January 6, 2014 / 2:40 PM / in 4 years

Syria's 2013 state wheat import deals reach 2.4 mln T-Hoboob

* Hoboob purchased wheat outside of tender process

* Payments made through unlocked frozen funds

* Hoboob not using Iranian export credit line

By Maha El Dahan

ABU DHABI, Jan 6 (Reuters) - War-torn Syria’s state wheat import deals surged to 2.4 million tonnes in 2013 from 550,000 a year earlier, the country’s General Establishment for Cereal Processing and Trade (Hoboob) said on Monday.

Syria suffered its worst wheat harvest in nearly three decades in 2013 as war and sanctions continued to put pressure on the government to import food.

The imported wheat was mostly of Black Sea origin and deals were done outside the tender process and paid through unlocked funds in frozen Syrian international bank accounts, a source at Hoboob told Reuters.

“Of the total quantity, 1.7 million tonnes arrived in Syria and the remaining quantity is on its way,” the source said.

Hoboob said in October it had struck deals with payment using frozen funds to import 500,000 tonnes of wheat from France and the Black Sea over the summer.

Although some traders were skeptical about the 2013 wheat import figure, others said the jump in imports was in line with the government’s drive to bolster imports given the record-low local harvest.

“It sounds conceivable to me,” one European trader said.

“Syrian agriculture has been hugely disrupted by the fighting and this will have greatly increased their import requirements. Importing has also been concentrated in state hands as private buyers have been kept out of the market by sanctions,” he said.

Estimates collated by Reuters from more than a dozen grain officials and local traders in July suggested the local harvest could have been as low as 1.5 million tonnes, less than half the pre-conflict average.

Sanctions imposed by the European Union, the United States and other countries on President Bashar al-Assad’s government do not apply to food but the financing freeze has hindered Syria’s ability to seal import deals.

Syria started asking to pay for its food by freeing some of its frozen assets in international banks in mid-2013 but some international traders said the payment method was not attractive as the seller bore the burden of obtaining the necessary approvals to unlock the funds.

France in September cleared the use of frozen Syrian bank assets for food under a European Union system that allows such funds to be used for humanitarian ends.

Paris-based lender Union De Banques Arabes Francaises (UBAF) confirmed it had approved the release of such funds.

State-owned food buying entities through most of 2013 struggled with import tenders for rice, sugar, flour and wheat, although deals were struck outside the tender process using middlemen.

“There are a lot of trading companies in the Middle East and Black Sea willing to take the risk of dealing with Syria although the big multinationals are still cautious,” another European trader said.

“If the payment process using the frozen funds becomes more tried and tested, larger trading houses might come back into the Syrian grain sector,” he said.

Another Syrian state entity, the General Foreign Trade Organisation (GFTO), has been tendering to buy flour, sugar, oils, rice and several other commodities through an Iranian export credit line.

The GFTO tenders require sellers to accept payment through a credit line agreement between the Commercial Bank of Syria and the Export Development Bank of Iran.

Traders have said that offers in those tenders are well above market prices and come mostly from Iranian firms offering to re-export commodities out of Iran.

Hoboob maintained it was not using the Iranian credit line agreement in its deals.

“We are not using that arrangement in our contracts at all because we are still relying on the frozen funds,” the Hoboob source said.

Syria enough wheat to last eight months, according to Hoboob, which traditionally has kept 3 million tonnes stockpiled, enough for one year’s consumption.

Despite the availability of imported wheat, flour mills and silos have suffered extensive damage in the unrest that has gripped Syria since 2011, forcing the country that was once self-sufficient in wheat to also import flour.

The country’s prime minister said last week flour imports were being purchased at a cost of $580 a tonne to meet daily domestic needs with many of the country’s mills out of operation. (Reporting by Maha El Dahan; Additional reporting by Michael Hogan in Hamburg; editing by Veronica Brown and Jason Neely)

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