LEBANON: WHEAT SHIPMENT NEEDED TO KEEP BREAD ON

UNCLAS SECTION 01 OF 02 BEIRUT 002652

SIPDIS

SIPDIS

STATE ALSO PASS TO USAID
CAIRO FOR AGRICULTURE COUNSELOR

E.O. 12958: N/A
TAGS: EAID ECON IS LE PREL SY
SUBJECT: LEBANON: WHEAT SHIPMENT NEEDED TO KEEP BREAD ON
THE TABLE


1. This message contains an action message for the
Department -- please see para 6.


2. Embassy meetings with GOL and agrifood industry leaders
have confirmed that current stocks of wheat in Lebanon are at
a critically low level. President of Dora Flour Mills and
Chair of the Agrifood Traders Syndicate Arslan Sinno told
emboffs that perhaps only a 10-15 day reserve supply of wheat
remains in Lebanon. Sinno added that commercial mills have
been taking steps to stretch remaining grain stocks by
rationing their output, closing for portions of the day, and
only partially filling orders from industrial bakers. Sinno
explained that the milling/flour industry in Lebanon is very
much dependent on maintaining stocks of wheat to be milled on
demand. Lebanon's climate and the high overhead cost of
maintaining storage facilities preclude most consumers from
storing large quantities of flour.


3. Sinno and other mill owners confirm that they currently
have no means of getting stocks of wheat delivered to
Lebanon. Normally, Lebanese millers import wheat from Russia
using small capacity ships, holding less than 10,000 tons.
The millers prefer Russian wheat as it trades at
approximately 165 USD per ton CNF (including freight costs),
while U.S. wheat costs over $240 per ton including freight.
Orders placed prior to July 12, 2006 that were inbound to
Lebanon have had to be canceled or resold on the market,
often at a loss to the miller in Lebanon. Ship owners
operating grain transports have refused to cross the sea
blockade to port in Lebanon. Several mill owners report
frustrating and unusual demands from their shippers,
including one ship owner requesting a letter signed by
President Bush and Prime Minister Olmert of Israel
guaranteeing the ship's safety. Sinno stressed the urgency
of getting a shipment of grain en route to Lebanon, as
turn-around times for U.S.-originating grain shipments
average 30 days.


4. The Agrifood Syndicate has approached the GOL and the US
Embassy with a proposal asking for help to alleviate the
wheat shortage. In a letter to Lebanese PM Siniora and
Minister of the Economy Sami Haddad, the syndicate proposes
that the GOL request from the USG a humanitarian shipment of
wheat. The transit and delivery of the shipment would be
guaranteed by the USG, who could make the proper assurances
to the IDF to allow the shipment to cross the blockade. The
30,000-ton shipment (approximately 6 million USD in value),
enough for approximately 1 month of normal flour consumption
in Lebanon, would then be sold to Lebanese commercial
millers. If the wheat were sold at a "replacement rate"
(i.e. the previously negotiated rate for Russian wheat),
bread and flour prices would remain more or less constant in
Lebanon. The Syndicate has also approached the Embassy of
France with a similar proposal, but Sinno and others prefer
U.S. wheat as "more suitable" for Lebanese flour products.
Proceeds from the sale could then be used by the GOL for
reconstruction or humanitarian concerns.


5. Previously, Lebanon has benefited from USAID/USDA
humanitarian wheat programs, such as "Food for Education."
In the most recent wheat shipment, the International Orthodox
Christian Charities (IOCC) NGO received 50,000 tons of wheat,
which was then sold at auction to local Lebanese mills. The
IOCC used the proceeds to support its local education
initiatives. There is no current PL-480 program for Lebanon,
as its per-capita income is too high. Under current USDA and
USAID rules, request for a similar grain shipment would need
to originate from a U.S.-based NGO and be coupled with
Embassy Beirut's endorsement.


6. ACTION REQUEST: Based on suggestions from the agrifood
sector and the GOL on grain shipments, post recommends that
the Department engage with USDA and USAID to:

--Investigate the possibility of donating 25,000 to 30,000
tons of "#2 U.S. Hard Red Winter Wheat" to the GOL for
re-sale and distribution as described above.

--Arrange for shipment of the wheat by U.S.-flag transport
vessels

--Liaise with the Government of Israel to clear the shipment
through the sea blockade


7. Comment: Maintaining bread and flour proces at current

BEIRUT 00002652 002 OF 002


levels and insuring the supply of wheat in the short-run will
alleviate domestic economic pressure on the Siniora
government. The visibility of USG efforts to stave off a
potentially crippling crisis of a bread and flour shortage
would go far to demonstrate USG support for the GOL and the
Lebanese people. While there are several NGOs who could
handle such an operation under normal circumstances (Mercy
Corps, IOCC, World Vision, YMCA),most of their operations
have turned to meeting the immediate humanitarian needs of
Lebanon's inernally displaced persons (IDPs). Allowing the
GOL to be the receiver of such a shipment would secure
immediate and efficient distribution of the grain upon
arrival and bolster the private sector's confidence in the
GOL.


8. Comment continued: Given the time needed to get a ship
of wheat loaded and to Lebanon, we hope that this request can
be approved and acted upon as promptly as possible. As in
fuel, wheat shortages are likely to benefit Syrian
blackmarketeers while hurting the average Lebanese consumer
-- and damaging the credibility of the Siniora government.
We should not underestimate the impact, political and
otherwise, bread shortages and/or hikes in bread prices would
have, especially during this critical period. End Comment.
FELTMAN