CIS Regional Review: Economic reform still a work in progress

by World Grain Staff
Share This:

The countries of the Commonwealth of Independent States (CIS) have gone through a long process of reform since they were set up in 1991, following the collapse of the former Soviet Union. Although they have become more market-oriented economies, the urge to intervene has meant the government policy continues to play a major role.

"The situation varies from country to country," consultant Ray Moule told World Grain. "If we take Russia, for example, in the early 1990s, there was this rush to reform and privatization. The right to use land was granted in certain areas."

This tended to occur more in rural areas where more land was available. "It was down to the local authority," he said. "In some places they did make concessions to private farmers. In the south of western Russia, for example, in the Rostovoblast (region), private agriculture did develop. They didn’t own the land. They had the right to use it for perhaps 99 years."

The people who farmed the land came from the agricultural industry. "Most of these private farmers were, for example, ex-collective farm managers or ex-collective farm specialists," he said. "They were the people who can see the writing on the wall and jump early."

The overall effect was small. "In general, the collective farms remained very much intact," he said. "They remained as large farms. They were semi-privatized. They tried as much as possible to stick together."

The structure of farming in Russia remained intact. "In Russia, in particular, there has not been a breakdown," he said. "There was plenty of land available. People would have land to farm."

Russia’s government under Prime Minister Vladimir Putin has moved to shake up the land ownership system, according to an USDA attaché report on its policies.

"Though officially 90% of agricultural land is privately owned, the vast bulk of it has not been surveyed or registered due to shortages of surveyors and appraisers and serious problems with official corruption," the report said. "This legacy of communism coupled with inadequate titling infrastructure makes land transfer (either through sale or inheritance) and mortgaging expensive, time consuming and, at times, simply impossible.

"It also creates great opportunities for criminal elements to seize assets on the basis of murky land ownership documents. Until now, dealing with these issues has been the province of several different ministries and agencies, with the result that none took responsibility for them. Minister (Aleksey) Gordeyev appears finally to have extended his span of control to encompass agricultural land, and may thus be poised to lay the issue of agricultural land tenure to rest once and for all."

Not every country in the CIS has the luxury of Russia’s abundance of land. "If you go to some of the smaller CIS countries like Armenia, Azerbaijan, Georgia, or in South Asia Tajikistan and Kyrgyzstan, those places had less arable land in any case and they did privatize down to individual units," Moule said.

That meant a move to very smallscale farming. "It’s not really economically viable, in particular for crops like grain," he said. "They have had to recollectivize, often on a family basis, but it’s still only maybe 10-hectare units. That’s had a serious effect on their capacity to produce larger crops like wheat and cotton."

It triggered a change in the type of agriculture, with the focus on cash crops. "You’ve seen a large move to fruit and vegetables," he said. "Families needed to eat and sell off the surplus."

It meant that they could increase income, but not by enough. "They were never able to generate enough cash for imports to move up to a higher level," he said. "The land market is not functioning, so they can’t find more land.

"The other problem in many of these states is that they need irrigation, at least to initialize the crops. One big problem is that with the collapse of the centre control system, some of these infrastructures are not getting attention.

You get cases where irrigation is breaking down and water is running out. That’s also a limiting factor on yields." Moule said the potential is there, but they need investment and training in modern farming methods. "They could produce quite high yields. I have seen private farmers produce six, eight, or nine tonnes a hectare not using the best inputs and varieties."

However, the remaining collective farms are too short of funds to make the investment. "You see crops full of weeds, and yield down to two-and-ahalf tonnes a hectare. They have poor grain size and the gluten levels are low."

There is also a problem with the availability of suitable varieties. "One of the problems they have in that part of the world is they have not been producing many new varieties for a long time," he said. "Many of the varieties are pretty tired and ought to be replaced."

In particular, it means that too much grain is low in gluten, leading to poor baking quality. There are also too few varieties of hard wheat available for making pasta, which is popular in the former Soviet Union.

Governments have not been able to resist interfering in the grain markets, particularly in response to the poor 2007 harvests. Russia, for example, imposed export duties in an attempt to stop the rise in domestic food prices. They were lifted on July 1, according to the RIA Novosti news agency. "Considering that we expect a fairly good harvest this year, there is no need to introduce restrictions on grain exports from July 1," Agriculture Minister Alexei Gordeyev said.

Russia procures grain if prices fall to certain minimum levels, although the latest price levels are likely to be too low to actually buy any grain, according to a recent attaché report. "Experts predict that grain market prices in MY (marketing year) 2008 will be higher than government procurement prices, resulting in the government not being able to purchase any grain in MY 2008," it said.

However, a crop at the officially predicted level would be enough to avoid the need for using stock. "If the 2008 crop reaches 84.5 million tonnes, Russia will have enough grain for domestic food consumption and the grain (wheat) commodity interventions will not be needed," the report said. "This is especially important given that the grain intervention reserve will be exhausted by the end of MY 2007."

The report said the Russian government has announced intentions to stimulate production of grain, with a target of 100 million tonnes by 2012 and 120 million tonnes by 2020. "The chief mechanism is intended to be reclamation of land abandoned during the 1990s, primarily through condemnation of these lands under an eminent domain provision of the Law on Trade of Agricultural Land and their resale to producers," it said.

Ukraine also ended its export quotas under a decree signed by its prime minister on March 28, 2008. "It appears as if the Government of Ukraine realizes that all grain export quotas should be cancelled because of high grain stocks and Ukraine’s WTO commitments," a report from the Kiev attaché said. "However, the government and Ministry of Agriculture have worked hard to delay this decision as long as possible to avoid the price increases that might follow."

The attaché is expecting continued government intervention in the Ukraine grain market. "The presidential elections will take place in 2009, and grain is always a political issue," a report from Kiev said. "Candidates always use prices for sensitive items like meat and bread as political issues, so there will be an attempt to lower prices for these commodities leading up to the election."

It also noted that the government is strongly convinced that by keeping grain prices lower, they will be able to ensure stable meat and bread prices and put downward pressure on inflation.

There are mechanisms available to Ukraine’s government to manage the market in 2008-09. They can buy mainly milling wheat through the Agrarian Fund, monitor and possibly control exports through the first quarter of the marketing year (July-September), and monitor and regulate prices during the beginning of the year.

Ukraine’s export quota policy has been expensive. "Many experts have attempted to estimate the damages and losses incurred by international grain trading companies as a result of the export quota policy," the attaché said. "Most estimates range between $200 and $300 million."

The cost to producers has been enormous. The Ukrainian Grains Association estimates that Ukrainian agricultural producers lost approximately $1.3 billion due to the policy.

Kazakhstan has also seen official intervention in the grain market. All grain exporters have to obtain licenses from the ministry of agriculture under a law which has been in effect since Sept. 28, 2007. According to the U.S. Department of Agriculture attaché, the Kazakhstan government has also adopted rules for licensing and qualifying requirements for grain exporters. For example, they must have production and storage facilities and enough grain for export. The minimum lot for export is 5,000 tonnes.

Following a sharp rise in bread prices, the Kazakh government has created a stabilization fund for wheat intervention and signed a Memorandum of Understanding with the Grain Union under which grain traders agreed not to increase internal prices for wheat up to the new harvest.

Chris Lyddon is World Grain’s European editor. He may be contacted at:

We want to hear from you — Send comments and inquiries to For reprints of WG articles, e-mail