Colloquium |
Current Food Situation in Russia and Prospects of Agrarian ReformYuri KhromovYuri Khromov is the Head of the Economics Department of Russia's Institute for Strategic Studies.
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This paper discusses four issues: the crisis in Russian agriculture, the current situation on the national food market, and the status and prospects of agrarian reform, agricultural imports and food security.
For the last four years (1991-1994) the volume of gross agricultural production in Russia fell by 25 percent. In 1994 overall gross production fell by 9 percent, grain output fell by almost 20 percent and the number of cattle decreased by 10 percent. Per capita consumption of almost all basic foodstuffs has diminished dramatically in the last five years. In 1994, per capita meat consumption fell back to the 1970 level, and the supply of milk products fell to the 1960 level. Agrarian reform continues in Russia. Almost all former collective and state enterprises were re-registered, 55 percent of them became joint-stock corporations and partnerships, 10 percent were organised as independent cooperatives. There were 280,000 private farms at the end of 1994, and some 11 million ha of land are now owned by private farms (5 percent of all agricultural land). Grain imports (now on a commercial basis) decreased in 1994 by 19 percent - the year in which the state stopped importing grain. The quality of imported foods in Russia is often very low, and in its current food situation, the country is starting to look like middle-income countries in the Third World. General Crisis - Russian Agriculture in the 1990sThe structural crisis of Russian agriculture has been underway for the past 10-15 years, before the creation of the "former USSR". Being a large importer of agricultural produce this country was not able to secure high and stable growth rates for national agricultural production that were comparable to other importing countries. Though the former Soviet Union maintained rates of agricultural growth that were comparable to other exporting countries - namely the USA, France and Australia (Table I).In today's unreliable situation, Russia shows no signs of positive agricultural development. For the last four years (1991-1994) the volume of gross agricultural production fell by 25 percent. The recession in Russian industry was even deeper - 44 percent for the four years. These figures were presented by the Russian Vice-Premier Alexander Zaveruha (in charge of agriculture) at the All-Russian Economic Congress on Stabilisation and Development of the APK (AIC - Agro-Industrial Complex) last March in Moscow. Mr. Zaveruha underlined that in 1994 crop production fell by 22 percent, and the livestock output decreased by 28 percent in comparison with the period of 1986-1989. (1)
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Table IIndexes of agricultural and food production in large countries and regions of the world (1979-81=100)
Source: FAO data. "World Resources 1994-1995", pp. 292-293.
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The Russian Minister for Agriculture and Food, Alexander Nazarchuk, has recently made a statement on the rates of recession in the food sector of the Russian economy. For the last four years the volume of meat production fell by 60 percent, butter by 44 percent, milk by 63 percent, vegetable oils by 30 percent, sugar by 23 percent. The Minister named the fundamental factors of crisis in Russian agriculture: budget deficit, disruption of economic ties and cooperation in Russia and the CIS, fall of demand, imbalance of agricultural and industrial prices. Only the last point led to the huge financial loss in agriculture - some 24,000 billion roubles (R24,000 bln) during 1991-1994. In the beginning of 1995 100 large agri-corporations went bankrupt. (2)
Russia's agricultural recession continued in 1994, with gross production falling by 9 percent. The financial situation in agriculture was also in a deep crisis: in 1994 (at 1 October) 47 percent of all farms and enterprises in agriculture had registered a loss. The share of unprofitable farms and agri-corporations in 1993 was only 10 percent. The indebtedness of agricultural producers on 1 January 1995 reached R4,800 bln. In late 1994 the government was forced to reschedule R5,600 bln. of agricultural debts. (3) A grave problem of Russian agriculture was caused by the so-called disparity of agricultural and industrial price growth. Between 1991 and 1994, prices for inputs grew 3.1 times faster than those for agricultural output. This means that a farmer must sell three times more grain or other products than it was needed four years ago to buy a tractor or a harvester. As a result, many farms and agri-corporations are on the brink of bankruptcy. They have no means to pay wages, to buy fuels, spare-parts and chemicals. For example, in 1991-1993 prices for industrial goods and services rose 522 times, but agricultural prices grew 147 times. It is obvious, as Dr. V. Volkonskiy from the Russian Institute for National Economic Forecasting wrote, that pure market forces could not secure optimal price correlation and a supply of the inputs needed for agriculture. Abrupt deregulation of agriculture has created destructive consequences in Russian economy that are just as serious as those after the forced industrialisation and collectivisation in the 1920s and 1930s. (4) Grain ProductionRussia was the largest grain producer in the former USSR. At the same time Russia was behind the majority of other Soviet Republics in yield capacity because of natural and climatic conditions (Table II).
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Table IIAnnual grain production in the former republics of the USSR in 1990-1992
Source: "World Resources 1994-1995", p. 293.
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In 1994 the gross grain production in Russia fell by almost 20 percent. The level of output was less by a third in comparison with the 1990 indicator. The fall in volume of production was a result of both low productivity and smaller crop areas (Table III). In 1994 the grain area (56.2 mil. ha) decreased by 8 percent.
Table IIIGrain production and yields in Russia
Source: Terentjev, A. 1995, p. 53.
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Large agri-enterprises (public corporations, cooperatives, collective farms) produced 94 percent of all national production of grain in 1994. The share of private farms in national grain production was slightly higher - 8-12 percent - in the Volgograd, Saratov, Samara, Chelyabinsk and Omsk oblasts of the Russian Federation.
The plan for state grain procurement (11 mil. t) was fulfilled only up to 20 percent. The Russian Ministry for Finance "found" a small portion of money (1994 budget declared R2,500 bln to buy grain for Federal Pool) and financed only R398 bln to buy 2.18 mil. t of grains. State Regional Pools bought 10 mil. t of grain - 50 percent of the planned volume. Since January 1995 many regions of Russia suffer from a lack of wheat flour for bread production. According to the statement of the Chief of Section, the Government Department for APK and Consumer Market Dr. I. Terenjev, this situation could bring additional social tensions. (5) In 1994, production of other main crops in Russian agriculture also decreased. The output of sugar-beets fell almost by 50 percent. In case of government support, gross crop production in 1995 is forecasted at last year's level (Table IV). Grain production in 1995 could easily fall further. The problem is that the winter grain area decreased by 1 mil. ha in autumn 1994. This spring there were no sprouts on 1.7 mil. ha - 19 percent of all the area under winter grain. Sprouts on other 1 mil. ha were very poor. (6) Problems of financing of the spring fields work could result in a 25-39 percent fall of crop production this year. (According to the estimation of the General Director of the Russian Food Corporation M. Abdulbasirov. (7)) Minister, A. Nazarchuk, said that "national food security is now at stake", and that no region in Russia would be able to finish this year's sowing campaign in time - its term should be two times longer than usual. (8)
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Table IVProduction of basic crops in Russia, mil. t
Source: Terentjev I. 1995, p. 54. (65 mln. t was a final figure)
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Livestock ProductionThe situation in the livestock sector is even more critical than in the crop sector of Russian agriculture. The cattle population decreased from 57.0 mil. heads in 1990 to 43.9 mil. in late 1994; the number of pigs diminished from 38.3 mil. to 25.0 mil. total stock of sheep and goats fell from 58.2 mil. to 35.9 mil. heads. (9)In 1994 the number of cattle fell by 10 percent - an even greater decline than in 1993 (6 percent). The stock of pigs decreased by 13 percent (9 percent in 1993), and the number of sheep and goats fell by 18 percent (10 percent in 1993). The share of cattle in private hands increased as a result of redistribution of stock between former kolkhoses and households (Table V). But the private sector is still dependent on the supply of calves and yearlings from large livestock enterprises. The Center for Economic Conjuncture under the Russian government forecasts a further fall of all kinds of stock in 1995. The output of livestock products fell (Table VI) due to lower production efficiency and decreased demand. In 1994 the volume of total meat production fell by 9 percent. The level of 1994 production was one third less than in 1990. Production of fresh cow milk decreased last year by 8 percent. And hen egg production fell by 7 percent. Per capita livestock production also fell. Meat production was 46 kg per capita in 1994. (11) Table VLivestock numbers in Russia (on 1 January) 1,000 head
* agro-corporations, cooperatives, kolkhoses, state farms. Sizov, A. 1995
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Table VILivestock products
Source: Terentjev, A. 1995, p. 55.According to a forecast for 1995, national production of meat would fall further by 12 percent, vegetable oils output by 25 percent. Every month some 600 factories in the food industry stand idle. (12) Main problems of the food sector are caused by low technical efficiency and strict finances.The gross fish and seafood catch in 1994 (3.47 mil. t) was nearly 1 mil. t lower than in 1993 (4.37 mil. t). The output of fish for food in 1994 was 2.10 mil. t (2.72 mil. t in 1993). But a large percentage of fish products was exported. For example, only 1 mil. t of food fish was sold on national market - this totals some 50 percent, as compared to 1993. (13)
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Food Situation and Consumption PatternsThe supply of basic foods in Russia - bread, potatoes, cow milk, hen eggs, fish - was near the optimal level in the late 1980s. There was only a lack of meat, fruits and vegetables in diets. But Russians did not suffer from any deficiency of proteins, and the average food calorie intake was very high: since the 1950s it was over 3,000 per capita per day. The FAO estimated that food energy supply in the Eastern Europe and the former USSR was 3,380 calories per capita per day in 1988-1990. The number of calories supplied is forecast at the same level for 2010. This is identical to the level of calories supplied in the OECD countries (3,400 in 1988-1990) and well over the food energy consumption in the developing countries (2,470 in 1988-1990). However, average indicators usually conceal facts of malnutrition. For example, there are some 20 million people in the USA who are considered to be hungry and suffering from malnutrition. (14)The real food consumption problem in the former USSR was caused by low vitamins intake and a lack of some minerals. There was also a lack of animal protein and some imbalance of amino acids in diets. Sporadic forms of protein-energy malnutrition in the former Soviet Russian Federation (RSFSR) could be (although hidden in official statistics) a result of food deficiency in some regions of the country. Per capita consumption of almost all basic foodstuffs (besides bread and potatoes) fell dramatically over the past five years. According to Russian Ministry for Agriculture and Food data, per capita consumption of meat, milk, butter, vegetable, oils, fish and sugar in 1994 was almost twice lower than in 1990. Deficiency of food protein is estimated at 35-40 percent, lack of vitamins - 50-60 percent. (15) In 1994 per capita meat consumption decreased to the 1970 level; the supply of milk products decreased to the 1960 level. Nevertheless Minister A. Nazarchuk stated that the Russian Federation has a good opportunity to feed itself and gain "national food security". (16) But the food situation on the Russian market could be even worse in 1995 than it was in 1994 (Table VII). At the end of 1994, the food market in Russia was again faced with a crisis of short supply, which was especially acute in large cities. The fall of national food production was the main factor of that crisis. Food imports were not able to resolve the problem. The situation on market of imported foods was aggravated by "Black Tuesday" on the Russian foreign exchange market last October, when the exchange rate of rouble to US dollar deflated by almost one-third during one day of trading. Even in Moscow there was a stoppage of butter supply. It was overcome in early 1995 as a result of the sharp increase of consumer prices and emergency imports of butter from Western Europe. Liberalisation of prices and privatisation of trade have filled shops with many items of foodstuffs never seen by ordinary people in Russia in the Soviet period. Of course, prices are very high. Food consumer prices in Russia reached European levels (except for bread prices). But average wages do not exceed 80 US dollars a month. Some estimates give a proof that 60-65 percent of Russian population is now unable to consume meat products rationally in cause of low incomes. (17) Over half of family households spend some 90 percent of their incomes to buy food.
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Table VIIPer capita consumption of basic foods in Russia, kg per year
Data: Goskomstat and Roskomtorg.Incomes of 45 million Russians (30 percent of the national population) in the beginning of April 1995 were below official minimal living standards. This marks a 23 percent increase over the past year. The growth rate of this social segment of the population in 1994 was only 5 percent. (18) Nominal average wages per month in the first quarter of 1995 (R326,000) were 2.2 times higher than a year ago. But in real terms, they decreased by 31 percent. (19) A further fall in real incomes would mean a deterioration of the food consumption status in Russia. Taking into consideration possible social consequences the government would be forced to enlarge the scale of aid to the low income population - a hard task in times of budget deficit.
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Agrarian Reform: Status and ProspectsAgrarian reform in Russia in the 1990s is aimed at the denationalisation of production and restructuring of former kolkhoses (collective farms) and sovkhoses (state farms) into agro-corporations and independent farmers' cooperatives. The creation of wide strata of private and family farms will guarantee real growth in the efficiency of agricultural and food production. Unfortunately, agricultural reform in this last decade of the 20th century was started without the required preparations, including legal issues. This is contrary to the two previous major agrarian reforms in Russian history begun in 1861 and 1906-1907.The great Russian reformer, P.A. Stolypin, considered that successful formation of private farms would only be possible in Russia after 20 years of peaceful life without wars and revolutions. But during those 20 years (1907-1927) Russia survived World War I, two revolutions and the Civil War. In 1992, the first wave of Russian liberal reform was certain that the deregulation and "farmerisation" of agriculture could easily solve all the problems of the agrarian sector. Now there is a more rational approach towards agrarian reorganisation. It does not mean that agrarian reform has stopped. On the contrary there is stable progress of agrarian reform, but this goes on more reasonably and takes into consideration the special features of this sector of the national economy, its cultural traditions, etc. At the beginning of 1994, 24,000 kolkhoses and sovkhoses (95 percent of all farms) were re-registered: 55 percent of them became joint-stock corporations and partnerships, 10 percent were organised as independent cooperatives, 4 percent as farmers associations, 25 percent conserved their statutes as kolkhoses, and 6 percent as state farms. The number of private households actively producing agricultural products doubled between 1991 and 1994. In addition, there were 280,000 private farms at the end of 1994. (20) Private Farms and HouseholdsIt is now obvious to many people that small private farms will never solve Russia's food problem. They have a chance to survive and flourish only in the framework of close cooperation between themselves, or horizontal integration with agro-food corporations and vertical integration with industry and trade. Some 11 million ha of land are the property of private farms (5 percent of all agricultural land). Over the past five years, 40,000 farmers have left agriculture. In the first quarter of 1995 the number of private farms rose by 4,000, according to the President of the (Russian) Association of Farms and Cooperatives (AKKOR) Vladimir Bashmachnikov. (21)Russian farmers face such economic difficulties as high taxes, expensive credits, a non-payment crisis, poor marketing. According to the farmers' opinion poll in five Russian oblasts (Rostov, Saratov, Novosibirsk, Orlov, Pskov), 70 percent of them do not have marketing channels, 82 percent are unable to gain credit, 89 percent consider high taxes as the main obstacle to doing profitable business. (22) Because of the financial crisis, farmers have big problems obtaining the necessary funding. This spring, for example, farmers in the Vereschagin region, Perm oblast, could only sow by hand. (23) Private households and tiny gardens are now a more important sector of Russian agriculture than private farms. There are 45 million privately-owned households and gardens. The share of this sector in national agricultural production rose in 1994 to 38 percent. (24) The part-time "farmers" - 22.5 million families - produce on their tiny gardens (common size of plots is 0.06 ha) some 25 percent of national potato production, 28 percent of vegetables, 37 percent of fruits and berries. These data were presented at the All-Russian Conference of Private Gardeners in late April, 1995. (25)
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Government in AgricultureThe sharp fall of state procurement of agricultural produce is a good illustration of the progress in deregulation of the agrarian sector of the Russian economy (Table VIII).Government support of Russian agriculture fell sharply in the 1990s. The share of the APK in budget subsidies decreased from 23.8 percent in 1987 to 14.3 percent in 1992 and to 8.6 percent in 1994. (26) The volume of budget appropriations to support the Russian Agro-Industrial Complex was R13,100 bln. in 1994 (72 percent of plan). One third of all appropriations was spent for procurement of agricultural produce. The government donated R147 bln. for spare-parts and some other inputs and R850 bln. for leasing of agricultural machinery. (27) Table VIIIVolumes of State Procurement for Federal and Regional Pools, mil. t
Source: "Delovoy Mir", 14.03.1995.Of course, Russia must take into consideration the Final Agreement of the GATT Uruguay Round, because it is necessary for the country to join the World Trade Organisation. But global agricultural liberalisation will continue slowly. Agriculture in the OECD countries, according to the recent FAO report, is still far from being market-oriented. (29) Russian Minister for Economy Euvgeniy Yasin, who is considered to be a prominent representative of "liberal economic thought", underlined that Russian agriculture "should be supported by the State", and this aid must first be aimed at increasing the efficiency of national agriculture. (30)
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Agricultural Import and Prospects for Food Security of RussiaThe grain and food imports of the former USSR were an issue of security policy during the Cold War period. "Grain weapon" problems were widely discussed in the 1970s and early 1980s. (31) The American grain embargo in 1980/1981 forced the Soviet Union to adopt the Food Programme. Both the grain embargo and the Food Programme failed: the United States lifted the embargo and started to credit grain sales to the "strategic enemy"; the Soviets did not manage to secure food self-sufficiency and fulfil other goals of the national food strategy.Though Russia stopped all state imports of grain in 1994, food imports continue to be an important part of the country's food supply. The Russian Vice-Minister for Foreign Economic Relations, Vladimir Korostin, said that the cost of food imports in 1994 was 20-25 percent of all imports. Grain import (now on a commercial basis) decreased in 1994 by 19 percent. Volume of import of sugar fell by 72 percent, vegetable oils by 66 percent. At the same time import of meat rose 4.5 times, and import of butter increased by 2.3 times. (32) The bulk of food import goes to large cities. In 1994, 10 percent of all meat on the food market in Russia was of imported origin. The share of imported butter on the national market was 25 percent, with 30 percent for sugar. (33) The quality of imported foods in Russia is often very low. Russian new commercial food importers prefer to make deals with small firms abroad which do not have a good reputation. A part of this import is below quality and sanitation norms. For example in 1994 Gostorginspektzia (State Committee for Sanitation Control) stopped retailing 35-70 percent of samples of imported meat products (including sausages, cheeses, butter, alcohol, tea and coffee) for reasons of poor quality and dangerous components and admixtures. (34) It is not only a Russian problem. Western large food exporters should be interested in the Russian market for long term business. But consumers' attitude towards "food import" is becoming negative. Here, the main question is the absence of real competition in Russia's food market. The current food situation in Russia is beginning to resemble the middle-income countries in the Third World (the Near East, Eastern Asia). So food insecurity in Russia could be raised by the factor studied by Gordon R. Conway and Eduard B. Barber. They wrote: "The lack of food security in the developing countries - defined as the access by all people at all times to enough food for an active healthy life - will arise from a lack of purchasing power of the part of nations and households rather than from inadequate global food security". (35) Some Russian households - roughly 10-15 percent - suffer from transitionary food insecurity, based on high food prices, low incomes, unstable national agricultural production. Solving the problem of food security could be partially achieved after Russia's possible entering the FAO. Russia was among the founding countries of the FAO in 1945. After a 50-year break it is now time to take part in the global agricultural and food system. But it is the new national agri-business that will be the first sector responsible for guaranteeing food security in Russia. The outcome of its efforts will depend on Russian bankers' readiness to invest money in the agrarian sector of the Russian economy. The government role is to support research centres and to aid low-income consumers.
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