For well over a decade, the 13 countries of Central and Eastern Europe (CEE) encompassed in this regional review have been in a state of transition from socialist central planning to open market economies. Their progress along this arduous path has varied, but all have shared a common beginning as members of the former Soviet Bloc.
Seven of these nations are newly independent states resulting from the break-up of the Soviet Union itself in 1991: the small but strategically placed Baltic states of Lithuania, Latvia and Estonia; the geographically immense Slavic lands of Russia, Ukraine, and Belarus; and oft-overlooked Moldova. The FSU (former Soviet Union) countries, with the exception of the three Baltic lands, are members of the CIS (Commonwealth of Independent States).
The six contiguous countries to the west were classified as Eastern Europe during the Cold War, though these days Poland, Czech Republic, Slovakia and Hungary — with pending accession to the European Union — are thought of as Central European. The final two countries treated here, Romania and Bulgaria, are keys to an economically and politically stable southeastern Europe.
Without exception, grain production and grain processing in all of these countries has been subject to wrenching changes with privatization of farms, storage, flour milling, feed milling, and oilseed crushing on one hand, and liberalization of domestic and international trade on the other. Progress has been made, although interrupted by periodic — but severe — economic crises from country to country, such as the 1998 ruble devaluation in Russia, and the sharp 1996 recession in Czech Republic. Nevertheless, in all of the countries, privatization and trade liberalization in the grain industry have progressed.
Perhaps the most important change for the world grain industry is the potential for Russia and Ukraine to emerge as grain-exporting superpowers. In the other countries, grain production and consumption were, more or less, in balance during Soviet times and remain so today. Hungary is a moderate exporter, and Romania has potential to be a consistently moderate exporter of wheat. Poland, Czech Republic, Slovakia and Bulgaria primarily need to import soybean meal as poultry production expands. Aligning themselves with the EU’s common agricultural policy will probably result in a continuing status quo in grain production for all six countries. Of the FSU, only swampy Belarus imports a lot of grain.
In the grain processing industries, a key factor is the coming EU membership of up to nine of these countries: Poland, Czech Republic, Hungary and Estonia in the first wave; and later Latvia, Lithuania, Slovakia, Romania and Bulgaria. The need to meet EU standards could mean flour and feed industry consolidation with the closing of small inefficient plants, but it could also invite much needed investment from the West. Another highlight is surging investment in poultry production and oilseed crushing in several countries.
Population: 10.3 million
Of the countries reviewed here, Belarus is the most unreformed both politically and economically. It is the largest net grain importer, now that Russia and Ukraine have turned around their agricultural sectors. The country’s low-priced but sturdy tractors could benefit from the investment boom in Russian and Ukrainian grain production.
Population: 7.7 million
Bulgaria is essentially self-sufficient in grain, with average production of 5 million tonnes. Of the average 3 million tonne wheat crop, 10% to 15% is surplus available for export. As an aspiring EU member, some consolidation in the flour milling sector is expected. Farm sizes are small, and privatization of agricultural land has been slow.
Population: 10.2 million
Though agriculture accounts for only 2% of its GDP, the Czech Republic is self-sufficient in wheat and most grains. In the last decade, rapeseed has become an important crop, and exports of malting barley and barley malt have surged to Russia’s and Ukraine’s booming breweries, which are importing over one million tonnes per year from Europe.
Population: 1.4 million
Estonian ports could become an important outlet for Russian grain exports if international rail tariffs can be lowered. As traditional markets were lost after independence, livestock herds plummeted to half the level of the 1980s. The grain boom in Russia and Ukraine could stimulate exports of phosphate fertilizers from here and the other two Baltic countries.
Population: 10.1 million
Grain production averages about 14 million tonnes, of which wheat accounts for 5 million. About one-fifth of wheat production and one-third of wheat flour production is generally shipped to neighboring countries. High production costs and cutbacks of export subsidies with EU entry could lead to reduced wheat exports.
Population: 2.4 million
Farmland was returned to the pre-communist period owners very early in the transition period in Latvia, the first FSU country to enter the WTO. Food enterprises were also privatized early, resulting in a very competitive sector able to withstand imports. Some of the former focus on livestock is being switched to poultry production.
Population: 3.6 million
A wide variety of grains are grown and consumed; production of barley, rye, and millet together exceed wheat. Since 1998, production of rye, a traditional favorite for bread baking and porridge, has declined by 41% to 234,000 tonnes on 111,000 ha in 2001, while wheat has held steady at just over one million tonnes on 350,000 ha.
Population: 4.4 million
Moldova has an advantage in sunflower seed production, achieving the highest yields in the region, with 1.27 tonnes per hectare. About 40% of the labor force is in agriculture, and 53% of the small country’s land is arable. Privatization of government farms has resulted in 1.1 million citizens owning a total of 1.7 million ha of farmland.
Population: 38 million
Poland’s ag sector remained in private hands while in the Soviet bloc, resulting in numerous individual farms averaging 6 to 10 ha in sizes. Although occupying over 20% of the population, farm production contributes only 3.8% of GDP. Protection from competition by import tariffs slowed farm modernization and restricted Poland’s affect on world grain markets — despite its large population and 2001 grain production of 23 million tonnes, 8 million of which was wheat.
Population: 22.3 million
Romania has struggled in market reforms. Although state farms broke up into small inefficient units, 17 million tonnes was harvested in 2001, 5 million of which was wheat, and grain production remains potentially competitive. Export infrastructure is being built at Black Sea ports, and Romania is likely to become the number three net grain exporter in the region, surpassing Hungary.
Population: 145.4 million
Long a major net importer of grain, Russia is on the way to becoming a large net exporter. The 2001 harvest of 85 million tonnes left a large surplus to be carried over, due to poor export infrastructure. Agriculture is now one of the hottest sectors for investment. New laws passed in the Russian Parliament this summer permit the buying and selling of farm land for the first time since the Russian Revolution. Poultry production is set to take off, perhaps bringing soybean and soy meal imports back toward the levels of the 1980s.
Population: 5.4 million
Grain production is on a bigger scale and more mechanized than in Poland and Hungary. One of ADM’s few joint ventures in CEE is a maize milling operation in Slovakia. ADM also has operations in Hungary, Romania and Bulgaria. EU accession could mean increased grain production. Only about 4% of GDP is from agriculture.
Population: 48.7 million
Ukraine has been lagged in market reforms; the state is only now withdrawing from flour milling ownership. Grain production is responding to the economic reforms, and the 2001 crop of 46 million tonnes severely tested the Ukraine’s long underutilized export infrastructure as 9 million tonnes left Black Sea ports. Grain exports could increase greatly in coming years. A dynamic poultry and livestock industry will help absorb some excess grain production.
David McKee is a grain industry consultant that assists companies seeking to initiate business with the agricultural, food processing and beverage industries in the former Soviet Union and other countries. He can be reached by E-mail at email@example.com.