Cablegate: Dart: Sale of Donated Humanitarian Food Aid In

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 06 KUWAIT 003235

SIPDIS

STATE ALSO PASS USAID/W
STATE PLEASE REPEAT TO IO COLLECTIVE
STATE FOR PRM/ANE, EUR/SE, NEA/NGA, IO AND SA/PAB
NSC FOR EABRAMS, SMCCORMICK, STAHIR-KHELI, JDWORKEN
USAID FOR USAID/A, DCHA/AA, DCHA/RMT, DCHA/FFP
USAID FOR DCHA/OTI, DCHA/DG, ANE/AA
USAID FOR DCHA/OFDA:WGARVELINK, BMCCONNELL, KFARNSWORTH
USAID FOR ANE/AA:WCHAMBERLIN
ROME FOR FODAG
GENEVA FOR RMA AND NKYLOH
ANKARA FOR AMB WRPEARSON, ECON AJSIROTIC AND DART
AMMAN FOR USAID AND DART

E.O. 12958: N/A
TAGS: EAID PREF IZ WFP
SUBJECT: DART: SALE OF DONATED HUMANITARIAN FOOD AID IN
IRAQ

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SUMMARY
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1. Stemming from reports of the widespread sale of
humanitarian food aid in Iraq, particularly in Baghdad
markets, members of USAID's Disaster Assistance Response
Team (DART) conducted a rapid survey at food markets in
Baghdad, Al Hillah, As Sulaymaniyah, and Arbil in an effort
to determine the reasons for and scale of these sales.
Since late-1990, Iraqis have become largely dependent on
food rations distributed through the country's Public
Distribution System (PDS). Up to 60 percent of the Iraqi
population of 27 million is thought to depend entirely on
the food and non-food items distributed monthly through the
PDS. The World Food Program (WFP) was given the mandate to
observe the food distribution process in Iraq, as well as
implement it on behalf of the Government of Iraq in the
northern three governorates. Using a ration card system,
food and non-food items are distributed monthly to all
Iraqis through the PDS. The first post-conflict ration
distribution began June 1, and appears to have been
successful. Though difficult to estimate the total tonnage
of ration items present in each of the four markets
surveyed, numerous vendors are selling wheat flour in WFP
and USA marked bags. Between 50 and 80 percent of the wheat
flour available in the four markets had the WFP/USA markings
on the bags. Other items from the ration mix were also
found for sale in the markets, yet not to the extent of the
wheat flour.

2. The rapid survey found that most of the wheat flour
found in the local markets had originated with the ration
recipients themselves, collected by small-scale traders who
circulate through neighborhoods and purchase bags of wheat
flour (and other ration items). The commodities collected
are then sold to local vendors and wholesalers who
consolidate the ration items and sell them in larger
quantities to mobile traders who move the goods to areas
paying a premium for the commodities. Baghdad, where prices
are 20 percent higher than most other parts of the country,
is the primary destination. Relative to other times of the
year, the quantity of wheat flour in the markets may be
elevated presently due the recent completion of the June PDS
ration distribution, residual stocks from extra rations
distributed before the conflict, the bumper wheat harvest in
Iraq this year, and the fact that wheat flour sales are more
common in the summer than winter due to spoilage. A limited
degree of food commodity trading at the household level is
considered acceptable and generally expected, provided there
is no large-scale diversion or detrimental effects on the
health/nutritional status of the community. Despite the
seeming prevalence of humanitarian food aid (particularly
wheat flour) in the markets of the four cities surveyed,
there is no indication of an organized, large-scale
diversion of food aid from the PDS for commercialization in
urban markets.

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PUBLIC DISTRIBUTION SYSTEM AND RATIONS
--------------------------------------

3. Following the imposition of international sanctions in
August 1990, the Government of Iraq introduced a food
distribution system that included the country's 27 million
inhabitants. Under the United Nations Oil-for-Food (OFF)
Program, introduced in 1996 and implemented in 1997, the
Ministry of Trade (MOT) has contracted and distributed
nearly 500,000 MT per month of food commodities through the
PDS. The MOT manages all aspects of the distribution in
Southern and Central Iraq, while in the three northern
governorates of Dahuk, Arbil, and Sulaymaniyah WFP is
responsible for the internal transport, handling and
monitoring of the food distributions, in collaboration with
the Kurdish Regional Government's (KRG) Ministries of
Finance.

4. Under its current six-month emergency operation, WFP
plans to bring in about 2.2 million MT of food commodities
to Iraq, largely to support the PDS. The first post-war
ration distribution began June 1, and appears to have been
successful. The tonnage distributed is still being compiled
by the MOT. The July distribution has been announced, and
MOT and WFP expect to have adequate resources for the
country.

5. Using a ration card system, rations are distributed
monthly to all registered Iraqis. In July, for example,
rations will include wheat flour, rice, sugar, tea, milk
powder, cooking oil, soap, detergent, and pulses (e.g. chick
peas). Households with infants should also receive infant
formula, and a separate allotment of detergent, and soap.
Rations are distributed to final beneficiaries through a
network of food and flour agents (FAs), numbering
approximately 44,000 nationwide. FAs sell rations to
beneficiaries at a nominal price. The ration price in the
southern and central governorates is 250 Iraqi Dinars (ID)
(equiv. USD .18), while the price in the northern three
governorates is 2.5 Swiss Dinars (SD) (equiv. USD .41).

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SALE OF HUMANITARIAN RATIONS
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6. Humanitarian food aid commodities, primarily bags of
wheat flour with WFP markings, for sale in commercial
markets have been observed by USAID DART members and others
over the last month, in addition to being reported in the
press. DART Food Officers conducted rapid surveys at food
markets in Arbil, As Sulaymaniyah, Al Hillah, and Baghdad in
an effort to determine the reasons for and scale of these
sales.

7. In these four cities, numerous shops are selling wheat
flour in WFP and USA marked 45-50 kg bags. Approximately 50-
75 percent of the wheat being sold in the Arbil and As
Sulaymaniyah markets was marked WFP or USA, while the
proportion of wheat flour being sold in one large Baghdad
market was estimated at 75 percent. Wheat flour in Al
Hillah markets with the WFP/USA markings is estimated to be
over 80 percent of the total available observed for sale.
Other items from the ration mix were found for sale in the
markets, yet not to the extent of the wheat flour.

8. The sale of humanitarian food aid is a common occurrence
among vulnerable populations receiving food aid assistance,
such as refugees and internally displaced persons (IDPs).
Reasons for selling rations range from the ration being
inappropriately selected for local tastes, to the ration
being the recipient's sole economic or liquid asset. A
limited degree of food commodity trading at the household
level is generally accepted by the international
humanitarian community, provided there is no large-scale
diversion or detrimental effects on the health/nutritional
status of the community. Certain commodities may have a
potentially higher resale value, and the resale of these
commodities may allow beneficiaries to purchase other
essential food items - such as meat, fruits and vegetables -
that are not available through the ration.

9. Based on discussion with the beneficiaries of rations
distributed through the PDS in Iraq, rations are being sold
for one or more of the following reasons: people need money
to pay the fee to the food/flour agent for ration, they need
money to pay for other food items, or they need money to pay
for non-food items. Very few interviewed indicated that
their household was sufficiently food secure or with
adequate disposable income such that they simply did not
need the rations. Thus, excess food and non-food items at-
home is not thought to be a significant reason for sale of
rations. In Arbil, for example, beneficiaries noted all
three reasons for selling parts of their rations. Moreover,
ration quality reportedly varies by month, and rations of
sub-par quality are often sold in order to purchase higher
quality items, though at a lower quantity.

10. When asked, both merchants and customers in Al Hillah
accepted the sale of PDS commodities as a necessary coping
mechanism for many people who had no other real source of
income. The sale of food aid intended for vulnerable
groups, however, triggered an angry reaction from both the
merchants and customers interviewed. Merchants reported
ambulances selling truckloads of biscuits and similar
stories of food meant for IDPs being sold by those trusted
with the distribution.

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SOURCE OF MARKETED FOOD AID
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11. Approximately 90 percent of the WFP/USA marked wheat
flour found in Arbil's local market is reportedly sourced
from the ration recipients. In Al Hillah and As
Sulaymaniyah, vendors also indicated that the overwhelming
majority of PDS commodity sales were made by households who
needed the money to pay food agents for rations, or to
purchase other food or non-food items. In Baghdad the
repeated explanation regarding the source of the WFP wheat
flour is that traders purchase directly from the
beneficiaries, or it is trucked in from outside the city.

12. Items distributed as rations are usually sourced for
the markets by small-scale traders (often boys or young men
with handcarts) who roam neighborhoods offering to buy the
rations from recipients. Wheat flour is the most prevalent
item purchased, followed by vegetable oil and rice. The
neighborhood collection seems to occur most vigorously soon
after a month's PDS distributions. The small traders
purchase mainly unopened bags from beneficiaries. These
small-scale traders then sell the rations items, including
wheat flour, to local shop-based vendors or wholesalers who
specialize in food items. The vendors and wholesalers then
sell the flour in original, unopened bags to mobile traders
who move the flour (generally using Iraqi registered trucks)
to towns having a higher market price for flour, such as
Baghdad where prices hold an approximately 20 percent
premium to the rest of the country. In Baghdad, traders
indicated that most of the WFP-sourced wheat flour in the
market had been purchased in the northern governorates.

13. In some instances, beneficiaries do report selling
their flour entitlements directly to flour agents (FAs), who
in turn sell it to traders. According to certain
interviewees in Baghdad and Arbil, some FAs sell the higher
quality wheat flour in the market and, in turn, purchase and
distribute cheaper flour to recipients. Additionally, it
was reported that in order to compensate for the higher
transport and loading/off-loading costs, some food agents
are charging more than the allowed 250 ID/2.5 DS per person
and ration.

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PRICE AND QUANTITY OF WHEAT FLOUR IN MARKETS
--------------------------------------------

14. As in the northern governorates, prices for wheat flour
in the southern and central regions are significantly lower
than they are in Baghdad. Although vendors in Al Hillah had
some difficulty giving an exact figure, they estimated a 500-
1,000 ID difference per 50 kg bag of wheat flour when sold
in Baghdad. Traders in Arbil indicated a 2-4 SD (equiv. 460-
920 ID) difference in the price of a bag of wheat flour if
sold in Baghdad or Mosul.

15. Despite this continued price differential, merchants
report that an apparent glut of wheat flour in the Jameela
market in Baghdad has caused prices to drop by 50 percent
since food aid wheat flour became available at the end of
April. This reflects a general decreasing price trend for
wheat flour in the surveyed cities since the PDS restarted.

16. When asked, traders had strong feelings about the
variable quality of distributed WFP wheat flour by country
of origin, and how this corresponds to their customers'
baking preferences and product demand. One of the
preferences relates to how well a particular wheat flour
makes the breads suiting local tastes. Apparently, the USA
marked wheat flour is of good quality, but not the most
desirable for making the local flat bread, and it is often
mixed with courser wheat flour to make it more suitable.
The more finely milled WFP wheat flour is considered the
best for commercial baking flour of leavened products. Most
non-WFP/USA wheat flour is of Turkish origin, and variable
in quality and price.

17. Wheat flour prices by quality:

ARBIL
WFP wheat flour - high: 40-43 SD/equiv. 9,200 ID
WFP wheat flour - mid: 19-23 SD
WFP wheat flour - low: 10-20 SD
Non-WFP wheat flour - all: 10-50 SD

AS SULAYMANIYAH
WFP wheat flour - high: 40 SD/equiv. 9,200 ID
WFP wheat flour - mid: 26-28 SD
Non-WFP wheat flour - all: 8-45 SD

AL HILLAH
WFP wheat flour - high: 10,500 ID/equiv. 45 SD
WFP wheat flour - mid: 7,000 ID
Non-WFP wheat flour - all: 2,000 ID

BAGHDAD
WFP wheat flour - high: 12,600 ID/equiv. 55 SD
WFP wheat flour - mid: 7,000 ID
Non-WFP wheat flour - all: 14,000-17,500 ID

*Est. exchange rate (July 1, 2003):
$1: 6.1 SD
$1: 1,400 ID
1 SD: 230 ID

18. Given the rapid survey approach taken by the teams in
Arbil, As Sulaymaniyah, Al Hillah, and Baghdad, it is
difficult to estimate overall quantities of wheat being sold
in these markets and nationwide. The total PDS distribution
of wheat flour nationwide to FAs for June is roughly
estimated to be 237,000 MT (updated daily). For
perspective, on the day of the DART survey in Baghdad,
approximately 300 MT of wheat flour was thought to be on
sale in the Jameela open market. As previously noted, about
75 percent of this flour was marked as WFP/USA.
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CONCLUSION
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19. Despite the prevalence of humanitarian food aid
(particularly wheat flour) observed in the markets of the
four cities surveyed, there is no indication of an
organized, large-scale diversion of food aid from the PDS
for commercialization in urban markets. Moreover, relative
to other times of the year, the quantity of wheat flour in
the markets may be elevated presently due to the recent
completion of the June PDS ration distribution, residual
stocks from extra rations being distributed before the
conflict, the bumper wheat harvest in Iraq this year, and
the fact that wheat flour sales are more common in the
summer than winter due to spoilage. To track trends in the
sale of humanitarian food aid, continued monitoring of the
prevalence and pricing of PDS ration items in local markets
by WFP and USAID/DART is strongly recommended.

UNCLASSIFIED

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