Quoting unnamed officials, The Island said a formal agreement to this effect will be signed later this year. Any food-for-oil deal by Iraq must be endorsed by the United Nations under the ongoing embargo on Baghdad for its 1990 invasion of neighbouring Kuwait.

The agreement to sell Sri Lankan tea came during a visit by a Sri Lankan ministerial delegation to Baghdad last week. The visit was the first since the 1990 Gulf war.

Tea is Sri Lanka's lifeline, bringing in hard currency that the government needs to keep the economy going and to fight separatist Tamil rebels.

Sri Lanka produced 276.8 million kilograms of tea in 1997-1998, the highest ever recorded.

The government exported 268 million kilograms in 1997-98, earning 807 million dollars.

The government's privatisation programme launched in 1995 has boosted tea yields through improved husbandry and better management. Thegovernment has sold 51 per cent of 19 plantations, and now has majority control in just three large plantations.