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. Last Updated: 07/27/2016

Dispute Puts EU Food Aid in Doubt

Europe is considering calling a halt to its $500 million food aid program for Russia over a dispute with Moscow over how much to charge for the food, an EU official said Wednesday.

"As long as the pricing issue is not solved, we will have problems releasing further deliveries," Nico Wegter, an EU foreign affairs spokesman, said in a telephone interview from Brussels.

The EU food aid program calls for all the food imports to be sold at market prices, with proceeds from the sales being used to fund social welfare programs.

Brussels is concerned that the Russian government's pricing plan would undermine the EU scheme's provisions for selling part of the aid program to fund social welfare, including pensions, Wegter said.

"The Russians are trying to sell the aid at too low a price," Wegter said. "As a result, sale proceeds going to fund social programs would be drastically reduced."

Food aid deliveries to Russia have been bogged down in controversy ever since both the European Union and the United States decided last year to send millions of tons of meat and grain to help crisis-hit Russia feed its poorer citizens. U.S. officials said Wednesday that Europe's dispute was unlikely to affect Washington's food aid schemes.

Anxious debates in the European Union over how to avoid the corruption that marred food aid deals for Russia in the early 1990s delayed the first deliveries of the current aid program until the end of March - when the initial danger of winter starvation in Russia's far flung regions had passed.

Now EU officials and the Russian government are stalled again as they lock horns over the pricing for those goods that are to be sold under the aid program.

But more may be at stake than simply pricing policies. The clash over prices means that the EU has not officially authorized the distribution of any of the food aid, yet Wegter was at a loss Wednesday when asked whether or not some of the aid had already been sold.

Some 70,000 tons have already reached the regions, Wegter said. He could not say whether the aid had been sold on.

Both representatives of the Russian Agriculture Ministry and EU officials based in Moscow could not be reached for comment Wednesday.

But the deputy director of Prodintorg, one of the Russian agencies selected to distribute EU meat aid within Russia, Vladimir Perekatov, said all disagreements over meat prices had been solved. He declined to elaborate on the exact mechanism being used.

"We are sure the EU will not stop food aid supplies," he said. "If they do it will be a political step, and not because of quibbles over pricing," he said.

The European Union has said that all proceeds from sales of food aid must be channeled into special accounts in the Finance Ministry and then transferred to the Pension Fund.

However, it will be a long time before Russia's pensioners see any of the money, which must make its way through a long and tortured series of cash transfers before it gets to the welfare recipients.

The companies selected by the federal government to sell the food are supposed to pay revenues from the sales into regional governments' coffers. The regional governments in turn should transfer the money to the Finance Ministry - which has already calculated the amounts payable and will deduct those sums from federal transfers to the regions if the money has not been received on time.

Then, the Finance Ministry will transfer the money to the Pension Fund. Finally, the fund will pay the pensioners.

Russia was 18 billion rubles (about $750 million) behind on paying its 38 million pensioners at the start of April, according to the government figures.

The dispute looks unlikely to deter the $1 billion U.S. food aid program.

The U.S. Department of Agriculture said it would not be swayed from pursuing its food aid to Russia, despite mounting concern over Russia's moves to send separate food aid shipments to Serbia - Moscow's traditional ally - even as U.S. warplanes continue to bomb Belgrade.

"We will continue to implement the food aid deal. We established there was a need for the food aid last year and we expect this need to be unchanged," said Mary Chambliss, a USDA official in charge of the export program to Russia.

"There is no sign of a sea change in public opinion over food aid to Russia because of the Kosovo crisis," she said.

The USDA has been quite frank in saying that the food aid program is as much about assisting U.S. farmers struggling in the face of shrinking world demand as it is about feeding poverty-stricken Russians struggling for survival.

A deal over the pricing of the second tranche of U.S. wheat aid to be sent to Russia would be hammered out during talks in Moscow scheduled Thursday, she said.

The United States has already exported over 250,000 tons out of a total 1.7 million tons of wheat earmarked for the aid program.

America's pricing program is well established and so far there has been no disputes over policy, she said.

Prices for U.S. food aid are set by collecting price data from sources including the World Bank, the Statistics Committee and the USDA. A wholesale price is then calculated and a "net port price" established by deducting transportation and handling costs. This "net port price" is then transferred to the pension fund.

Chambliss said the USDA had briefed the European Union on its pricing policy.