Cheers that greeted Iraq's first independent attempt in years to buy about $150 million worth of wheat for making bread are turning to disappointment over payment terms, US exporters and analysts said.
The Iraqi Grain Board, which has taken over purchasing food such as wheat, sugar and rice from the United Nations' World Food Program, is seeking 200,000 tonnes of hard milling quality wheat on April 14.
US traders pointed out that the Grain Board's tender documents, obtained by Reuters, show that payment to successful companies would be made only after the cargo is delivered in Iraq - instead of the usual practice of being paid once it is loaded and inspected for shipment.
They said a surge in violence in Iraq and uncertainty over the situation in July and August - when the wheat is to arrive - were making them edgy over the payment terms, and that they would likely be quoting high prices to absorb the risk.
"The country might be divided into three parts by then. Who will be responsible for payment?," one trader with an international trading company said, reflecting the worst of fears among those taking part in the tender.
The payment terms were also dimming hopes among US grain exporters of winning over the lucrative Iraqi wheat market - which imports about 2 million tonnes annually - from the firm grip of rival exporter Australia.
Australia, the world's No 2 exporter after the United States, has been the main wheat supplier to Iraq since Saddam Hussein closed the country's door to US wheat in 1998.
Traders said the payment terms seem to favour monopoly wheat exporters such as Australia and Canada, whose finances are backed by their governments and can take on the additional risk of waiting for the cargoes to arrive in Iraq before payment.
"The wheat boards are in a better position to do these kinds of business than the US or private exporters," said grains analyst Dan Basse, president of research firm AgResource Company, referring to Australia and Canada.
"That's because they have the government behind them. Capital to the Australians or Canadians is not an issue," he said, adding that there was some "head scratching" going on among US exporters over the payment terms.
Another exporter said: "There's a clause in there that most exporters don't like," he said, referring to payments to be made within 10 days of the goods arriving in Iraq.
"We usually turn the letter of credit in (for payment) when we finish (loading) the vessel. It (payment) usually takes two to three days," he said, adding that the terms might deter some US exporters from taking part in the tender.
"People don't want to be hung out for that long," he said.
Another exporter said the payment terms mirror conditions in the now defunct UN oil-for-food program that allowed Iraq to sell oil and use the money to buy food and medicine.
"Such terms are rare," he said, adding that his company would place "sufficient insurance" on its cargo by putting a premium on the offer prices submitted at the tender.
Last month, the United States made its first large wheat sale since 1998 to Iraq at a World Food Federation tender.
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