Academic journal article Economic Review - Federal Reserve Bank of Kansas City

Agriculture in the Former Soviet Union: The Long Road Ahead

Academic journal article Economic Review - Federal Reserve Bank of Kansas City

Agriculture in the Former Soviet Union: The Long Road Ahead

Article excerpt

The world watches with wonder at the momentous transformation now taking place in the former Soviet Union. Amid the manifold uncertainties surrounding the economic transition under way, many regard the establishment of a market-based food system to be prerequisite to success elsewhere in the economy. Indeed, ubiquitous food lines had stood out as a clarion metaphor of the failure of the command economy. The food lines are mostly gone now--replaced as a rationing agent by higher prices. But what are the prospects for building a market-based food system after more than 70 years of a failed command food system?

This article, after briefly describing the current economic situation, reviews the problems facing the farm and food sector in the former Soviet Union, and then outlines the building blocks for moving to a market-based food system.(1) The article concludes that critical legislative reforms for agriculture could come quickly, but building necessary market institutions, enhancing entrepreneurial skills, and upgrading technology will require years, even decades. Though the road may be long, the United States will have an unparalleled opportunity to market its world-class food technology in this part of the world.


The reform of agriculture will take place against an extraordinarily difficult general economic backdrop. Real output is falling, the ruble is declining as inflation soars, and living standards are sinking as real incomes drop and wealth evaporates.

The economic conditions one finds in the former Soviet Union are sobering, to say the least. Through the first half of this year, industrial output was 13.5 percent less than a year ago. The downward spiral in the economy is being driven by military cutbacks, falling consumer incomes, and halting trade among former republics. While in Moscow, we learned of a modern, 7,000 worker textile plant that was closing because cotton could no longer be obtained from Uzbekistan.

The declining ruble has encouraged barter while wiping out savings. During our two-week stay, the ruble fell from 160 to the dollar to 175. More recently, it has fallen to nearly 400. To avoid the sting of devaluation, businesses and consumers resort to barter. One Ukrainian farm we visited was bartering fruit for Siberian oil. Consumers convert ruble paychecks quickly into hard goods; one young entrepreneur who was making money as a grain broker had filled her home with such hard goods as Japanese VCRs and television sets.

The falling ruble has also wiped out the life savings of many older citizens. A leading professor at an agricultural institute now tends a huge garden and a clutch of chickens to supplement his income. Prospects for his approaching retirement are bleak.

At the personal level, the hardship of life in the former Soviet Union is striking wherever one goes. In Russia, the average annual income at the time of our visit was about 30,000 rubles, or less than $200 at the exchange rates that existed then. Consumer goods are limited and quality is poor. Many goods that American consumers take for granted are priced beyond the reach of average citizens. For example, automobiles cost at least ten years' income. Housing is cramped by American standards--the average family lives in an apartment with 300 to 400 square feet.

Basic foodstuffs were plentiful, but sharp increases in food prices the past year and a half require average consumers to spend a big portion of their income on food. One government official in Moscow offered a casual estimate that on average Russians spend about a third of their income on food, although the fraction varies widely. But others, including the U.S. Department of Agriculture, suggest the average could be as high as 60 percent. Yet despite spending so much, consumers receive poor quality and limited selection. Processed foods and luxury items like fruit juice are in scarce supply. Frozen foods are nonexistent. …

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