April 27, 2011 / 3:58 PM / 6 years ago

Food trade with Libya rebels hit by payment fears

* Libyan rebels yet to establish proper credit lines

* Growing worries over food stocks in Libya

By Michael Hogan and Jonathan Saul

HAMBURG/LONDON, April 27 (Reuters) - Food imports into Libya's rebel-held east are being hit as the interim national council struggles to establish lines of credit and foreign traders fear they will not be paid.

Libya was a net importer of food before heavy fighting between rebels and leader Muammar Gaddafi's forces interrupted supply chains.

This week the World Food Programme (WFP) said, "A recent inter-agency mission found that food stocks in the eastern parts of the country are not being replenished at normal rates and the current stocks are enough for up to two months only."

"If the import capacity is not restored quickly, this could lead to a massive food availability problem for the entire population of eastern Libya," the U.N. agency warned.

European dealers said transactions with east Libya were not feasible for most private grain trade houses.

"I am not accepting the risk of local delivery to Libya and selling to the rebels. Which court would you go to if you were not paid? It is an unknown factor," one European trader said.

Another said rebels had little expertise in food logistics.

"The rebels could get flour by paying in advance, which they are not willing to do," the second trader said. "They could also charter ships themselves, buy the wheat at origin and ship it themselves. They do not seem to be doing this either."

Analysts said the rebels still lack relationships with financial institutions.

"It is rather difficult to extend credit to someone who is not fully plugged into the international financial system or into singular national financial systems," said J. Peter Pham, Africa director with U.S. think-tank the Atlantic Council.

"Until those very basic fundamentals are addressed, there is going to be hesitancy on the part of the trading community to do business with them."

Meanwhile, stores and supermarkets in Benghazi remain well-stocked with food items such as bread, cheese and milk, but storeowners and residents say prices of some items have gone up sharply since the uprising began.

"These are the hardest days we've had so far, because we cannot get the goods we want when we want them," Saleh Awad, a grocery store owner in Benghazi, told Reuters.

SHIPPING DISRUPTED

The WFP has urged commercial shipping lines to resume operations to eastern ports of Benghazi and Tobruk to facilitate humanitarian imports and commercial imports of basic items.

"The sooner the free flow of goods is resumed, the sooner the food security of that country will be improved," a WFP spokesman said on Wednesday.

Traders said it was difficult to ship anything by sea into Libya at the moment. "Libya is seeking to buy soft wheat," said a trader used to dealing with the country. "We did not resume exports to this country, because it's almost impossible to find ships and insurance for this destination."

Another trader said, "Even if things are quiet when the contracts are signed, artillery shells could be coming down in the ports when the vessel actually arrives in two weeks time."

Shipping sources also have said a U.N. arms embargo on Gaddafi enforced by NATO at sea is disrupting other shipping activity. Libyan coast guard and port officials said it was strangling vital seaborne trade.

"As in any armed conflict there will always be a risk if one gets in the way of the fighting parties," said Jakob Larsen, maritime security officer with BIMCO, the world's largest private shipowners' association.

"Until now all we have received is directions on how to help the navies achieve their objectives, but we have not seen any measures to make it more transparent to the shipping industry what is actually going on," he added.

Traders said food imports in Gaddafi-controlled west Libya were affected by trade sanctions on the government.

Large purchases of flour for west Libya have been made in recent weeks for shipment to Tunisia and truck transport to Libya, European grain traders said.

"Libyan flour mills seem to be out of operation, and so the state-owned Libyan importing companies in Tripoli are buying finished flour ready for baking on the international market," a trader said.

"There are problems on the payment front as no grain trading houses want to have the word 'Libya' on the documents. Letters of credit for the sales are being opened by banks outside Libya, notably in Tunisia." The WFP said on Tuesday a second chartered aid ship had reached the besieged western city of Misrata. It has also set up a humanitarian corridor into the west for civilians in cities including Tripoli.

(Additional reporting by Valerie Parent and Sybille de La Hamaide in Paris and Deepa Babington in Benghazi)

Writing by Jonathan Saul, editing by Jane Baird

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