October 13, 2016 / 2:21 PM / 3 years ago

Exclusive: Syria makes major wheat deal with Russia after dire local harvest

ABU DHABI (Reuters) - Syria’s state grain buying agency Hoboob struck a deal to purchase one million tonnes of Russian wheat from political ally Russia, covering the needs of government-controlled areas for a year.

A man work on wheat pouring into a truck at the grain silos of the rebel-held town of Gharz, in Deraa Governorate, Syria July 24, 2016. The silos were partially damaged by previous shellings. REUTERS/Alaa Al-Faqir

The Damascus government subsidizes bread for the areas it controls ensuring the supply of flat loaves that are a staple for Syrian people.

Syria often buys wheat from Russia but this was an unusually large amount for a cheap price. The source said it should cover the government’s needs for this year until the next local wheat buying season in 2017.

A Syrian government source close to the matter told Reuters Hoboob purchased the wheat at 150 euros ($168) a tonne, on a cost and freight basis, and shipment would be for a year after opening up the letter of credit.

The Russian Agriculture Ministry declined to comment on the purchase but a source at the ministry told Reuters Russia is still considering a shipment of around 100,000 tonnes of wheat to Syria as humanitarian aid, separate from the Hoboob deal.

Syria’s local wheat harvest nearly halved to 1.3 million tonnes this year, the lowest in 27 years, as fighting and poor rainfall further eroded the nation’s ability to feed itself.

The government of President Bashar al-Assad was forced to tender for wheat this summer, at a time when it rarely holds international purchase tenders as it is busy buying up wheat from local farmers.

Hoboob procured a little over 400,000 tonnes of local wheat this year. The government needs around 1.5 million tonnes a year for the areas it controls.

It bought 350,000 tonnes of Russian wheat in two separate tenders in July and August before announcing its tender for one million tonnes.

Wheat market traders said they were puzzled because the price was too cheap for a commercial deal.

“This will be almost impossible to fulfill as a commercial deal as it is too cheap,” one European trader said.

“I think this must be regarded as food aid as the price is too low,” he said.

The Syrian government source said the lower price could have been agreed due to the large quantity purchased in one deal.

In neighboring Egypt’s wheat tender on Thursday, Russian wheat was being offered at $177.94 a tonne free-on-board and $187.03 a tonne cost and freight — almost $20 a tonne higher than the Syrian deal.

Before the five-year-old civil war, Syria was a wheat exporter producing four million tonnes in a good year and able to export 1.5 million tonnes.

Men work in cleaning and arranging wheat for storage in Ras al-Ain, Syria September 16, 2016. Picture taken September 16, 2016. REUTERS/Rodi Said

But wheat farms, seed distribution, milling and bakeries have all been damaged and disrupted by the war.

While the government ensures cheap prices for bread in the areas under its control and aid agencies offer supported prices in some areas, Syrians elsewhere complain of bread shortages and high prices.

($1 = 0.8928 euros)

Reporting by Maha El Dahan; Additional reporting by Michael Hogan in Hamburg, Sybille de La Hamaide in Paris and Olga Popova in Moscow; Editing by Susan Fenton/Ruth Pitchford

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