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. Last Updated: 07/27/2016

U.S., Russia Strike Deal on Food Aid

Russian and U.S. officials Friday evening signed a food aid deal worth hundreds of millions of dollars.

Under the deal the United States will give Russia a donation of 1.5 million tons of U.S. wheat and of 100,000 tons of other foodstuffs, and a low-interest loan of $600 million to be used to buy food from the United States.

In addition to meeting with a delegation headed up by the U.S. Department of Agriculture's general sales manager, Chris Goldthwait, Deputy Prime Minister Gennady Kulik also met Friday with a delegation from the European Union, which had just arrived in Moscow to explore its own food aid deal.

The EU delegation is on a "fact-finding mission" in Russia to assess the country's need for aid, according to Bertrand Soret, an EU spokesman in Moscow.

Soret added that Russia has made no formal request for aid so far.

The U.S.-Russian talks were initially trumpeted as a success Thursday, and much the same deal was announced.

But that evening they unraveled over what Kulik described as last-minute U.S. demands.

Kulik said the U.S. side had wanted the aid to be tax-exempt and wanted any proceeds generated from the sale of food aid to be deposited in Russia's national state pension fund.

But the Russians wanted to assess tax on the aid, and also wanted more freedom to sprinkle any proceeds on various needed causes, Kulik said, from helping victims of the Chernobyl nuclear disaster to investing in Russia's ailing agriculture sector.

Friday morning, Kulik told Interfax that the issue had been resolved and that all proceeds would go to the pension fund - but also, somewhat contradictorily, that it would be spent "on social programs."

Further muddying the picture, Mikhail Lapshin, a leader of the Russian Agrarian Party, emerged from a meeting Friday with Prime Minister Yevgeny Primakov saying Primakov had told him proceeds from the sale of free U.S. grain would indeed be invested in Russia's farmers.

Lapshin said he and the prime minister had agreed some of the money would be used to set up a network of government enterprises that would lease modern farm equipment to Russian farms.

He added, Interfax said, that Primakov was concerned that such leasing enterprises not be given Stalin-era names such as "tractor" or "machine," apparently for fear that this would be politically embarrassing.

The $600 million loan was offered with a five-year grace period and at 2.5 percent annual interest, and is to be repaid in 20 years.

Analysts have offered a host of theories as to why the talks stalled, but most say the two sides failed to agree on where the proceeds would go largely because the U.S. government wanted to be able to track the money easily and make sure it was not stolen or misused.

Kulik said Friday the two sides had reached an agreement on "transparency" and control of distribution and expenses.

That seemed to speak in part to U.S. insistence that aid distribution not be handled by a private company but by a government organization.

It was not clear if that meant Roskhleboprodukt, a partially state-owned grain procurement company, would now not be authorized to handle most of the package, as had originally been proposed by the Russian officials.

An official at Roskhleboprodukt who asked not to be identified said Friday that the company still expected to be put in charge of distributing the food aid package.