Algeria steps up grain imports, eyes Tunisia "virus"

ALGIERS/PARIS Wed Jan 26, 2011 10:40am EST

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ALGIERS/PARIS (Reuters) - Algeria confirmed it bought almost a million tons of wheat on Wednesday and ordered an urgent speeding up of grain imports, a move seen heading off unrest over food prices as protests swept north Africa.

The energy exporting nation has scrambled to buy grain during a tumultuous month in the region which has seen Tunisia's President Zine al-Abidine Ben Ali exile himself to Saudi Arabia and rare protests break out at home and in Egypt.

A rise in food prices in Tunisia, high unemployment and a widening gap between rich and poor combined to help spark deadly riots which brought down the ruling regime.

State grain buyer OAIC on Wednesday confirmed it bought 800,000 tons of wheat, bringing its bread wheat purchases since the start of January to at least 1.75 million tons. Over the past five weeks the north African state has in addition bought at least 800,000 tons durum wheat, used to make pasta.

Agriculture minister Rachid Benaissa was quoted by Algeria's official APS news agency as saying its wheat purchases were not exceptional but a measure to build up stocks.

International grain markets, however, reacted to the Algerian news by pushing higher with U.S. wheat up more than 1 percent to its highest since August 2008 and European wheat futures at new highs, anticipating higher demand from key importers nervous about food security amid civil unrest.

Chicago Board of Trade wheat for March delivery was up 1.3 percent at $8.40 a bushel at 1450 GMT. European benchmark prices in Paris touched new highs, with Paris March wheat up 3.75 euros or 1.4 percent at 266.25 euros a ton.

Concerns that other regimes in north Africa and the Middle East may suffer a Tunisia "contagion" have helped send wheat prices spiking to multi-year highs on international markets. "It looks like Algeria is coming into the market to prevent the 'Tunisia virus' spreading," one German trader said. "Keeping food prices down is one way of keeping your people happy."

The United Nations Food Agency said on Wednesday that new

price shocks have raised serious concerns about implications for food markets in vulnerable countries with prices close to levels that triggered food riots in 2007/08.

DAYS OF RIOTING

Rising food prices sparked days of rioting in several Algerian towns including the capital earlier this month. Two people died and hundreds were injured during clashes between rioters and police, officials said.

To calm the situation, Algeria has decided to cut the cost of some foodstuffs and to increase by 18 percent the amount of soft wheat it supplies to the local market each month. Other countries in the region have this month either relaxed food taxes or duties on food imports or cut prices of staple foods.

In remarks attributed to Algerian Prime Minister Ahmed Ouyahia a government source stressed the urgency of the grain import program and emphasized the move was firmly aimed at ensuring food security.

"I want you urgently to order the OAIC (state grain agency) to speed up the pace of imports of soft wheat and durum wheat," the source quoted Ouyahia as saying in the instruction issued earlier in January, which was circulated to officials.

"The government expects the imports to guarantee all the needs of the people for this commodity."

Analysts were quick to make the link to food security at a time when wheat supply has tightened after weather related problems, including last year's drought in the Black Sea and flooding damage in Australia which has hit crop quality.

"All these countries are scared stiff, especially when you see what is happening in Egypt," French analyst Michel Portier from Agritel said, noting that he expected Cairo to tender to buy more wheat soon.

EGYPT

Regional neighbor Egypt, grappling with unprecedented protests against President Hosni Mubarak's 30-year rule, on Wednesday said it had six months of wheat supply and that its buying program was normal.

Nomani Nomani, vice chairman of the General Authority for Supply Commodities (GASC), told Reuters: "Further contracts will just be to secure strategic supplies."

Saudi Arabia, which on Monday expressed concern that a global rise in food prices could drive up inflation, earlier this month said it hoped to double wheat reserves to a year's worth within three years.

Talk circulated in European grain markets on Wednesday that the Gulf kingdom could be looking to tender for as much as 500,000 tons of wheat soon.

"There is still wheat around even though prices are high," the German trader said, stressing that oil rich countries were well placed to meet rising prices. (Writing by Christian Lowe and Keiron Henderson; additional reporting by Michael Hogan in Hamburg, and Sybille De La Hamaide in Paris; Editing by Nigel Hunt and Veronica Brown)

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