Theoretically, Russia should be a major food exporter, based on its vast areas of fertile ground. But Russian agriculture, along with most other economic sectors, has endured extreme stress since the collapse of the Soviet Union and the communist system.

Uneven attempts at economic reform, along with a major financial meltdown in 1998, have wreaked havoc with agriculture on both the supply and demand sides. Output of most agricultural products has fallen precipitously, while extreme economic problems slashed consumption of all but basic foodstuffs.

After the collapse of the Soviet system, agricultural reform programs involved the break-up of large collective and state farms into inefficient individual plots. Also under reform programs, obligatory deliveries to the state were replaced by a contractual system.

Yet, in a recent overview of the grain economy of the former Soviet Union, the International Grains Council concluded that efforts to modernize grain production and marketing had experienced only limited success.

Efficient pricing mechanisms were lagging, producers lacked adequate cash flow to buy essential inputs, obsolete equipment created massive waste, and private land ownership remained limited. By 2001, further reform and modernization clearly were needed to turn around the country’s agriculture.

To restore the potential of agricultural enterprises, the Ministry of Food and Agriculture of Russia recently prepared provisions to reorganize insolvent agricultural enterprises.

A key feature of the latest plan was the redistribution of land, providing citizens with individual plots and the creation of a fully adequate market for land providing for its purchase, sale, renting and mortgaging.

The provisions also exempted the bulk of agricultural enterprises from account arrests and facilitated access to credit resources. Other aspects included managing current payments, restructuring debt and writing off earlier fines and penalties, closing down dead-end enterprises and handing over resources to effective proprietors.

Measures to boost crop production involve direct budgetary financing to offer subsidies for inputs and tax and other incentives for producers. Nonetheless, observers think the full potential of Russia’s agricultural sector will only be realized when radical land reform has been completed, creating a stable climate for increased fixed investment, particularly in the distribution and processing sectors.

Earlier this season, the Ministry of Agriculture also announced new strategies to manage Russia’s grain market with the introduction of a grain market intervention program.

The interventions are conducted by a state agency to bracket grain prices in a predetermined range, if market conditions warrant, by buying and holding a stocks reserve in elevators to limit supplies entering the market. Some 2 billion rubles were made available for this plan.

In August, the Russian government set a price band for guiding federal intervention purchases after the 2001 harvest. The price band for class 3 food wheat was set at R2,300 to R2,700 per tonne (U.S.$75 to U.S.$89).

But given the low percentage of grain that reaches transparent marketing channels, observers say the effect of government grain interventions on prices so far has been minimal.

Russia lacks a strong system of warehouse receipts, enforceable contracts and reliable quality, which has discouraged the formation of efficient markets. Instead, producers and users have developed so-called "non-transparent" marketing channels to sell and procure agricultural commodities.

While state grain procurement in 2000 accounted for 17% of total grain marketed and commercial sales from producers accounted for 32%, the remaining 51% of grain flows moved through these non-transparent marketing channels.

These channels include barter, thought to account for 29% of total grain marketing. Other mechanisms include in-kind worker payments, which are not considered taxable income and enable workers to sell grain to middlemen at "below-market" prices.

In some regions, tax police also continue to repossess grain from farmers as payment for tax liabilities, and lenders receive grain as payment for planting loans.

These channels are used in all of Russia’s grain-producing regions, each with its own singular supply/demand fundamentals and pricing. This situation is likely to continue to hold back the nation’s agricultural economy and its prospects.


Russia’s food processing sector is poorly developed, and large-scale foreign investment has not been sought or offered in the sector. Without radical restructuring, Russia is expected to remain a net food importer over the medium term.

The domestic food processing sector did benefit from the 1998 financial crisis, as Russians could not afford imported food products because of the ruble’s collapse.

This situation boosted domestic grain processing and grain-based food consumption by making these sectors more competitive through the weak ruble and the resulting sharp decline in product imports.

Domestic production of flour in 2000 reached 11.9 million tonnes, the highest level since 1996, while production of bread, a food staple, and other bakery products was 9.1 million tonnes. Domestic production of pasta in 2000 was 700,000 tonnes, up significantly from 450,000 in each of the two pre-crisis years.

Mill privatization and consolidation have been ongoing during the past decade. Small mills still predominate, and capacity utilization varies widely. An increasing trend is one of large private interests operating mills as part of a vertically integrated strategy.

An example is the recent acquisition of Roskhleboprodukt, the descendant of the former state grain agency, by Agros, a U.S.$100 million agricultural company set up in October by Interros Holding, one of Russia’s top financial-industrial groups.

Roskhleboprodukt was a loose confederation of 82 companies, including grain elevators, mills nationwide and eight large poultry farms.

Currently in the milling sector, wheat quality from the 2001 harvest has become a crucial issue. Russian wheat classes are based mainly on gluten content, with class 3 representing the standard bread wheat.

The share of so-called food quality wheat represents 69% of this year’s total harvest. But actual volumes of class 3 bread wheat remain practically the same as in the 2000 season, at 14.5 million tonnes this year versus 14.1 million in 2000.

Demand for class 3 wheat with good baking qualities remains high. Although prices declined because of the large harvest, they later stabilized at R2,700 to R2,750 (U.S.$89 to U.S.$93) per tonne at the local elevator. The Ministry of Agriculture attributed the price increase to its intervention buying of 250,000 tonnes, but most market observers said tight supplies, not intervention activity, lay behind the price action.

All other wheat classes need the addition of "strong" wheat (wheat with very good baking characteristics and gluten content of more than 23%) to improve baking qualities.

However, strong wheat is almost impossible to find on the market; the State Grain Inspection of the Russian Federation inspected more than 27 million tonnes of grain, or about one-third of the total grain crop, of which they found only 18,000 tonnes of this best baking quality wheat.

Meanwhile, prices of wheat class 4, which can be used for baking only with the addition of strong wheat, plummeted to R1,700 to R1,750 (U.S.$58 to U.S.$59). Representatives of the Ministry of Agriculture said in December that another round of state intervention buying may be expected in January for class 4 wheat.


Gross meat output in Russia plummeted in the 1990s, as livestock production became the most unprofitable branch of agriculture.

Many large enterprises were forced out of business, leaving production mostly in the hands of individuals serving local markets.

Domestic meat production is stabilizing, but remains limited, and the problem of supplying Russian consumers with sufficient meat quantities should lead to greater investment in domestic meat output in the near future. The pork and poultry sectors are attracting investors, such as the aforementioned Agros group, although the cattle sector remains stagnant.

Russian meat consumption appears to be slowly expanding, but lags behind levels recorded before the economic crisis. Although incomes are growing, increases remain behind the inflation rate, and food prices are outpacing the general consumer price index.

The suspension of E.U. export subsidies and animal health problems in the E.U. and other supplying countries have forced changes in the structure of Russian meat imports.

As Russia turns toward alternative sources, the United States, Canada, Australia and Brazil are emerging as principle suppliers of inexpensive raw material for processing.


From July through October 2001, Russia exported 1.53 million tonnes of grain and flour (grain equivalent).

Barley exports were directed mostly to Iran and Saudi Arabia, and most wheat was exported to Israel, Italy, Greece, Algeria, and Commonwealth of Independent States (CIS) countries of the Caucasian region.

Total Russian exports of wheat and coarse grains in 2001-02 were projected by the U.S. Department of Agriculture in December at about 4.3 million tonnes, while total wheat and coarse grains imports were projected at 1.75 million tonnes.

If those figures are realized, Russia would become a net grain exporter for the first time in decades, marking an extremely significant step, at least symbolically, toward fulfilling its vast agricultural potential.

Traders in Russia estimate export potential from a supply standpoint at 6 million to 7 million tonnes in 2001-02. But they noted that the physical capacity of Russian ports will allow exports of only about 4 million tonnes.

In fact, even though Russia’s difficulties in producing large crops will take further investment and good weather to overcome, its poor infrastructure poses another obstacle to becoming a major world grain exporter. Foreseeing this dilemma, the domestic grain trade industry is pressuring the government to take steps to improve it.

For example, the Grain Union of Russia is demanding a leveling of domestic and foreign train rates for grain shipments to increase exports of grain through Ukrainian and Baltic ports. And Agros is already planning to set up a project, possibly in conjunction with other major grain companies, in the Black Sea port of Novorossiysk to build a new export terminal and grain elevators.

Key Facts

Capital: Moscow

Demography: Population 145.5 million, -0.35% growth rate (July 2001 estimates); Russian, language.

Geography: Climate varied from continental to Arctic; terrain ranges from plains, uplands, mountains and tundra.

Government: Federation. Chief of state is President Vladimir Putin, head of government is Premier Mikhail Mikhaylovich Kasyanov.

Official agricultural agencies: Ministry of Agriculture and Food, Minister Alex Gordeyev.

Economy: A decade after the implosion of the Soviet Union in 1991, Russia is still struggling to establish a modern market economy and achieve economic growth. Russia achieved a slight recovery in 1997, but budget deficits and a poor business climate made it vulnerable when the global financial crisis swept through in 1998. The economy rebounded in 1999 and 2000, buoyed by the competitive boost from the weak ruble and a surging trade surplus fueled by rising world oil prices. This recovery, along with a renewed government effort in 2000 to advance lagging structural reforms, have raised business and investor confidence over Russia’s prospects in its second decade of transition. The agriculture sector in Russia accounts for 8% of gross domestic product and employs 11.4% of labor.

G.D.P. per capita: U.S.$7,700 (purchasing power parity), 6.3% growth rate, 20.6% inflation, 10.5% unemployment (2000 estimates).

Currency: Russian ruble. Dec. 19, 2001 exchange rate: 30.33 rubles per U.S. dollar.

Exports: U.S.$105.1 billion (2000), petroleum and products, metals.

Imports: U.S.$44.2 billion (2000), machinery and equipment, meat, grain, consumer goods.

Major crops: Barley, maize, wheat, sugar beets.

Wheat: Production in the past five years averaged 36.4 million tonnes a year, ranging from a low of 27 million in 1998-99 to an expected high of 45.5 million this season. Imports averaged 2.6 million tonnes, exports average 1.2 million and consumption averaged 36.5 million.

Coarse grains: Five-year production averaged 29.1 million tonnes, ranging from a high of 41.6 million in 1997-98 to a low of 18.9 million in 1998-99. Total use averaged 28.2 million tonnes, imports averaged 1.1 million, and exports averaged 932,000. Feed use averaged 16.7 million tonnes, in a range of 22.1 million in 1997-98 to 14 million in 1998-99.

Transportation: Highways, 952,000 km, 752,000 km paved; 149,000 km all 1.520-m narrow gauge; Murmansk, Novorossiysk, Saint Petersburg, Rostov, Vladivostok, Volgograd are major ports.