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 
---------------------------- 
 
¶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 
--------------------------- 
 
¶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. 
 
-------------------------------------------- 
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 
---------- 
 
¶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