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Tue 8 Nov 2011 10:16 AM

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Libya grains buying at standstill over trade chaos

Cash crisis and confusion over tenders raises fears of food shortages in Arab state

Libya grains buying at standstill over trade chaos
Libyas grain buying has ground to a halt amid ongoing unrest

Libya's grains buying efforts are at a virtual standstill as
a cash crisis and uncertainty over who is running tenders after months of war
deter international players from trading with the food import dependent
country, trade sources say.

Libya, a big food buyer before months of fighting broke
supply chains, has tried to ramp up imports in recent weeks including those of
French and Russian grain. However it cancelled the last tender for 100,000
tonnes of wheat in October due to growing trade chaos.

"We don't think it is safe to do business there at the
moment as we do not know who is in charge," a trade source said. "If
I can't say who my contract party is, how am I going to enforce it?"

Despite a slowdown in commercial grains buying, food
security was improving with aid agencies continuing to provide assistance to
vulnerable Libyans.

Trade sources said it was unclear if officials at the state
grains board were still in charge, with speculation that a new team was being
appointed as the country moves away from a past dominated by deposed leader
Muammar Gaddafi who was killed last month. Officials from the grains board
could not be immediately reached for comment when contacted.

"It is not clear if some people in the grains
purchasing agency have been replaced," another trade source said.

"In a country which previously had a centralised grain
purchasing system with only a modest level of private sector involvement, it
will not be easy to suddenly find new people who know about the international
grains market."

Traders said Libya had been absent from the global market
for over three weeks.

"Some past deals appear to have been cancelled," a
third trade source said. "There is no one in the purchasing agency to
speak to at the moment. You cannot get an answer."

The country's central bank governor said last week its cash
crisis is set worsen with the banking system needing a complete overhaul,
adding that just $1.5bn out of around $170bn of Libyan assets abroad had been
unfrozen.

"The Libyans do not seem to have money. Letters of
credit are not being confirmed. I think the major trading houses will not be
willing to sell unless they are paid in advance," a trader said.

"There seems to have been a lot of disagreement about
pricing of some recent Libyan wheat purchases and some seem to have not been
confirmed."

Another trade source said it was difficult to make simple
transactions including money transfers, which would hamper deals. "How can
anyone operate in this environment?"

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According to port data compiled by Reuters, since August
118,000 tonnes of soft wheat, just over 70,000 tonnes of maize and 25,000
tonnes of barley were loaded in France for shipment to Libya.

The volume of wheat exported is close to the 120,000 tonnes
cited by sources as agreed in contracts with grain traders Nidera and Soufflet
and financed by unfrozen Libyan funds.

"So long as there isn't a proper government in place in
the country it will be difficult to do business with them," a French
export trader said, adding that the contracts using the unfrozen funds had
already proved complicated to organise.

Traders said in recent months Libya had made indirect
purchases of grains and increasingly flour through intermediate companies via
Tunisia and Egypt which were trucked over borders.

"The country has been extensively fed by the
international aid agencies but as the frozen foreign reserves are freed up and
the oil flows, the international community will no doubt expect the Libyans to
feed themselves," a trader said.

Zlatan Milisic, head of the World Food Programme's
operations in Libya, said food security was improving with public distribution
systems slowly recovering. He said the UN agency was committed to continuing to
provide "targeted food assistance" to those still in need of support
including people displaced from their homes, returnees and foreign nationals
that had been caught up in the fighting.

"Food is available at the macro level in the main
cities and towns as the Tripoli and main ports are open and commodities have
started flowing in more regularly," he said.

"However, accessibility to food is still affected by
multiple factors: prices are still high and cash flow is still limited awaiting
the recovery of the banking and financial systems."

Milisic said there was about a month's supply worth of food
stocks for some commodities.

"For some others mainly grains, they are estimated
between two and three months, that is our expectations," he said.
"There is no food crisis in Libya and we do not expect one to
happen."

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