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RUSSIA: Capitalism and meeting basic human needs

From Moscow, Cameron Sawyer writes: "We were discussing recently Habitat for Humanity and how best to meet the basic human need for housing. What about food? The Russian experience here is quite interesting. Russia has splendid agricultural lands; despite the chronic inefficiency of Russian agriculture (which predates Communism), up until 1917 Russia was the greatest grain exporting country in the world.

After the Russian Revolution, this situation abruptly ended. Civil war, of course, disrupted the rural economy. Then, the collectivization of agriculture took its toll. Then, droughts and bad harvests. But Russian agriculture never recovered during Soviet times. In the post-war period, the Soviet Union was most years the biggest importer of grain in the world. Year after year, plans went unmet, forecast harvests were successively downgraded, imports from Canada and the U.S. were hastily arranged. Every year, there was some reason or another.

At first glance, there is hardly any reason to suppose that this situation could have been much changed. In 2002, the Russian countryside is still largely unreformed. Collective farms have been privatized, on paper, but very little has changed. Agriculture was always the worst sector of the Soviet economy, and today Russian agriculture is still no showcase of the achievements of reform. Farm workers are extremely poor, badly disciplined and often drunk, and have benefited the least of anyone in Russia from the end of Communism. The great farming regions of the Black Earth District (the so-called "Red Belt") are the last strongholds of Communist Party strength.

Despite all of that, even just a tiny bit of capitalism has had an amazing and unexpected effect. Last year, Russia had an unexpected bumper crop of 85 million tons of grain, 10 million more than the country can use internally, making Russia a net exporter of grain for the first time since 1917. Hardly anyone expects much from the ailing, barely reformed Russian agricultural sector, and so last year's bumper harvest was considered by most people to be a fluke of good weather. In the spring of this year, the forecast was a more modest 73 to 74 million tons, enough to meet domestic needs and considered quite satisfactory. Then horrible weather in the summer, with droughts and floods in much of the Black Earth District and North Caucasus, caused some experts to begin the familiar process of downgrading the harvest. But lo and behold, when the harvest starting coming in in the south, it became clear that the bad weather had mysteriously not had any effect on production, and that there was an awful lot of grain -- about 85 million tons, equal to last year's bumper. Then the northern harvests began to come in and again with unexpected results. All in all, an amazing 93 to 94 million tons of grain have been harvested so far, breaking last year's record by far, and the harvest is still not quite over in some regions.

So Russia, beyond all expectations, is awash in grain. The very few really capitalistically oriented farmers (one of them is a friend of mine) are in despair, because prices have collapsed. There is a shortage of all kinds of infrastructure, including elevator space, and port facilities. What dock space there is with facilities for loading heavy grain-carrying ships is booked until March. Partially this is because the equipment is all designed to unload ships full of imported grain, not to load ships for grain exports. There is chaos in the ports, particularly Novorossisk (where I will be building a hotel), already overloaded by other trade, and frantically adding new dock, loading, and warehousing facilities. No one imagined that after 80 years of grain imports, Russia would have this problem so suddenly. A conference in Moscow recently organized by the Ministry of Agriculture was called "Big Harvest, Big Problem". The ironies of history!

Russia's leaders suddenly realize that Russia is destined to return to its historic role as a great grain exporter. That is logical, given the vast expanses of farmland Russia has. The "Big Problem", to the extent it concerns infrastructure, will be solved. Elevators and loading facilities are already being built, capital is starting to flow into these sectors, and the ports are being expanded. But the more intransigent part of the "Big Problem" is the trade barriers against Russian grain, particularly in Europe. Russia has already suffered from this in the steel, timber and textile sectors. What a historical irony, that Russia's problems again are centered around the insufficiently capitalistic organization of other European economies. Capitalist Russia struggling economically with Socialist Europe; who could have imagined it!

Low prices will certainly complicate further reform and will discourage much-needed investment into the sector. But most people are not complaining; even now, the free market puts a loaf of delicious Russian bread on Russian supermarket shelves for about 18 cents, a price already within everyone's reach. Plentiful grain will encourage meat production (Russia still imports meat). The price of food will now fall further, which will benefit, first of all, poor people, and in general will put money into the pockets of all consumers (whose incomes are rising anyway) who will have more money to spend on housing and consumer goods, stimulating those sectors and further improving living standards.

Capitalism is barely getting started in Russia; it is in its infant and rather rough early stages. And no one can call Russian agriculture today a showcase of reform. Neverthless, somehow, the country is awash in food; Russians have never been so well fed. The concept of hunger, always lurking just around the corner during Soviet times, is unknown.

On the harvest, see

RH: This assumes, of course, that ordinary Russians have money to buy grain products. It would be interesting to have a similar account of agriculture in Argentina.

Ronald Hilton - 10/21/02