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### Viewing cable 04SANAA2344, YEMEN REQUEST - FY05 USDA FOOD ASSISTANCE, PL480

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
04SANAA2344 | 2004-09-01 13:41 | 2011-08-24 01:00 | UNCLASSIFIED | Embassy Sanaa

`

    This record is a partial extract of the original cable. The full text of the original cable is not available.

` `

    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.

    ------------------------
    PL-480 REQUEST FOR YEMEN
    ------------------------

    ¶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.

    --------------------------------------------- -------
    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.

    ----------------------------------------
    YEMEN,S QUALIFICATION FOR PL-480 PROGRAM
    ----------------------------------------

    ¶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.

    -------
    COMMENT
    -------

    ¶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

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