* Gum arabic exempt from U.S. trade embargo
* So Sudan remains world power in the industry
* Export success shows country's farming potential
* But Sudan faces competition from other African countries
* Low farmer incomes threaten labour shortage
By Ulf Laessing
EN NAHUD, Sudan, Jan 2 (Reuters) - Counting piles of banknotes in front of his tiny warehouse, Sudanese trader Maaz Adam is arranging yet another purchase of a red g u m which may find its way into a bottle of soda pop drunk a world away from this dusty town.
"I bought today 25 sacks for around 10,000 to 11,000 pounds (around $1,500 at the black market rate)," he says, putting the banknotes in the suitcase of another trader who is preparing to seek more supplies of gum arabic from village farmers.
Business is booming in the western Sudanese town of En Nahud thanks to rising global demand for gum arabic, a natural and edible gum taken from acacia trees growing in the area.
Adam paid about 440 pounds per large sack, three times as much as he paid two years ago. Used as an emulsifier to prevent sugar from crystallising in fizzy drinks, as a thickener in confectionery and as a binder for drugs, cosmetics and postage stamps, gum arabic is in high demand in many countries.
It is a rare export success story for Sudan, which has been plagued by ethnic conflicts, poverty and poor economic infrastructure. The gum arabic trade hints at the growth which the country may achieve if it can find ways to mobilise more of its vast areas of arable lands and agricultural resources.
Because gum arabic is so important to the soft drinks industry and other products, the United States has exempted it from a broad trade embargo which Washington originally imposed in 1997 over Sudan's human rights record.
This has allowed Sudan to remain a world power in gum arabic. It hopes rising demand, especially from fast-growing Asian countries, will help to soften an economic crisis triggered by the loss of three-quarters of its oil production when South Sudan seceded in 2011.
Sudan's association of gum arabic producers estimates farmers will produce up to 80,000 tonnes of gum arabic in the 2012/2013 season, after enjoying plenty of rain in the often-dry savannah. Last year, they produced about 40,000 tonnes.
The jump in prices is partly driven by Sudan's soaring annual inflation, which hit 46.5 percent in November, but producers also notice more demand from abroad compared to previous years.
"We have new markets," said Fatma Ramli, national coordinator of the association. "We now have markets in the Far East, Japan, the Gulf, China as well as America and Europe."
Gum arabic is produced in Sudan's savannah belt, which stretches from the western border with Chad to Ethiopia in the east. En Nahud lies in the main farming state of North Kordofan, which alone is expected to produce 40,000 tonnes in the current season that will end in the spring, Ramli said.
"It doesn't bring in as much as cotton and oilseeds, but its importance comes from the fact that it's all produced in the poverty belt," said Abda el-Mahdi, an economist in Khartoum.
Sudan earned $81.8 million from exporting 45,633 tonnes of gum arabic in 2011, up from $23.8 million on 18,202 tonnes in 2010, according to the latest central bank data. Subsequent price and volume increases suggest it might earn over $200 million this year.
That would still be only a small fraction of the billions of dollars which Sudan lost because of the secession of the south; in 2010, the last year before secession, Sudan earned at least $5 billion in oil revenues. But the gum arabic boom does suggest developing other export industries is possible for Sudan.
There is little reliable production data for gum arabic as some gets smuggled into South Sudan and Chad. Government officials put Sudan's global market share at 80 percent, but some analysts think this figure is much too high.
Sudanese farmers, who often produce gum arabic in small groups with little efficiency, risk losing out to growing competition from other countries. Fighting between rebels and the army in three farming regions of Sudan, Darfur, Blue Nile and South Kordofan, has also hit production.
"Several other countries came in and competed, Chad, Nigeria...," said Mahdi. So Sudan's global market share could have fallen to between 20 to 40 percent, though its gum arabic is still first choice among many consumers because of its high quality, she said.
En Nahud is the last town in western Sudan before a traveller reaches the troubled region of Darfur - the paved road ends here after a 12-hour drive from Khartoum. United Nations food aid trucks continue their trip to Darfur on dirt tracks only after taking armed escorts on board.
But while En Nahud may at first glance look as desolate as other small Sudanese towns, with many of its one-storey brick buildings built during British colonial rule, it is wealthier because of gum arabic.
A large market attracts hundreds of farmers and traders every day. Shops are well-stocked with foreign food products, and restaurants are bustling with people eating meat for breakfast - a luxury for many Sudanese who have to rely on ful, a staple food made of bean and water.
"We traded 9,000 tonnes of gum arabic last year...Prices are on the rise," said Hashem Umbada, head of a local agricultural bourse where gum arabic, beans and other products are auctioned.
In the nearby state capital El-Obeid, a Sudanese firm, one of many newcomers since the government ended a state monopoly on the business in 2009, is building a plant to refine and clean the gum arabic so it can fetch higher prices. Currently, women in a warehouse dust it off before it gets packed into sacks.
Gum arabic enriches a range of people on its route as it is loaded on trucks in En Nahud for a long journey to Port Sudan, where it is transferred to ships. Farmers doing the arduous field work struggle to get their share of the boom.
"There are so many middlemen," said Mahdi, the economist in Khartoum. "They buy at very cheap prices. They put their fat share on it and the government puts its fat share on it in terms of duties and taxes."
On a tree plantation outside En Nahud, reached only via unpaved roads lined by thatched houses, village farmer Mohammed Adam says he makes 4,000 pounds a year from his crop.
"We wish we could benefit from gum arabic like the exporters," said Adam, who belongs to one of 3,000 gum arabic associations in Sudan. To feed his family, he also cultivates beans.
The U.N. World Food Program and World Bank provide aid to small farmers in Sudan but the industry also faces another problem: a shortage of workers. Many labourers who used to work for Adam prefer, like an estimated half million Sudanese, to dig for gold in the desert.
"We need workers for the tapping, but it's difficult to get them because they search for gold and they are expensive," Adam said.