Ukraine's government should ensure that farmers' interests are protected in an innovative $3bn grain-for-loan deal, which would see the country supply corn to China in return for credit lines, a leading agricultural expert said.

Mykola Pryaszhnyuk, Ukraine's agriculture minister, revealed that Kiev is set next month to sign a deal in which the country sends China some 3m tonnes of corn a year "to be supplied at market prices that are set at the time of export".

That would be more than enough to meet China's import needs for the grain in 2012-13, although these requirements are expected to grow significantly, promoting the country potentially to the world's top importer in a decade's time.

In return, Ukraine, whose economy has yet fully to recover from a contraction of 15% three years ago during the world recession, will receive $3bn in credit lines.

Potential 'problem'

But the fruits of a plan which would boost Ukraine's firepower for much-needed investment should not come at the expense of farmers' welfare, Sergey Filofilov, general director at influential consultancy UkrAgroConsult, said.

"However, if the benefits flow to the administrators of the transaction through hidden rent-seeking activity, this presents a problem.

"Reasonable distribution of benefits will encourage farmers to push for this model.

"Opaque and unclear benefit distribution will likely be at the cost of the farmers and in the long run will kill this and other deals of this kind."

China is also amid a long-running drive to boost its grain imports from Argentina, another major crop exporting country with a need for foreign funding.

Milking farmers

Ukraine's government has a mixed history of promoting farmers' interests, angering growers by imposing quotas after the drought-hit harvest in 2010, and then rolling restrictions over into highly unpopular tariffs on shipments in 2011-12, removed in the face of farmer protest.

Many believe Ukraine will early next year impose export curbs early in 2013 to protect domestic supplies – to the good of feed and food consumers, but at the expense of growers denied access to international markets.

The government is also believe to have agreed with merchants maximum grain exports of 19.4m tonnes in 2012-13, including 4.0m tonnes of wheat.

Mr Feofilov said the implications of the latest deal would be better understood when the government announced more details on terms.

"The sooner details are released regarding who is doing what, at what price and how the sooner we can understand the implications of the deal," he said.

One official said that the proceeds of the Chinese loans would be used to finance the purchase of Chinese agricultural technologies.

Big spender

While the current cash for crops deal is a first, it is by no means China's first foreign investment and infrastructure deal.

The Guangdong Bureau of Coal Geology has revealed talks with Zimbabwean officials into the building a $3.4bn thermal power station.

And, with foreign reserve assets estimated in excess of $3,000bn, deals that see China exchange credit facilities for materials could become increasingly common place. 

China has already entered into similar deals in the energy market, exchanging crude oil from Venezuela for example to repay loans from the Chinese Development Bank.

China's Ministry of Commerce places the value of foreign direct investment deals at $86.8bn last year, almost 70 times what they were a decade ago.

Struggling economy

As for Ukraine, prior to the credit crunch Ukraine was considered one of the most promising emerging markets, recording a decade of impressive growth. 

However, its economy was hard by Europe's recession, and has yet to recover all of the economic ground lost.

With a mini construction boom ahead of the Euro 2012 football championship now over, Ukraine's economic prospects have already felt the pinch, and prompted some economists to cut growth forecasts.