SELECTED MATERIALS ON THE SOVIET PRICE REFORM OF JULY 1967 (S-2674)

Created: 3/21/1968

OCR scan of the original document, errors are possible

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CIA HISTORICAL REVIEW PROGRAM RELEASE AS9

selected materials ok the soviet price reform of7

8 Revised8

'/wore.

This paperompilation of available information on the Soviet price reformsnd related materials.

ists specific price changes in porcent for various industries and products, as, gleaned from Soviet sources. (The sources aro listed in Section IV.) All of the changes given are average for tho industry or product in question; the changepecific item may vary considerably from the average according to geographic rogion, type of consumer, use in production, or for other reasons. These and other particularities rolating to specific changes are noted in Section II.

Section IH comments briefly on selected aspocts of Soviet pricing. The discussion ia not intended to bo exhaustive. It is hoped, however, that this brief presentation will assist in interpreting Information that may bo found in the Soviet press concerning new procedures for determining prices and tho effects tho actual pricos may havo on various aggrogato ceaaures of output and resource allocation.

Table: Average Percent Chango in Industrial Wholesale Prices, by Given Industry or Product-Group

Notoo to Table

Somo CoBsoonts Concerning Particular it iea of tho Soviet

and tho Defense Sector

Prices

of Accounting Prices

Pricing, Transport Costs, and tho Industrial

Consumer

and Profit: Special Financial ArraogeBonta

Sources

Percent8 *"

> c.0 a

I. Averogo Percent Change in Industrial Wholosale Prices, by Given Industry or Product-Group. Industry or Product I. All. Moavy industry

2

coal-

> e

ob

upown alightly *

o

2

o5 toora

for power

Crude oil 3

oilwhich: diasel fuel;

and lower quality products

oil

c

la b

oil

Natural gas 4

Eloctricity for. electric power

b> thermal energy 5* Iron and manganose oros 6

a. cast iron for stool 6. Rolled ferrous metals

ordinary stool

high quality steel

" For number references, soo notes in section II, following. *or letter references, seo sources, section IV.

for mmnssrm

Non-ferrous Dotalo o. copper

of which: rolled zinc

of which: aluminum shoot

and raro rewhich: titaniun spongo

Bognosiuis

imoroury j. cadmiun

k. germanium monocrystal

1. silicon iconocrystal

a. niobiuB concentrate

n. tellurium

o. )

p. * MQ) concentrate metallic

q. brans

of which: shooting tubing

r. vanadiun s. galliun

t. slrconium concentrate

u. gold, dianondp, platinun, cobalt

a,y

l>c,

6

6 z

z

y .

5 z

u

4 y

? y

productsb

a

1

chemicala

of which: synthetic fibers and

resins, plastics;a

and artificialdecrease a

anda

1

a

a. rubber productsb

of which: a

10. Building materials

wood productswhich: lumber, plywood, woolen0

c

. sawa

a

and fuela

a

0

construction materials (brick, tile,

andto

11. Transport rates

a

a

a

See

Estimated on the basis of earlier statomonts that railroad rotes, in general, would not be changed for tho present.

VtiJ^mkl Vol

12. Machine-building, motalworkinga

or> f

a

agricultural machinery_

of which: traotors] 8

trucks E

equipmont for heavy industry

for light and food*

of instrument-building, radio,

electronics, and

industriesa

of vhicbi *

and*

^

parts ^ Construction-installation workf

industry"

1. Textile products and '

quality cotton yarn (for suado and

to

change for the following

groupsJ

3

3

3

knittedJ

curtainJ

cottonJ

primary wool

flaxJ

l

See note 1.

II. Notes to Tabla

1. This includes wholesale price changes in tho toxtilo, leather and footwoar, ond other branches of light industry and most branches of food industry carried out6 and As6 wholesale prices wore changed on textile products, haberdashery, fobrica and pieco goods of general assortment, felt products, carpets andrugs. 7 new prices were introduced on leather goods, footwear, bristlo and brush items, confootionery items, macaroni products, beer, soft drinks, wines. Juices, coffeo, tea, mineral water, and foodho sewing industry and several branches of tho food industry that sell products at discount prices (rotuil prices minus tho trade mark-up) wora not affected by tho now price lists, h/ Except for the prico changes on tcxtilo products noted in tho Ublo abovo, part b, there In no specific information on the changes in light industry. prices in light industryhole oust have increased by less than thoercent average for all industry. Many if not all of tho increases were probably charged to turnover tax reductions.

2. Because transport coats were reduced, the price charged to the consumer did not rlaoercent, but onlyV. percent, ii/ The prico charged to various consumers, however, nay differ from the average; Tho price of coal used by the Nonferrous Metallurgy Industry vent up an average'8 percent. %/ The prico change for individual enterprises may vary even more because coal prices are based on average zonal costs and differ by region. In the Kuznetsk banin the price/ton isublosopecks, ond in tho Donets baainublosopecks. ^

The new prices on coal provideercent profitability, compared with an average ofercent for all branches of heavy industry. aV Because of the low level of profitability, the new pricesower rate for payment for funds and excludo rent payments and costs for geological work. To Include those would havoercent increase in metal pricesercent increase in machinery prices,

increased prices for oil will be charged to turnoverand will not result ln increased wholesale priceshere are seven zonal prices for oil, based on highercosts. Low ooat producers will be charged rentillion rubles planned/ The rate for theseset at various lovels ranging fromopecks toubles/ton of

oil. fi/ In the Baklnsk rayon, whore expenses are unusually high, aocounting prices vill also bo used. ^

chargod to the population and public utilities will^ Any loss on gasand also on fuels and electricityfor non--consumers will be borne by the stato.

As is theor oil, prices on gas aro -based on higher than averago costs,nd low-cost producers will pay rent payments rangingublesopecks up toubic motors. sJ

chargod to agriculture and tho non-productivo spherepower will not chango. fl/ There oro fifteen zonal rates setconsumers, fc/ forilowatt hours in

the Irkutsk and Krasnoyarsk power3 kopocks in the Oral system,5 kopecks in the Central region, fl/

The percentage price change for particular industrial consumers varies considerably frora thoercent average. The change for enterprises of the Honi'orrous Metallurgy Industry averaged almost oO^oercont, y/

Prices on iron ore end for other extracting branches ore sot by seven regions ofi the basis of average xonal costs. Rent payments rangeubloiiopecks/ton in Magnitogorsk toubles in the Don.

Tho effect of price, changes on chemicals for particular industries variod widely fromercent average. For enterprises ln nonferrous metallurgy it averaged almostercent.

There will bo no decrease in prices of artificialhoao made from cellulose, because of the increased prices for wood, fi/

Sitnin reported no change on rubber productshole but lower prices for older types and higher prices for new and scarce products,

Pricos on paper went8 percent. sJ The: increase will be charged to lowor profits of tho publishing industry. */

10. Prices ia machine-building and motalworking will remaingoneral because increased costs of materials will be In the past, scse branches had such high profits thatbo lowered in thono branchos. t/ Under the now prices profitabilityand motalworking was to fall7 percent

ercent. &

The new price handbooks for machinery provide flexibility for price adjustments by mutual agreement between buyer and seller in cases of singlo orders aud custom handling. In tho second halfpecial handbooks for price limits on non-standardised products were to behose handbooks ore probably part of tho "new controls on temporary pricing" mentioned by Sitnin hat time ho noted thatf the total product of machine-building was sold at inflated temporary prices and that prices here should fall somewhat despite the expected rise ln prices of raw materials. While previously each factory that produced

STffiai-

an item for the firat tamo was allowod to soil at temporary prices, under tha new system temporary prices will be used only for items produced for tho first time in the USSR, d/

In addition, revised technical specifications for stlffer precision and ioperating requirements on machino tooln ond equipment wore expected to go into of feet in the last halfnd prlcos for those itoas will be hlghor. l/

prices on agricultural oachinery went up, tho farmsthe old prices. Soyuzsol'khoztokhniJca will pay tho new prices to

the producors and will be reimbursed from the State Budget for the difference. The soma arrangement pertains to fertilizer, fl/" Despite the higher wholosale prices, profitability for tractor and agriculturalis onlyercent. The avorogo roto of profitability for machine-building in goneral is sat atercent. To compensate forho agricultural machinery branches havo a' lower rate of payment for funds.

Malzenberg reported lower prlcos for finished itens of instruments building, electronic, and electro-technical industries and also on many typos of "inter-branch" (semi-finished) items. SJ

Tho prico3 for power equipment went Into effoctower equipment proviously sold at temporary prices was includod in the new price lists and ouch prices wero reduced an' averago ofercent. ^

Malzenberg stated that there wouldotterprices of finished items and prices of spare parts so that production

" The cost to the budget will probablyill ion. rubles

of spare parts would be more profitable, ti This suggests that prices on parts went up.

15. The wholesale prices on industrial products, rates for electric energy, and freight transportation also apply in construction. This leads to extra expenses for construction-installation work because new norms and estimate prices for construction work uill not be effective until/ These extra costs are compensated froa the State Budget. *f

III. Some Comments Concerning Particularities of the Soviet Price System A. Pricing and the Defense Sector

There is historical evidence that pricing of civilian and military production, at least during oertain periods, have been treated separately. There are also some logical reasons for supposing that prices on items for the defense sector aro sotifferent way and at different levels (presumably lover) than prices on civilian output. Although there is no direct evidence that previous wholesale price reforms

ertained'to"both types of output,7 price changes -according to Sitninaf footed all products of heavy industry, machine-building, and dofonso branchos of industry.

Sitnin noted that price changoe on products of industry inould be reflected in tho financial plans and the mutual relations of capital construction, light and food industry, thesphere, and other sectors with the State Budget.

J

None of the reporting on the price changes givos any direct information concerning effects on the military sector. Available data is rather contradictory in that it can be used to demonstrate (l) that price changes ou defense output probably followed the trend of changes on similar civilian items and thereforeeneral decline,hat price changes on defense output must haveifferent direction from civilian pricing and probablyeneral rise. While the first

assumption isossibility; on tho basis of various bits of information concerning Soviet financial and accounting practices, tho latter assumption seems more likoly.

The following sections will outline sarae financial practices that must bo considered in any attempt Lo ovaluate the effects of price changesarticular sector or branch of industrybo it military or civilian. Above all, it should bo noted that the price changes given in tho table in section I, above, aro avorago changes; changes on individual Items within the given categories and for individual users may vary significantly from the average. Average prlcos in aachisa-building and metalworxing did not change, but prices for some branches of this soctor decllned by as much asercent (aoo itemn table). Us can assume that unreported prices for othor branchoa must have increased significantly. B. Temporary Prices

oftover from sovnarkhoz prico sotting, aboutercent of machine-building output, as ofas sold at temporaryecause major product pricingpresumably including militaryaa carried out by central organs, it may be assumed that the temporary pricos set by the sovnarkhozy Involved only civilian output of machine-building.

In the past, prlcos on machinory were fixed mainly by supplior-consumor agreements. It is concolvoblo undor such arrangements that tho dofenao consumer (they buying at low pricos, forced tho supplier to sell his civilian output at higher prices to make ends moot. Sitnln promised that most machinery in tho future would bo sold at permanent prices with appropriate surcharges for quality.his might

have tho result of lowering prices on civilian output (see itemf table, for example) and increasing prices on military production.

For more on temporary prices, see section II, above,. Role of Accounting Prices

Sitnin and others have noted that the now prices will notin profitability between individual enterprises andeconomic tools will be used. One of these tools le

ystem of accountingroduct is sold to consuming enterprisesingle wholesale price but each producer mayifferent "accounting price" depending on the actual factory cost of production. The positive differencos botuccn tho wholesale and accounting prices accrue to somo highor organ, usually the ministry, and are used to offset negative price differencos. Thus, in effect tho extra profits of low-cost enterprises aro redistributed to cover the losses of high-cost producers.

Accounting prices may be usedranch or zonal level or at the enterprise level. In ths latter cose,actory producing several items of varying IbvoIs of profitability, use of accounting prices can ensuro equal levels of profitability for all products and provide an incentive for the enterprise to fulfill its product assortment plan. yestuff factory producing items ranging in profitability frcaercent to minusercent under the new prices, use of accounting pricesrofitability level8 percent for each item.

Although Soviet economists hove critized the use of accounting

prices for various reasons, including the complexity of using two price

lists, fi/ they aro still in use under the new price systemat least

0 of the extracting branches where wholesale prices are set on

the basis of averago branch costs. S/ These include salt and coal, il/

They are also used ln at least one region for oil, where prices are sot

on tho basis of higher than average costs. (Seo section II, above,

D. Zonal Pricing, Transport Coats, and the Industrial Consumer

liocause prices for many raw materialsincluding coal and

and

oros (seo section II,ndea oil and electricitynd 5) are set by zone, thereroblem of how to equalize tho prices charged tohis is done in some casoo by use of some'.type of accounting prices. In other coses the consuming enterprise paysithe appropriate zonal price deponding upon the location of its supplior; and, to prevent supply problems, consumers ore assigned to specific producers, fi/

Prices on oomo matorials includo transport costs, as paid by The new prices for ferrous rolled metals, oil andgns, wood and wood products, and cement were worked outprice lists for theso items, differentiated

by zone, reflect not only tho zonal cost of production but also tho various trunsportholesalo prices aro set on the basis of average costsones rather than the previousi/

* In cases where wholesalo prices do not includo transport coats, the latter aro paid by the purchaser.

Including average transport costs ln tho wholesale price tends to equalise costs for the consuming enterprises ond oncouroges suppliers to deal with near-by consumers.

E. Prico and Profit: Special Financial Arrangements

In addition to accounting pricos discussod in paragraph C, above, several other financial methods aro used in an attempt to eliminate or compensate for large differences in enterprise profitability. These include difforent rates of payment for funds (soo section II,, charging low-cost producers rent (see notes,nd use of price regulation funds.

A new prico regulation fund was created7 from funds of the State Budget and will be maintained in the future by charges levied oa enterprises that reap "windfall" gains froa price changes. Enterprises in financial difficulties may also apply for loans from the ministry aid fund formed from sot percentage deductions on enterprise profits.

What those funds moan, in effect, is that profitable enterprises will be taxed to support low-profit or loss enterprises. While thoro may be loss subsidization from tho Stato Budget, there may bo greator use of ministerial profit redistribution.

Othor special arrangements made to koop prices belov ooat are the oxclusion of costs for geological work in wholesale prices on coal and maintenance of artificially low pricos on itoms sold to non-industrial consumers. (See section II, notes L,) Such arrangements are financed from the State Budget.

Although all the available examples of spocial arrangements, including accounting prices, pertain to civilian production; lt is certainly possible that tho same or similar arrangements are made for military production. The lack of information on financial practices .in tho defense

sector arrouaes tbo suspicion that some kind of special procedure. appiVi

Such methods are certainly available if Soviot loaders care to use them.

inal point, it should be kept in aind that some of the price changes may be charged to turnover tax reductions and. Urns, may affect neither wholesale prices nor profits. This pertains to oil (see sootionnotend perhaps other products of heavy industry. f all turnover tax comes from heavy industry.onsumer durables, for one, often have high turnover tax.

Sources

khoavayatvp, no.

Sitnin in EkonomichaBkava gazeta..

Romin and others inMsala,

gazeta.

Kaizenberg inzolar

BekhanlMtor,.

gazeta.o.

SSSR.

nttfcj, nond

konomicheskava gaaata. noAlthough the article was prepared by the head of tho Latvian SSR prico committoo, it is assumed that the prico chongos roprosent national rather than republic level revisions.)

Sitnin in3. 2.

id' nc-tekhnicJlvffkoTg snflbzhorfe> no

gazeta,. 4.

zhizn.. 2.

. 3.

stroitel'noy toJUmlkj,. 4.

Kondrashcv inrodit, no

re4.lt, no. 44

naukl,

5. 3.

let Sov^tskikh. ig2.

netally,.

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