GORABCHEV'S FOOD PROBLEM: SOURCES AND STRATEGIES (SOV 90-10007)

Created: 2/1/1990

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Gorbachev's Food Problem: Sources and Strategies

CrnifidcMirt

Gorbachev's Food Problem: Sources and

AndigAuauKol

Thi*wuy conlributiooi from

all of tbe Office of Soviet Aitalyiis. ,

Comment! and Qtieriea areto the Chief Divition, SOVA,

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Gorbachev's Food Problem: Sources and Slralcgics

KeyMikhail Gorbachev's five year* in power, the Soviet public's

with available food supplies has grown increasingly acute.

the continuation of current policies and barring an unprecedented

stretch of good weather, ibis dissatisfaction almost certainly will persist and possibly will increase over the next five years. The limited success of Gorbachev's previous efforts to ameliorate the Soviet food problemscant grounds for believing that substantia! progress will be made.

The food problem that so disturbs most Soviet consumers is not the quantity of food available but the poor quality and limited selection of foodstuffs in general and the lengthy shopping time neededind and purchase food. The unsatisfactory state of food supplies is the productood production and distribution system in which every majorfarms, transportation and storage, food processing, and wholesale and retailpoorly equipped, economic incentives are weak, and there is excessive centralization and no effective coordination. Under Gorbachev, the problem has been compoundedapid increase in money incomes, which, when coupled with only limited Increases in the availability of nonfood consumer goods, has sharply stimulated demand for belter quality food.

Gorbachev's current strategy for dealing with these problems is an amalgam of measures he has pursued previously. In essence, he is countingurge in farm production, an expectation based in part on an unrealistic hope for high productivity gains from traditionalsuch as supplying farms with better machinery and more and betterhave not been effective in the past- Other, more radical measures include restorationense of ownership of the land through expanded leasing; streamlining the bloated agriculturalby decentralizing management of farms; and concentration of investment resources on transportation, storage, and food processing, the weakest links in getting food to the consumer. Accomplishing these measures, however, will be cUfficult and some have already been watered down:

Farm managers and local officials are reluctant to relax their control over farmworkers, and sufficient guarantees to protect leaseholders' rights arc not yet in place.

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Many of the central agricultural bureaucracy's administrativeas allocatingetermining procurement prices, and ordering agriculturalthan devolving to localhave merely been transferred from one central agency to another.

Investment funds are increasingly hard to findtrained economy, and farms still are not adequately supplied with appropriate machinery and equipment.

So far. Gorbachev's programs haveew local areas to improve food supplies markedly, but countrywide progress has been slow. Although farm output, aided by generally favorable weather,ew hight was down in78 before turning upward againhronic high wastage persists and imports of farm products remain high

Looking forward to the next few years, il is possible that good weather will enable farm production to increase, but. on average, the USSR experiences poor weather in at least two out of every five years. Without unusually good weather, the limitations of Gorbachev's policies and the obstacles in the path of those policies mean that substantial success in remedying the food problem should not be expected

We believe bolder measures than Gorbachev has taken so far are needed to achieve tangible progress. Moscow must allow more direct food sales by farms and individuals,lexible pricing system that can respond to supply conditions, stop interfering in day-to-day management of farms, and integrate the food supply network. To create an en^roameat in which these measuresood chance to work, moreover. Moscow must reduce the huge amount of excess purchasing power consumers nowexample, by increasing sales of nonfood goods or raising retail prices

The only way Gorbachev could gel more food on empty shelves quickly would be to step up imports substantially. But the very large quantities needed would strain the already overloaded transportation system and.ime Of declining hard currency earnings, couldoubling of6 billion in hard currency spent lor food imports, excluding grain,8

Although wc believe that the USSR cannot resolve the food problem with imports, Moscow willajor importer of grain and other farm products through atudden cooling in US-Soviet political relations, the United States can expect toarge share of the USSR's grain needs over the period. Moreover, recent Soviet purchases of other US farm products suggest thai US agriculttira^exports to the USSR could broaden in the next several years

Gorbachev's Food Problem: Sources and

Food Prabifx

Mikhail Gorbachev preside* overSoviet Unionpublic dissatisfaction over living standardsincreaiinfly acute and the slate ofhatajor cause of discontent. [Soviet

consumers regard the availability and the quality of food as the most important determinant! of their quality of life. Western and Soviet estimate) of Soviet family spending rat termimilar tale. Although the prices of most foodtiuHi are kept artificially tow in the state retail trade network, Soviet famil.es spend, oa average, aboutercent of the family budget oaar higher percentage than in most industriabiedccording to recent Soviet media accounts, poor families spend as much asercent of their income on food

For meat Soviet consumers, the teal food problemthe quality of food available but the poorlimited selection of foodstuffs in generaltbepping timeind andThe Soviet population consumes close toper person per day. about the tame aa InStates.owever, the averagecalories from potatoes and grain productsrelatively constant alqual to (be share in the United Stntei onof Worldnd slightly leu than In mottEurope just before World War II. Inwhere levels of living are lower in5 topercent. Throughout themoreover, fresh food, particularly fniluoften is partially spoiled. Meal itfat. and griidc. and rarely can mote than twovarieties of fresh or canned vegetable* beooe time in one store

reports that, even when state More* arc

relatively well Mocked, would-be buyers can spend two So three noun purchasiac teveial differ em type* of food because each type require* waitiag in it least three queues

There are other important indicators of the incmcicn-ey of Soviet food production:

The agroindestrial sector claim* nearly one-third of investment butmailer return on these resources than any other productive sector of the Soviet economy except fuels.

Farm production absorbsercent of (be labor force, as compared with lessercent in the United Slates.

State subsidy payments to cover the difference* between low state retail prices and procurement prices paid to farms reachedillion rubiesore (baa three time*0 level and equal to roughlyercent of slate budget expenditures.

ImporU ofodccti((tin aad otherhard currency coenpeae abour one-fifth of total hard currency expenditure

Sources of thehortfall* at Erery Stage

Almost all of the ortanimions involved in foodprocurementood-pro-ceiling enterprises, and the tradesome blame for ihe unsatisfactory state of Soviet food supplies. The lack of coordination among thosealso cause* enormous losses as agricultural products move from farm to retail outlet andreduce* the benefits of increased production. Moreover, the exireme con trail rat ion of Sovietplanning and management binder* innovation and makes coordiuaiion ciuemcly difficult (see Inset)

Impact of Central Planning

management at" Soviet agriculture Is directed by annual and five-year plant. Numeroui Instruction* govern matt production decisions and day-to-day form operationslh itatt and eollecllre farms. Soviet officials and planners apparently itlll better* thai farm managers and workrrt ran/tot makedectfons, even In mottt's as nbject to local condition! as when to Hart planting or harvesting. Inystem, no farm can fall: unprofitable and tats-generatlng farms are lubtidlzed with credit that frequently ts not repaid

Price! for both reiourcti andthe bonus system that encourages lalei of products abovelargely set by" the Stale Price Committee. Goikomtten.esult, the price lyitem does not retpond to changing conditions of demand andnor does It provide adequate guidance to planners or farms In directing the molt efficient resource and product combinations.

Investment and resource allocation are alto centrally determined.hen Leonid Brezhnevhit first major effort to expand farmSoviet planners have allocated more and more farm machinery, agrachemlcals. constructionand other Input! to farms In an attempt to

accelerate growth In production. Capital stock In agriculture has roughly tripled and deliveries of fertiliser have more than doubledut farm output, according to the official Soviet measure, hoi increased by onlyercent

Centrally planned food marketing li alio uniailtfae-lory. Errors In estimating demand lead to shortage* in torn* areas and abundance In others.deliveries make it difficult to maintain steady supplies to consumers.or example, one fruit andassociationonth's order forone day. One* tales plan! denominated in rubles at the retailmet. stores may refuse further deliveries despite tonsumer demand

Central planning is chiefly responsible tor the failure of farms, procurement agencies, food-processingand retail trade organisations to tynehro-niie their activities At each stage of the process, organisations are rewarded primarily for meeting gross outputhere are no substantial penal-lies for falling to supply enterprise! at tht next stage with high-auality inputsimely bails

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Figure I

USSR: AnnualIn Farm

The/arm.erformance of ihe Soriel agroindustrial sector begins on the farm. Although farm production ha* been increasing on average at nearly double the late of population growthBrezhnev's ririt year in power, annual output during that periodat fluctuated substantially, ncreasing inean but decreasing insee figure II The USSR'. generally fc.rth climate and recurring weather problem* have been partly responsible for the dmppoiniing performance, ai has the concentration ofe^cibortmakint in the handi of central panning uuttuneo to local farmhronic problem* with unreliable equipment, shortage* of spare parts, deierioraiing and eroding tout, and acquisition of such resources as agrochemicah abo played some role.4 growth in deliveries to farms has dropped tothin half the rate achieved in the previous decade. Moreover, the effectiveness of such

inputs as fertilizer has declined, largely because of incorrect or wasteful application method* andliming.

The failure of the agricultural machine-buildingto produce new. more productive machinery frequently force* farms to rely on outmoded model, and constrain* growth in farmespected Soviet academician, the *hare of farm equipment that has been in production for overear* grew from IS percent7 to nearly

T'ontpottatlon and norage. The shortcoming! of rural tranipoflation and storage facilities haw alsorominent part in the food inpply problem.

Transporting farm products without cirauvt MM andiflkiili because:

roads are Inadequate, uoth in quantity and quality, and coiutruciiofl materials ate in ibort

There are serious sbectages of trucks, .ii vehicle*efrigerated carriers.

The nationwide shortage of vehtele ipareepair and maintenance fatal:ties, and qualified repair personnel is far more pronounced in rural areas than io towns and cities.

Rallcars used to ship farm products arc often inappropriate or broken. /

Storage facilities at farm supply organizations and on farms have also been neglecied by central planners. According to an authoritative Soviet journal, for example, in thearms bad less thanercent of the storage they icquired for the products produced. Planners had long considered large,food-processing plants more efficient than small, local plants, and the emphasisoa moving commodities directly to large centers that could be located anywhere from so to several hundredaway from farms.

Foodftottitimj. Another key clement in the Soviet food supply chain, the food processing industry, is still primitive by Western standards. The Soviets process only about ss percent of farm output, at compared with S3 percent in the United Slates. In addition, the Soviet food-pineeding industry relies almoston simple methods, such as canning, miaing, and cnnceatf ating. and produces only minuscule quantities of convenience producis. such as frozen foods, boxed mixes, and heat-and-serve items. Soviet authorities also claim thatercent of the food-processing equipment inoreecade old.

Programs to upgrade and modernize Ihc food-process-int industry have continually fallen short of the goals that planners aei According to Premaer Ryihkov, for example,7ittle over hull of the industry's orders for modern equipment were met by its suppliers.esell, grueling conditions prevail in thethan half of all food processing is automated and workers must clean, sort, chop, and

mn by band Such conditions, combined with low wages anduke it difficult to attract and retain employees. New equipment, moreover, isinstalled haphazardly, often necessitatingmanual Labor between processing stage* and canceling any potential productivity gains.

Food ditlnbvllcm. The finalhe food supply chain also have serious weaknesses. According to Sovietoughlyercent of all food told in the USSR it marketed at centrally set price*iatc-run wltotcsalc and retail trade network that it clearly unequal to its task. The wholesale trade system, for example, must receive, tort, and handle enormoo* quantities ofther vcgciablea, and fruit during the peak harvestut Soviet Officialt report that the system has onlyercent of the storage capacity needed for poo ice* and other vegetables andercent of that needed for fruit. The lack of cmen rat ion forces wholesale trade workers to spend an inordinate amount of time in loading and unloading work, leaving little time for soiling or careful handling and adding greatly to losaea. According to Premier Ryihkov. cooUineriu-lion of fmil and vegetable taipmenU could cut kuaes in half.

The retail marketing system is alsoorry state (teearge ihare of food it delivered to sioret in bulk to be packaged by trade workers or customers,oust bringontainers for tuckat vegetable oil and collate cheese.etail oullets received less than jo percent of their supplies alreadyhe generally poor quality of packaging and the predominance of packaging ai the point of sate are not only inconvenient but also add substantia ll> to waste

ercent of food is marketed through collective laiin marketshere price* are relatively free to respond to demand Sellers in CFMs may be either individuals who have produced more on their plots

sl,

ethlki.metal toil iooo.nl

f finflrlrnlisl'*

Retail food stores consist mainly of state stores, located largely in urban areas, and consumer cooper* atlves, located largely In rural areas. Although the number of self-service stores It Increasing, many state and cooperatlr* stores operate much as they did at ihe turn of ihe century. Customers queue to order each wanted product at the counter, then stand In another line to pay for the product, then return to the o'igina.llnc. This system costs consumersbleIndustrial workers, for Instance, spend almost fiveeek shopping for their meagerproves time consuming for trade workers. Soviet research has found that retail

trade workers spend four to five hours every day-

packaging goods. Utile time Is left for improving the quality of the service. Low wages paid toercent of the average Soviet monthlymake It difficult to retain work-erg. According to ike Ministry of Trade.9 onlyercent of work positions were filled. Finally, retail trade facilities areSoviet Union has an average of one storeustomers, and flooripace averages one-fifthquare meter per customer. The rural network Is particularlyleaving many villages without stores.

(hey can use or state or collective farms that have surplus production. Conditions in these markets arc generally deplorable; ofarketstoday, one-quarter have no lighting, *nd over half have no plumbing, according to Soviet statistics.'

Corbaebert Strategy: The First Four Years

Not surprisingly for one whoajor role in developinc the Brezhnev Food Program (seeorbachev made this mullifacctcd approach tothe food problem the basis of his own plans for the agroindustrial sector during his early tenure asSecretary. In particular, he reorganized thebureaucracy yet again, shifted resources, and

'Sinnfarms nan had tfcr right lo

pUnon! prooaremcM of iprdfltd produce

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attempted to give more autonomy to both farms and farm workers. He also expanded several elements of Brezhnev's strategy, such as the intensive technologyemphasizes concentrating high-quality seeds and agrochcmicals on more fertileimprovement in animal productivity.

This strategy had an initial favorableoutput, aided by generally favorable weather,ew highnd the steady upward trend in costs of production was arrested. The gains achieved, however, were neither dramatic nor continuous.farm production declined by moreercent per year7argely because of favorable weather, it rose againccordingilr.iiniry estimates (seeomeercent of output Is still lost afterowever, and imports have remained nigh

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The Brezhnev Food Program

Food Programa major package of measures intended lo Improve the production and distribution of food:mplify the tangle of Involved ministries byingle administrativeto reduce imports of farm products: andmprove financial incentives, particularly for younger, more skilled workers on/arms. Although it set the Stage for some farm production increates. thedid little to further other important regimeas arreitlng the rapid rise In costs of production, raising productivity, reducing waste,food supplies, and reducing Imports. i

Organizational shortcomings contributed to themeager results. Although the Slate Agro-industrial Committee was created to make input producers and suppliers of services, such as chemical Application, more responsive to the needs of forms, the ministerial chain af responsibility was not broken. More Important, however, the program failed to come to grips with the fundamental problems of linking rewards to performance throughout the agroindus-trial sector, giving farms freedom to make production decisions, providing incentives for farm managers to use resources carefully, and introducing aprice system that would promote the desired mix and volume of Inputs for farms and products for consumers. /

The limited increase inform production that was achieved in the years immediately followingaf the Food Program resulted largely from agronomic programs Initiated or supported byFor example. Gorbachev, who then held the agriculture portfolio on the Politburo. Implemented Food Program initiatives that emphasised the use of roughages and protein In animal diets to improve animal productivity (weight gain perirectedadditionalproduction of these iomponems. and stressed upgrading facilities for processing and storage of feeds. Gorbachev, who had long urged closer tiesiiiiU#ral research and production, also was probably reiponjibU for beginning the Intensive technology program, primarily for grain production, Thisessentially means following standard Western farm methods, use of high-quality seeds, timely application of agrochemlcals. and sobegun on an experimental basis in

success6 fueled consumer expectations that longstanding leadership promisesorediett last coming to fruition. Because of the subsequcnl'downlurn, however, per capita availability of quality foods, such as meat, either grew slowly or declined and the food sttuallon became increasingly

tight (see table It- Rationing spread to all areas of the country, and specialwhich foodwere allocated directly through the workplace. bypns:;ng the usual marketing

Table 1

Soviet Agricultorc

Total uipal *

I*

*

-73

7.9

va loci'

MciikwWrc nosed)

tro pi

w rn 1

1

t-aicck piodnii

>

1

' Net of feed. wed. srd -sire.

Na of seed and mie

Neiolfwd.

Chance

One of Oorbacbev'i first moves on (he agricultural froni was lo creaie. fnew superministry. Gosagrorxom. in an effort to better integrate the agroindustrial sector.esult, the authority of the district-level agroindustrial administration wasexpanded, with the goal being to bring much-needed order into relations between farms, theirand supply organizations, and enterprises that process their output. Gorbachev hoped that Gosagro-prom would put an end to the special-interest lobbying that had often encouraged previously eilsilngto work at cross-purposes. The overly large organization proved ineffective, however, andH. Soviet officials, planners, farm managers, and

workers agreed it hadistake Gorbachev Rally asserted it should be abandoned, butharp diugrcemeni over what should replace i<

Baaaww ABoeatie.

Gorbachev also worked to provide more reaources to the agroindustrial sector in his first four years.5 he succeeded in pushing through plans for an upward revision innvestment target for Ihe lagging food-processing sector and directing more resources toward such farm-coenlcd industries as agricultural machine building and chemicals. Tbe

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i: bowevet, wat slow lobecause, according to Premier Ryihkov, o( the

'entrenched" view that the handling and pioccssing lectorsecondary sphere'* of the economy. This tack of proged Gorbachev to uavcil in7 ao ambitious ei|bt-year program to improve food

atonic, handliivc. and processingew wrinkle.

Gorbachev tapped the trianagement capeftise of tbe

defense Industries lo improve production of Icod-

proceuing machinery (sec inset)

Aa part of his effort to increase productivity.devoted particularly great attention andto agronomic programs.8 nearlyillion hectares or grain (about J5 perceni of the total area sown to grain) were in the intensive technology program, as were large areas of such other cropa as saiar beets and vegetables.o normal yield gains, however, were tornewbat less than to the first years of the program Similarly, the amount ofmilk,nit of feed has declinedevertheless, without this program, which added JO million torn to

grain productionccording to the Soviet press, the food supply would have been far more stressed thnn ll wm. Moscow would have haddifficulties paying for and impoi;:ng an additionalillion tons ol grain to compensate for the shortfall. Imports forarketing yearune) were aboutillion ton*

8 Soviet agroinduitrial investment strategy had become highly contentious. The dispute centered on whether direct farm investment should he cut to force greater productivity or whether more wasuntil Gorbachev's most recent strategic* began to pay off. The issue was particularly thorny because tbe kadenhip was calling for overall investment cutselp reduce the budget deficit. The need to improve the food supply system was so imperative, however, that9 the authorities look the "extraordinary measure" of reallocating moreillion rubles of investment funds from other sectors of the economy to the agroinduttrial sector

Inoscow subordinated plants af Ihe Ministry of Machine Building for ihe Ught and Food Industries to eight other machine-building ministries. Most of these ministries were In thesector, which already wasubstantial quantity of machinery and equipment for foodAccording to the former Minister af Machine Building for the Ught and Food Industries, the Soviets took this step In hopei af achieving results in two to three years, rather than the seven toears they believed would be required to reinvigoraie the old ministry by traditionalconstruction, retooling, and worker training. The machine builders are charged with7 billion rubles' worth af equipment for agroindustrlal processing In the9Spertod Of this. ITS billion rubles'wonh

will be produced by defenseillion by plants formerly belonging to the Ministry of Machine Building for the Ught and Food Industries,illion by other plants In Ike civil sector. In addition, the defense sector has been tasked withew types of machinery and equipment, and.0 percent of food-processing equipment is lohese targeti are nearly Impossible to achieve In the next severalonetheless. defense Industry txpfrtise has thetentlal to contribute markedly tolans for upgrading the food Industry over the longer term I

[ndepeudci*lot Farms add Indiitdaals

In addition lo mciiutes to reorganise the agroindus-triil lector and refocusorbachev procnot-cd initiative* to allow tbe farm* more latitude in deciding what to grow and where to marketand to make them more accountable for the toe of theirajor decree issued in6 promised farms stable procurement plansive-year period, thus pledging that production in eacest of the target would not be arbitrarily taken by ihe state. The decree also promised that state orders would replace detailed plans for procurement and would coverort too of productionayor ecooomic reform decree announced that, by tbe beginningll farms were lo transfer to velf-hnancing. that is. to cover most or their cipenacs from tbeir own fundi. Finally, planners promised thai prices paid by farms for producer goods and prices

paid to the farms for their output would be revised by1 andhole**le trade reform giving ihe farms freer access to lupplica would be in place2

Gorbachev also provided new encouragement for the private pkM and for personal initiative on state and coUcciTve6 decree8 as tbe deadline for caicndmg the collective contract throughout the agricultural lector and designated family or small, stable contracting group* as tbe most desirable form. Gorbachev revived thein the late Brezhnevassigning small teams of worker*iece of stale or collective farm land, giving them relative freedom, and paying them

-CoWHi.fi till-

*

lo hamit results. He particularly favored family conlracuamily group operated under diicci contract withfarm.8 all centrally act restrictions were removed on private livestock raited under contract with the farms, and farms were pee-tniited tooch production toward their plan fulfillment goats. Centrally set limits on the lire of private plots were also lifted.'

lor all the talk about freeing Soviet agriculture from bureaucratic control, none of the legislation contained adequate ulrguards against arbitrary interference by higher authorities in farm internal affairs. Central authorities continued toarge share of farm output in (he form of state orders, often with the approval of the farm manager, who preferred the guaranteed access to supplies thai such ordersUnprofitable farms continued to be kept afloat by doles from the central budget Moreover, even Soviet economists agreed that, in the absence of priceand accessholesale trade network, true self-financing was not possible

The turn toward personal initiative in agriculture also failed to live up to its promise. Although more thanercent of farm labor was said to be operating oe the eodeetive contract system byfficials acknowledged that there bad been no overall increase in productivity. Critics claimed that (be system wis being introduced largelyro forma basis. Teams were too large,omplei and often incorrect accounting system that defeated the effort to link wages to production efficiency was still being used

Gorbachev's agf(cultural strategy becameradical ns he realized that new policies were needed to soli the fsrm mans gemystem out of itsand to focui resources on the weakest links in getting food to consumers By the middle7 he evidently because convinced that only by restoring the peasant's seme of "ownership" of the landuick upturn in firm production be achievedinimum of additional resources In Gorbachev'sinvestment increments were lo be channeled primarily inio (he development of transportation,and processing, with the defense industriesto aid in this effort The General Secretary

apparently hoped that improvements could bewithout basic economic reforms in pricing and material(hat were proving sohe industrial sector '

Building on Ihe contract.-team approach. Gorbachev began promoting the idea of land leasing. Hebelieved thatuarantee of tang-ictm land use to the collective- and individual-contract system would make the farmworkers feel that the land was (heirs and (bus bring about dramaticincreases. In his view, leasing would eventual' -ly leadnified multilevel system, beginninge *imily or small leasing ami. through the collective and state farm, and building up through the rayon and evels.

The kiting proposal was particularly controversial Reformers eciiended that unprofitable Stale andfarms should be disbanded in favor ofleasing but (here was Strong exposition among party bureaucratfarm managers to what was perceivedove to break up the traditional Soviet faim system.lements worried about (he ideological implicit ions of disbanding: State and colorms and about (be potential introduction of market forces and private property. Farm chairmen feared losing the ability to maneuver men and equip menl lo meet centrally imposed production targets Many workers opposed relinquishing the guaranteed wage paid by the farm, lirmwoekers were alto skeptical about Ihe regime's commitment andabout being labeled neo-kulakj |wealth*and the possibility of losing (heir holdings by confiscation

Radical reformers such as Vladimir Ttkhonov worried lhat longer term leasing did not have ihe potential to increase firm production substantially and begin signing (he merits of individual ownership ofively small farms Bu( cm tea failed to address issues suchhe availability of suitable land and the provision of credit and ihe inputs necessary to farm produciiviiy. In Ihe absence of these clemenis.fanning" is noi likely toarger role in

h4-

agricultural production than ihe private plotcres does today. Mot cover, collective and state farm inanagers appear, in general, to be strongly or-pcoed to private farms,in ourthe current farm system has great potential for increasing output and reducing costs if merely freed from central control

The9 Plenum: Promises and Means

With little to show for bis first four years in the way of improved food supplies, Gorbachev in9entral Committee plenum focusing on the food problem. At this plenum. Gorbachev achscved some, but not nearly all. of the managerial changes be reportedly bad hoped to gain (see inset) In particular, he won approval for capanded leasing and some steps were taken to decentralize agrscultuianagement and planning. Inadical plan for the future elimination of administrative com roll over faims was approved. No timetable or this washowever, and Gorbachev conceded that slate and collective farms would .continue to be the primary form of production management and thai leasing would,ule, continue to be organized under the auspices ol stale and collective farmsajor retreat from his earlier position, be also staled ihat his plan lo disband uriprofitable farms would be unfaire asked rhetorically, 'could we walk over livini hewr* wreck people's lives with an economic

Al the plenum. Gorbachev announced thai Gotngro prom would be repiscoduch smaller USSR Food and Procurement Commission, whose rcirxxisi-biliiies would be limited lo strategic issues andand technologicallthoughfoe the direct management of agriculture wis to be shifted to the republic level, many ofunctions of planning, supply, and ccorsomsc regulation were given to other centralincluding the State Planning Committee, the

' Ai axli'ioaiu official, the Camilla Mand

PiacWicMitii began operatingclobcMM that Ihe new commtiiion. wtih In >eliduooiibililiu. wiltnir Miumhixd system Orx. lot tismple. recently ponied gaty that ag'iollore

tinn( IIears twl ihii<f

Leadershipirections for Rrjorm

Although Gorbachev and IJgachev. now In charge of thr agroindustrial ted or. assert thai the leadership is united on measures to resolve the foodumber of differences ere apparent Al theplenum In Idfor example. Gorbachev derided Ltgaehevfor claiming thai simply pouring more resources Into agriculture withoutsupporting measures to encourage individual initiative would solve the food problem. I

Gorbachevtrong supporter of leasing loand to groups within the framework of collective and state farms and from local sovlett. He especially supports long-term leases of up to SOStrongly defends the collective end state farm system. He was highly critical of leasing Initially, but he has softened his criticism so long as leasing remains under the aegis of soeiolited farms.

Khrbachev recently has also been supportingfarms, often referred to as peasant and family farms. He believes such farms may well be an effective partiverse farming system that would be more responsive to changes in demand and supply. While he has not mentioned how large Individual farms could be. his comments suggest that he would be comfortable with sites comparable to thoseIn draft legislation being debated in the Baltic republics, some SOcres Ligaehrv. however, clearly believes that individual farms should be merely tomewhat seoted-up versions of the current private plot,cres, as compared with an averagecres currently. He believei individual ownership of any sort threaten'values and would further erode ihe party's role

Finally. Gorbachev appears to Sincerely wantof day-to-day farm management, while Ugochev hasraditional approach that relies on administrative changes within ihe existingOpen disagreement In the leadership adds to uncertainty, which presumably will encourage fence-sitting byfficials, farm managers, and farm workers. i

State Committee foi Material and Technical Supply, and the Mlnlttry of Finance (see insetl Diitticiproms would be replacedariety ofranging from large, tightly integrated combines to cooperative* created by end financially accountable to farms.a**onc/lrcy comreea in other central organizations, however, will sharply limit Ibe impact of tbe new commission

Under terms of Ihe plenum decrees, farms were promised the eventual right to plan and dispose or their production independently. For at least the oeit Five-Yearowever, overall0 remain ccatralired. Although more decisions will be made at the republic level, stale orders win continue toajor portion of farm output- -up loercent or more of crops mch oideliveries of supplies to farms will still be tiedete orders- Once again, farm managers were promised that state order target* would be stable throng! out the Ftve-Yenr-PUaledge that has of en been irudc but ftcti* horuTroJ*

Some potentially effective measures were taken at the plenum toore flexible financial policy and preparelow ihiftore market-oriented system. These included decisions to:

a

Introduce land rent

Allow farms to market produce at locallycontract price*.

Reduce the number of price zone* that determine what is paid to farms by the state

Although some of the decisions taken ai the plenum coo id. i* implemented, bring about improvement* in farm production and local food supplies in the longer term, none of the measures will resultquick fix" of Ihe food problem. According to the Soviet press, more local control over food supplies already has resulted in much better availabilityewrich area* luch ai Orel' Obtail in the soutn-central RSFSR Such localowever, almost certainly have come at the capense of areas unable to produce sufficient food. Indeed, cities of Siberia, the Urals, and the far north will probably face more shortfalls in food supplies limn usual this winter and early spring. Similarly, even though the

law on republic autonomy was rejected inwo republics had already taken action to improve their own supplies. Late in (he summer, the Uihck Council of Minister* cut back shipment of fresh fruits and vegetable* outside the republic, and in October. Kirghiz authorities banned shrptnent of all vegetables beyond the republic's border*.

In addition to taking only limited steps to resolve the food problem, the plenum ildestepped several issues tliat will continue to limit production and diiuibution of food. In particular, little was done to break the bureaucratic stranglehold over Soviet farms, resolve the Bear impasse in processing and diiuibution, better integrate the food supply system, or curtail tbeUrge demand for food resulting from sharp growth in money incomes;

Tht farm. State and collective farm manager! retain absolute power over how far and how fait the limited [reposed reforms can be implemented. Many farm managers run their farms as feudal fiefdorasand they show no signs of changing. Moreover, few incentive* to encourage unwilling workersigher level of productivity were put in place. Even if the proposed priceprocurement prices, rent for land, charge* for water, andimplemented, they are unlikely to encourage efficient production because the reform consist* largely of merely setting new price*not of allowing price* to respond to surplus and scarcity.

Proctuing and ditirlbuHoa Although the Cenlral Committee called for targeting investment to food processing, transportation, storage, road building, and the social Sphere, no one talked about money. Moreover, nothing was said about supplying scarce resources, such as construction equipment and road-building material, or about the perennial difficulties Ihe food industry has in utilizing its investmeni allocations.

theritical incentive* so merge all the steps of the agroindustrial system are mil lacking. So long as prices remain centrally fixed and

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More Autonomy for Republics

earlyoviet authoritiesraft law that gave republics more authority over and responsibility for the production of food, consumer goods and services, and local construction. Many enterprises in these sectors were to be transferred from central to republic jurisdiction, and the central ministries responsible for the sectors were to be reorganised or abolished. According to Soviettotal industrial production under theof tht republics was expected to increaseercent toercent. To Involve the republics more directly in the effort to increase productivity, each republic's budget was to be financed from the profits of its enterprises. ' t

After prolonged public discussion, the draft was turned down by the Supreme Soviet In9 The rejection sets back Moscowt effort to achieve agreed-upon limits lo the reform of the federal structure. Supreme Soviet deputies said ihe draft did no* go far enough in granting economic Independence to the republics end conflicted with the draft laws on Uihuanian and Estonian economic autonomy that tht Supreme Soviet had already approved inMoscow,esitant to make further concessions, such as allowing republics full control over their economist and natural resources, and will find it hard to eompromite. If compromise cannot of reached, ihe Initial slept toward regional autonomy may not begin

successoutput on the farm, ftou torn stored or moved, value of retail sales, sod soin place, the problem of synchronizing activities of farms, food processing, transportation organizations, and all the links in the system will remain. So far, there are no plans to revise success indicators that ignore duality to focus on Quantitativeas ton-kilo meters, which encourage transport organizations to move heavy goods at the* expense of lighter ones thai may be far more subjectl to promote interdepartmental coordination.

Reducing Excess Demand for Food

The roost serious issue the plenum failed to recognize is the huge extent of unsatisfied demand for quality foods. Soviet economists recently estimated that the unsatisfied demand for food amountedrublesr nearlyerceni of the annual value of retail food sales. With most retail prices kept

at relatively low levels and incomes growing at planned or even higher rates, farm production cannot possibly catch up (seeor example, the evidence suggests thai, even if plan* for meatand for restraining income growth90 are achieved, the gap between demand and supply for meat would increase by nearlyorn. The shortfall already is sizable.9 interview, then agricultural secretary Viktor Nikonov claimed the tan about IS perceni, orillion tons

More Drastic Measures Needed

The Central Committee plenum ofn short, proved one moreeries of potential turning points in which the Soviet leadership foiled to break

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with the failed policies of the past.esult, the food problem persists and willocus of copular discontent until bolder measures are taken

Aliboiab ih,ww add to n* bodeddduiiosec- eovldcll iheai retail poost hiiher nun fee domcnieallylri*

iM part Taad abtocb iel.li.cl, men olmont, iKomt,.

thm panUlli enmoeaminf the badiei

Moscow's only option to Increase overall food supplies in the immediate future is lo step up food imports substantially; all other options require months, tf not years, to take effect. The very targe quantities of farm products needed loeasurable difference, however, would strain Ihe already overloadedsystem and require atoubling of0 percent of the total hard currencyto food imports, cxcludine grain,'

Over the longer term, to provide tbe population with an adequate and varied diet and to avoid increasing Ibe budget deficit, the leadership must increasereduce waste throughout the agroindutt rialpgrade the food-processing industry,the farm-to-market network, and slow growth ins task is complicated by the necessity of achieving progress simultaneously on several fronts. Stepping up pcoduction in the absence of othercouW lead to increased bottlenecks along the way and even higher wane rates because of delays and lack of processing capacity. Soviet authorities have finally begun to recognire that output that is wasted bad better not be produced ai all.

To increase production substantially over the next few years, Soviet farms must make productivity gains and be blessed with favorable weaiher. Past experience

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suggests that pcoducliviiy gains increases in output pet uniiavorable weather, however, is possible. On average, the USSRpoor weather conditions in two of every five years and average or better weather in three.orildombined with adequate predpilaiioo and average temperatures throughout the spring and early summer in theUSSR to boost production of most major crops.

Even in the absence of productivity gains andweatbcr, limited increases in availability could be achieved by;

Increasing procurement prices selectively to secure inert ites In output of commodities in short supply. Higher prices for specific high-quality grains and oilseeds have encouraged production increases in the past three years.

Further freeing direct sales by farms andto reduce waste and lo encourage production of more profitable commodities. Currently,ew farms have taken advantage of the right to sell directly to consumer cooperatives, to market through collective farm markets, or to set up their own stores in urban areas. Town authorities in most areas are reluctant to provide retail space and farms often lack the personnel and operiencc to set up such operations. Lifting current restrictions that prohibit individuals and farms from marketing their surplus production across rayon, obbst. andlevels could also reduce regional disparities.

Reducing waste and improving the farm-to-market system could add substantially to food supplies, but Moscow as yet has given only lipservice to developing an integrated and efficient food supply network. The Steps already taken focus primarily on specific targets, such as construction of storage and fcod-procesting facilities, not onore responsive system. Preliminary moves to reduce delays in thenetwork through decentralization have been

'See Dl (Wbitcalkd SOV UltKi* fvl. August 1WSavttt Asrlnitvwr. tintiii's the CsThii al MVo'l".

counterproductive, according to Soviet economists, because neitlser enterprises needing freight services nor transportation organizations rmjviding them are accustomed to arranging direct contracts.'

Moscow must also prevent its efforts to increase food supplies from being overwhelmed by the rapidlyamount of money in the hands of theThis could be done by increasing the availability of nonfood goodsy more painful measures, such as reducing income growth, extending formalor increasing retail prices. The available evidence makes it clear that the Soviets arc pursuing several of these options at once.'

0 economic plan, for example, calls forincreasing production of nonfood consumer goods, in part with resources diverted from the defense sector and heavy industry. In our view, this effort is likely to yield tangible results, but, given the time required for converting defense facilities to industry andthe capacity of consumer-goods plants, substantial increases in production should not be expected1 or later. Domestic production will, of course, be supplemented by stepped-up imports of nonfoodgoods, many of which, particularly Western clothing and footwear, can be sold with markups ofr more limes. Nonetheless. Moscow remainsto import the substantial quantities that would be needed.

As far as Die mote painful measures are concerned, the Soviets, in an effon to stem income growth, have enacted legislation that will impose severe penalties for enterprises awarding wage increases ofercent. In the past, however. Soviet planners have been unable to restrain rapid growth in personal money iivcome. and. given the upsurge in laborand strikes, the government's ability lo hold the line on wage increases is questionable at best.

Emending formalcurrently exists in large pans of at leastfould, in theory, not reduce unsatisfied demand but wouldfair share" lo everyone. Latvia and

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goodsocal residents, ind fill visitors to the Bel emission Republic tcporl thai Ihe same system eiists Ihete. Public opposition to the expansion ol* rationing is extremely strong, however, and tbefor snore corruption and black-market activity is high.'

Growtb in demand foe quality foods could also be sharply slowed by retail price increases Suchare long overdue. The basic prior of meat, for example, has been unchangedhile per capita money income* have more than tripled.reformingarticularly difficult tuk at the retail level Simply letting retail food price* to cover cost of production, as some Soviet economists have suggested, would reduce the government'sbill but would be pcrcel'ed by farms is free license to continue producing al high cost. Any increase in food prices, moreover, would also make it impossible for low-income diiierabtain even ihe amount of higher quality foods ibai they do at present.of bigb-qualily foods by the Soviet poor it already lowoviet official pointed out that poor people coniume only half as much meat as avenge Giiaen*

In* preliminary step to overall price reform,0 prices for potatoes, othernd fiuit arce determined at the local level by agreement between producer* and users The effect of the new procedure on processor* and end users ts unclear. If production of these crops is high, consumers could benefit from lower retail. coUcciive-'aim-market, and cooperative prices. If production is only average or less, consumers are likely to experience higher price*

Outlook

Although bolder measures are clearly needed tothe USSR's food problem, ihe willingness and ability of the Soviet authentic* to proceed with xuch measures are far from clear. So too are the prospects for increasing the quantity and quality of Ihe food available to Soviet citireni in the years ahead. Indeed because the performance of the Soviet igroindusirial sector in ihe next fiveeven yean "ill depend

Strongly on weather as well as on how Gorbachev's programs for the agrolndustrial sector arcsingle-value forecasts of giowth in farmmain deleiminani of foodwould be uncertain at beat.' *

To chart possible developmentsherefore, we present three scenarios for giowtb in food availability. These scenarios incorporate different assumptions about weather, increases in farm productivity,to or acceptance of reforms si Ibe farm level, and the degree with wlaieh efforts lo reduce waste and losses meet with sacces* (tee future J) Imports of farm products are assumed to remain at levels of the recent past *

Our baseline ttenario is the most plausibleredicated on the assumptions thai:

Weather conditions will correspond toong-term average.

Effort* to incieaie prodtiction through moredecisionmaking at the farm level and ihrougb kliviii, will make only alight headway.

The rate of deliveries of industrial inputs to Soviet farms will recover from tbe depressed level of rocenl years loercent per year, still lessrend but about double tbe average rale duringeriod.

Livestock feed rations "ill resume the alow but steady improvement registered in Ihes industry supplies more and better mixed feedeed itpplfsiier.ii. leading lo more meat per animal.

As farmworkers become more experienced in the application of ibe inteniive technology program, crop yields will increase moderately

Under such conditions, average annual farmwould increase al nearly doubleerceni projected for population growth. If loste* from waste could be somewhat reduced, total supplies of food

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from domestic sources -ould increase al an average rateercent annually and per capiu availability of food would increase slightly but peicep-libly. Sporadic food shortages uould ttill occur underscenario but wostsd be (ar leas pervasire than at present

Oui peiiimisiic teraario is predicated on (be assump tions that;

Weaiher conditions reflect Ihe average thatduringeriod, which included two of the most favorable years ever and three or Ihe least favorable.

Efforts to increase farm production markedly through more independent decisionmaking at the farm level and through teasing ire unsuccessful

Oeliverses of industrial inputs continue atcrcenl annual average rate maintained dunn(M period.

Little or no additional increase in production is gained from fuilhei improvement in livestock feed rations or expansion of intensive technology

Under these conditions, growth in farm output would average lessercent annually. Becauseto modernise the food-processing industry and upgrade and better coordinate all the links between farm and market also would have little effect, per capita availability of food from domestic sources would decline

Our oplimiilir setnario is predicated on thethat;

Favorable weather occurs in at least foul or five ol ihe not six years.

Farms operate without interference from theand the leasing option is successfully adoptedide scale.

Farms and leaseholders are able to achieve their needed inputsimely fashion.

Grain, production increases toillion tons, as comparedillion ions producedecause additional land is not likely to be shifted into grain production, suchjump in output wouldpercent increase in grain yields. An increase of this magnitude would be unlikely unless the USSRreakthrough in seed breeding combined with sharply improvedpractices.

Meat production increases lo aboutillion tons, as compared withillion tonshis, in turn, requiresillion tons ofne-third increase in nongrain feed production, and aboutillion ions of grain imports, slightly more than the average of the past five years. Less overall feed would be required If major improvements in animal productivity are achieved.'

Rough calculations suggest that, under theseGorbachev's targets for per capita consumption of meat, dairy products, vegetables, and fruit would be achievedcmewhat later than be pledged at the9 agricultural plenum. Although we believe this scenario is unlikely, Gorbachev's most recent round of reforms for the agroindustrial sector could succeed in bringing about some prod activity gains, increasing farm output at rates above the long-term trend. I', in addition, progress is made in reducing waste and losses throughout the system, overall food supplies could increaseercent annually and become more regular. In the absence of more basic economywide reforms, however, the food problem wp| remain because growth in demand will continue to far outpace possible growth in farm output. Moreover, weather-related production shortfalls, which the USSR will continue to experience, will affect food supplies far more than in the Wesi until the entire food supply system is brought up to date.

Implication*

The major conclusion to be drawn from theseis that the Soviet food problem is so deeply rooted and complex that there is no realistic hope that it can be resolved domesticallylthough some casing could occur (see inseilesult, public

A it plana fet All

Wtlltrn visitors rtporl lhai ihe following story Is current In Moscow: Gorbachev Isajor speech In Moscow. He promises that each Soviet family will have Its own apartmenthe audience responds with loud applause. Gorbachev continues, each family will have its own carore and louder applause. Then Gorbachev adds that each family will have Its own airplanenstead of applause the audience responds with put-iled murmurs. Finally, someone asks Gorbachev. "Why do we all needSo that when your friends in Novosibirsk telephone to let you know sausage It available, you can gel thereurry."

dissatisfaction over the state of food supplies willcouldwill complicate the Soviet leadership's efforts to cope with its many other problems. Moscow, moreover, willajor importer of grain and other farm products well into the decade.

udden cooling in political relations with the USSR, the United States, in our judgment, can expect io supply at least half of the Soviets' grain needs, as8ubstantial portion of other livestock feed needs at leastndeed, recent Soviet purchases of other farm prod-nets from the United Stales, including butler and poultry meat, suggest that the US role in supplying farm products to the USSR could broaden in the next several years. At the same time, Moscow's keen desire to free itself from the need to import farm products that can be produced domestically should signal to all Western suppliers that these markets will not cipand indefinitely.

In Us quest for productivity breakthroughs in both farm production and food processing, Moscow could also turn to the West for larger imports of advanced farm machinery, improved food -processing machinery

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and equipment, more agrochemicals. and perhaps most important, managerial cxpeitisc. Westernsupplied aboutercent of the USSR's imports of food-processing machinery and equipmentp from about IS percent in the. US exports of farm machinery and food-processing machmery and equipment are, as yet, almostin total Soviet imports of these goods, but recently demonstrated Soviet interest may indicate anrole. In addition, Soviet imports of Western agro-chemicals (excluding fertiliier) have more thanover the past five years, largely in response to needs of tbe Intensive technology program. US firms supplymall share, but theirajor role. Increasing reliance ontechnology to keep domestic grain yields up indicates imports of Western agrochemicals wilt be needed for many years.

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Original document.

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