RUSAG-L: Current Events #78

Please keep in mind that the following current events information represents information about events in Russian agriculture we received during the past week, while the actual events may have occurred earlier.

The sources for the information below include, but are not limited to, the following: the Open Media Research Center (OMRI), Interfax News, Food and Agriculture Report, the Foreign Broadcast Information Service at the Central Intelligence Agency's Central Eurasia Daily Report (FBIS), Nexis/Lexis through Mead Data Central, Inc., and The Washington Post.

The Russian Agricultural ListServ is sponsored by the University of Maryland College of Agriculture at College Park, the Research and Scientific Exchanges Division, Foreign Agriculture Service/International Cooperation and Development, U.S. Department of Agriculture, and the National Committee on International Science and Education of the Joint Council on Food and Agricultural Sciences.

30 May 1996:
-The Washington Post lists the current exchange rate at R5012 per dollar. (The Washington Post, May 29, 1996).

24 May 1996:
-World Bank president James Wolfensohn announced that the World Bank will lend Russia over $1 billion to overhaul its coal-mining industry and its agricultural sector. $530 million are mandated for the coal industry and $500 million for the agricultural sector. Wolfensohn emphasized that the loan would not be affected by the outcome of the June presidential elections. By the end of the year, World Bank loans to Russia should top $6.5 billion, making Russia the World Bank's largest borrower. (The Monitor, Jamestown Foundation, Vol II, No. 103, May 24, 1996).

-President Yeltsin announced during a campaign tour of the far northern city of Arkhangelsk that he will veto the Land Code passed by the Communist-dominated State Duma. Yeltsin opposes the Code because it outlaws the sale of land. (The Monitor, Jamestown Foundation, Vol II, No. 103, May 24, 1996).

-Russia and Iran signed their first agreement on fishing in the Caspian Sea. The agreement aims at protecting the sea's joint stock of sturgeon. It establishes cooperation in fishing and creates a joint commission to deal with issues related to Caspian Sea fishing. (The Monitor, Jamestown Foundation, Vol II, No. 103, May 24, 1996).

23 May 1996:
-According to Russian agricultural officials, spring sowing is progressing well. They expect Russian farmers to harvest between 75 and 78 million tons of grain this year. Agriculture Minister Viktor Khlystun said this meant Russia would not have to return to centralized grain imports this year, especially since grain consumption has fallen because of livestock reductions.
Last year's grain harvest of 67 million tons was the worst since 1965. (The Monitor, Jamestown Foundation, Vol II, No. 102).

20 May 1996:
-The Russian government may terminate Russia's oil-for-sugar deal with Cuba if the Russian company involved in the deal, Alfa-Eco, cannot resolve its differences with the Cubans. Russia's foreign trade minister said the government would not allow the deal to become a political scandal between the two countries. (The Monitor, Jamestown Foundation, Vol II, No. 99, May 20, 1996).

16 May 1996:
-Viktor Khlystun, Russia's new agriculture minister, called for the government to allocate more money for the agricultural sector. Khlystun argued for customs duties to protect domestic producers and said the state should resume the practice of giving low interest credits to agricultural enterprises. Despite these allusions to more conservative policies, Khlystun is expected to pursue more liberal policies than his predecessor. (OMRI, No. 95, Part I, May 16, 1996).

-The Union of Landowners, meeting in Moscow on May 14, called on rural voters to support President Yeltsin in the June presidential elections. The Union supports agricultural reform, particularly private ownership of land. In contrast, the Agrarian Party of Russia supports Communist candidate Gennady Zyganov. The APR called for prohibiting the buying and selling of farmland, instituting price controls on agricultural products, and maintaining Russia's food security by banning the "dumping" of imported foods. (OMRI, No. 95, Part I, May 16, 1996).

29 May 1996:
-In a campaign swing through southern Russia, Communist candidate Gennady Zyuganov appealed to the Don Cossacks for support. Zyuganov denounced Yeltsin's attempt to introduce a free market in agriculture. Many Cossacks oppose Yeltsin's land decree because they have traditionally held land collectively. (The Monitor, Jamestown Foundation, Vol II, No. 105, May 29, 1996).

17-24 May 1996:
-The State Duma passed a new Land Code by an overwhelming majority of 288 to 16. Only 6 deputies abstained from the voting. The Code strikes at the heart of President Boris Yeltsin's decree, which guarantees what Yeltsin sees as the constitutional right of Russians to do what they please with their land. The Land Code allows Russians to bequeath, gift, exchange, or otherwise transfer farmland and sell smaller plots of land. It gives the right to take free ownership of land extended to them before January 1, 1992, to build homes, dachas, or garages, or to use as yards or gardens. Foreign individuals, corporate bodies, and states may lease, but not own, land. Viktor Khlystun, Russia's newly appointed farm minister, says the Code does not give farmers the chance to become real landowners, since the land will be distributed not according to ownership, but by administrators. Khlystun predicted the Land Code would not pass the Federation Council. The two chambers will now have to form a conciliatory commission to work out a compromise. (Interfax Food and Agriculture Report, Vol V, Issue 21, May 17-24, 1996, pp. 3-4).

-State Grain Inspector Director Igor Chekmezov announced at a recent press conference that his department has begun rejecting poor quality grain imports.
The Inspector said 4.3 million tons of imported grain, flour, and cereal had been checked in 1995 and that 14 percent of it had been rejected. Most of the poor quality grain imports came from Germany, Poland, India, Ukraine, and Kazakhstan. Chekmezov also expressed regret that bakeries and pasta producers no longer had to be licensed. He said that 25 percent of the bread produced in Moscow is baked under conditions below the inspectorate's requirements. Chekmezov has lobbied to change the stipulations governing bakeries and pasta factories. (Interfax Food and Agriculture Report, Vol V, Issue 21, May 17-24, 1996, p. 5).

-Output in Russia's textile industry has plummeted 80-82 percent since 1990. As a result, the Federation Council recently approved a bill that would exempt non-CIS cotton fiber from a 20 percent value-added tax in order to boost supplies of inputs. Russia has traditionally bought cotton fiber from CIS countries, particularly Uzbekistan, but the deliveries from those countries are expected to reach no more than 200,000 tons . Russian textile factories need approximately 350,000 tons. The Council's move is seen as a way to, not only boost cotton fiber imports, but to break free of Uzbekistan's monopoly. The average purchasing price of cotton fiber rose 4.6 percent in April 1996 to 9.139 million rubles per ton compared with 8.735 rubles in March 1996. (Interfax Food and Agriculture Report, Vol V, Issue 21, May 17-24, 1996, p. 8).

-Japan and Russia signed an agreement which allows Japan to harvest Far Eastern seaweed around the Russian island of Signalny. The deal will bring Russia around 124 million yen or just over $1 million. The Japanese money will be used to finance social infrastructures and develop local industries, particularly fishing. Although small, the seaweed deal is seen as a good example of cross-border cooperation in an area where ownership of the islands is disputed between the two countries. (Interfax Food and Agriculture Report, Vol V, Issue 21, May 17-24, 1996, p. 10).

-Russia's inflation rate for the week of May 7-13, 1996, was at 0.4%, an increase over the previous week's inflation rate of 0.3%. Price increases for foods over the same week totaled 0.5%, an increase of 0.2%. The steepest price increases were for meat and meat products (0.8%); vegetables including potatoes (0.5%), and bread and bread products (0.4%). A basket of 19 basic food products cost an average of 255,700 rubles on May 3, up 0.3% from May 6. A Moscow basket costs 292,000 rubles and a St. Petersburg basket costs 248,000 rubles. The most expensive baskets were at Yakutsk at 577,900 rubles and at Petropavlovsk-Kamchatsky, 599,000 rubles. The cheapest baskets were bought at Ulyanovsk, 161,700 rubles, and at Kazan, 187,300 rubles. (Interfax Food and Agriculture Report, Vol V, Issue 21, May 17-24, 1996, p. 18).

10-17 May 1996:
-Viktor Khlystun, who served as agriculture minister from 1991-1994, has been reappointed to serve as minister of agriculture and food. Khlystun lost his position after the Agrarians made large gains in the December 1993 parliamentary elections. He became vice-president of Agroprombank after losing his position in 1993. (Interfax Food and Agriculture Report, Vol V, Issue 20, May 10-17, 1996, p. 3).

-124 private farms folded in the St. Petersburg area, leaving a total number of 6,100. According to a marketing consultant firm in St. Petersburg, IMKA, the farms covered a total of 55,400 ha. The average private farmer in the area has 9 ha of land, including 2.6 ha of arable land and 3.8 ha of hay meadow and pasture. IMKA says one-third of private farmers hold under 3 ha of land, an area that allows for little more than subsistence farming. Only 100 private farmers hold an area over 50 ha. Private farmers in the region, which does not include St. Petersburg proper, produced 460 tons of grain in 1995; 28,000 tons of potatoes; 1600 tons of vegetables; 3000 tons of meat; 5000 tons of milk, and 1.8 million eggs. Therefore, according to IMKA, meat and potato production, which represented 2.5% and 4% respectively, dominated at private farms in the region. Production of vegetables, grain, eggs, and milk amounted to under 1% of the regional total. (Interfax Food and Agriculture Report, Vol V, Issue 20, May 10-17, 1996, p. 5).

AREAS OF INTEREST

ARMENIA

17-24 May 1996:
-Hail and thunder storms hit Armenia's farm-rich Ararat Valley on May 14 destroying all of the country's apricots. Agropress, an information service for the Armenian Ministry of Agriculture and Procurement, told Interfax that 80-100 percent of grape vines had been destroyed over an area of 2500 hectares. A Ministry spokesman said grain output would drop 20-30 percent this year. The storm also damaged 2,435 ha of perennial fruit, 690 ha of potatoes, 3,140 ha of grain and 3,220 ha of tomatoes, cucumbers, melons, and watermelons. Farmers can expect to receive some help from the Ministry in the form of replacement seeds and plants. The Ministry is also considering distributing free fuel and fertilizer to the farmers. Experts noted that it was Armenia's worst storm in 20-25 years. (Interfax Food and Agriculture Report, Vol V, Issue 21, May 17-24, 1996, p. 6).

UKRAINE

10-17 May 1996:
-The American government, Ukrainian food experts, and the American firm Selentec have signed a letter of understanding on a plan to test the amount of radiation in Ukrainian foodstuffs. The project will test a process using magnetic separation to purify milk and water of radioactive cesium. The next step will involve the testing of juices and foods for children. Selentec plans to install the new system in dairies in Ukraine. $560,000 of the initial $1.04 million will come from the U.S. Energy Department and $480,000 from Selentec. (Interfax Food and Agriculture Report, Vol V, Issue 20, May 10-17, 1996, p. 5).

SPECIAL REPORT

UZBEKISTAN AND COTTON PRODUCTION

A healthy cotton industry is vital to Uzbekistan and central to its agricultural industry. Uzbekistan is the world's number four cotton producer and number three cotton exporter. The agriculture sector of Uzbekistan's economy provides one-third of the country's gross domestic product (GDP). It is responsible for 75 percent of hard currency earnings, most of it coming from cotton fiber exports. Cotton accounts for 40 percent of agricultural costs and over 80 percent of tax revenues. However, the cotton industry has begun to decline in recent years and shows signs of continuing problems. The crop area has decreased from almost 2 million hectares in the 1980s to the current 1.5 million ha. Production of raw cotton has declined by approximately 1 million tons to total around 4 million tons in 1995. Even in the productive 1980s, yields averaged just 0.85 tons per ha compared with 1.5 tons per ha in Australia, 0.9-1.0 tons per ha in China, and 1.1-1.5 tons per ha in the United States. Cotton production has also suffered from excessive use of pesticides and herbicides. Almost twice the official average of mineral fertilizers is used per ha of crop. In addition, the Uzbeks had bred several varieties of biological insects to control other insect pests, spreading 300-400 types of insects over a 2 million ha area. The Uzbeks have stopped producing these biological aids because of cash shortages. In an effort to salvage the cotton industry, officials have begun work on an investment project, built around a $66.1 million loan from the World Bank agreed upon last June.

The primary aim of the World Bank project is to modernize seed production. The plan requires Uzbekistan to develop laws for seed production in order to provide a range of procedures to guarantee their high quality in all stages of production, certification, sales, and selection. A certification and quality control center will be set up, based on the country's seed inspectorates. The goal is to establish private seed- producing corporations, which produce premium quality seeds. Five regions of Uzbekistan: Tashkent, Ferghana, Hamangan, Bukhara, and Surkhan Darya, have almost completed the process of creating five private seed production corporations. These seed production corporations will receive several concessions from the Uzbek government. They will be exempt from state cotton fiber purchases, and income from the sale of cotton fiber at free prices will be used to pay for the project now and then later to repay loans. The corporations will also be exempt from paying taxes, except land and water taxes, for five years following registration. Free, or agreed upon prices, will be introduced for all sowing cotton seeds produced from raw cotton harvested in 1966. Concessions will also include exemption from paying customs duty on goods imported for the project.

The World Bank project aims to pump up the liquidity and market price of Uzbek cotton on the international market by subjecting cotton fiber to mandatory certification. This branch of the project will create a central school of classification and marketing, and a computer information network to process data from classifying laboratories. Another part of the project will concentrate on developing new technology to stimulate and increase the cost effectiveness of integrated crop protection. This will include reviving programs to breed bugs that control other bugs.

Another goal of the project is to optimize the cultivation and effective use of irrigation water. Experts envision the creation and use of automated systems of water management. The water supply program has already been tested on eight farms in the Tashkent area on 18,000 ha of land. Experts are now expanding the trial area to 200,000-300,000 ha. The government will eventually introduce charges for irrigation water.

Lastly, a section of the project will concentrate on developing new areas in the agriculture industry. Some efforts have already been made to increase grain production in Uzbekistan.* This section of the project management and development is also responsible for attracting foreign investors to Uzbekistan's agricultural sector.

The World Bank has targeted June 30, 2000 as the completion date of the Uzbek cotton project, despite some perceived problems. World Bank officials say the Uzbek government could hinder the project by procrastinating in adopting measures to liberalize the cotton market. The government has also promised to end state purchases of cotton fiber by the beginning of the 1998 harvest. State purchases of cotton fiber this year totaled 50 percent of all produce. In addition, the project faces a deficit of highly qualified specialists and limited private sector interest in creating seed companies. Nevertheless, World Bank experts rate the project's chances for success fairly high.

(The information on Uzbek cotton was taken from Interfax Food and Agriculture Report, Vol V, Issue 21, May 17-24, 1996, pp. 9-10). * This note was inserted from a previous RusAg current events report. BB