IRAQI TRADE MINISTER DISCUSSES GRAIN IMPORT

UNCLAS BAGHDAD 003498 SENSITIVE SIPDIS STATE FOR NEA-I ECON USDA/FAS/OCRA FOR LSHATZ, AALLEN, CMCKINNEL USDA/FAS/OGA FOR MSHEAN, MHOUSE USDA/FAS/OFSO FOR RVERDONK E.O. 12958: N/A TAGS: EAGR ECON ETRD IZ SUBJECT: IRAQI TRADE MINISTER DISCUSSES GRAIN IMPORT SITUATION Summary -------------- ¶1. (SBU) FAS and FCS Attaches met October 27 with Minister of Trade Dr. Abdul-Falah Hassan Al-Sudani and other MoT officials to discuss the Iraqi grain import situation, planned GOI renovations at the port of Umm Qasr, and the Public Distribution System (PDS),the GOI's subsidized food distribution program. Given substantial declines in commodity prices and freight rates, MoT was encouraged to tender for their intermediate import needs now. The MoT expects to issue tenders in November provided funding is available. With renovations slated for Umm Qasr to begin in thirty to forty five days, the next tenders will likely include freight specifications for on-board discharge capability for break bulk grain shipments. MoT notes it is prepared to assist in any Ministry of Agriculture (MoA) tendering, discharging and transportation for feed barley imports, provided the MoA comes up with the cash to do so. End Summary. Wheat Import Situation Stable -------------- ¶2. (SBU) Minister Al-Sudani and Director General of Grain Board of IRAQ (GBI) Mr. Muthanna Jabar described for us on October 27 a variety of ongoing MoT market activities. The GBI's current strategy with respect to WHEAT is to import lower-priced Romanian and Russian grain and blend it with higher quality U.S., Canadian, and AUSTRALIAN product to produce flour with the desired protein (gluten) characteristics needed for Iraqi bread products. This approach is likely to continue, as the MoT seeks ways to control costs for Iraq's leading agricultural import, estimated at 3.7 million tons in 2008/09 (July-June basis). Cash on the Barrelhead for Barley and MoT Seed Stocks -------------- -------------- ¶3. (SBU) The Ministry of Trade and the GBI noted that they are prepared to provide assistance for the MoA's plan to import 200,000 tons of feed barley, provided that MoA pays. This assistance would likely include the tendering/discharging/local transportation of the grain, again dependent on MoA funding. (Note: MOA has reported separately that they lack funding as of yet for doing this. End note.) ¶4. (SBU) As for distribution of WHEAT seed from MOT stores of milling wheat, again MoA will have to pay for the product. In addition, the MoT stocks are described by the Minister as not the best product for a seed distribution program, because the milling WHEAT has not been properly cleaned for seed use. Similar to the case for planned barley importation, MoA reportedly has been slow to transfer funds to MoT to purchase the WHEAT seed. Distribution of MoT-owned barley for seed use faces the same situation as WHEAT seed. The Minister questioned whether the GoI should be distributing barley from MOT stocks at all, since it's not really seed quality. The Minister did confirm that WHEAT bran from GOI-owned flour mills is supposed to be sold at subsidized prices to livestock producers for feed, but didn't provide any details regarding price levels. PDS and The Web of Subsidies -------------- ¶5. (SBU) Minister Al-Sudani also discussed subsidies, including the MoT-operated PDS monthly food distribution scheme. The Minister said that the GOI has to "get out of the business of subsidizing everything." The challenge, according to the Minister, is to pursue PDS modification while avoiding the political backlash that could result. During a separate meeting with EMIN, Al-Sudani said that the ministry had made some progress in moving toward PDS reform due in part to the improving security situation, and that they were exploring different ways of effecting further reform, to include -- over the long term -- monetization of benefits. The different options posed different challenges, he said, stating that monetization, for example, would require significant enhancements in the banking system. He opined that IRAQ will take its "first step" toward indirect support in "early or mid-2009." (Comment: This would appear to be a highly ambitious timeline. End comment.) Grain Handling at Umm Qasr Slated for Renovation -------------- --- ¶6. (SBU) According to GBI and the Minister, Umm Qasr's grain discharge facilities, specifically the "vaccuvator" system used to pull grain from bulk holds, will be renovated in the near future. The refit is expected to begin in 30-45 days, and will take an estimated 3 months to complete. During that time, discharge rates will decline by 50 percent at the one berth where the upgrade will occur, necessitating the inclusion in shipping contracts for self-discharge capability (shipboard cranes with grabs) for grain vessels destined for Umm Qasr. According to the GBI, the renovation will increase daily discharge rates to 8,000 to 10,000 metric tons at the improved berth. Current actual rates for break bulk grain appear to average in the 3,800 metric ton range per berth, with frequent notes in vessel discharge reports of work stoppages due to equipment breakdown. We have scheduled follow-up meetings with GBI to further discuss the renovation and its impact on shipping and the local market in the near term. CROCKER