POLITICAL IMPACT OF SYRIA'S RECORD-LOW WHEAT

UNCLAS DAMASCUS 000518 SIPDIS SENSITIVE STATE FOR NEA/ELA, EEB/TPP/ABT/ATP JANET SPECK; NSC FOR ABRAMS/GAVITO; CAIRO FOR FAS/PETER KURZ; STATE PLEASE PASS TO DEPT OF AGRICULTURE E.O. 12958: N/A TAGS: EAGR ECON ETRD PGOV SY SUBJECT: POLITICAL IMPACT OF SYRIA'S RECORD-LOW WHEAT HARVEST REF: A. DAMASCUS 311 ¶B. DAMASCUS 307 ¶C. DAMASCUS 320 ¶D. DAMASCUS 55 -------------- Summary -------------- ¶1. (SBU) The 2008 harvest of Syria's primary strategic crop -- wheat -- declined by 50 percent from 2007, primarily due to bad weather. For the first time in 15 years the SARG has turned to the international wheat market to compensate for the shortfall in supply. Even with this year's record-low yield, experts estimate that the SARG's strategic wheat reserve will maintain roughly one year's supply until the 2009 crop is harvested. Perhaps reflective of the low yield and its strained regional relationships, the SARG has not yet taken any steps towards meeting its wheat export obligations to Egypt, Jordan and Yemen. Post has received inquiries from several private Syrian wheat importers regarding U.S. wheat, although high freight costs (USD 100/MT) are a concern. If the dollar continues to fall, however, U.S. wheat may enter the Syrian market for the first time. End summary. -------------- Wheat Harvest Down 50 percent from 2007 -------------- ¶2. (SBU) With 100 percent of the crop harvested, Syria's wheat production barely reached two million metric tons (MT) in 2008 -- a 50 percent decrease from last year's yield and the worst harvest in over ten years. Contributing factors to the decline included an on-going three-year drought, a late-winter frost and a 357 percent increase in the price of diesel when the SARG cut fuel subsidies in half in early May. Mostly due to the frost, much of the rain-fed wheat in the northeastern province of al-Hasakeh was deemed unfit for harvesting and was instead sold for grazing. Landlords earned 5000 to 6000 SYP (USD 110-130) per dunum grazed without incurring harvesting and transportation expenses, which increased fourfold in reaction to the diesel price increase. -------------- Strict SARG Actions Limited Leakage -------------- ¶3. (SBU) Anticipating a record low harvest, the SARG took a number of unprecedented measures in May to prevent farmers from both grazing their crops and smuggling harvested crops to the black market. Such measures included prohibiting farmers from transporting harvested crops across provincial borders, prohibiting the harvesting and transportation of wheat at night, requiring cargo trucks to have police escorts en route to government markets, and placing military checkpoints on major routes to prevent the undocumented transportation of wheat. These actions were somewhat successful in preventing leakage as the SARG's General Establishment for Cereal Processing and Trade (HOBOOB) reported purchasing 951,000 MT, or approximately 48 percent of the total crop. In previous years, HOBOOB purchased an average of 68 percent of the total wheat crop. The SARG also attempted to reassure farmers that it would help offset increased production costs by offering a 3000 SYP (USD 65) / dunum stipend for irrigation and creating a "Price Support Fund." Currently, no details on the implementation of either of these initiatives have been issued and most Syrian farmers remain skeptical. -------------- Bashar Looking for Handouts -------------- ¶4. (SBU) During his June 2 trip to Abu Dhabi, the UAE President offered Bashar al-Asad a "gift" of 500,000 MT of wheat for the Syrian people. We understand that Bashar asked for the donation after learning that the UAE was paying for food assistance for both Egypt and Jordan. -------------- --- Wheat Trade Increasing in Political Significance -------------- --- ¶5. (SBU) Due to this year's record low yield, for the first time in 15 years the SARG has turned to the international wheat market to compensate for the shortfall in supply. HOBOOB issued a tender to purchase 120,000 MT for delivery to the Syrian ports of Lattakia or Tartous on a cost-insurance-freight (CIF) basis within a month of opening a letter of credit. Local analysts theorize that such a tender may be the first 25 percent tranche of a 500,000 MT "gift" that Bashar received from the President of the UAE. A competing theory holds that the SARG may have issued the tender as a trial balloon to test the value of its own wheat for export to the global market. As Syria also produces the more expensive durum (hard) wheat, but primarily consumes the cheaper milling (soft) wheat, some experts believe that the SARG may try to increase its stockpiles of milling wheat by exporting Syrian durum. ¶6. (SBU) Syria mills around 7000 MT of wheat per day, primarily to produce bread -- although pasta, couscous and bulgur are also locally manufactured. Most of the daily milling requirements are provided from Syria's strategic wheat reserve. The SARG is believed to have established a "redline" for its strategic reserves at a one-year supply, or roughly three million MT. Even with this year's record-low yield, experts estimate that the strategic reserve will hold at approximately three million MT until the 2009 crop is harvested. ¶7. (SBU) Syria has contractual obligations to export a total of 700,000 MT of wheat to Egypt, Jordan and Yemen. Perhaps reflective of this year's low yield -- as well as of its strained political relationship with Egypt -- the SARG has yet to take any steps towards meeting these obligations. Post has received inquiries from several private Syrian wheat importers regarding U.S. wheat, although high freight costs (USD 100/MT) are a concern. If the dollar continues to fall, however, U.S. wheat may enter the Syrian market for the first time. (ref D) -------------- Comment -------------- ¶8. (SBU) Global food inflation (ref A) and recent SARG economic policy decisions (ref B) have combined to substantially increase the economic pressure on the average Syrian consumer. While Syrians openly grumble about inflation, the SARG seems confident that there will be no increase in bread prices resulting from this year's poor harvest. Local experts tell us that wheat is the one strategic crop about which the SARG has a "psychological complex," dating from Syria's dependence on foreign grain donations in the 1980s. The status of Syria's strategic wheat reserve is a closely-held secret because the regime views wheat as one pillar of its political independence. Consequently, the UAE's pledged gift of wheat is particularly significant. Although the logistical details of this deal have not yet been disclosed, the additional wheat should help to ease regime concerns over possible shortages and breadlines for the next year. CORBIN