FOOD AID TO RUSSIA: WHO NEEDS IT MOST?

By Sergei Klimov

The first concerns about a possible deterioration in the food situation in Russia began to appear immediately after the Kirienko government’s announcement last August of a moratorium on the repayment of the foreign debt by Russian financial institutions. The foreign currency exchange rate shot up. Food importers were unable to meet their liabilities for import payments.

The threat of political destabilization on the eve of the autumn’s leftist-organized mass protests–coupled with the threat of possible famine–persuaded the ruling elite that it was necessary to change the government. This resulted in the removal of most representatives of the government’s liberal wing. The new government immediately raised an alarm about the dangerous situation concerning feeding the population. Government and nongovernment supervisory and marketing organizations published statistics on the harvest and food production, with, notably, frequent and significant discrepancies in the figures. Agriculture Minister Viktor Semenov published statistics for the grain harvest. The figure he gave was 47.3 million tons–the lowest indicator for the last fifty years. The president of the Russian grain union, Aleksandr Yukish, estimated that only 13.5-14.4 million tons of wheat for food were harvested this year, though a minimum of 22 million tons is needed. The deficit of wheat for fodder was 5 million tons.

Meat market statistics were equally alarming. According to assessments by the head of the marketing and forecasting department of the Agrarian Market Analysis Institute, Elena Tyurina, Russia’s meat requirements for 1998 total 7.1 million tons. Of this, 4.9 million has been provided by local producers, and 1.6 million imported from abroad before the crisis. Thus, in Tyurina’s opinion, Russia actually needs to import around 600,000 tons of meat before the end of the year.

One fact is obvious: Commercial food imports have been badly hit. Against this background, Russia’s State Customs Committee made considerable concessions to importers, lowering customs duties by 5-10 percent on staple foodstuffs. These measures did not, however, lead to a palpable revival in imports because they did not sufficiently compensate for the fall of the ruble. Russia’s customs terminals are full of imported goods for which Russian traders refuse to pay: The commercial import of food from the West is paralyzed. It is this in particular which forced the U.S. Department of Agriculture (USDA) to suspend Russia’s participation in the program of short-term credit guarantees for the purchase of American agricultural products. As the USDA informed Itar-Tass, in August Russia failed to pay an installment of US$20.9 million, and in September it owed US$31.7 million. Russia’s total debt within this program is estimated at US$2.5 billion.

Further indications of the crisis are provided by the closing in Moscow of the previously popular Pizza Hut and Kentucky Fried Chicken restaurants. Further, the international food show World Food, held in Moscow, was a virtual failure. Very few contracts were signed. Many foreign exhibitors lamented that they had made the long flight to Moscow only because they had, a year ago, paid 50 percent of the fee for participation.

The disappointment of Western producers is understandable. This year saw record food production in the United States and Western Europe, where there has been growth in almost every main branch of agricultural production. At the same time, it became crystal clear that during the last few years agricultural producers in Western Europe have come to depend heavily on Russia. At the beginning of the 1990s, the European Union supplied Russia with produce at a total value of US$545 million. During the last two years, Russia has become a huge sales market for European producers. Against this background, from the beginning of October, reports began to appear that Russia might appeal to the West for food aid.

Talks were initiated shortly afterwards on an international level, mainly between agriculture ministers. In Western Europe, the French agriculture minister, Louis Le Pensec, presented an initiative for providing food aid to Russia. He was supported by the Austrian agriculture and forestry minister, Wilhelm Molterer. The central theme of the ministers’ speeches was similar–a call not so much to help Russia as to compensate the losses which European farmers had suffered from the loss of their huge food market. The chairman of the French National Federation of Agricultural Producers’ Unions said plainly that food aid to Russia would particularly help to unblock the pork market. In 1997 Russia imported 400,000 tons of pork from the European Union. After the August crisis, European producers began to suffer serious losses, and the price of pork fell to a record low.

On October 28, it was reported that the American government had received an official request from Russia for food aid. The announcement came from U.S. Secretary of Agriculture Dan Glickman. Glickman declined to say exactly from whom the request came or to comment on the scale of the aid. Two days later in Moscow, on October 30, confidential Russian-American negotiations began on food supplies to Russia. The delegation from the U.S. Department of Agriculture (USDA) was led by Christopher Goldthwait, the USDA general sales manager. The Russian delegation was led by Deputy Prime Minister Gennady Kulik.

Gennady Kulik already had a reputation in the Russian media as one of the country’s main lobbyists. A former Agrarian Party deputy in the Duma, Kulik began his government career by successfully lobbying for Russian agriculture’s debt to the budget of 25 billion rubles to be effectively written off. Technically the debt should be repaid by 2005, but many observers agree that any repayment is unlikely. Analysts were also unanimous in noting that such an outcome would certainly favor one of the country’s largest commercial banks–SBS-AGRO, the largest agricultural creditor.

On November 6, Kulik and Goldthwait signed a protocol of intent to provide Russia with food and humanitarian aid. The protocol envisages that the United States will provide Russia with 100 thousand tons of food, to be sent directly to Russia’s regions. The United States will also give 1.5 million tons of wheat, which will be turned into flour and sold on the Russian market. Shortly after this, an agreement on the supply of food was also reached with the European Union (EU). The EU is to provide food to a total value of 400 million ECU, and also 1 million tons of beef and pork.

The conditions for implementing the food aid are curious. The food is to be sold on the Russian market by certain commercial structures “strictly controlled” by a special commission for supervising the distribution of humanitarian aid. The income from its sale is to be paid into Russia’s Pension Fund and to go toward other welfare payments. In addition, the West laid down conditions for providing aid, the main one being a ban on the export from Russia of produce included in the aid package.

The nature of these agreements immediately raised questions among Russian legislators. Many stated openly that the agreement to supply food would further undermine the already weak Russian agricultural producers. On November 12, Kulik was summoned to the Federation Council, where he painted a frightening picture of the state of the provision of food to the public. Kulik said that fourteen regions of Russia already needed emergency grain deliveries, and that the grain reserves in these regions were sufficient for twenty to thirty days. Kulik also mentionned the power structures–meaning the army, interior ministry troops and so forth–saying that they were also hard-pressed to feed their troops.

The following day almost all Russia’s serious economic newspapers carried reaction to Kulik’s speech, describing his figures as “dubious.” “Kommersant daily,” for example, reported: “The most astonishing thing in all this rumpus about the famine… is that nobody really knows how much food there is in the country. Neither the agricultural industry nor the multitudinous analysts have accurate data. The fact is that a considerable proportion of the harvest, livestock and poultry is hidden from officials. According to some assessments, in Russia 20-25 percent more food is actually produced than is shown in the reports. How much is grown in country people’s private plots nobody can begin to estimate.”

It is difficult not to agree with the newspaper, which views the promised aid as no cause for celebration: “For the food consumed in the next six months Russia will have to repay almost US$850 million over twenty years, but the income from the sale of the food supplied in the aid program is unlikely to exceed US$100 million.” As Russian Agriculture Minister Viktor Semenov said in an interview with “Expert” magazine: “…the hullabaloo surrounding the possible food deficit is linked to the interests of elements which have lost solid sales markets: Western producers, Russian importers and Russian manufacturers who use imported raw materials. Basically, Russia has all it needs to provide for itself.”

In summing up the Russian food aid saga, it is safe to say that there will be a much clearer picture of the state of food provision by year-end. It is reported that the last obstacles are now being removed: The issue of food coming through customs terminals is being addressed, and other logistical problems being resolved. Despite the evident controversial nature of the issue, it looks as though the food will cross the Russian border. At first glance, it seems that the efforts of the Russian and Western lobbyists have resulted in aid actually being delivered, even though Russia is able to feed itself. However, there is a more serious argument. Because of harsh monetarist policies, the public, particularly in the Russian regions, simply does not have the money to buy the food private Russian producers have. The authorities are using cheap foreign food, which will be sold at “humanitarian” prices, in a pre-election attempt to dispose of the “problem of a lack of effective demand.”

Sergei Klimov is the deputy director of the analytical department of the Prime-TASS Economic News Agency.