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. Last Updated: 07/27/2016

Russia Nearing $1Bln Food Aid Deal

Russian and U.S. agriculture officials are nearing agreement on a $1 billion deal for food aid to Russia, sources said Wednesday after Moscow negotiations adjourned for the week.

Yevgeny Sosnin, a spokesman for Gennady Kulik, first deputy prime minister in charge of agriculture, said the sides are now holding consultations with their governments and talks would resume "in the near future."

Sosnin said officials were still negotiating the size of the package, the time frame for its delivery, and how it would be distributed. Part of the package would come as humanitarian aid, he added.

Sources familiar with the talks said, however, that a basic agreement on $1 billion worth of food loans has already been reached and the two sides are now wrangling over details.

Yury Gnatovsky, the chief analyst with OGO, a major Russian food trading company, said negotiators are trying to find common ground on interest rates and the time frame for repayment. Russia is asking for long repayment terms, such as 10 or even 20 years, he said.

But former deputy agriculture minister Leonid Kholod said the Americans in all likelihood are unsatisfied with the Russians' plan to hand over aid distribution to a private company rather than a state organization.

Gnatovsky said the partially state-owned company Roskhleboprodukt, the former state grain procurement agency, was the most probable candidate, and an official with the company confirmed the firm was hoping to take part in the project. Roskhleboprodukt President Leonid Cheshinsky has attended the negotiations.

Anders Aslund, a senior associate at the Carnegie Endowment in Washington, was an advisor to the Russian government in 1992, when large amounts of U.S. commodity credits and humanitarian aid were sent to Russia. He said Roskhleboprodukt, then a state body, presided over the distribution efforts.

Much of the aid appeared on the black market then, and some of it simply vanished. Aslund warned that the situation could be repeated when the new aid shipments come in.

Other analysts expressed more optimism. "In 1992, it was the wild West here," Kholod said. "Now, there are laws in place."

Russia is suffering from the Aug. 17 ruble devaluation and the worst grain harvest in 40 years, and government officials have offered conflicting opinions as to whether the nation needs food aid to make it through the winter without hunger in some areas.

Citing sources in the industry, Gnatovsky said the aid package could include up to 8 million tons of grain - half of which would be food and fodder wheat and the rest rice and corn. Some 100,000 tons of meat and soybean meal may also be part of the deal.

Other reports cited smaller figures. Reuters quoted an unidentified senior American official Tuesday as saying the United States was ready to offer Russia 3.1 million tons of products, including 1.5 million tons of wheat.

Russian food wholesalers said these amounts of aid would not undermine the market. Yelena Tyurina, an analyst with the Razguliay trading company, said that even if U.S. wheat is sold in Russia at prices below current market rates, the aid volumes would be too small to hurt the wholesalers.

OGO's Gnatovsky said food traders might profit from the aid deal if the government decides to distribute some commodities through tenders between private companies.

Meanwhile, Kholod criticized the emerging plan, saying the government may not even have clear estimates of how much aid the regions need. He added that asking for a $1 billion credit was irresponsible because it would only increase the financial burden of the state, which is currently trying to restructure enormous loan obligations to Western creditors.

It would be preferable to lift import duties to encourage imports by private companies, he said.