By Pavel Polityuk, Reuters, Kiev, Ukraine, Sun, January 18, 2004

KIEV, Ukraine (Reuters) - Facing grain shortages not seen in more than 50 years, Ukrainian millers and traders are scrambling for wheat deals.

And many now face a new kind of trader on the former Soviet republic's market -- a "phantom grain trader" offering bundles of wheat backed up with a sophisticated array of documents from banks, foreign investors and companies. The problem is, the wheat never appears.

"Everyday some people call us, offering large or small volumes of grain at a good price," a representative of a large foreign grain company told Reuters.

According to him, and many others, as soon as the buyer accepts the offer and pre-pays for delivery the sham is exposed. They are left high and dry at ports or railways where officials know nothing about any grain deliveries. Calls to the company do not help either -- the people have long moved on.

Ukraine harvested less than four million tonnes of wheat in 2003, about four times less than it did in 2002. The country, once the breadbasket of the former Soviet Union, has started imports to meet demand of about six million tonnes of milling wheat a year.

The government has said repeatedly that Ukraine has set fair and attractive rules on the grain market to allow local and foreign traders to supply grain to the republic.

But facing the need to import at least four million tonnes of food grain to ensure its 48 million people have enough bread this season, Ukraine has seen a jump in the number of people offering cheap, readily available grain.

After a bumper crop which turned the former Soviet state into a net exporter of wheat last year, many millers and traders are just too inexperienced to spot the signs of a bad deal. They go ahead with signing contracts, agree to pay up front for the deliveries and turn up to find nothing.

"There was a spate of such offers. We have enough practice to recognize these "sellers of air," but regional companies, those with a lack of experience in imports, could get involved in such attractive offers," one trader said.

"In the beginning these people offered significant parcels, but now they propose a small volume at a realistic price. But you have to be careful if they ask for pre-payments or decline to give all the details about the company or grain."

THE AMERICAN CHOICE

Traders said many had started to offer U.S.-origin wheat, trying to capitalize on Ukraine's confidence in American firms.

"They offered 200,000 tonnes of U.S. wheat CIF Odessa at $162 per ton. But there is not one firm in Ukraine able to buy such a volume," another trader said.

Analysts said others have tried to get loans from commercial banks to buy grain for Ukraine, and there is no end to the different attempts to commit "grain crimes."

"We have already understood how to recognize primitive crimes, but now we are facing more sophisticated deceptions that use the banking system, false contracts, letters of credit," said an official from a big Ukrainian state-run grain company.

He said a lack of practice in working with foreign companies, a lack of Western-educated traders and gaps in Ukrainian legislation allowed some to get away with it.

Traders said business culture was poorly developed across the former Soviet Union, and only clear and transparent legislation and the full integration of Ukraine into the world market would stop the "grain crimes."

"The most serious problem here is a neglect of contract obligations. Your partner could pass up at the last moment and it is too difficult to force him to compensate any losses," one western trader said.

"Exporters can offer you a load of rubbish from their car after you've already bought great wheat. Then it is almost impossible to get the money back," a local trader said.