INTERNATIONAL AGRICULTURE AND TRADE (Former USSR)--SUMMARY May 23, 1995 Approved by the World Agricultural Outlook Board ----------------------------------------------------------------------------- This SUMMARY is published by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20005-4788. The complete text of INTERNATIONAL AGRICULTURE is available 2-3 working days following release of this summary. ----------------------------------------------------------------------------- Russian Economic Reforms Raising Imports of High-Value Products During the past 4 years, the countries of the former Soviet Union (FSU)1/ have made only limited progress toward institutional reform of their agricultural systems. The main development has been the erosion of the State procurement system, so that a growing share of agricultural output is being sold through newly developed (though still rudimentary) private markets. However, reform has been lagging concerning privatization of farms, the establishment of working land markets, and creation of supporting market infrastructure, such as systems of commercial law and banking and finance. 1/ In this report, FSU includes the 12 countries that formerly comprised the USSR, plus the three Baltic States. On the other hand, most FSU countries are undergoing major "economic restructuring" involving the flow and use of real resources and goods in the agricultural sector, as indicated by changes in the quantity and mix of agricultural production, consumption, and trade. The Baltic States and Russia continue to be the most reformist FSU countries (both in agriculture and economywide), though in late 1994 Ukraine also started a serious reform program. Agriculture is being economically restructured mainly because consumers' desires have largely replaced planners' dictates in determining what goods are produced and consumed. Price liberalization and the severe decrease in subsidies are forcing farms and food processing enterprises to become more self-financing and consumer-oriented. Although the restructuring of production involves some short-run disruption and hardship in the countryside, it can be viewed as an inevitable part of the transition from a planned to a market economy. The restructuring has affected the livestock sector more than crops. While crop production has declined since reforms began in 1992, weather-related problems and the removal of marginal lands from production account for much of the drop in output. Although input use has plummeted, the drop has not yet strongly hurt grain yields. However, continued low use of certain inputs, such as fertilizers and pesticides, should have an increasingly negative effect on yields. Nevertheless, the fact that input use has fallen proportionally much more than yields suggests that farms are responding to the growing scarcity of inputs by using them more productively. Reforms have radically transformed the livestock sector. In most FSU countries, livestock inventories and output have already fallen 20 to 30 percent since reforms began. Although animal holdings in the private sector have risen, they have been more than offset by dramatic declines on former State and collective farms. Without large subsidies to producers and consumers, consumer demand cannot support the artificially high levels of livestock production and consumption achieved in the Soviet period. Consumers are adjusting partly by switching from livestock products to less expensive bread and potatoes. In Russia, per capita meat consumption in 1994 was down about 15 percent from 1991, while consumption of bread and potatoes rose around 5 and 10 percent, respectively. The livestock contraction could bottom out in the next few years as consumers' real incomes begin to rise with the onset of economic growth, increasing demand for livestock products. Economic reforms and the resulting restructuring of agriculture, particularly of the livestock sector, have significantly affected FSU trade. Most notably, FSU imports of bulk commodities (grain and oilseeds) have plunged, while those of high-value products (HVP's) have surged. FSU grain imports have fallen mainly because of reduced demand stemming from the dramatic downsizing of the livestock sector and decreased waste, as well as financial constraints. Total 1995/96 FSU grain imports (intra- and extra-FSU) are projected at 11 million tons, about 75 percent below those of the late 1980's. Russian and Uzbek grain imports are forecast at around 3 million tons each, and Belarus, which annually imported 3-4 million tons of grain in the late-1980's, is projected to import just under 1 million tons. In 1995/96, Kazakhstan is forecast to be a net exporter (primarily to Central Asia and Russia) of nearly 6 million tons of grain, and Ukraine a net exporter of around a half million tons. U.S. grain exports to the FSU region, which annually averaged 14 million tons during fiscal 1986-90, totaled just under 5 million tons in fiscal 1994, and less than 300,000 tons for the first 5 months of fiscal 1995. Although FSU bulk commodity imports have fallen, Russia's HVP imports have spiraled upward. The main causes are reform-induced growth of an upper income class (as income distribution becomes more inequitable), real appreciation of the ruble against the dollar, and expanding private trade geared toward meeting consumer preferences. U.S. sales of HVP's to Russia in fiscal 1994, for example, rose 2.5 times from fiscal 1993 to nearly $700 million, making Russia a top market for U.S. poultry and snack foods. FSU agricultural trade policy is becoming more producer protectionist, as controls on exports decrease while controls on imports increase. This reflects a change in government policy from defending the interests mainly of consumers to defending producers. Further domestic market-oriented reforms should strengthen this change in FSU trade policy. Printed copies of the Former USSR International Agriculture and Trade Report will be available in about 2 weeks. For further information, contact Christian Foster (202) 219-0625 or William Liefert (202) 219-0656. END-END-END