Syrian Grain Imports Pick up Despite Worsening War

Syria has managed to increase its grain imports in recent months after a period when it was less active on international markets, traders say, a development that suggests President Bashar al-Assad has found a way to feed his people despite war.

Traders say Syria appeared to have had difficulty securing international supplies of grain last year, but the trouble has abated this year as middle men have been able to set up deals.

Foodstuffs are not covered by international sanctions, but banking sanctions and war had created a climate that had made it difficult for some trading houses to do business with Damascus.

Now, with foreign brokers setting up deals, Damascus is able to buy wheat while paying a small premium of about 3 percent to 5 percent of the global price. "Syrian grain imports for the government seem to have settled down into a routine with traders in neighbouring countries taking the direct orders and passing on the business basically under sub-contract to international trading houses for completion of the contract," one European grain trader said.

In normal times, Syria grows most of its wheat, with imports making up less than a quarter of consumption, although bad harvests, like in 2010, can cause imports to spike. This year's harvest is due to be collected in coming weeks, and it remains to be seen how badly it has been hit by a war that has displaced millions of people and killed roughly 70,000.

"The big question is how much grain Syria will harvest this year. A simply unknown factor is how many Syrian farmers have been able to work normally in the face of the upheavals the fighting has brought," another European trade source said. Traders who spoke to Reuters for this article asked not to be identified to keep their market positions confidential.

Feeding his people is a crucial test for Assad. The Syrian government has consistently maintained that it has no food supply problems. Syrian newspaper Al-Watan quoted Prime Minister Wael al-Halki as telling parliament on Wednesday that the government expects to buy a healthy 2.5 million tonnes of wheat from Syrian farmers this season. Nevertheless, there have been signs of difficulty. Bread is still officially sold in Syria for the pre-war subsidised price representing a fraction of its cost, but residents say it is frequently unavailable.

"State subsidised bread still sells for 15 pounds for a dozen pieces, the same price as two years ago," a Damascus resident said, referring to a price that works out to about one U.S. cent per small loaf. "The government keeps saying how they have kept the price stable." But she said bread at that price was often unavailable, and when it was there were frequently long queues at bakeries.

"They also have what they call 'tourist prices' of 50 pounds. You can buy it at that price without the queues. Some shops are selling for up to 80 pounds a dozen," she said.

Humanitarian Crisis
The United Nations says the war has created a humanitarian crisis, with 6.8 million people in need of aid. According to the U.N.'s World Food Programme, the price of wheat flour in Damascus has doubled since December.

The situation is worse in rebel-held areas outside of Assad's control. According to WFP data, bread in the northern commercial capital Aleppo is now available only for a market price 5-10 times the subsidised price in Damascus. Still, the resumption of foreign purchases suggests Assad has been able to secure supplies to help meet shortfalls.

"Despite international sanctions complicating efforts to buy basic foodstuffs from international markets, ad hoc arrangements and deals are likely to allow the regime to deliver relatively stable supplies to areas under government control," said Torbjorn Soltvedt with risk consultancy Maplecroft.

"The World Food Programme continues to deliver basic food items to Syria, although the Syrian government heavily restricts the distribution of aid to rebel-held areas," he said. "Food shortages are likely to become more severe in areas under the control of rebels or in contested areas with heavy fighting."

Shortages
Syria normally consumes between 4.5 million and 4.7 million tonnes of wheat. In a good year, domestic farmers can produce close to 4 million. The harvest was particularly poor three years ago because of drought, one of the reasons behind the protest movement in early 2011 that, when met by government force, eventually turned into an armed uprising.

With imports picking up this year, traders estimate Syria has bought more than 220,000 tonnes of wheat from the global market since February. With a normal harvest, Syria would import around 600,000 tonnes of wheat a year.

Trade data compiled by Reuters showed nearly 90,000 tonnes of French wheat was shipped to Syria between February and early April. Traders said the state grains agency also bought 100,000 tonnes of wheat in March from the Black Sea region, and further cargoes have been sold in recent weeks to private importers. Barley has also been shipped, including 139,000 tonnes from France since January.

At least three cargoes of soybean and corn - used for animal feed - were currently loading in Argentina, port data and ship tracking showed. Syria typically imports nearly all its corn requirement of up to 2 million tonnes a year.

Foreign middlemen in Lebanon, Turkey and Greece are used to broker the deals with payment made in multiple currencies such as euros and also via barter, sources said.

"There is definitely more appetite from many international trade firms now to supply cargoes with an ultimate Syria destination and the brokers are acting as the conduit. There is reluctance still to trade directly with Syria," a Middle East-based trade source said.

Another European trader said payments were made in places such as Lebanon and Dubai by the brokers so there was no direct involvement with Syrian accounts or Syrian sellers.

"The key is to ensure the letter of credit has no Syrian trace, which suits everyone," the European trader said. "Most of the cargoes are rooted via Lebanon." The trader said Syria was paying a small $10 to $15 per tonne premium on every Syria-bound cargo above the world price of about $350 per tonne. On their 100,000 tonne purchase in March that would have meant an additional $1 million to $1.5 million paid compared with neighbouring countries like Jordan.

A Black Sea-based industry source added that more private ship owners were becoming comfortable with delivering cargoes, given the profitable freight trade, after some ship owners were scared off by fighting last year.

"We are not just seeing Syrian owned vessels being used now and owners in places like Bulgaria are also ready to deliver shipments especially to the Syrian port of Latakia," he said. "While we have seen direct freight orders from Syrian companies, not everyone is ready with work with them."