x Abu Dhabi, UAEThursday 27 July 2017

Syria's shortage of grain imports may lead to bread crisis

Even though food is not itself subject to sanctions, foreign banks, shipowners and grain traders are reluctant to sell grain to import-dependent Syria.

LONDON/HAMBURG // Syria is struggling to meet its grain import needs because of sanctions, raising the risk of bread shortages that could sap public support for President Bashar Al Assad as he tries to snuff out a 15-month-old uprising.

Trade sources said a reluctance among foreign banks, shipowners and grain traders to sell to import-dependent Syria - even though food is not itself subject to sanctions - has forced Damascus into an array of unusually small deals, many arranged by shadowy middlemen around the Middle East and Asia.

On Friday, in what might prove to be a turning point on a path towards a politically corrosive food crisis, government data showed the domestic grain harvest falling well short of target and the state grains agency failing to find a single acceptable offer to fulfil a major import tender it issued last month to buy animal feed for its livestock farmers.

"Syrian purchase interest has fallen off in the last 10 days or so," one trade source familiar with exports to Syria of wheat and other grains for human consumption and animal feed said. "Banks are becoming tougher in checking compliance with sanctions. It is becoming more difficult to get finance from any banks."

State currency reserves have been depleted and the Syrian pound has lost nearly half its value, adding to import problems.

Data for stocks in Syrian granaries is kept secret but there has so far been little widespread disruption evident in subsidised supplies of bread - a staple of a diet in which every Syrian consumes on average half a kilo of wheat a day.

But international aid agencies, which are already helping up to a million Syrians stave off hunger, report patchy but spreading food shortages and sharply rising prices. Grain traders cite anecdotal evidence that stocks, concentrated in the restive countryside, are being run down or looted. That may mean the government needs to import more for the big cities it controls.

With international traders saying financial sanctions have bitten hard into purchases, violence hindering backdoor imports via Lebanon and the conflict hampering Syria's domestic harvest in the coming months, analysts see mounting risks for Mr Al Assad.

"Despite the regime's efforts to conceal the full extent of the deterioration, both from its own citizens and from the outside world, it is beyond a doubt that the Syrian economy is in a state of full collapse thanks to the cumulative effect of the various multilateral and bilateral sanctions," said Peter Pham, a director at the Washington think tank the Atlantic Council.

Syria relies on imports for about half of its annual needs of 7-8 million tonnes of grain, UN data show. Water shortages, blight and conflict hit last year's harvest.

Traditional secrecy - and the violence that has hit drought-stricken farming areas which were the flashpoint for revolt - makes it hard to calculate how quickly supplies might run short. Not only bakeries are dependent on cereals, but also farmers raising poultry, sheep and meat and dairy cattle.

"A humanitarian disaster would further erode Bashar's claim that the current regime is legitimate," said Anthony Skinner with risk analysts Maplecroft in London. "High inflation and shortages in food supplies will also likely place the families of underpaid rank-and-file soldiers under increasing duress and may provide them with yet another incentive to jump ship."

Dealers in the grain trade hubs of Hamburg and London said difficulties in finding finance and insurance for shipments to sanctions-hit Syria were stifling offers from major exporters.

Of a 150,000-tonne animal feed tender launched last month, one said: "It appears to have been too difficult to undertake a formal tender in this time of sanctions.

Ukrainian exporters cited sanctions for a sharp fall in their sales to Syria in recent weeks, having sold 620,000 tonnes of corn and wheat to Damascus since October.

The European Union, United States and Arab League have led the campaign that bars financial dealings with Syria. Food imports are not a target but, in a bid to sidestep the measures, hundreds of thousands of tonnes of grain, notably from Ukraine and Russia, have been shipped to ports in Lebanon and Turkey this year for trucking overland into Syria.

One major grains supplier in the Middle East complained that some financiers were overreacting: "You see some banks exaggerate their reactions," he said. "They hear Syria and they just don't want to deal anymore. Other banks are more flexible."