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UPDATE 2-Staring down potential wheat crisis, Egypt to sieve cargoes of poppy

* Minister calls seeds "not very dangerous"

* Re-entry of shipment could avert trade crisis

* Traders call poppy seed restrictions "new ergot"
(Adds inspector, trade comments)

By Maha El Dahan and Eric Knecht

CAIRO, Sept 13 (Reuters) - Egypt will sieve two cargoes of
French and Romanian wheat halted for poppy seeds before deciding
whether to allow their entry, Agriculture Minister Abdel Moneim
Al-Banna told Reuters on Wednesday, a move that could avert a
trade row.

The world's biggest wheat buyer has panicked global
suppliers in recent weeks by referring the two cargoes to its
public prosecutor for containing what it said were
drug-producing poppy seeds. The prosecutor has yet to issue a
final decision on whether the wheat should be re-exported.

Supplier Transgrain France and the French embassy in Cairo
sent letters to state-buyer GASC arguing that the strand of
poppy, papaver rhoeas, in the wheat is a harmless variety not
used in opium production and is commonly found in wheat fields.

Banna's comments are the first by an Egyptian official to
take a similar view. He said the seeds were "not very
dangerous", and that "there is still a study that has not been
completed to determine whether to re-export it to the country of
origin or use it after the sieving."

Traders are watching closely, and have said that any
rejection could lead them to boycott the state's massive
tenders, protesting what they describe as excessive inspection
measures that have made doing business increasingly risky.

"All suppliers will wait and see what will happen," said one
Cairo-based trader.

In a similar trade row last year, Egypt temporarily banned
any trace of ergot, a common grain fungus, in cargoes. That move
halted the country's billion-dollar grain trade after suppliers
said the zero-tolerance level was impossible to guarantee.

GASC expects to buy about 7 million tonnes of wheat in the
fiscal year that began last July in order to supply a bread
subsidy programme relied on by tens of millions of Egyptians.

Inspectors from Egypt's agriculture quarantine service have
slammed a food inspection system launched this year that was
intended to streamline trade following the ergot dispute.

They say the new system, which ends the process of sending
Egyptian inspectors abroad to check on grain, has allowed
harmful contaminants to enter the country. They successfully
challenged the system in court, but a verdict to suspend it has
not been implemented and is being appealed.

"We are being exposed to the biggest campaign to enter the
largest quantities possible of poor quality wheat into Egypt and
to make it the wastebasket of the world," a quarantine inspector
said.
(Reporting by Maha El Dahan in Dubai and Eric Knecht in Cairo;
Writing by Eric Knecht; Editing by Dale Hudson, Louise Heavens
and Susan Thomas)

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