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Central Europe/Russia: Nomenklatura Feudalism--Land Without Bread

Prague, 7 November 1996 (RFE/RL) -- For most of the world, 1996 has been a year of bumper grain harvests. But experts in Russia, Ukraine and Bulgaria say their poor harvests could mean expensive imports, higher bread prices, or in the worst case, winter bread shortages.

Ukrainian Agriculture Minister Anatoly Korishko blames the weather. It's an explanation that is easily digested by voters who will pay more for bread.

Yet a recent study by the Paris-based Organization for Economic Cooperation and Development (OECD) says the poor harvests are likely to continue until agriculture reforms are implemented.

Indeed, similar agricultural policies exist in all of Eastern countries reporting meager harvests. A key feature is that farmers are forced to sell grain to state purchasing boards at prices far below world levels.

Critics say strict export restrictions and price controls are blocking the development of free-market agriculture. Instead, the critics say, a kind of "nomenklatura feudalism" is emerging.

Private Firms Profit By Selling State Grain Reserves

One of the most overt examples of alleged "nomenklatura feudalism" involves private companies in Bulgaria's secretive "Orion" financial group, which is closely allied with Socialist Prime Minister Zhan Videnov.

After Videnov lowered the price that Bulgarian farmers receive for grain, Orion companies last year reportedly exported state reserves at record international prices. Farmers who watched the profits from their labor go into nomenklatura pockets now say they have little incentive to plant or to invest in new equipment.

Videnov blames today's grain crisis on the farmers. In August, he said farmers are not fulfilling their obligations under state contracts. Videnov accused farmers of holding back grain in expection of rising prices.

The OECD says that Videnov's policy-induced grain price reduction is the main cause of "a strong economic incentive for unregistered exports." The OECD says the validity of Bulgarian harvest statistics also are suspicious.

Videnov justified his grain export restrictions and low domestic prices by saying that the policies would hold down the cost of bread for fixed-income Bulgarians.

Instead, with millers now forced to pay international prices for grain imports, the cost for a loaf has risen by five times in the past year. The chairman of the country's Union of Private Breadmakers (Rangel Cholakov) predicts that prices could double again by year end (from about 40 U.S. cents to more than 80 cents per loaf).

This would mean that Bulgarians earning the nation's average salary would barely be able to afford two loaves of bread per day for their families. Pensioners would have to spend all of their fixed income on bread alone -- and even then, would only be able to buy their daily staple for five days of the week.

Sofia's situation is a classic example of why the World Bank urges governments not to burden private sector development with socially-motivated price regimes. The Bank says social programs should be created to address social concerns, while the marketplace should be allowed enough freedom to develop.

Belgrade Allegations Declared Libelous

In Belgrade, allegations of nomenklatura deals similar to the Bulgarian scandal have been raised by Zoran Djindjic, the leader of the opposition Democratic Party. Djindjic accused Serbian Prime Minister Mirko Marjanovic of professional misconduct involving the purchase and export of wheat.

In September, a Belgrade district court found Djindjic guilty of libel and handed him a four-month suspended prison sentence. Djindjic called the ruling politically motivated. He said he would not stop speaking out about what he says are government abuses of power.

Analysts warn that other Eastern countries also risk bread shortages and expensive imports if they follow the Bulgarian path.

Ukraine Offers Low Grain Prices, Restricts Exports

In Ukraine, where agricultural output has declined by 30 percent in the last five years, the World Bank faults what it calls "unsustainable policies that are a legacy of the past."

Last month, the World Bank approved a $300 million loan to help replace Kyiv's centralized agricultural administration with market mechanisms. The Bank also is urging an end to restrictions on exports so that farm output can flow through commercial channels.

As in Bulgaria, the OECD says Ukrainian farmers have little incentive because of the low prices offered by state procurement agencies.

Ukrainian farmers are forbidden to sell grain through the commodities exchange until they have fulfilled their state contracts. That means that a high proportion of produce continues to be sold through the state procurement agencies.

Meanwhile, a powerful collective farm lobby has successfully blocked agricultural privatizations. Just two percent of the country's farmland now belongs to private farmers. Despite a government mandate to streamline the process, very few collectives have actually distributed actual plots or equipment to entitlement holders. The OECD says that about 70 percent of Ukraine's large farms are now practically insolvent.

Ukraine was once the breadbasket of the former Soviet Union. Last year's harvest had been the lowest in more than 30 years. Tellingly, this year's harvest is down 25 percent from last year.

Oleksandr Slyarov, executive director of the Ukrainian Agriculture Exchange, says Kyiv will still export about two million tons of wheat this year, but it will be mostly low-quality feed grain. Bread prices have already risen several times in Ukraine this year. They are expected jump again this winter.

Despite Ukraine's limitations, the OECD says the country's agro-food sector is almost certainly closer to stabilization than those in Belarus, Kazakhstan or the Russian Federation.

Grain Imports Expected For Russia

Russia's grain crop also is expected to be one of its lowest in three decades. Traders speculate that the government could return to world markets for imports to feed the military and isolated Arctic cities. There is little high-quality bread wheat and virtually no stocks from last year's disastrous output, which had also been the worst in more than 30 years.

Many Russian farmers, remembering last year's record-high world grain prices, are refusing to sell to state reserves. Reuters predicts Russia's 1996 harvest will be about 69 million tons -- not much above last year.

Itar-Tass says that the average grain harvest across the Commonwealth of Independent States will be close to last year -- about 125 million tons.

The agency says Kazakhstan would harvest about 13 million tons, up from 9.5 million tons last year. Belarus' harvest of 6 million tons is up slightly from last year's 5.6 million tons while Kyrgyzstan's 1.3 million tons is also up slightly from about 1 million tons.

Moldova's 1.7 million ton harvest represents about half of last year's level. Production of about one million tons of grain in Turkmenistan is also down slightly since 1995.

Harvests in Uzbekistan (3 million tons) and Azerbain (1 million tons) are expected to be about the same as last year.