Sanctions side-effect: Iran's food system hit

"The private sector is the main casualty of the sanctions. Private buyers are still able to import but in much smaller volumes than in the past and at much higher prices," a European based grain trader said.

A Dubai-based official with Afra Holding, a unit of a large Iran-based conglomerate, said the group had scaled back cargoes of sugar and grain to one shipment a month from five vessels previously, citing payment difficulties caused by sanctions.

Government buyers, including state food body GTC, are playing a bigger role to maintain strategic stocks.

A GTC official said that it had "no limits" on importing sugar and grains, and was buying directly from companies at suitable prices. GTC was importing around 60,000 tonnes a month, mostly of wheat, the official said.

MALNUTRITION FEARS

One European diplomat acknowledged the knock-on effect. "There is no ban at all in humanitarian terms but admittedly trade of food and medication is being affected. We are concerned about it and we are looking at it quite closely because the last thing we want to see is a serious malnutrition issue, for example," the diplomat said.

"It's more the problem coming from the U.S. - the choice between doing business in Iran or doing business in America. Such a calculation gets lawyers overly jumpy. It's utter risk aversion."

Iranian authorities say sanctions have had little effect on the state, but point to an increasing impact on the population. While officials have accused European countries of blindly following the United States in imposing trade sanctions, the government is facing growing scrutiny at home.

Opponents of President Mahmoud Ahmadinejad accuse him of economic mismanagement. Last week parliament called off plans to grill him after Supreme Leader Ayatollah Ali Khamenei said they must not act in the interests of Iran's enemies.

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