DART: SALE OF DONATED HUMANITARIAN FOOD AID IN

UNCLAS SECTION 01 OF 06 KUWAIT 003235 SIPDIS STATE ALSO PASS USAID/W STATE PLEASE REPEAT TO IO COLLECTIVE STATE FOR PRM/ANE, EUR/SE, NEA/NGA, IO AND SA/PAB NSC FOR EABRAMS, SMCCORMICK, STAHIR-KHELI, JDWORKEN USAID FOR USAID/A, DCHA/AA, DCHA/RMT, DCHA/FFP USAID FOR DCHA/OTI, DCHA/DG, ANE/AA USAID FOR DCHA/OFDA:WGARVELINK, BMCCONNELL, KFARNSWORTH USAID FOR ANE/AA:WCHAMBERLIN ROME FOR FODAG GENEVA FOR RMA AND NKYLOH ANKARA FOR AMB WRPEARSON, ECON AJSIROTIC AND DART AMMAN FOR USAID AND DART E.O. 12958: N/A TAGS: EAID PREF IZ WFP SUBJECT: DART: SALE OF DONATED HUMANITARIAN FOOD AID IN IRAQ -------------- SUMMARY -------------- ¶1. Stemming from reports of the widespread sale of humanitarian food aid in Iraq, particularly in Baghdad markets, members of USAID's Disaster Assistance Response Team (DART) conducted a rapid survey at food markets in Baghdad, Al Hillah, As Sulaymaniyah, and Arbil in an effort to determine the reasons for and scale of these sales. Since late-1990, Iraqis have become largely dependent on food rations distributed through the country's Public Distribution System (PDS). Up to 60 percent of the Iraqi population of 27 million is thought to depend entirely on the food and non-food items distributed monthly through the PDS. The World Food Program (WFP) was given the mandate to observe the food distribution process in Iraq, as well as implement it on behalf of the Government of Iraq in the northern three governorates. Using a ration card system, food and non-food items are distributed monthly to all Iraqis through the PDS. The first post-conflict ration distribution began June 1, and appears to have been successful. Though difficult to estimate the total tonnage of ration items present in each of the four markets surveyed, numerous vendors are selling wheat flour in WFP and USA marked bags. Between 50 and 80 percent of the wheat flour available in the four markets had the WFP/USA markings on the bags. Other items from the ration mix were also found for sale in the markets, yet not to the extent of the wheat flour. ¶2. The rapid survey found that most of the wheat flour found in the local markets had originated with the ration recipients themselves, collected by small-scale traders who circulate through neighborhoods and purchase bags of wheat flour (and other ration items). The commodities collected are then sold to local vendors and wholesalers who consolidate the ration items and sell them in larger quantities to mobile traders who move the goods to areas paying a premium for the commodities. Baghdad, where prices are 20 percent higher than most other parts of the country, is the primary destination. Relative to other times of the year, the quantity of wheat flour in the markets may be elevated presently due the recent completion of the June PDS ration distribution, residual stocks from extra rations distributed before the conflict, the bumper wheat harvest in Iraq this year, and the fact that wheat flour sales are more common in the summer than winter due to spoilage. A limited degree of food commodity trading at the household level is considered acceptable and generally expected, provided there is no large-scale diversion or detrimental effects on the health/nutritional status of the community. Despite the seeming prevalence of humanitarian food aid (particularly wheat flour) in the markets of the four cities surveyed, there is no indication of an organized, large-scale diversion of food aid from the PDS for commercialization in urban markets. -------------- PUBLIC DISTRIBUTION SYSTEM AND RATIONS -------------- ¶3. Following the imposition of international sanctions in August 1990, the Government of Iraq introduced a food distribution system that included the country's 27 million inhabitants. Under the United Nations Oil-for-Food (OFF) Program, introduced in 1996 and implemented in 1997, the Ministry of Trade (MOT) has contracted and distributed nearly 500,000 MT per month of food commodities through the PDS. The MOT manages all aspects of the distribution in Southern and Central Iraq, while in the three northern governorates of Dahuk, Arbil, and Sulaymaniyah WFP is responsible for the internal transport, handling and monitoring of the food distributions, in collaboration with the Kurdish Regional Government's (KRG) Ministries of Finance. ¶4. Under its current six-month emergency operation, WFP plans to bring in about 2.2 million MT of food commodities to Iraq, largely to support the PDS. The first post-war ration distribution began June 1, and appears to have been successful. The tonnage distributed is still being compiled by the MOT. The July distribution has been announced, and MOT and WFP expect to have adequate resources for the country. ¶5. Using a ration card system, rations are distributed monthly to all registered Iraqis. In July, for example, rations will include wheat flour, rice, sugar, tea, milk powder, cooking oil, soap, detergent, and pulses (e.g. chick peas). Households with infants should also receive infant formula, and a separate allotment of detergent, and soap. Rations are distributed to final beneficiaries through a network of food and flour agents (FAs),numbering approximately 44,000 nationwide. FAs sell rations to beneficiaries at a nominal price. The ration price in the southern and central governorates is 250 Iraqi Dinars (ID) (equiv. USD .18),while the price in the northern three governorates is 2.5 Swiss Dinars (SD) (equiv. USD .41). -------------- SALE OF HUMANITARIAN RATIONS -------------- ¶6. Humanitarian food aid commodities, primarily bags of wheat flour with WFP markings, for sale in commercial markets have been observed by USAID DART members and others over the last month, in addition to being reported in the press. DART Food Officers conducted rapid surveys at food markets in Arbil, As Sulaymaniyah, Al Hillah, and Baghdad in an effort to determine the reasons for and scale of these sales. ¶7. In these four cities, numerous shops are selling wheat flour in WFP and USA marked 45-50 kg bags. Approximately 50- 75 percent of the wheat being sold in the Arbil and As Sulaymaniyah markets was marked WFP or USA, while the proportion of wheat flour being sold in one large Baghdad market was estimated at 75 percent. Wheat flour in Al Hillah markets with the WFP/USA markings is estimated to be over 80 percent of the total available observed for sale. Other items from the ration mix were found for sale in the markets, yet not to the extent of the wheat flour. ¶8. The sale of humanitarian food aid is a common occurrence among vulnerable populations receiving food aid assistance, such as refugees and internally displaced persons (IDPs). Reasons for selling rations range from the ration being inappropriately selected for local tastes, to the ration being the recipient's sole economic or liquid asset. A limited degree of food commodity trading at the household level is generally accepted by the international humanitarian community, provided there is no large-scale diversion or detrimental effects on the health/nutritional status of the community. Certain commodities may have a potentially higher resale value, and the resale of these commodities may allow beneficiaries to purchase other essential food items - such as meat, fruits and vegetables - that are not available through the ration. ¶9. Based on discussion with the beneficiaries of rations distributed through the PDS in Iraq, rations are being sold for one or more of the following reasons: people need money to pay the fee to the food/flour agent for ration, they need money to pay for other food items, or they need money to pay for non-food items. Very few interviewed indicated that their household was sufficiently food secure or with adequate disposable income such that they simply did not need the rations. Thus, excess food and non-food items at- home is not thought to be a significant reason for sale of rations. In Arbil, for example, beneficiaries noted all three reasons for selling parts of their rations. Moreover, ration quality reportedly varies by month, and rations of sub-par quality are often sold in order to purchase higher quality items, though at a lower quantity. ¶10. When asked, both merchants and customers in Al Hillah accepted the sale of PDS commodities as a necessary coping mechanism for many people who had no other real source of income. The sale of food aid intended for vulnerable groups, however, triggered an angry reaction from both the merchants and customers interviewed. Merchants reported ambulances selling truckloads of biscuits and similar stories of food meant for IDPs being sold by those trusted with the distribution. -------------- SOURCE OF MARKETED FOOD AID -------------- ¶11. Approximately 90 percent of the WFP/USA marked wheat flour found in Arbil's local market is reportedly sourced from the ration recipients. In Al Hillah and As Sulaymaniyah, vendors also indicated that the overwhelming majority of PDS commodity sales were made by households who needed the money to pay food agents for rations, or to purchase other food or non-food items. In Baghdad the repeated explanation regarding the source of the WFP wheat flour is that traders purchase directly from the beneficiaries, or it is trucked in from outside the city. ¶12. Items distributed as rations are usually sourced for the markets by small-scale traders (often boys or young men with handcarts) who roam neighborhoods offering to buy the rations from recipients. Wheat flour is the most prevalent item purchased, followed by vegetable oil and rice. The neighborhood collection seems to occur most vigorously soon after a month's PDS distributions. The small traders purchase mainly unopened bags from beneficiaries. These small-scale traders then sell the rations items, including wheat flour, to local shop-based vendors or wholesalers who specialize in food items. The vendors and wholesalers then sell the flour in original, unopened bags to mobile traders who move the flour (generally using Iraqi registered trucks) to towns having a higher market price for flour, such as Baghdad where prices hold an approximately 20 percent premium to the rest of the country. In Baghdad, traders indicated that most of the WFP-sourced wheat flour in the market had been purchased in the northern governorates. ¶13. In some instances, beneficiaries do report selling their flour entitlements directly to flour agents (FAs),who in turn sell it to traders. According to certain interviewees in Baghdad and Arbil, some FAs sell the higher quality wheat flour in the market and, in turn, purchase and distribute cheaper flour to recipients. Additionally, it was reported that in order to compensate for the higher transport and loading/off-loading costs, some food agents are charging more than the allowed 250 ID/2.5 DS per person and ration. -------------- PRICE AND QUANTITY OF WHEAT FLOUR IN MARKETS -------------- ¶14. As in the northern governorates, prices for wheat flour in the southern and central regions are significantly lower than they are in Baghdad. Although vendors in Al Hillah had some difficulty giving an exact figure, they estimated a 500- 1,000 ID difference per 50 kg bag of wheat flour when sold in Baghdad. Traders in Arbil indicated a 2-4 SD (equiv. 460- 920 ID) difference in the price of a bag of wheat flour if sold in Baghdad or Mosul. ¶15. Despite this continued price differential, merchants report that an apparent glut of wheat flour in the Jameela market in Baghdad has caused prices to drop by 50 percent since food aid wheat flour became available at the end of April. This reflects a general decreasing price trend for wheat flour in the surveyed cities since the PDS restarted. ¶16. When asked, traders had strong feelings about the variable quality of distributed WFP wheat flour by country of origin, and how this corresponds to their customers' baking preferences and product demand. One of the preferences relates to how well a particular wheat flour makes the breads suiting local tastes. Apparently, the USA marked wheat flour is of good quality, but not the most desirable for making the local flat bread, and it is often mixed with courser wheat flour to make it more suitable. The more finely milled WFP wheat flour is considered the best for commercial baking flour of leavened products. Most non-WFP/USA wheat flour is of Turkish origin, and variable in quality and price. ¶17. Wheat flour prices by quality: ARBIL WFP wheat flour - high: 40-43 SD/equiv. 9,200 ID WFP wheat flour - mid: 19-23 SD WFP wheat flour - low: 10-20 SD Non-WFP wheat flour - all: 10-50 SD AS SULAYMANIYAH WFP wheat flour - high: 40 SD/equiv. 9,200 ID WFP wheat flour - mid: 26-28 SD Non-WFP wheat flour - all: 8-45 SD AL HILLAH WFP wheat flour - high: 10,500 ID/equiv. 45 SD WFP wheat flour - mid: 7,000 ID Non-WFP wheat flour - all: 2,000 ID BAGHDAD WFP wheat flour - high: 12,600 ID/equiv. 55 SD WFP wheat flour - mid: 7,000 ID Non-WFP wheat flour - all: 14,000-17,500 ID *Est. exchange rate (July 1, 2003): $1: 6.1 SD $1: 1,400 ID 1 SD: 230 ID ¶18. Given the rapid survey approach taken by the teams in Arbil, As Sulaymaniyah, Al Hillah, and Baghdad, it is difficult to estimate overall quantities of wheat being sold in these markets and nationwide. The total PDS distribution of wheat flour nationwide to FAs for June is roughly estimated to be 237,000 MT (updated daily). For perspective, on the day of the DART survey in Baghdad, approximately 300 MT of wheat flour was thought to be on sale in the Jameela open market. As previously noted, about 75 percent of this flour was marked as WFP/USA. -------------- CONCLUSION -------------- ¶19. Despite the prevalence of humanitarian food aid (particularly wheat flour) observed in the markets of the four cities surveyed, there is no indication of an organized, large-scale diversion of food aid from the PDS for commercialization in urban markets. Moreover, relative to other times of the year, the quantity of wheat flour in the markets may be elevated presently due to the recent completion of the June PDS ration distribution, residual stocks from extra rations being distributed before the conflict, the bumper wheat harvest in Iraq this year, and the fact that wheat flour sales are more common in the summer than winter due to spoilage. To track trends in the sale of humanitarian food aid, continued monitoring of the prevalence and pricing of PDS ration items in local markets by WFP and USAID/DART is strongly recommended. UNCLASSIFIED