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Sun 10 May 2009 08:44 PM

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Black Sea wheat a growing force in Mideast market

Cheap freight rates give price advantage; but questions remain about overall quality.

Black Sea wheat exports to the Middle East are growing, helped by cheap freight rates and a strong dollar despite some concerns about quality, industry experts and traders said on Sunday.The Middle East has in the past tended to turn to big exporters in the Americas, Europe and Australia but those suppliers are facing competition from Russia and Ukraine which are closer to the area.

"Black Sea wheat is becoming a powerful force in the region," Richard Prior, US Wheat Associates regional vice president of the Middle East and North Africa, told a grains conference in the Egyptian Red Sea resort of Sharm el-Sheikh.

US Wheat Associates said US wheat exports to the Middle East were expected to remain steady in the year to May 31, capturing around 25 percent of market share. But that did not minimise the growing challenge from the Black Sea.

"Twenty years ago the major suppliers to the region were the US, Australia, Canada, Argentina and Europe, and Black Sea wheat was basically unknown," Prior said.

But the proximity of the Black Sea to the Middle East makes freight rates at least $10 a tonne cheaper than shipments from the United States, a major factor in the region which includes some of the world's biggest importers, like Egypt.

"Freight rates are at least $10 cheaper from the Black Sea and the wheat itself is cheaper so I see no reason why the US wheat stands to gain ground again in the region," a Cairo-based trader, who asked not to be named, said on the conference sidelines.

Egypt has imported 3 million tonnes of Russian wheat since last June up until the end of February compared with 1.5 million tonnes of US wheat purchased in the same period, according to the latest report by the US Department of Agriculture.

"The prices from the Black Sea are of course cheaper but there have been problems with quality, as what happened with Ukraine wheat in Egypt last year," said Vincent Peterson, vice president of overseas operations at US Wheat Associates.

Egypt's Social Solidarity Ministry asked the Trade and Industry ministry to stop importing Ukrainian wheat late last year citing complaints by bakers about flour produced from Ukrainian wheat.

Bread is a staple for Egyptians and can be a sensitive political issue. A shortage of subsidised bread, alongside surging inflation, prompted protests last year.

Quality issues with Ukraine wheat have been felt elsewhere in the region.

"Our Black Sea imports slightly declined last year because of the problems with Ukraine wheat," said Taoufik Saidi, procurement director at Tunisia's state grains agency Office des Cereales.

But a stronger dollar is adding to challenges facing US wheat exporters and is helping Black Sea wheat gain ground.

"US quality wheat is good but it's difficult for them to compete with the prices coming out of Russia," said Mohamed Al Rowaishan, chairman of Yemen's Aden Company for Silos and Mills.

Aden Company is expected to import around 400,000 tonnes of wheat this year, around 60 percent of which will be from Russia. (Reuters)