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Russia in World Agricultural Markets: Are Major Changes in Progress?

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By William Liefert, Olga Liefert, Stefan Osborne, Eugenia Serova, and Ralph Seeley

During the 1980’s, Russia (as well as the Soviet Union in the aggregate) was a large importer of grain, soybeans, and soybean meal. Most of the imports were used as feed to support the policy-driven expansion of the livestock sector. When economic reform began in the early 1990’s, Western studies showed that effective reform could turn Russia from a major grain importer to a major grain exporter. By 2000, however, these forecasts had not yet been fulfilled but in both 2001 and 2002 there were exportable surpluses and rising grain production which may be signs of an improving agricultural system that could give rise to a long-term rise in output. Could rising productivity finally fulfill the forecasts of the early 1990s by turning Russia into a major grain exporter? Might productivity growth also expand the country’s livestock sector, such that Russia substantially reduces its meat imports?

This paper examines how changes in Russian agricultural productivity, consumer income, and policies, as well as changes in other variables, could affect the country’s trade in grain and meat. The paper uses a model for Russian agriculture to forecast Russian production, consumption, and trade for grain (wheat and coarse grains) and meat.

Various scenarios are run depending on different assumptions concerning two key variables: (1) the degree of productivity growth in Russian agriculture (reflecting the effectiveness of agricultural reform); and (2) trade policy developments.

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Transition Economies

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Dramatic changes have occurred in Central and Eastern Europe and in the former Soviet Union since the Berlin Wall fell in 1989 and the Soviet Union disintegrated in 2001. Profound economic and political transitions have occurred in these countries, with major implications for their food and agricultural sectors. Most of these countries heavily subsidized their agricultural sectors, and the state sector accounted for a major portion of agricultural production. The reform agenda in these countries has included transformation of collective agriculture to individual farms, establishment of functioning markets, reductions in subsidies, and adjustments in domestic prices toward world market prices.

The transition process has been anything but smooth. During the years immediately after the disintegration of the Soviet Union, withdrawal of agricultural subsidies to consumers and producers along with a collapse of traditional marketing links within the socialist system led to a chaotic economic situation. The food and agricultural sector in the transition economies has since recovered but to varying degrees. At one end of spectrum are the eight transition economies that joined the European Union in 2004, including Poland, the Czech Republic, Hungary, and Slovakia. At the other end are countries such as Russia, Ukraine, and Belarus, where the food and agricultural sector continues to struggle.

Changing Agricultural Trade Patterns in North America

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By Thomas L. Vollrath

Many economists have observed that world trade has become increasingly regionalized. Intra-NAFTA agricultural trade has enjoyed explosive growth, expanding annually from $11 billion in 1992 to $18 billion in 1999.

There have also been shifts in the composition of U.S., Canadian, and Mexican agricultural exports. Historically, primary bulk commodities have loomed large, but this dominance has been substantially reduced in recent years. Trade in bulk agricultural declined from 71 percent of total trade in the mid-1970s to about 37 percent in the late 1990s, while trade in processed agricultural commodities has become much more important.

The major objective of NAFTA was to free up the market system. The focus, therefore, was not restricted to the elimination of trade barriers in commodity/product markets. It also included efforts to reduce impediments to cross-border investments. For this reason, NAFTA established provisions that provided equal treatment to domestic and foreign investors. These provisions induced additional foreign direct investments (FDI).

FDI is a powerful force of change. Generally, it provides the recipient country (or company) with a source of relatively scarce resources which, when combined with relatively abundant factor inputs, increases output and productivity. It transfers cutting edge technology embodied in capital and managerial knowledge. Moreover, it represents a lasting commitment, in sharp contrast to shortrun capital flows, to the economies of the capital-recipient partners.

The inception of NAFTA coincides with significant growth of U.S. FDI in the processed food industries in contiguous neighboring countries, though it should be pointed out that growth in U.S. processed-foods FDI and exports to Mexico took off in the late 1980s prior to the formation of NAFTA.

There has been remarkable growth in the importance of the United States as a market for Canadian goods. The recent decline in the reliance of Mexican agricultural exporters on the U.S. market is also striking. This reliance reached a peak in 1990 when 85 percent of Mexican agricultural exports were sent to the United States. The 10 percentage point decline in the overall importance of the U.S. market within the last decade may not be an unhealthy development, given risks associated with not having a diversified foreign customer base.

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North American Trade Relationships: Policy Challenges for 2002 and Beyond

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By The Farm Foundation

This paper provides an executive summary of a conference on North American trade sponsored by the Farm Foundation and the American Agricultural Economics Association.

In discussions that focused on the challenges and success of free trade agreements in North America, trade experts from three countries detailed the changes they have seen in North American agricultural trade over the last decade and offered a look at issues that may arise as the 2002 Farm Bill debate progresses. The conference was attended by more than 90 agricultural economists, agri-business leaders, and government officials and included presentations by leading agricultural economists, lawyers, and industry and government representatives from Canada, Mexico and the United States.

The conference gave an integrated perspective of the economic, legal and political dimensions of the evolving agricultural trade relationships in North America. In four sessions, participants examined (1) recent developments in North American trade flows, (2) the history, economic and legal context of agricultural trade irritants and trade disputes between Canada, Mexico, and the United States, (3) potential synergies and conflicts between NAFTA and domestic farm program initiatives, and (4) industry perspectives on potential future directions for North American trade policy.

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