Voluntary Report - Public distribution

**Date:** 5/15/2008

**GAIN Report Number:** SY8005

SY8005

**Syria**

**Grain and Feed**

**Production and Trade Update**

**2008**

**Approved by:**

![](media/image1.wmf)Peter Kurz

U.S. Embassy

**Prepared by:**

Chris Rittgers

**Report Highlights:**

The wheat and barley crops have been severely affected: first by frost
and then the extreme drought in the spring of 2008. Large areas of wheat
have been used for fodder/grazing. Wheat production is forecast to drop
to 2 million tons, wheat exports will probably cease, and the barley
crop is forecast at only 200,000 tons. Syria will have to import large
quantities of barely and/or corn to make up for the feed shortage.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Annual Report

Cairo \[EG1\]

\[SY\]

# Executive Summary

[Wheat]{.underline}

Wheat production in 2008/09 is estimated by the Minister of Agriculture
and Agrarian Reform at 2.0 million tons, only half of the previous
year's crop. Consumption is growing due primarily to the influx of Iraqi
refugees. The Ministry of Economy and Trade has put restrictions on the
movement of grains between provinces. The public sector General
Establishment for Cereal Processing and Trade (HOBOOB), which bought
1,550,000 tons from the local crop in 2007, is expecting to buy a
similar quantity in 2008. However, given the current supply situation
and the prices HOBOOB is offering, the government will be hard-pressed
to procure that quantity in 2008. Procurement prices for wheat were
increased about 40 percent to encourage the farmers to sell to HOBOOB.
Nonetheless, the new prices are still 35 percent below local prevailing
prices. Exports are forecast to stop due to the low stock levels kept by
HOBOOB. Imports by the private sector are expected to increase
significantly over the usual 200,000 tons per year level.

[Barley]{.underline}

Barley production was badly affected by the drought. Imports are
forecast to grow significantly to make up for the feed shortage. Most of
the imported barley comes from Ukraine and Russia.

**Wheat**

  -------------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- -----------
  **PSD Table**                                                                                            

  **Wheat**                                                                                                
  (1000 HA)(1000                                                                                           
  MT)(MT/HA)                                                                                               

                 2006       Revised                2007       Estimate               2008       Forecast   

                 USDA\      Post\      Post\       USDA\      Post\      Post\       USDA\      Post\      Post\
                 Official   Estimate   Estimate\   Official   Estimate   Estimate\   Official   Estimate   Estimate\
                                       New                               New                               New

  **Market Year             07/2006    07/2006                07/2007    07/2007                07/2008    07/2008
  Begin**                                                                                                  

  Area Harvested 1700       1700       1700        1700       1700       1700        1600       1700       800

  Beginning      5483       5483       5483        4033       4033       4033        2933       2733       2933
  Stocks                                                                                                   

  Production     4200       4200       4200        4000       4000       4000        2500       4000       2000

  MY Imports     200        200        200         200        200        200         800        200        1000

  TY Imports     200        200        200         200        200        200         800        200        1000

  TY Imp. from   0          0          0           0          0          0           0          0          0
  U.S.                                                                                                     

  Total Supply   9883       9883       9883        8233       8233       8233        6233       6933       5933

  MY Exports     1500       1500       1500        800        800        800         300        200        0

  TY Exports     1500       1500       1500        800        800        800         300        200        0

  Feed           400        300        400         400        300        400         400        300        500
  Consumption                                                                                              

  FSI            3950       4050       3950        4100       4400       4100        4250       4600       4300
  Consumption                                                                                              

  Total          4350       4350       4350        4500       4700       4500        4650       4900       4800
  Consumption                                                                                              

  Ending Stocks  4033       4033       4033        2933       2733       2933        1283       1833       1133

  Total          9883       9883       9883        8233       8233       8233        6233       6933       5933
  Distribution                                                                                             

  Yield          2.47       2.47       2.47        2.35       2.35       2.35        1.56       2.35       2.5
  -------------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- -----------

Wheat production in 2008/09 is estimated by the Minister of Agriculture
and Agrarian Reform at 2.0 million tons, just half the previous crop.
The sharp decline is due to frost in winter, and more importantly, the
severe drought in spring 2008. Planted area was about 1.7 million
hectares. However, large areas, both rain fed and irrigated, have
already been used for grazing and will not be harvested. The major
reasons for the reduction in harvested area are that the feed shortage
and lack of grazing areas forced sheep owners to buy the wheat fields
for grazing at very high prices (about 1300 dollars/hectare) before the
onset of the seeding stage. The wheat farmers collected the money in
cash and saved the cost of irrigation, harvesting, bagging and
transportation.

The General Establishment for Cereal Processing and Trade (HOBOOB) hopes
to buy about 1.5 million tons from the 2008/09 crop. The Ministry of
Economy and Trade put heavy restrictions on the movement of grain
between provinces to force the farmers to deliver their grains to
HOBOOB. The Ministry also raised wheat prices by about 40 percent in
April and again adjusted the prices up by 3 percent in early May. In
spite of all these measures, it is doubtful that HOBOOB will come close
to achieving its target purchases as freely traded wheat is still 35
percent above the newly set prices in April 2008. Prevailing barley
prices in the local market are also 30 percent above the newly set wheat
prices. Private traders will manage to buy most of the crop. A part of
the crop may be used to replace barley as animal feed due to the price
factor and due to the transportation restrictions.

**Consumption**

Consumption is growing with the increase in population and the presence
of 1.5 million Iraqi refugees in the country. They represent 8 percent
of the population. Demand will increase further if the wheat is used to
replace barley as animal feed due to higher barley prices in the local
market. Wheat was once used mainly for milling into flour for bread
production. Smaller quantities are used for bulgur production, and lower
quality wheat is used for animal feeding. Available milling capacity
greatly exceeds the milling requirement of the country. The demand for
bread is increasing at faster than the increase in population. Actually,
a part of the produced bread is used as feed and is probably the
cheapest feed ingredient now.

# Trade

Exports are forecast to cease due to the very small crop and the
expectations that HOBOOB will be unable to procure a surplus available
for export. The balance of the quantities contracted for with Egypt,
Jordan, and Yemen may not be shipped due to the small crop and the
limited quantities expected to be bought by HOBOOB from the local
2008/2009 crop. Private Syrian millers exported some quantities of flour
to Iraq, but all such exports, including pasta exports, were prohibited
in April 2008.

Imports are expected to increase well above the traditional 200,000 tons
per year level. Imports will be the only way to legally provide raw
materials for some private sector flour mills and pasta factories as the
government prohibited the transportation of grains between provinces.
Most imports are expected to come from Eastern Europe due to the
relatively cheaper wheat prices and lower freight cost from the Black
Sea area as compared to other origins. No U.S. wheat is expected to be
imported, as landed prices tend to favor sourcing from Eastern Europe
and the Black Sea Region. Syria exported 39,625 tons of flour in 2006,
but exports in 2007/2008 will be negligible since such exports were
prohibited recently. Syria imports limited quantities of flour, mainly
from Turkey (4766 tons in 2006). Detailed trade data for 2007 are not
yet available.

# Stocks

Most wheat stocks are held by HOBOOB, which once maintained stocks (as a
national reserve) at levels close to 4 million metric tons, more than
Syria's annual milling requirement. The private sector maintains some
stocks for its use and for seeding the next crop. These stocks were
maintained to eliminate the need for imports in case of a bad crop year.
Stocks are estimated to be much smaller and will be drawn down to a
level significantly below that of 2006/07 due to limited purchases from
the 2007 crop, and will decrease further due to the very small crop in
2008. Stocks kept by HOBOOB are usually stored in concrete or metal
silos, as well as in open storage facilities.

# Policy

While HOBOOB has been the main player in the wheat market for the past
35 years, in 2007 the private traders took over a significant part of
HOBOOB's monopoly of the wheat market in Syria. It is not clear yet if
HOBOOB will be able to maintain its former position in 2008 in spite of
all the restrictions and penalties imposed on the movement of grains
between provinces in 2008.

Customs duties on wheat imports are one percent. Permitting imports of
wheat and flour for further processing is expected to continue in the
future. Syria plans to expand its concrete silo storage capacity by
about 2 million metric tons during the coming five years. The GOS
expects that these silos will be utilized to replace storage of wheat in
jute bags in open storage facilities and will reduce grain storage
losses. Concrete silos are owned and managed by the General Company for
Silos, under the Ministry of Economy and Trade, and are mainly used for
storing wheat. The private sector has been permitted to establish silos.
These silos will be used for storing imported grains, mainly corn,
barley, and soybeans.

# Marketing

If Syria suffers from another bad crop in 2009, Syria will become a
significant wheat importer. Most of the imports come usually from nearby
sources due to relatively cheap prices and low freight cost. The United
States could become a source of wheat if prices in neighboring markets
increase or if disease problems start to create problems for such wheat
producers.

**Barley**

  -------------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- -----------
  **PSD Table**                                                                                            

  **Barley**                                                                                               
  (1000 HA)(1000                                                                                           
  MT)(MT/HA)                                                                                               

                 2006       Revised                2007       Estimate               2008       Forecast   

                 USDA\      Post\      Post\       USDA\      Post\      Post\       USDA\      Post\      Post\
                 Official   Estimate   Estimate\   Official   Estimate   Estimate\   Official   Estimate   Estimate\
                                       New                               New                               New

  **Market Year             07/2006    07/2006                07/2007    07/2007                07/2008    07/2008
  Begin**                                                                                                  

  Area Harvested 1000       1000       1000        1000       1000       1000        550        1000       350

  Beginning      458        272        458         268        72         268         168        122        168
  Stocks                                                                                                   

  Production     700        700        700         700        700        700         200        700        200

  MY Imports     310        300        310         300        500        900         850        700        1500

  TY Imports     228        300        228         300        500        900         850        700        1500

  TY Imp. from   0          0          0           0          0          0           0          0          0
  U.S.                                                                                                     

  Total Supply   1468       1272       1468        1268       1272       1868        1218       1522       1868

  MY Exports     50         50         50          50         0          50          50         0          0

  TY Exports     50         50         50          50         0          50          50         0          0

  Feed           900        900        900         800        900        1400        800        1100       1500
  Consumption                                                                                              

  FSI            250        250        250         250        250        250         250        250        250
  Consumption                                                                                              

  Total          1150       1150       1150        1050       1150       1650        1050       1350       1750
  Consumption                                                                                              

  Ending Stocks  268        72         268         168        122        168         118        172        118

  Total          1468       1272       1468        1268       1272       1868        1218       1522       1868
  Distribution                                                                                             

  Yield          0.7        0.7        0.7         0.7        0.7        0.7         0.36       0.7        0.57
  -------------- ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- -----------

The 2008/09 barley crop is estimated by the Minister of Agriculture and
Agrarian Reform at approximately 200,000 tons, not even sufficient for
the seeding requirement of the next crop. Planted area was planned at
1.3 million hectares. However, the drought that hit the crop in spring
of 2008 badly reduced the crop, and the majority of planted areas were
abandoned for grazing. Barley production area is almost exclusively
rainfed. Government entities are not expected to purchase any quantity
from the 2008/09 crop, due to the relatively small crop. The government
raised procurement prices in April to 15 SP/kg (326 dollars/MT). This
price is still 32 percent below the prevailing local market prices.
Restrictions on the movement of barley will not have any effect on
delivery to the governmental agencies.

# Consumption

In Syria, most barley is used for feeding sheep. The demand fluctuates
from year to year depending on the availability of grass for sheep
grazing. Demand increases during drought periods and during the winter
months due to the lack of grass at that time. Syria normally requires
about 1.5 -- 1.8 million tons of barley per year for feed use and for
planting next year's crop. Consumption is estimated to increase sharply
due to the lack of grasses in the Syrian steppe.

# Trade

Imports in 2008/09 are forecast to increase significantly due to the
drought. Most imports are expected to continue to be sourced mainly from
Eastern Europe due to lower prices in these countries and relatively low
freight cost. Importers from such origins are suffering from quality
problems of the imported barley. No barley exports are expected.

# Stocks

Beginning in 2005, the General Organization for Fodder (GOF) was granted
responsibility for maintaining barely stocks. Since GOF was unable to
buy any significant quantity of barley (only 1600 MT) from the local
crop in 2007 and probably no quantity from the 2008 crop, the small
stocks are now all kept by the private sector.

# Marketing

Syrian importers rely on Eastern European sources for barley, mainly
Ukraine, Russia, and Turkey. This is mainly due to the competitive
landed prices as well as these sources' ability to ship small quantities
(about 5,000 MT per shipment). Price considerations and freight cost
have prevented Syrian importers from importing barley from the United
States. The situation may change if these sources suffer from
quality/supply problems in the future.