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Russian Farmers Still Struggling: Analysts are Predicting a Decline in Grain Prices Over the Next 20 Years, Partly Because of Increased Production in Russia

Rustebakke, Brian. "Russian Farmers Still Struggling: Analysts are Predicting a Decline in Grain Prices Over the Next 20 Years, Partly Because of Increased Production in Russia." AGWEEK, 29 September 1997, sec. 12A-13A.


It's no secret that today's Russia, a loose commonwealth comprised of what were political subdivisions of the Union of Soviet Socialist Republics, is struggling to come to terms with the past. While 70 percent of the former Soviet Union's economy has been privatized, farmers face as many, if not more, challenges than they've already overcome.

Grand Forks, N.D. -- Agriculture in Russia has, over the course of history, been forced to endure many of the same trials and tribulations suffered by the rest of the country's vast, diverse population.

Only 150 years ago, Russia's agriculture lay under the control of a centuries -- old "feudal" system. Peasants who farmed the land -- serfs -- were, in essence bound to the land and could be sold with it if a landowner so chose. While the Czars outlawed serfdom in the mid -- 1800s, the Russian farmer's lot improved very little.

Many Russians, farmers included, supported the 1917 communist revolution because it promised opportunities for equity and modernization. During the years after the communists' 1920 take-over, Valdimir Lenin, the first leader of the USSR, granted farmers limited autonomy as well as economic incentives to increase production in an effort to stabilize the USSR's developing economy. When Lenin died in 1924, autonomy and economic incentives disappeared. Lenin's successor, Joseph Stalin, embarked on a campaign of forced "collectivization" soon after taking power to "modernize" all aspects of the nation according to Communist doctrine. Those who refused to surrender the land they farmed and work on state-owned collectives were killed or sent to labor camps. Those labor camps, along with famine and disease, killed millions. Some say Russia's agriculture system has yet to recover fully.

Current trends

Analysts predict that grain prices, particularly wheat prices, worldwide could see general decline over the next 20 years. This decline would be the net result, despite predictions of crop failure and famine, of increased crop production in the former Soviet Union, as well as Africa. Exactly when within those next 20 years such a decline would come is uncertain, pending improvements in Russia's oftentimes marginal rural infrastructure -- roads and railways in particular -- and better-organized marketing efforts.

Many Russian wheat producers enjoyed favorable weather conditions during the 1997 growing season. While Russia's winter wheat yield showed overall decline, increased production in its spring wheat crop offset the shortfall.

Good crop conditions in the Krasnodar and Stavropol regions -- two of Russia's key wheat producing areas -- boosted the projected Russian harvest to an estimated 38.5 million metric tons, compared with last year's overall yield of 34.9 million metric tons. The two areas showed 20 percent and 7 percent increases in wheat production, respectively. The Belarus region also showed an increase in production because of planting more wheat acres.

Heavy rains hampered this year's wheat harvest in both Ukraine and North Caucasus regions. Despite those delays, Ukraine is expected to produce crop substantially better than in 1997 -- an estimated 19 million metric tons this year, compared with the 1996 total of 13.4 million metric tons. Ukraine's 1997 barley crop also is expected to outyield last year's. Official forecasts predict a 6.5 million metric ton harvest, compared with last year's 5.7 million metric tons.

Producers in the Turkmenistan region, which lies north of Iran next to the Caspian Sea, were able to harvest only a modest crop this year -- 50 percent of the target yield -- because the government delayed market reforms. The area's crop shortfall was made worse by what one report from the area described only as "financial problems."

Persistent problems, tough solutions

It's no secret that today's Russia, a loose commonwealth comprised of what were political subdivisions of the Union of Soviet Socialist Republics, is struggling to come to terms with its past. While 70 percent of the former Soviet Union's economy has been privatized, farmers face as many, if not more, challenges than they've already overcome. One persistent, debilitating paradox facing many Russian farmers is the fact that, although the land they farm is no longer under strict government ownership, they cannot use it as collateral. While nations like Hungary, the Czech Republic and the former East Germany have turned complete control of cropland over to those who farm it, Russia lags behind. " When land can't trade hands, it's nearly impossible to collateralize. As a result, it's difficult for farmers there to get operating money," says Howard Dahl, president of Amity Technology in Fargo, N.D.

Dahl, who travels to Russia frequently, made his most recent trip in June.

Members of what were "sovhoz" -- collective farms --technically own the land they live on, but don't have the freedom to use collateral or sell it outright.

They say they're privatizing them ( collectives ), but they're not functioning as viable economic entities yet," he adds.

The positive side of the privatization of Russia's agriculture is that, while it is difficult or impossible to collateralize or sell land, farmers are allowed the freedom to sell the commodities they produce as they please and keep the profit. Russia's sugar industry, Dahl says, is a prime example. Farmers turn their sugar beets over to processing companies, most owned by French or British interests. The processing companies refine the sugar, one-third of which they keep, and give the remainder back to the producer.

"In that case, the sugar almost serves as a hard currency," Dahl comments.

Many of Russia's farmers often feel ignored by their government. In an economy that has, in less than 10 years, been privatized "from scratch," government regulations of, and aid to, agriculture represents an additional hurdle. One hand-line Communist politician has called for a general shutdown of Russia's agricultural system on Oct. 15 if the government fails to budget enough funds for agricultural subsidies. While the government currently offers a 3 percent budget increase for agriculture, those threatening to strike demand a 10 percent increase.

Hope for the future

Change, though, does not come overnight. While Russia's agricultural sector, along with the rest of the nation, struggles to establish itself as a functioning part of a free market economy, signs of stability and recovery have emerged.

"Their GDP ( gross domestic product ) is growing, and there's a lot of economic vitality, especially in the retail sector. For the most part, they've licked inflation and privatized most of the economy," Dahl says.

Reprinted with permission of AGWEEK, Grand Forks, North Dakota.

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