One month into the Israel-Hezbollah conflict, multinational food companies operating in Lebanon have ground to a halt, with the country facing a near total economic blockade and fuel supplies running out. Paul Cochrane reports from Beirut.

Since 12 July, around 85% of all factories have been forced to close, 35 have been destroyed and distribution is increasingly difficult with over 60 bridges out of action, roads pock-marked with craters and over 450 trucks having been targeted by Israeli warplanes.

The cost of distributing goods has consequently skyrocketed, with truckers demanding up to ten times the normal price to run the gauntlet and cover rising fuel costs.

Food and drink factories in the north and greater Beirut area are still operating, however. But the Bekaa Valley, Lebanon's breadbasket and an industry hub, has effectively been cut off from the rest of the country and several factories have been destroyed, including Libanlait, the country's major dairy producer, a confectionery manufacturer and an Indian-owned glass container factory.

Multinationals have not been immune from the bombing. A Procter & Gamble warehouse in southern Beirut was destroyed in the first week of the conflict, and with ports and the airport closed, and only one land border open, goods are failing to get in.

"This is a blockade," said Charles Arbid, vice president of the Lebanese Industrialist Association. "We are trying to open a 'safe economic corridor' to receive imports and to export, as most food industries here export," he added. Affected sub-sectors are processed meat, tinned fruit and vegetables, sweets, chocolate, dairy products and fruit juices.

If the blockade continues, Arbid believes factories will only be able to operate for another week or two. And with one million Lebanese displaced and over half a million fleeing the country to neighbouring Syria, factories lack staff and a consumer base that was reliant on a service sector which accounted for 70% of employment.

Arbid said that in the first six months of 2006, food export activity had increased 30% and the economy was expected to see average growth of 5% this year.

Problems are also facing larger food groups based outside the country, because with 90% of foods consumed in Lebanon being imported, an important market has effectively been closed off.

"Multinationals are affected as they mainly import to Lebanon," Arbid said. "Companies operating here are also affected by the lack of raw materials, and paper and plastic for packaging."

Multinationals are trying to import goods through Lebanon's northern border with Syria, such as Pepsi's Lebanese franchise. But with seven fuel trucks targeted in the Bekaa Valley on Wednesday morning, truck drivers are increasingly unwilling to work.

Some bigger food businesses are being cautious about making public statements. Food and drink giant Nestlé refused to describe the impact of the conflict on the corporation. "We don't want to negatively affect investment for multinationals. It is too early to state the impact," a representative said.

Arbid is of the same mindset: "Multinationals have invested a lot here, and we don't want to see them closing down and moving away."

However, sources said that dozens of international companies have already moved previously Lebanon-based headquarter staff to other locations, such as the United Arab Emirates and Cyprus.

Marwan Iskandar, an economist to the Lebanese government, estimated damages to the economy at US$7bn, equivalent to approximately 32% of the country's GDP. Infrastructure damage is estimated at US$3.8bn