Cablegate: Political Impact of Syria's Record-Low Wheat

VZCZCXYZ0000
PP RUEHWEB

DE RUEHDM #0518/01 2020524
ZNR UUUUU ZZH
P 200524Z JUL 08
FM AMEMBASSY DAMASCUS
TO RUEHC/SECSTATE WASHDC PRIORITY 5201
INFO RUEHAD/AMEMBASSY ABU DHABI PRIORITY 1450
RUEHAM/AMEMBASSY AMMAN PRIORITY 7370
RUEHAK/AMEMBASSY ANKARA PRIORITY 5610
RUEHGB/AMEMBASSY BAGHDAD PRIORITY 0905
RUEHLB/AMEMBASSY BEIRUT PRIORITY 4967
RUEHEG/AMEMBASSY CAIRO PRIORITY 3690
RUEHDO/AMEMBASSY DOHA PRIORITY 0505
RUEHKU/AMEMBASSY KUWAIT PRIORITY 1348
RUEHYN/AMEMBASSY SANAA PRIORITY 0346
RUEHTV/AMEMBASSY TEL AVIV PRIORITY 2186
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHEFDIA/DIA WASHDC PRIORITY
RUEAIIA/CIA WASHDC PRIORITY
RUMICEA/USCENTCOM INTEL CEN MACDILL AFB FL PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

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

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Summary
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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.

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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.

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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)

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Comment
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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

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