, to permit the production of a sufficient 
quantity of bread that could be sold at a price that the 
urban poor can afford.  Angelo proposed the following 
mechanism as a possible option.  The USG would provide on a 
grant basis a sufficient quantity (to be determined) of wheat 
flour to WFP, which would in turn monetize this commodity 
through direct sale to millers/bakers at the current fixed 
price under terms that would commit the millers/bakes to 
produce standard loaves of bread at a price affordable by the 
urban poor, as in the past.  The WFP would obtain from the 
GMB import permits (and could do so, Angelo opined) for the 
wheat, but at no time would the GMB or any other GOZ entity 
take possession of the product or control of the process. 
(There is precedent for this, since in the past the GMB 
granted import licenses directly to millers/bakers when the 
private sector was able to access sufficient forex to finance 
such imports.)  Angelo said that the WFP could use the 
proceeds from the monetization in various way that would 
support the CAP: financing unfunded supplemental school 
feeding programming; paying for unfunded distribution of 
medicines procured for WHO by the UK and the EU; financing 
unfunded rural Food-for-Work programs and similar beneficiary 
empowerment initiatives; or financing recurrent WFP costs 
associated with humanitarian food distribution in rural 
areas.  WFP would provide to the USG all accounting required 
to justify the use of funds earned from monetization. 
 
--------------- 
Policy Benefits 
--------------- 
 
10.  Angelo and DCM next discussed the benefits of such an 
approach, as opposed to the drawbacks. 
 
-- There would be no GOZ or GMB control over the process, 
other than granting import licenses. 
-- There would be less pressure on maize supplies to rural 
areas from increased substitution of bread products for urban 
consumers. 
-- The program would bring the beleaguered private sector 
into the humanitarian program, long a goal of the CAP and 
bilateral donors. 
-- Because of private sector and market involvement, there 
would be no labor-intensive need for WFP to organize 
distribution and oversight mechanisms. 
-- The affordability of the bread end-product would be 
self-targeting in that it would keep this staple commodity 
available to the urban poor, preventing politicization of the 
initiative. 
-- The fixed profit margin between GOZ-prescribed wheat 
prices and the set price of bread would prevent bakers from 
making large windfall profits.  (Indeed, lack of 
profitability at current set prices might be the real issue.) 
-- This program would balance the food need equation between 
predominantly ZANU-PF controlled rural areas, until now the 
sole beneficiaries of humanitarian feeding, and the 
increasingly needy and predominantly pro-opposition urban 
areas. 
-- There would no complicating biotech issues. 
-- The proceeds from monetization would help provide local 
currency for UN humanitarian program costs. 
-- The introduction of wheat/wheat flour would not cause 
meaningful market distortions in an environment of massive 
shortage and the extant GMB monopoly over purchase and 
distribution of locally produced wheat stocks. 
-- (for the USG) WFP management of the monetization would 
relieve the USG of labor-intensive management and oversight 
of a bilateral monetization program. 
 
------------------------------- 
Drawbacks and Issues Unresolved 
------------------------------- 
 
11.  There are also a number of potential negatives to such 
an approach, although Angelo and DCM agreed that most of 
these can be overcome with some creative thinking. 
 
-- The program would support GOZ subsidies and fixed food 
prices that are not determined by sound market principles. 
(In the current economic meltdown and in the context of 
unrealistic GOZ economic policies, including exchange rates, 
some level of subsidy must be factored in if any program is 
to function.  The conditions for a freely functioning market 
do not exist at the present, and it would be necessary to 
approach this as a mixed market/humanitarian intervention and 
view it in the perspective of ongoing rural feeding programs, 
many of which are basic food giveaways. 
-- Selection of which millers/bakers to participate must be 
based on past performance, capabilities rather than political 
connections, and willingness to bake basic loaves rather than 
more profitable products.  This would require careful UN 
oversight. 
-- Potential for "black market" abuses in urban areas would 
need to be monitored. 
-- The availability of cheaper food in cities might serve as 
a magnet to starving rural populations, swelling the number 
of those moving toward the cities.  (This is already 
occurring as we write, cheap and plentiful bread or not.) 
-- The quantity of wheat/wheat flour would need to be great 
enough to close significantly the 250,000 MT shortfall. 
-- Logistically, there would be timing of delivery and 
warehousing issues. 
-- Logistically, a large influx of wheat flour would put this 
commodity in competition with maize for already overtaxed 
port, rail, and trucking facilities. 
 
--------------- 
Recommendations 
--------------- 
 
12.  We emphasize that no commitments were made nor implied 
in the meeting, which is best characterized as a 
brainstorming session.  Angelo stated, however, that he 
believes it feasible for the UN to undertake a program along 
the lines discussed above if the USG is able to provide wheat 
or wheat flour.  The availability of this commodity under the 
Emerson Trust -- and competing needs in Afghanistan, the Horn 
of Africa, and elsewhere -- will obviously play a determining 
factor.  The Mission recommends that Washington carefully 
examine the admittedly rough-hewn proposal above in terms of 
policy and practicality.  If sufficient wheat/wheat flour are 
available, we believe that such a program -- or one that 
follows a similar script -- could help fulfill Zimbabwe's 
humanitarian food needs while simultaneously addressing USG 
policy concerns. 
 
 
 
SULLIVAN