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. Last Updated: 07/27/2016

Russia, EU Near Deal On System To Price Aid

Russia and the European Union should finally agree on a pricing system this week for the first tranche of food aid for Russia under a package worth nearly $500 million, an EU spokesman said Wednesday.

Separately, an agricultural source at the U.S. Embassy in Moscow said negotiations on prices for a second tranche of U.S. food aid to Russia may start on Wednesday or Thursday.

Talks over the EU pricing have dragged on for months, and have not been finalized even though half the food that the EU has agreed to send is either in Russia or on its way.

"It seems the misunderstanding has been solved. Agreement on the first tranche should be settled this week," said Bertrand Soret, a Moscow spokesman for the European Commission.

The stumbling block has been at what price the food should be sold. It is not to be given away, but sold with the proceeds paid into a special account at the Finance Ministry.

This will then be paid to Russia's pension fund, which is seriously in arrears.

The U.S. model, by contrast, is well established.

The embassy source said the U.S. collects price data from sources including the World Bank, the Russian State Statistics Committee, and the U.S. Department of Agriculture, which collects market information in 30 Russian regions.

From these and other sources, the embassy calculates a wholesale price for each commodity at the point of sale.

The cost of transport and handling from the port of delivery to the point of sale is then deducted, and the final price, the so-called "net port price" is agreed with Russia.

This is what Russia transfers to the pension fund.

The government pays for distribution from the port to the point of sale, but recovers this from the sale price before handing over the net port price.

The EU, which is closely communicating with the U.S., is not negotiating an exact price for the sale of every item in every region in Russia. Rather, the two sides will agree an estimated figure for the overall budget to be earned from the sale.

"The estimated amount that the Russian government must guarantee to pay into the special account will be based on the net port value," Soret said. "But there will be no formal reference to the market price. In theory, it is still possible for the commission to ask afterward for some adjustment to the special account if the actual selling prices in the regions differ significantly from the original estimates, but we will see how it evolves."

EU aid is being delivered in five separate tranches, mainly to allow supplies to be halted if the food is being diverted.

Russia appealed for food aid after a poor grain harvest last year of around 47 million tons, down from 88.5 million in 1997, and after currency devaluation left Russia unable to pay for the level of food imports it requires.

The United States package is worth close to $1 billion.