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Former USSR: Collapsed Grain Sales Call For U.S. Adjustments

Washington, 10 July 1997 (RFE/RL) - In dealing with the countries of the former Soviet Union, American agriculture has followed an old adage that says "when life hands you a lemon, make lemonade."

In the 1980s, American farmers were selling over 30 million tons of grain per year to the USSR, providing hundreds of millions of dollars of export earnings to the United States.

When the Soviet Union broke up, however, that golden market dried up and U.S. exports of grains dropped 87 percent - estimated at under four million tons this year. That could have sent U.S. agriculture into a depression and it did jolt farmers and exporters alike.

Yet today, just five years later, the U.S. Agriculture Department says America "adjusted to the collapse in grain sales" and has now positioned itself as the largest supplier of meat to all of the republics of the former Soviet Union, including the Baltic countries.

The former Soviet republics imported a record two million tons of meat from outside countries in 1996 - mostly from the U.S. - and are expected to match or exceed that level this year. The department says that since 1992, the region's imports of meat have about quintupled and will remain high well into the next century.

The reason is simple, says the department's latest analysis of international agriculture and trade in the Newly Independent States and the Baltics. Meat production generally is so inefficient and so unproductive that domestic producers cannot compete, says the report, and the people - with their own incomes reduced - are voting with their rubles and hryvnias for cheaper but better quality imports. They've also shifted from pork and beef to poultry as part of that phenomenon. And therein is the seed of the adjustment U.S. farmers made to the changed situation in the old USSR.

Grain and poultry are generally not produced by the same farmers in the U.S., so it wasn't simply a matter of the average farmer reducing wheat planting and adding more chickens. Instead, it was the poultry farming industry itself which saw the opportunity and acted.

U.S. consumer demand for poultry was growing significantly in the early 1990s. However, Americans prefer the white meat of birds, so while poultry breeders worked to develop chickens and turkeys with more white meat, there was a huge surplus of the dark meat that didn't sell well in U.S. stores.

That was the moment when the Soviet Union broke up and, without the money to continue buying expensive U.S. and Canadian wheat, livestock producers in Russia, Ukraine and other countries immediately began reducing their herds and cutting their production.

But people wanted meat and the U.S. poultry producers stepped into a natural market - consumers who prefer the very dark meat they couldn't sell in the U.S.

This adjustment to the market - making lemons into lemonade - was so successful that now poultry meat is the largest single product the U.S. sells to the entire region - including non-agricultural products. In fact, says the department, America sold more than $1 billion worth of poultry meat to these countries in the calendar year 1996 alone. Total U.S. agricultural sales to the region are projected to grow over 10 percent in the current year, as both meat and other consumer-ready products such as fresh and processed fruits and vegetables, nuts and beverages, continue to appeal to consumers throughout the region, especially in the major cities.

Meantime, local meat production continues to fall. Poultry production in Russia has declined 60 percent since reforms began.

The problem, says the U.S. analysis, is the continued lack of an institutional environment that encourages the productive use of resources, especially the lack of land reform.

Land markets perform three important functions in developing efficient production and well functioning markets, says the report. First, by assigning a positive price to land, markets curtail its wasteful overuse - former collective farm managers tend to simply sow larger, less productive areas, instead of realizing the land itself has a value and requires prudent care.

Secondly, says the report, markets allow land to be used as collateral for investment loans, without which there is very little investment in farming.

And third, markets for land and provisions for bankruptcy provide an incentive to management to avoid insolvency. But even without land privatization, agriculture could be improved in these countries by constructing better commercial infrastructure, storage facilities, better roads and market information systems. As it stands, says the report, official statistics in the entire region show that "private plots and private farms constitute virtually the only financially viable part of farming."

The report doesn't say what happened to those American farmers who raised the grain that is no longer sold to the ex-USSR. But other reports show that they're still in business and now selling their grain to new markets in Asia and Latin America. In fact, the U.S. expects to export over 110 million tons of wheat alone this year, down only slightly from the year before.