Talk about getting creative to avoid use of the dollar (the iranians are particularly keen to avoid use of the dollar in oil trading, it verges on a point of honor with them. They have been selling oil to the Japanese with trades denominated in yen rather than the dollar as the reference currency for some time. But in their case, as the news story below discusses, is also making a virtue of necessity). However, the UN said that they expect agricultural goods barter to become more common.

From the Financial Times:

Thailand on Monday said it planned to barter rice for oil with Iran in the clearest example to date of how the triple financial, fuel and food crisis is reshaping global trade as countries struggle with high commodity prices and a lack of credit.

The United Nations’ Food and Agriculture Organisation said such government-to-government bartering – a system of trade not used for decades – was likely to become more common as the private sector was finding it hard to access credit for food imports.

“Government-to-government deals will increase in number,” said Concepción Calpe, a senior economist at the FAO in Rome. “The lack of credit for trade could lead also to a resurgence of barter deals between countries,” she added.

Officials and traders noted, however, that Iran was not typical because the US-led sanctions against its banks meant the country was facing difficulties financing agricultural trade even before the financial crisis.

Bangkok’s commerce ministry said it was sending a delegation to Tehran to discuss the barter deal. Thailand is the world’s largest rice exporter, controlling a third of the global market, while Iran is one of the top 10 importers.

Last year Iran bought some 600,000 tonnes of rice from Thailand, but so far this year it has bought only 60,000 tonnes as it has waited for prices to fall.

The price of Thai medium-quality white rice soared to an all-time high of above $1,000 (€798, £641) a tonne in May but has since dropped to $660 a tonne on the back of a large global crop. Prices are still well above their pre-crisis average of $250 a tonne. Chaiya Sasomsab, Thailand’s commerce minister, said Thai officials planned to travel to Iran by the middle of November to “discuss the specifications of oil and rice that would be exchanged”.

Agriculture officials such as Jacques Diouf, the FAO director-general, are warning that the financial crisis could deepen this year’s food crisis through its impact on credit availability. “Borrowing, bank lending . . . all may be compromised by a deepening financial crisis,” Mr Diouf said this month.

With some developing countries’ official currency reserves facing serious depletion, particularly in Africa and Asia, agricultural officials said countries could barter more to avoid exacerbating their current account difficulties.

Ben Savage, managing director at London-based rice brokers Jackson Son & Co, said the full effects of the credit crunch had not been felt as most of current food trade related to contracts signed before the crisis.

“Trade finance has tightened sharply and, in many cases, letter of credit confirmation fees have doubled or tripled,” he said. “Exporters are reviewing the terms of payment they are ready to accept and credit they are prepared to give.”

Agricultural commodities traders said that the banking cost to confirm a letter of credit – a common instrument to finance trading – has risen to 3-4 per cent of the value of the contract, up from 1-1.25 per cent before the collapse of Lehman Brothers in September.