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Russia: Food Industry In For Long Transition

Washington, 19 November 1996 (RFE/RL) - A new study of the food production sector of the Russian economy says that while the country has the capacity to greatly increase agricultural production, whether it will depends on whether policymakers can create appropriate incentives.

The study, in a paper prepared for the Washington-based International Food Policy Research Institute, is not terribly optimistic. It says simply: "Russian agriculture will remain in transition for a long time."

It says that "certainly the potential for major production increases exists in Russia, as well as in some other countries of the former Soviet Union, especially Ukraine and Kazakhstan."

However, it says "institutional constraints, friction in finance, land and labor markets, and limited infrastructure will probably prevent farmers and the food-processing sector from responding strongly to incentives and will continue to inhibit the efficiency and growth of the Russian food economy."

The paper was written by Joachim von Braun, professor for food economics at Christian-Albrechts-University in Kiel, Germany; Harm tho Seeth, a researcher at the university; Eugenia Serova, director of the Agricultural division at the Institute for the Economy in Transition in Moscow; and Olga Melyukhina, a researcher at the institute.

It says that one underlying problem is that food policy in Russia is "still dominated by the old idea of national or regional self-sufficiency," a concept that has tended to distort or delay many of the reforms Russian agriculture and food production need to become truly self-sufficient and competitive on world markets.

For example, the paper notes that the structural changes instituted at the beginning of 1992 to change collective and state farms caused "rapid growth in the private family farm sector, consisting of household plots of rural people, private farms and the dachas of the urban population."

This small-scale farming sector helped stabilize the Russian food economy when reforms were initiated. "From 1991 to 1994, small family farms made a growing contribution to total agricultural output for all products," says the study, "and by 1994 these farms produced 89 percent of all potatoes, 68 percent of all vegetables, 44 percent of all cattle and poultry and 40 percent of all milk." In fact, the study adds, by 1993, private farmers produced 36 percent of total agricultural output.

Significantly, it adds, livestock herds have declined sharply in large-scale farms, but have increased in the "household production sector." That means that while overall meat and milk production has decreased, the share of household farms in meat production rose from 23 to 42 percent by 1994 and in milk production from 24 to 41 percent of production for the country.

The problem is that this small farm sector has received "almost no institutional support such as credit or extension services, and the agricultural research and rural transportation systems are not designed to meet the needs and potentials of this sector."

The paper says that in fact government support to individual farms "has been diminishing from year to year owing to the tightening of the budget, the passing of the euphoria about the rapid development of small family farming, and the political opposition of certain groups in legislative and executive bodies."

In short, the paper concludes, the one sector which is the most stable producer of food is receiving a smaller and smaller share of state support and investment.

Overall, it adds, Russian investment in agriculture and food production has been declining even as past shortages and inefficient use of capital have resulted in an agricultural capital stock "that is in urgent need of modernization, if not replacement."

The study says that "machinery and buildings are worn out and obsolete, and a lack of means of repair and reinvestment is causing inefficient use of existing capital and losses in production and processing."

The paper says the future of Russia food production will depend greatly on "how well incentives to increase agricultural production are transmitted to the farm sector and the opening up of inter-regional trade opportunities."

It says that these opportunities are not likely to be exploited rapidly because of the "increased segmentation of food and agricultural policy as authority has shifted to the regions (oblasts), the state of infrastructure and frictions in the marketing system."

The study notes that instead of stimulating the accelerated development of domestic food industries, the large metropolitan areas such as Moscow and St. Petersburg are turning increasingly to food imports. People are having to work longer leaving the time for food preparation short, "so the demand for imported high-quality and convenience foods is rising."

Additionally, the study says, "managerial deficiencies and market imperfections are hindering a revitalization of large-scale farming" and the formerly state-owned food processing industry "has yet to adjust to consumer needs and preferences and is hamstrung by management and technology problems."

The Institute says it sponsored the study as part of its effort to stimulate global discussion of issues facing food, agriculture and the environment over the next 25 years.