Commodities & Futures: Soviet Union's debt-laden ghost haunts grain producers

AS THE world's largest grain importer, the Soviet Union captured the imagination and attention of people at each link of the global grain chain for decades.

Mystery surrounded each Soviet foray to buy grain. Its purchases, huge and often unexpected, could rock world grain prices, send the markets into a frenzy, and result in handsome profits for the sellers and clever traders. But debt difficulties started to sweep away the mystique in the mid-1980s, and the break-up of the union finished the job.

Now any grain deal involving the former Soviet Union (FSU) is financed by credit offered by the Western governments selling the grain. The debt of the FSU runs to dollars 80bn, including more than dollars 5bn of US government-backed food credits extended since 1991.

Last week, the US Agriculture Department said that the FSU had accumulated nearly dollars 250m in arrears under the US grain credit program, GSM 102. The US has suspended FSU sales under GSM since November as a result.

A report by the London-based International Wheat Council shows that the situation is pretty messy. Arrears have piled up on earlier credits from Canada, so grain shipments from Canada are also being delayed. Complications have stymied European Community deliveries as well. A number of contracts with the now-independent republics still await approval by the European Commission, and a new French credit for 2.5 million metric tons of cereals is also pending.

Some grain traders are growing nervous that the FSU is not going to be able to buy as much grain as they forecast. The IWC forecasts that the FSU will import 28 million tons of grain in 1992/3, sharply below the 37.8 million in 1991/2.

Bill de Maria, IWC's senior economist, said: 'Until the external debt problems have been sorted out, the grain market is never going to be free of these problems.'

But because grain producers badly need the FSU, the IWC believes the increased uncertainty will force large grain- exporting countries to find more creative ways of doing business with the region. 'The alternative could be a total default on current debt,' the IWC says.

The West has the motivation to be inventive. Prices would slump if the FSU drastically cut purchases, and food shortages would occur. The US is considering direct government loans for grain, but the drawback is that direct credits would immediately show up on the budget bill.

However, as US Agriculture Department technocrats were able to come up with a device as clever as the US farm subsidy scheme known as the Export Enhancement Programme, they can surely come up with a new solution.