Fighting, payment problems disrupt Libya's food imports

TOBRUK/LONDON (Reuters) - Food prices have risen in Libya as payments problems, fighting and a breakdown in authority disrupt the usual import routes as the country spins out of control three years after the ousting of Muammar Gaddafi.

Rice, vegetables such as tomatoes and juice have become more expensive by up to 10 percent in cities such as Benghazi, a major port, where violence has made it harder for suppliers to get their goods through, forcing importers to look for new ways to bring food in.

The North African country, which is mainly desert, exports oil but depends on imports of everything from wheat to milk to feed its six million people.

There are no food shortages yet but Libyan importers have had to work around the strained state system by using land borders, bringing smaller volumes in through smaller ports or by drawing down existing stocks.

European wheat traders say the violence, a spike in insurance premiums and questions about the jurisdiction of western ports now outside of government control have made shipping companies more reluctant to deal with Libya.

    "It is becoming harder to conclude deals. It’s understandable that for many (food commodities) suppliers it is not worth the hassle at the moment," said a European trade source involved in Libyan business who declined to be named.

The breakdown is a disappointment to Western powers who had hoped to create a stable democracy in Libya when they backed the 2011 uprising against Gaddafi.

Imports of wheat and other subsidized basic foods are financed by government funds given to state and private importers to make sure prices are low. But work at some government offices and banks has come to a halt as employees stay away, fearing for their security after a string of attacks.

"The Price Stability Fund employees have not been reporting to work so they are not processing payments to local and foreign suppliers," said Husni Bey, chairman of the HB group, one of Libya's biggest conglomerates and import firms.

    "These suppliers are owed an estimated 500 million (Libyan dinars) -  some (are) one year overdue."

The state fund helps keep the price of some goods low. Bread, the staple of Libya's diet, costs only 2 cents a loaf, meaning that without government funding, wheat would be an unprofitable import for investors.

The system leads to Libyans buying bags full of bread, much of which is thrown away but the government is too weak to raise bread prices despite the rising cost of maintaining the subsidy.

Bey said if the PSF fund remained hampered by the violence then millers would try to seek funding for wheat imports through local commercial banks, which are also facing problems.

WHEAT AND SUGAR

With ministries not functioning properly, there is little recent import data. An official at the commercial port in Benghazi, the main gate for wheat and other imports headed for the east, said volumes have fallen by more than 60 percent since May when fighting between pro-government forces and Islamists escalated.

    "We used to have 10 ships docking at the quay and 17 waiting. Now we have two to three ships," said Mustafa al-Abar, the port manager.

Work at Benghazi port could come to a total halt if forces of defected general Khalifa Haftar carry out their threat to bomb any ship approaching to stop alleged arms supplies for Islamists.

At least four vessels carrying goods including grain are currently anchored off Benghazi, ship tracking data showed. One ship was anchored for nearly three weeks with a cargo of wheat.

There are also signs of a slowdown in deliveries of white sugar, consumption of which is estimated at between 230,000 to 250,000 tonnes in Libya in recent years.

"Ship owners are wary of bringing their vessels into Libyan ports now and there do not appear to be many large, direct shipments of late especially for white sugar," a second European trade source said.

ALTERNATIVE ROUTES

Trade sources said some Libyan buyers were bringing cargoes of goods, including wheat and sugar, by land across neighboring borders from Tunisia and Egypt.

"It’s not ideal and the costs are large," the second European trade source said. "If the truck gets hijacked, at least it’s not the same as losing a whole ship with goods inside Libya."

Others are sending smaller shipments through smaller ports.

Libya is effectively split into three entities with the powerless government and elected parliament holed up in Tobruk, some 1,200 km from Tripoli where an armed opposition group has set up a rival assembly and cabinet. Nobody is really in charge of Benghazi where army and Islamists vie for control.

    Some suppliers prefer to change location and send smaller quantities to minimize the risk and discharge the load more quickly, shipping sources say. A Ukrainian exporter planned to send 3,000 tonnes of animal feed to Bayda, a small port town east of Benghazi still under government control, according to a freight order seen by Reuters.

"You can no longer ship grain to Libya in the normal way because insurance companies are assessing some ports in Libya as war zones and even war risk insurance no longer gives you cover," said another European trading source.

    A spokesman for the world’s biggest container ship group Maersk Line said it had a weekly feeder service to Libya via a third party representative. "It is still running as scheduled. However, volumes are impacted by the conditions," he said.

BANKING PROBLEMS

HB Group's Bey said ships were still delivering goods for private importers which tend to have foreign bank accounts though the distribution of products had become more expensive.

Libya had planned to import 1.8 million tonnes of wheat this year but analysts question whether this is possible as a breakdown in security is undermining the banking system.

The central bank, which holds the oil revenues, has become reluctant to supply banks with cash to avoid robberies. Gunmen stormed a bank in Benghazi last week, stealing some 560,000 Libyan dinars, bank sources said.

That has led to dollar shortages though the central bank still had $109 billion in foreign reserves at the end of June. The rise in insurance premiums has also made it difficult to ship the funds from oil, which are booked in foreign accounts, to Libya, the central bank has said.

With two rival governments and parliaments both pressuring the central bank to approve budget payments, shippers also wonder who now represents the state which had been the main importer.

(Additional reporting by Ayman al-Warfalli and Michael Hogan in Hamburg; Editing by Veronica Brown and Anna Willard)