HDR101180040200102595hhmm INTERNATIONAL AGRICULTURE AND TRADE October 25, 1995 Approved by the World Agricultural Outlook Board ----------------------------------------------------------------------------- INTERNATIONAL AGRICULTURE AND TRADE Situation and Outlook is published four times a year by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20005-4788. WRS-FSU. Please note that this release contains only the text of INTERNATIONAL AGRICULTURE AND TRADE--tables and graphics are not included. Subcriptions to the printed version of this report are available from the ERS- NASS order desk. Call, toll-free, 1-800-999-6779 and ask for stock #WRS, $20/year. ERS-NASS accepts MasterCard and Visa. ----------------------------------------------------------------------------- FSU Grain Imports To Remain Low, But Meat Imports Surge Grain and livestock output in the former Soviet Union (FSU) is projected down in 1995/96, while production of sunflowers, sugarbeets, vegetables, and potatoes (an important food crop) is forecast to rise. 1/ The projected 8-percent decrease in grain production should be offset by lower use (especially for feed as livestock inventories continue to decrease) and stock drawdowns. As a result, grain imports are forecast near 1994/95's low levels. 1/ The former Soviet Union (FSU) refers to the sum of the 12 independent countries of the former USSR and the 3 Baltic countries (Lithuania, Latvia, Estonia). The Commonwealth of Independent States (CIS) includes the 12 countries of the FSU minus the Baltics. In 1995/96, State grain procurement in much of the FSU is proceeding very slowly, as farmers seek alterative channels where prices are higher and marketing costs lower. Lower State purchases do not foreshadow widespread shortages, as procurements are now used for a much reduced segment of the population (military, selected urban areas and State institutions) and are made throughout the year instead of immediately after harvest as in the past. The development of non-State channels should help move grain from surplus to deficit regions, unless regional restrictions inhibit this process. For the second consecutive year, FSU meat imports (dominated by Russia) continue to surge, likely up by over a third from 1994. Imports of relatively less expensive poultry meat, mainly from the United States, account for over half of all FSU meat imports from non-FSU countries. To date, new and higher Russian tariffs on meats have had little effect on dampening imports. Competitive prices for meat imports and appreciation of the ruble against the U.S. dollar are offsetting much of the tariffs' effect. The rise in FSU meat imports is expected to slow in 1996 as subsidized European Union (EU) exports of beef and pork are cut due to reduced EU intervention stocks. Moreover, it is unclear how much the United States will continue to subsidize pork exports in 1996. Although it appears paradoxical that Russian livestock output is falling while consumers are eating more imported meat, several factors may explain this trend. Meat imports have been competitively priced (sometimes because of export subsidies) and generally meet consumer preferences for higher quality, better packaging, and convenience in preparation. Growing income inequality has also created a class of consumers that demands foreign products over domestic ones. Some buyers appear to prefer the reliability of foreign suppliers, especially given the infrastructural hurdles facing Russian producers. Moreover, a primary reason for continued downsizing of Russian output is the lag in price signals reaching domestic producers due to poor market infrastructure, including availability of market information. The decline in State procurement over the last 4 years and the end of export quotas in 1994 for sunflowerseeds have generated sharply larger Russian sunflowerseed production and exports. Although Russian refined sugar prices remain well above world prices, it is not clear whether the higher prices are reaching producers. Higher protection rates for Russian refiners may motivate processors to concentrate on refining rather than full-line processing of sugarbeets into sugar. FSU potato and vegetable output is larger primarily because these crops are well suited for small scale production on private farms and plots and can be consumed directly without further processing. In July 1995, the Russian Duma completed its first reading of the Land Code. The new draft of the law, mainly supported by the heads of former State and collective farms, prohibits private ownership and sale of land, and mortgaged lending. However, it does allow for long term leasing and inheritance. Prime Minister Chernomyrdin has proposed holding a referendum on private land ownership to reverse the Duma's direction. The number of private farms in the FSU as a whole is rising very slowly and still accounts for less than 5 percent of total agricultural land. The republics experiencing the greatest increase in private farms include Moldova, Kyrgyzstan, Uzbekistan, and Kazakhstan. While the number of Russian private farms rose by 7,400 in first-quarter 1994, the net gain in first-quarter 1995 was only 3,500 farms as the failure of over 6,000 private farms offset most of the growth of new farms. FSU mineral fertilizer output in 1995 is estimated to be over 15 percent above last year, having fallen more than 50 percent from 1990 to 1994. This increase may indicate the industry is starting to recover after 4 years of decline driven by increased costs and significantly reduced domestic use. A primary factor behind the rise has been the growth of exports. In many countries, increased State support to farms this year for fertilizer purchases may also be a factor. It is unclear whether or how much the rise in fertilizer output reflects the rise in State subsidies to producers or users, but subsidies alone probably cannot sustain the increase, given the financial constraints facing FSU governments. In the first 7 months of 1995, CIS trade with Western and other developed countries continued to increase, accounting for more than half of total trade. Consumer goods, including food products, and machinery and equipment, remain the top CIS imports. However, while FSU agricultural imports (in value terms) have increased over the last 1-2 years, they remain below late-1980s levels as increased high value product (HVP) imports are not offsetting significantly lower grain purchases. This trend is also evident in lower projected U.S. agricultural exports to the region in 1994/95 (October/September) despite expected continued growth in U.S. meat sales. Most FSU countries have responded to the increase in HVP imports by introducing tariffs and other taxes to generate revenue and protect less competitive domestic producers. In Russia, where HVP imports have risen the most, tariffs and other regulations have had little effect, in part due to weak customs controls and, since mid-1995, the appreciation of the ruble. Interest in joining the World Trade Organization (WTO) will likely affect the direction of future trade policies. Printed copies of Former USSR Update will be available in about a week. For more information, contact Sharon S. Sheffield, Christian J. Foster, Jay K. Mitchell, or Roger L. Hoskin (202) 219-0620. Text of the full report also will be available electronically. For details, call ERS Customer Service (202) 219-0515. END-END-END