1536o ~~ ~THE WORLD BANK AGRICULTURAL TRADE AND TRADE POLICY A MULTI-COUNTRY ANALYSIS Commodity Trends in Agriculture: Production, Gross Margins, and Trade, The Experiences of Belarus, Moldova, and Ukraine: 1991-1994 Natural Resources Management Division Country Department IV Europe and Central Asia Region The World Bank June11, 1996 Abbreviations and Special Terms: CARD Center for Agricultural and Rural Developnment CIS Commonwealth of Independent States CPI Consumer Price Index EE Eastern Europe EU European Union FAPRI Food and Agricultural Policy Research Institute FSU Former Soviet Union GATT General Agreement on Tariffs and Trade GDP Gross Domestic Product GNP Gross National Product IMF International Monetary Fund NMP Net Material Product VAT Value-Added Tax WTO World Trade Organizationi Gross Outlay Per unit output expenditures using prices on which producers make or are assumed to make production decisions Gross Margin Unit price minus gross outlay CONTENTS PREFACE ........................................................... i EXECUTIVE SUMMARY ........................................... 1. INTRODUCTION .... 1 2. THE TRANSITION . . . 3 A. Background and the Overall Transition .................................. 3 B. Agricultural Sectors and Agriculture Policies .............................. 4 C. Prices and Procurement ............................................ 6 D. Trade Liberalization .............................................. 8 E. Institutional Reform ............................................... 9 F. Summary .10 3. SUPPLY AND USE ..12 A. Grains .1.2..................... 12 B. Oilseed .13 C. Sugar .16 D. Pork ......................................................... 16 E. Poultry and Eggs .17 F. Summary .17 4. COMMODITY ANALYSIS ..19 A. Prices and Costs ................................................. 19 B. Trends and Implications .23 C. Analyses of Potential Competitiveness .24 D. Commodity Results .25 E. Indicators of Export Opportunity .30 5. TRADE PERFORMANCE AND POLICY ..31 A. CIS Trade Performance .31 B. External Trade Performance .33 C. Policy Results and Prospects .34 D. Summary .39 6. OVERALL SUMMARY ..41 A. Commodity Analysis .41 B. Trade Policy .42 C. Recommendations . 44 TABLE APPENDIX ................................................... 47 REFERENCES............. 69 LIST OF TABLES Table 2.1: GDP for Belarus, Moldova, Russia, and Ukraine in millions of 1991 rubles and percentage changes, 1991-1994 .......................................... 3 Table 2.2: Average annual consumer price indices (CPI, 1991 = 1) and exchange rates (local currency/U.S. dollar) for Belarus, Moldova, Ukraine, and Russia, 1991-1994. .... ...... 4 Table 2.3: Agriculture as a share of GDP for Belarus, Moldova, Russia, and Ukraine, 1991-1994. 5 Table 3.1: Grains trade for Belarus, Moldova, Ukraine, and Russia, 1991-1994 (1,000 metric tons) . 13 Table 4.1: Price to gross outlay ratios per ton for major crops in Belarus, Moldova, Ukraine, and Russia, 1991-1994 . ................................................. 20 Table 4.2: Price to gross outlay ratios per ton for major animal products in Belarus, Moldova, Ukraine, and Russia, 1991-1994 ............................................... 22 Table 4.3: Adjusted gross outlays per ton for selected crops as percent of real gross outlays in Ukraine, Belarus, Moldova, 1991-1994 .................................... 26 Table 4.4: Adjusted gross outlays per ton for selected animal products as percent of real gross outlays in Ukraine, Belarus, and Moldova, 1991-1994 . ......................... 29 Table 4.5: Ranking of commodities by percent change in real gross outlay per ton of production, 1991-1994 ....................................................... 29 Table 5. 1: Gross value of agricultural production in Belarus, Moldova, Ukraine, and Russia, year- to-year percent changes, 1991-1994 . ............ .......................... 32 Table 5.2: Agriculture trade for Belarus, Moldova, Ukraine, and Russia year to year percent changes, 1991-1994 . ..... I .......................................... 32 Table 5.3: Role of agriculture in trade of goods and services in Belarus, Moldova, and Ukraine, 1991-1994 (in million 1991 rubles) ...................................... 35 Table 5.4: Intra-CIS trade in selected agricultural products for Belarus, Moldova, and Ukraine, 1000 tons ........................................................ 36 LIST OF FIGURES Figure 3.1. Grain trade for Belarus, Moldova, Ukraine, and Russia in 1991-1994. ... ...... 14 Figure 3.2. Belarus wheat supply and use trends. ................................ 14 Figure 3.3. Moldova wheat supply and use trends. ............................... 14 Figure 3.4. Ukraine wheat supply and use trends ................................. 14 Figure 3.5. Russia wheat supply and use trends .................................. 15 Figure 3.6. Belarus coarse grain supply and use trends . ............................ 15 Figure 3.7. Moldova coarse grain supply and use trends. ........................... 15 Figure 3.8. Ukraine coarse grain supply and use trends ............................. 15 Figure 3.9. Russia coarse grain supply and use trends .............................. 15 Figure 4. 1. Indicators of producer support by commodity, 1994 (ratio of output price to gross outlay) ................................................. 23 Figure 4.2. Change in price to gross outlay ratios during the period 1991-1994 ............. 23 Figure 4.3. Change in real gross outlays for pork, poultry, and eggs compared to the change in the ratios of output prices to gross outlays, 1991-1994 .............. . 25 Figure 4.4. Sugar real gross outlay per ton of production (1991 prices). ...... . . . . . . . . . . . 27 Figure 4.5. Pork real gross outlay per ton of production (1991 prices). ...... . . . . . . . . . . . . 27 Figure 4.6. Poultry real gross outlay per ton of production (1991 prices). ...... . . . . . . . . . . 28 Figure 4.7. Eggs real gross outlay per thousand of production (1991 prices). ...... . . . . . . . . 28 Figure 4.8. Wheat real gross outlay per ton of production (1991 prices). ................. . 27 LIST OF APPENDIX TABLES Table Al. Indicators of supply and use for key agricultural commodities, Belarus, Moldova, Ukraine, and Russia, 1991-1995. ....................................... 49 Table A2. Real procurement prices and gross outlays for major crops in Ukraine, Belarus, Moldova, and Russia, 1991-1994, 1991 rubles per ton .......................... 57 Table A3. Real procurement prices and gross outlays for selected animal products in Ukraine, Belarus, Moldova, and Russia, 1991-1994, 1991 rubles per ton . ................... 58 Table A4. Real and adjusted gross outlays for crops and crop products in Ukraine, Belarus, Moldova, and Russia in 1991-1994, 1991 rubles per ton ......................... 59 Table A5. Real and adjusted gross outlays for animal products in Ukraine, Belarus, Moldova, and Russia in 1991-1994, 1991 rubles per ton. ................................. 60 Table A6. Agricultural imports from non-CIS countries for Belarus, 1991-1994 (1,000 tons). .. . 61 Table A7. Agricultural imports from non-CIS countries for Moldova, 1991-1994 (1,000 tons). . . 62 Table A8. Agricultural imports from non-CIS countries for Ukraine, 1991-1994 (1,000 tons). . . 63 Table A9. Agricultural imports from non-CIS countries for Russia, 1991-1994 (1,000 tons). . . 64 Table AIO. Agricultural exports to non-CIS counties for Russia, Ukraine, Belarus, and Moldova, 1991-1994 (1,000 tons) . ........... .................................. 66 PREFACE The study, Agricultural Trade and Trade Policy: A Multi-Country Analysis, has been an undertaking of EC4NR under the management of Agricultural Adviser Csaba Csaki, assisted by Kristian Moeller and Alan Zuschlag. This volume presents an overall summary of the analysis. A team of researchers at the Center for Agriculture and Rural Development (CARD) at Iowa State University, under the leadership of Professor Stanley R. Johnson, was contracted to undertake the overall study and the drafting of the individual country studies. The CARD team consisted of Professors S.R. Johnson. K. Choi, and S. Sotnikov, Y. Yermnakov, C. Mumssen, and E. Balm. AGRAP assisted with administrative arrangements for the study and provided comments on the earlier drafts. Karen Brooks (AGRAP) and Alberto Valdes (AGRDR) provided valuable comments on the final dratt of the overall report. Rodney Tyers, during his research stay with AGRAP, provided advice on the structure and focus of the reports. EC4NR Chief Geoffrey Fox and Gershon Feder (EA-.AG) offered guidance throughout the study. Other EC4NR colleagues Brian Berman. M'lark Lundell, Florian Grohs, as well as several COD colleagues, also supported the stud!. The study is the result of co] lltborative efforts with local institutions in the three countries. The Ukrainian Institute ol .NAricultural Economics was the major counterpart for the Ukrainian study. P. Sabl Lk and A. Spichak were the main coordinators, while L. Khudoliy, V. Bilash, and R. Bovko pro, ided thc core statistical information. In Belarus, A. Drasdov at the Ministry of Food and Agriculture andi S. Petkevich. T. Krvlovitch, Z. Ilyina, N. Buchkov, V. Gusakov, and A. Shpak at the Belarus Institute of Agricultural Economics were the main contributors to the study. The Moldova analysis was prepared with the contribution and support of V. Moroz, at the Moldovan Institute of Agrarian Economy, and A. Murovsky, economist and Member of Parliament. All of their contributions and support are greatly appreciated. All conclusions, however, are those oftlihe authiors. Executive Summary 1. If agriculture is to reach its potential and provide a valuable contribution to the process of economic and political reform in EC4 countries', governments in the region will require strategies that reflect realistic assessments of the domestic and external market opportunities for agricultural products. Since no such assessments had been undertaken to date, EC4NR initiated a study, Agricultural Trade and Trade Policy: A Multi-Country Analysis, for Belarus, Moldova, and Ukraine to provide initial commodity specific information and empirical background agricultural information for the identification of projects funded by the World Bank or other donors. The study also evaluates agricultural and trade policies in an attempt to assist the respective governments in the design of initiatives that would contribute to sectoral growth. 2. The core of the study consists of country-specific commodity analyses that were originally presented in individual country reports.2 The years covered by this investigation, 1991 to 1994, were the most difficult years of transition for the three countries. These years were characterized by frequent changes in policies, inflation, introduction of new currencies, and the breakdown of statistical inforrnation systems. While the lack of reliable statistical information severely constrained our ability to provide specific policy-related conclusions, the information provided in this study can serve as "benchmark" figures for further policy development. Analysis of Export Potential of Particular Commodities 3. The primary focus of the study is concentrated on the production pattems and trends in major agricultural commodities3 in all three countries. In addition to the information on production, additional data on input prices, output prices, technologies, domestic use, trade flows, and processing have been assembled to indicate adjustments in agriculture during the transition. Corresponding figures for Russia are added because Russia is a major market for these countries. The data on production technology and border prices are also used to simulate the consequences of closer linkages to intemational markets. Simulated "adjusted gross outlays"4 using border prices for tradeable inputs are compared to gross outlays using domestic prices to provide inforrnation on potential competitiveness and the progress of the reforms. The resulting relative gross outlay estimates provide indicators of the potential competitiveness of the agricultural sectors within these three nations, within the ECA region, and for external markets. i Armenia, Belarus. Estonia. Georgia, Latvia. Lithuania, Moldova. Ukraine. 2 Belarus Technical Reporr. World Bank - October 6. 1995, Aloldov a Technical Report. World Bank - Februar) 26. 1996, and Ukraine Technical Report. World Bank - October 12, 1996 3 VWinter wheat, maize. flax, fruits. vegetables, grapes. sugarbeet, sunflower seed, suflower oil, beef. pork, poultry, eggs, and milk. 4 Per unit output expenditures using prices on uhich producers make. or are assumed to make. production decisions iv Multi-Country Trade Study 4. Evaluating the export potential of a particular commodity involved examining5: * Past and present supply and use trends to identify commodities likely to be in excess supply, and to assess capacities to produce and export; * Real (deflated) gross outlays among Belarus, Moldova, and Ukraine, with Russia as the most probable export market; * Direction of changes in real gross outlays over time, as indicators of adjustments in relative costs and input use, caused by the input price shocks; and * Magnitudes of changes in gross outlays under altemative scenarios (reduced input subsidies, alternative exchange rates, and border prices assumptions). Competitiveness is Difficult to Measure 5. Competitiveness is a dynamic quality that cannot be confidently predicted in advance. In general, governments have little need to estimate the competitiveness of a sector or its individual products. The task of government is to create an appropriate institutional and policy environment that allows economic entities in the sector to compete fairly against each other and in extemal markets. At the same time, govemments and people facing such tremendous adjustments as those in Moldova, Ukraine, and Belarus understandably seek a clearer picture of the likely outcomes of the measures they are now implementing. Moreover, given the very large changes involved, analysis of sectoral competitiveness allows governments to better plan where strategic interventions may be most needed to ease the social costs of sectoral growth or downsizing, or to facilitate training and extension in activities that look promising. 6. For these reasons the World Bank asked a team of researchers to look at prices, costs, production, and trade in important agricultural commodities in the three countries. From their analyses the Bank formed general conclusions about emerging agricultural competitiveness and the factors that encourage or impede it. 7. The results of the study' confirm the cautionary note appropriate to studies of competitiveness in general. Competitixeness is very difficult to measure under the best of Data on suppI\-use. gross outlays. and procuremenl prices were collected for each of the commodities of interest. TIhese data were used to pertorm simulations. the results of w.hich were combined with an analysis of supply-use data and relative gross outla%s to assess the export potential tor particular commodities. The commnodities results were evaluated by examining the data on actual tradc patterns Agricultural and trade policies analyses were used to identify impacts of interventions for input or output markets and eftects for potential comretitireness of the selected commodity. Trade policy and currency regulations werc analszed to bctter determine incentive' tor exr)rt and import Executive Study v circumstances. Moreover, empirical observations of prices, costs, input use, and even trade flows are unreliable in many transition economies, including these three countries. In retrospect, the effort has not yielded results with a high level of robustness, and the conclusions must be considered indicative and tentative. However, the commodity-specific analysis outlined above provides a very unique insight into the progress made in agricultural production and competitiveness during the most difficult years of transition. Crop Products Lead in Competitiveness 8. Products in the crop sectors in each of the countries are, in general, more competitive than products of the livestock sectors. Most products of the crop sector had positive gross margins; that is, revenues exceeded direct costs for average producers. Among the highest ranking crops were sunflower seed in Ukraine, wheat in Ukraine, corn in Ukraine and Moldova, and flax in Belarus. Products in the livestock sector almost uniformly had negative gross margins, with the exception of pork in Ukraine. These conclusions are consistent with observations about the relative strengths of the crop and livestock sectors from other studies. Four years into the transition, the weaknesses of the livestock sector that were apparent in each country at independence remain. 9. The competitiveness of the livestock sectors, as measured simply by gross margins, declined for most products between 1991-1994. Both crop production and livestock production in these countries suffer from low productivity, and gains in competitiveness can be achieved by increasing productivity. Changes in relative prices as the economies opened over the period tended to increase gross margins in the crop sector. In the longer run, therefore, it appears that substantial changes in efficiency and technology will be needed for the livestock sector to become competitive. Changes in efficiency and technology are also needed in the crop sector, but these will be easier to finance because gross margins are, in general, already positive. Export Restrictions and Protectionism Hurt the Agriculture Sector 10. Policy changes differed in the three countries in terms of sequencing, timing, and thoroughness of implementation. Institutional breakdown, as well as adoption of policies, influenced production and trade. In general, however, the combination of policies and institutions favored import substitution and domestic self-sufficiency, particularly in 1991 and 1992. A policy regime of import substitution and domestic self-sufficiency would be expected to nurture competitiveness only if excessive specialization had been a feature of the legacy of central planning. One can identify possible examples of excessive specialization under the old regime, as. for example, in the rapid growth of the hog industry imposed on Moldova during the last two decades of Soviet management. In general. however, the Soviet agricultural economy was one of underspecialization. rather than over-specialization. More specialization and inter-regional trade, rather than less, is to be expected as the transition proceeds and transport costs come down. Import substitution and domestic self-sufficience can be presumed to have retarded growth in the crop sector, and to have vi Multi-Country Trade Study dampened the decline in the livestock sector. The policy regime did not fully thwart the adjustment, however, as livestock production did decline substantially. 11. Import substitution and pressures for domestic self-sufficiency can be seen in available trade figures, although the data may not accurately reflect trade flows. Agricultural trade declined more than agricultural production, reflecting in some cases a much lamented loss of traditional export markets, and in others explicit restrictions on exports to protect domestic consumers and contain the costs of food subsidies. The fall in trade has been attributed to the collapse of the old administrative trading arrangements. The slow progress in building new commercial channels of normal trade derives in part from governments' unwillingness to adopt domestic price and marketing policies consistent with competitiveness. Although the countries' trade and price policies impeded and slowed the emergence of competitiveness, the deleterious impact lessened in 1993 and 1994. In 1994 prices were closer to those of Russia, the major market and hence the relevant border price, than they were at the outset of the period. Full convergence, however, was not achieved. Recommended Measures to Improve Trade Performance 12. Analysis of trade patterns, trade policies, and domestic agricultural policies contained in this and other studies lead to the following recommendations to improve the trading regime: * Eliminate or reduce foreign currency management associated with trade. As progress is achieved toward macro-economic stabilization, the justification for hard currency surrender requirements and other restrictions is reduced. E Elimiinate niimininunt export pricing. This is a major obstacle to trade and contributes to inefficient forms of trade. Minimum export prices were introduced due to concerns about food security and capital flight. Experience in the past five years has shown that economic reforms do not compromise food security, and instead create more efficient means of achieving it. Moreover, capital flight will not be so important if the countries have reached a certain degree of macro-economic stability. * Improve trade services. Governments retain a major role in trade, but governments are typically not good at providing trade services. More importantly, government participation tends to crowd out the private service industrv. Some assistance to the growlh of the private sector and an appropriate legal framework for foreign firms that provide these services could contribute to the development of trade. * Do not allost cuslonts uinionts andfree trade agreements with the other CIS nations to impede integration into world trading relations. Within the CIS there remain strong opportunities for trade in energy and food and agricultural commodities. Traditional trading relationiships arc being reactivated. Customs unions and free trade Executive Study vii agreements are not likely to disrupt external market participation in the short run, because commodities traded within the CIS at present are imperfectly substitutable for those traded with the rest of the world. * Keep tariffs un:iform and relatively low. Trade outside the CIS is actually relatively small at present. High tariffs in anticipation of large government revenues are tempting. But these same high tariffs are likely to reduce the opportunities for the development of export industries. Longer-term objectives such as stimulating the development of an export subsector in the agriculture and food area, should be pursued. * Exploit opportunzitiesfor "specialty crops. " Examples of these are flax in Belarus, fruits, vegetables, and wine in Moldova, and grains and oilseed in Ukraine. Developing domestic agricultural policies and trade policies that provide opportunities to the private sector in production and trade of these specialty crops is important to the development of stable, market-based agriculture. * Undertake deeper inistitutional reforms neededforfull integration into world trade. Membership in the WTO will require time. Therefore preparation should begin immediately. Deeper institutional reforms will be needed for fuller participation in external markets. Most importantly, the removal of remaining direct government interventions in internal and external markets, and improved public services for agricultural trade, is urgently required. The commodity analvses presented in this study and in the related individual country studies provide unique information on the potential competitiveness of major agricultural products in Ukraine, Belarus, and Moldova. Continued progress in policy reforms, and especially in farm restructuring and privatization. has resulted in the need for further studies currently underway in Ukraine and Moldova to provide additional information for project preparation and policy analysis. viii Multi-Country Trade Study 1. INTRODUCTION' 1.1 A major agriculture trade and trade policy issue for Belarus, Moldova, Ukraine, and other nations of the former Soviet Union (FSU) that are adopting market-based economic systems is what will be termed "potential competitiveness." Agriculture in these nations has evolved under institutional structures that are different than those of the economies closely linked to international markets. During the transition, the governments of these nations, if only by virtue of past momentum, will continue to have an irnportant role in agriculture and in economy-wide policies effecting the development of trade and trade policy. How can policies during the transition assure that agriculture is positioned for a fuller integration into international markets and, of course, be responsive to opportunities in the neighboring FSU nations? Information on changes in policies, output and input prices, production technologies, and supply and use levels that have occurred during the first years of the transition can be useful in better understanding the opportunities for agriculture, and in identifying the agriculture commodities likely to be competitive in international markets. 1.2 Of course, the short-term opportunities for evolving an agriculture and trade policy consistent with a more competitive structure and the new market environment are heavily conditioned by the past. The existing infrastructure, human and physical capital, forms of enterprise organization, and established production and use patterns, are all important to the transition of agriculture and to trade. The history of the development of agriculture and current capacities also condition the expectations of those responsible for designing the policy reforms and for decisions on the pace of their implementation. Thus, the transitional agriculture and trade policies reflect both current conditions and the perceptions about the market environment to which these nations are evolving. Understanding these transitional policies, their motivations, and their impact on agriculture and related sectors is important for projecting the types of market economies that will emerge as the reforms progress. 1.3 The agricultural sectors of Belarus, Moldova, and Ukraine have a number of common features. First, under the FSU system, these nations specialized in production of many similar commodities, e.g., livestock, dairy, poultry, coarse grain, wheat, sugarbeet and oilseed. Second, in 1991, all three countries were on the "ruble standard." This provides a unique opportunity for comparing deflated prices and gross outlays (indicators of cost), adjustments in agriculture production patterns, and trade and supply and use balances. Third, during the period of analysis, 1991-1994, the nations pursued similar (albeit with differences in timing) agriculture, trade, and macroeconomic policies. These differences in the pace of the transition, together with the first two similar features, provide useful information for understanding the responsiveness of agriculture (input use and output levels, trade, and domestic use) to changes in agriculture policy and trade policy. Analytical Basis of the Report 1.4 This analysis of agriculture trade and trade policies and implications for the potential competitiveness of agriculture in Belarus, Moldova, and Ukraine concentrates on major agriculture commodities. Production patterns and trends are assessed. In addition to this information on production, N1ore detailed analyses of agriculture trade policy and trade for the three nations is provided in companion publications. 'Agriculture Trade and Trade Policy. A Multi-Country Analysis: Belarus Technical Report." 1995; 'Agriculture Trade and Trade Policy. A M1ulti-Country Analysis: Nlodova Technical Report." 1996: and "Agriculture Trade and Trade Polic%. A Nlulti-Countr,. AnaNsis: Ukraine Technical Report." 1995. 2 Multi-Country Trade Study data on input prices, output prices, technologies, domestic use, trade flows, and production and processing have been assembled to indicate adjustments in agriculture during the transition. Corresponding figures for Russia are added to provide perspective for the observations yielded by these comparisons. The data on production technology along with assumed border prices, are also used for stimulating the consequences of closer linkages to international markets. Simulated "adjusted gross outlays" using border prices for tradeable inputs are compared to gross outlays calculated using domestic prices to provide information on potential competitiveness and the progress of the reforms. The resulting relative gross outlay estimates provide indicators of the potential competitiveness of the agricultures of these nations, within the region and for external markets. 1.5 Evaluating the export potential of a particular commodity involved an examination of: * Past and current supply and use trends to identify commodities likely to be in excess supply and to assess capacities to produce and export. * Real (deflated) gross outlays among Belarus, Moldova, and Ukraine, with Russia viewed as the most probable export market. - Direction of changes in real gross outlays over time, as indicators of adjustments in relative costs and input use, caused by the input price shocks. * Magnitudes of changes in gross outlays under alternative scenarios (reduced input subsidies, alternative exchange rates, and border prices assumptions). The idea was to obtain upper bounds for the gross outlays after full price liberalization and compare the values to border prices. Data on supply-use, gross outlays, and procurement prices were collected for each of the commodities of interest. These data were used to perform simulations. The results of the simulations were combined with analysis of supply-use data and relative gross outlays to assess the export potential for particular commodities. The commodities results were evaluated by examining the data on actual trade patterns. Agricultural and trade policies analyses were used to identify impacts of interventions for input or output markets and effects for potential competitiveness of the selected cornmodity. Trade policy and currency regulations were analyzed to better determine incentives for export and import. 2. THE TRANSITION 2.1 The paths of economic reforms in Belarus, Moldova, and Ukraine, although similar, have been different in timing and other important respects, especially for agriculture and agricultural trade. In this section, selected differences in the sequencing of the reforms are highlighted, not to completely chronicle the major policy and institutional changes, but to provide a backdrop for the discussion on the adjustments in agriculture, and the comparisons of output prices, gross outlays for production, gross margins, production, domestic use, and trade for the selected commodities. The review of the transition concentrates in five areas; background and the overall transition, agricultural sectors, prices and procurement, trade liberalization, and institutional reform. A brief summary is also provided. A. Background and the Overall Transition 2.2 The early years of the transition for Belarus, Moldova, and Ukraine, as for most FSU nations, were characterized by macroeconomic imbalance, and resulting high inflation. Government expenditures were difficult to control, due to past policies and the associated momentum, and the free-fall of the economies (Table 2.1, with Russia for comparison). There was also intense political pressure to maintain and increase subsidies to "keep the economies going." Agriculture and food subsidies were major contributors to problems of managing government expenditures and balance payments. Table 2.1: GDP for Belarus, Moldova, Russia, and Ukraine in millions of 1991 rubles and percentage changes, 1991-1994. Year 1991 1991 1992 1993 1994 Nation Level' % Change % Change % Change % Change Belarus 85,906 - 1.2 -9.6 - 10.6 -21.5 Moldova 25,895 -18.7 -28.1 -8.7 -22.2 Ukraine 299,000 - 10.0 - 13.3 -8.1 -26.7 Russia 1,398,500 -5.0 - 14.5 -8.7 - 12.6 'In the Technical Repons (Belarus and Ukraine, 1995; Moldova, 1996) CPI deflators were used to estimate GDP and/or NMP in constant prices. Source: Estimates of percent change are from The World Bank. Statistical Handbook 1995. States of the Former USSR. Studies of Economies in Transition. No. 19. Washington. DC, 1995. 2.3 Past revenue sources from surpluses in enterprise accounts and from artificial pricing were not available, and new taxes were either not paid or did not yield sufficient revenue to cover government outlays. In the end, the improvement of macroeconomic situation required sharply reduced government expenditures. IMF support, conditional on measures to achieve balance and control inflation, was secured for Moldova in 1993, Belarus in 1994 (and withdrawn in September 1995), and was still under negotiation in Ukraine during 1994-1995. These differences in macroeconomic policies resulted in sharp changes in the bilateral exchange and domestic inflation rates (Table 2.2). 4 Multi-Country Trade Study Table 2.2: Average annual consumer price indices (CPI, 1991 = 1) and exchange rates (ocal currency/U.S. dollar) for Belarus, Moldova, Ukraine, and Russia, 1991-1994. Year Nation 1991 1992 1993 1994 CPI, 1991=1 Belarus 1 11 156 3,2051 Moldova 1 13 159 696 Ukraine 1 14 6922 6,914 Russia 1 16 157 629 Exchange Rate/U.S. Dollar Belarus 59 193 2,696 38,494 Moldova 59 219 1,6443 4 Ukraine 59 319 9,584 72,064 Russia 59 223 932 2,205 'Introduction of Belarus ruble. 2'ntroduction of karbovonets. 3Introduction of lei. Source: IMF Staff Estimates. EC3C2. and USDA International Agriculture and Trade Report. Former USSR. ERS, WRS-94-1, May 1994. B. Agricultural Sectors and Agriculture Policies 2.4 Agriculture is relatively irnportant for Belarus, Moldova, and Ukraine. Shares of agriculture as percentages of GDP for the three countries and Russia during 1991, 1992, 1993, and 1994 are shown in Table 2.3. Observe that on the basis of these official statistics, agriculture actually decreased in relative importance as a sector in all four nations. Perhaps this is due to the distorted policies for agriculture and food that typified the FSU. Also, agriculture is a sector with longer-term production processes, and highly effected by macroeconomic instability. The declining shares may also reflect the high level of barter and informal exchange in agriculture, leading to underestimation. 2.5 Another explanation for the decline in the shares of agriculture in the economy of these nations may come from recent changes in national accounts calculation. These now include services, a previously underestimated sector of these economies. Services are, in fact, the only growing sector of the national economies for these countries. Still, this fall in relative shares is potentially a significant problem, since the shares of the agricultural population are greater than share of agriculture in GDP. The Transition 5 Table 2.3: Agriculture as a share of GDP for Belarus, Moldova, Russia, and Ukraine, 1991-1994. Nation 1991 1992 1993 1994 Ukraine 24.7 20.8 21.5 21.1 Belarus 20.1 22.4 17.2 17.7 Moldova 29.9- 26.0" 23.2' 29.9 Russia 20.3 14.7 16.4 13.0 *Agriculture and forestry. "Moldova Technical Report, 1996. Source: All other data on shares are from The World Bank, Statistical Handbook 1995, States of the Former USSR, Studies of Economies in Transition, No. 19. Washington. DC, 1995; and Economic Reform in Russia: Year Lost. Institute of Economic Analysis, 1994. p. 77. Socio-economic situation in Russia. 1994. pp. 12-13, 20. 2.6 It will be useful for the analysis of trade and trade policy to provide an interpretation of the apparent motivation for the agriculture policies in this relatively unstable transitional macroeconomic environment. With the onset of the reforms, the leaders of these nations were highly concerned about food security. Perhaps due to relatively high levels of past food consumption (and food subsidies) this concern was, in retrospect, exaggerated. The fall in agriculture production and productivity coincided almost exactly with the reduction in domestic utilization related to the increasing relative prices of food and the reduced real incomes of the citizens. 2.7 Still, it appears appropriate to interpret the agricultural and trade policies of the three nations during the first phase of the reform as having reflected concerns about food security and its implications for political stability. Subsidies for agriculture production and the processing and distribution sector were continued even after food subsidies were significantly reduced, indicating a priority for meeting domestic use requirements. Border protection and the management of trade was significant and was administered through quota, licensing, and foreign exchange conversion and holding policies. In general, there was a reluctance to reduce agricultural subsidies and open borders, both of which could have affected the adequacy of the domestic food supply. 2.8 Financial pressures associated with subsidies for the agriculture and food production and distribution, along with concerns about macroeconomic balance, made these isolationist food security policies impossible to sustain. Export of agriculture surpluses had been an important source of foreign exchange and was significant to inter-republic agreements, primarily for energy. Borders were difficult to protect. Artificial prices created opportunities for profit by illegal import and export of agricultural commodities. The tendency, albeit with different timing, was to begin a second phase of agricultural and trade policy, typified by continued reduction of food subsidies, liberalization of trade policies (importing relative input and output prices from international markets), and a changed method of directing subsidies to agriculture. The latter involved a switch from artificial input and output prices to preferential credits. 2.9 The input price liberalization was in part a response to pressures caused by the necessity of importing critical materials for agricultural production, processing, and distribution. These materials or inputs (energy, pesticides, seeds. and even machinery) had to be acquired at border prices. The decision was to liberalize prices for inputs to reduce implicit subsidies. Output prices were raised, to protect the gross margins of the farms and related agricultural enterprises and to limit illegal export. 6 Multi-Country Trade Study 2.10 In the second phase of the transition, trade policies were only somewhat liberalized. At least one of the reasons was the undervalued currencies. Again, food security was at least in part the reason. Domestic prices of agricultural commodities calculated at nominal exchange rates indicated an opportunity for quick profit through sales to other republics. Artificially low-priced commodities exported on a wholesale basis could threaten the food supply. Relative output and input prices were adjusted more in line with border prices. However, these nations continued to use trade barriers as a way of ensuring food security and managing the special situation caused by the undervalued currencies. Trade was limited through taxation and management of hard currency, licensing, and other forms of border protection. 2.11 The countries are now entering a third phase of the transition. Agricultural productivity and production appear to be continuing to fall or are recovering very slowly. Attention has turned to the institutional reforms necessary for consolidation of the transition to a market economy. These institutional reforms involve land tenure, privatization, competition policy, contract law, taxation, and the support of the emerging domestic asset and goods and services markets. C. Prices and Procurement 2.12 The price and procurement policies of Belarus, Moldova, and Ukraine, reflect an initially overly optimistic expectation on the speed with which the reforms would progress. Even a casual survey of the decrees from these nations for the 1991-1994 period reveals a number of announcements of liberalization of prices and reductions in procurement. These decrees or announcements were generally followed by backtracking, as the implications of the liberalization began to emerge. For prices, liberalization in the inflationary environment resulted in strong pressures for reintroduction of controls. At the same time, the escalations of prices for inputs, which were largely imported, produced political pressures by agriculture interests for higher output prices. 2.13 The result has been a slow liberalization of prices, accompanied by an unfortunate amount of policy uncertainty. Procurement policies have followed a similar pattern. The tendency has been to reduce procurement levels. Often, the liberalization or reduction in procurement was slowed by concerns for meeting inter-republic trade agreements and domestic consumption requirements for staples. By 1994, however, procurement levels in all countries were absent or low, and were being met largely at prevailing "market" prices, and prices had been at least officially decontrolled for nearly all agriculture and food commodities. 2.14 The liberalization of prices must, however, be carefully interpreted. Domestic markets for goods and services are not well developed. As a consequence, the government authorities have been supplying .indicative" prices. This is especially the case for the grains, sugar, and oilseed sectors. The indicative prices appear to reflect both border prices and internal market pressures. A good example was the situation in Moldova during 1995, when the grain parastatal, Cereale, was dissolved but continued to issue indicative prices to the regional grain assembly enterprises, at their request. 2.15 In interpreting the consequences of the liberalization of prices and the reduction of procurement. it is important to recognize the continuing role of the oblast and district authorities. Even though prices have been liberalized at national levels, there remains within the oblasts and districts considerable evidence of government involvement in agriculture. The oblast authorities influence the allocations of subsidized credits. Also. energy and other subsidized production inputs are rationed. The result has been a stickiness The Transition 7 in production patterns, especially for major crops. This district and oblast controls will likely continue until there is additional institutional change; privatization, land reform, reduced subsidies for the authorities to allocate, and political reforms leading to more democratic local governance. 2.16 To illustrate the general observations on uncertainty in price and procurement liberalization, observe that Belarus first announced full price liberalization in January of 1992, but was still issuing decrees on price decontrol in 1994. In Ukraine, prices were partially liberalized in 1993, but with an accompanying set of indirect regulations that effectively maintained the controls. These indirect forms of control were enforced by credit and energy allocations and payments timing for outputs. Only in 1995 were Ukraine prices fully liberalized. Moldova liberalized prices in 1993, but retained control of processing and distribution margins until 1994. Indicative prices are still used in all three nations, for example, as the predominant means of setting regional farm prices. This indicative pricing reflects a failure of local markets, as well as policies to cushion the full expression of comparative advantage in agriculture. 2.17 Input prices were liberalized before output prices in all three nations. Partly, this was due to budgetary pressure, especially for inputs purchased in international markets. This price liberalization, together with the monopoly structure of the domestic input supply industries, resulted in rapid real price increases. 2.18 The magnitude of the real (adjusted for inflation) input price changes were rather substantial. Between 1991 and 1994, real fuel prices increased 9 to 15 times, electricity 9 to 11 times, mineral fertilizer 3 to 4 times, and formula feeds 2 to 3 times, while real wages for workers in agriculture decreased by 60- 90% (depending on the country). The direction of the absolute and relative input price changes favored the adoption of energy-saving, labor-intensive production technologies. In response to these price changes producers reduced fuel use by 20-50%. The exception was for producers in Ukraine, who actually increased fuel consumption for some crops (sunflower, corn, sugarbeet). The existence of input subsidies was the likely reason. Electricity consumption declined 5-40%. Fertilizer use declined by 40-80%. Labor use increased by 40-80% in crop production and 30-300% in pork, poultry, and egg production. The use of feed actually increased by 30-40%, indicating declining feed efficiency. The overall response of the producers to the input price shock was predictable. Implicit credit subsidies for inputs continued, however, to affect input use. 2.19 Although price liberalization and reductions in procurement have continued after 1994, the full effects of these changes for the development of domestic markets have not been felt. At least one of the reasons is the heavy reliance on barter within agriculture. Examples include in-kind payments to workers by farm and processing and distribution enterprises, trade for barter, and barter between farm enterprises (for example, sugar for coarse grain, meat, and milk). There are reasons for the use of barter. One is the high rates of taxation that have emerged with attempts to achieve fiscal balance. Barter is a way of avoiding taxation legally in Ukraine and Belarus. There is also abundant anecdotal evidence that subsidized inputs are used by oblast and district authorities to encourage barter arrangements designed to support employment and other local economic policies. Still, another reason for barter is the inefficient banking system. Banks are usually slow processing payments, a costly practice in an inflationary environment. 8 Multi-Country Trade Study D. Trade Liberalization 2.20 Four areas of trade policy are highlighted: licensing, tariffs, minimum export pricing, and currency control. Progress has been more encouraging in licensing and tariffs. The handling of foreign currency receipts from exports continues to be an obstacle to trade. In Belarus, the foreign currency surrender percentage was only reduced from 65 to 50% in 1994. In Moldova and Ukraine, the surrender rates have ranged from 50 to 35%. In all cases, the exchange rates used in converting the surrendered currency have implied high taxation, due in some respects to delays in processing. Also, domestic firms have been quite limited in the holding and use of foreign currency balances (including Russian rubles) limiting incentives to liquidate stocks of commodities. 2.21 Most of the licensing requirements prevalent in 1991 had been eliminated by 1994. These requirements were in many respects similar to the system that supported the monopoly trading enterprises of the FSU. Licenses were also used to assure government control of exports in the early stages of the transition, when food shortages were a high profile political issue. Again, the process of elimination has been slow. Even after decrees announcing elimination of licensing restrictions, licenses often have been difficult to obtain. Still these restrictions have eased over time. Currently, licensing does not appear to be a major obstacle to trade in Belarus and Moldova. In Ukraine, licensing problems remained even in 1994, and associated delays were often coincident with the political debate on food security. 2.22 It is informative to note the coincidence of eased licensing restrictions with the achievement of a certain level of macroeconomic stability. One reason for continued reliance on licensing was the undervalued currencies. There was a perceived problem at the initial stage of the reforms with the undervalued currencies and their imnplications for tradeable agricultural commodities and food security. Leaders of these nations were also apparently concerned that the undervalued currencies could yield windfall gains for managers of agriculture and food processing enterprises. With the progress in macroeconomic stabilization, trade has become more broadly distributed among the sectors and exchange rates have achieved more realistic values, the reliance on licensing to limit trade has been relaxed. 2.23 Perhaps the major obstacle to increasing export has been the decrees and regulations on minimum export prices. Abstracting from licenses, tariffs, and currency control, enterprises have been free to export only if the transaction was at a government-determined minimum export price. In part, this policy was well intended, to limit tax avoidance and the illegal transfer of capital. With high taxation and hard currency restrictions, there remain clear incentives to export at artificially low prices and be compensated for the difference between the low and border prices in foreign accounts. But the result of the minimum export prices has been mainly to reduce export. Even when border prices were used for these minimums, problems developed due to timing and the low quality of the products or commodities for export. The result has been to reduce export and to encourage barter, and other forms of inefficient exchange. 2.24 Tariffs and VAT for exports have been treated differently by the three nations. In 1991, tariffs (or equivalents in terms of quotas) were generally higher than in latter years, and not uniform. According to the 1993 IMF agreement. Moldova converted border measures to tariffs and made a commitment to reduce tariffs over time to an average level of 25 % and make them more uniform. For Belarus, the trade and tariff policies have been heavily influenced by the close economic ties with Russia, and an essentially uncontrollable border. These tariff and VAT rates adjusted officially, and de facto through illegal export, to levels that permitted Belarus w ith little fuss to sign a customs union agreement with Russia in May of 1995. Tariff rates (for export to nations other than Russia) were raised since Russian tariffs are higher. The Transition 9 Belarus, however, is negotiating the list of commodities for which tariff rates other than Russian tariff rates can be established. For Ukraine, the tariff and VAT situation for export has been more erratic, due in part to the tenuous situation with the IMF. 2.25 In all three nations, erratic trade policy change continues. The ban of grain exports from Moldova in 1993 and the more recent Ukraine ban on wheat export in 1995 are examples. Still there has been a clear trend toward reductions in taxes and tariffs, especially for trade with the other FSU nations. Ukraine has exempted the FSU nations from VAT on exported goods. Free trade agreements are being or have been signed between Moldova, Belarus, and Russia. Trade barriers have declined to the point that a general customs union for the CIS is under negotiation. Belarus, Russia, Kazakhstan, and Kyrgyzstan signed an economic union agreement in April of 1996 (which included provisions for a customs union). A regional, rather than global, focus in trade and economic integration is evolving in the CIS. It is difficult to quantify the trade effects of the CIS customs union. However, in the short-run the trade diversion effect on exports should be small due to the low volume of external (non-CIS) trade and the low or uncertain quality of most exportable commodities. Regarding outside imports, the increased protection provided by these agreements has an immediate distortive effect. E. Institutional Reformn 2.26 What institutional changes are necessary for the development and functioning of goods and services and asset markets? For goods and services markets, the problem is perhaps more manageable. Information systems to support these markets are, in general, badly needed. Indicative prices are being used by default. When there is no market, indicative pricing is a substitute. There is a major role for government in the supply of market information. Also, efficient goods and services markets depend on enforceable contracts. These contracts encourage broader participation in decisions on the allocation of goods and services over both space and time. Support for related reforms is only beginning. The commodity exchange in Ukraine, the donor-support market information systems in Belarus, Moldova, and Ukraine, etc., are examples. Opening of borders will contribute to market formnation and to market information. 2.27 The more complicated reform issues involve asset markets. Improved asset markets are important to the success of the transition for at least three major reasons. First, the transaction costs for moving assets to the control of good managers must be low. Second, agriculture and the processing and distribution sector cannot be adequately serviced with conmmercial credit, if the borrowers have no equity. Collateral is essential for ensuring that interest rates for agriculture are comparable to those for other sectors. Third, foreign and domestic private investment is unlikely to occur in subsectors with substantial explicit or implicit government ownership. Changes, to support the development of asset markets, will be necessary for marked improvements in production levels and productivity. 2.28 Two areas of prime concern to reformers and donors have been privatization and land tenure. Privatization began in earnest in Moldova during 1994. Sales of more than 400 agricultural processing and distribution enterprises were committed to in 1994, and privatization of enterprises in other economic sectors has been underway in Moldova since 1993. In Belarus, the privatization program started slowly, only being initiated in 1994. For Ukraine, privatization was initiated on a major scale in 1994, but included a number of unfortunate restrictions. Farm enterprises. closed joint stock companies, were given a controlling interest in the processing enterprises. This scheme has led to a highly complicated conditions 10 Multi-Country Trade Study of ownership, likely not to give privatization the intended economic impact on production efficiency and product quality. Also, a sizable group of enterprises considered to be of strategic importance, grain elevators, sugarbeet processors, and oilseed crushers, were excluded from the Ukraine privatization list for 1995-1996. 2.29 All three nations have used forms of voucher privatization. In most cases, the privatization has not yielded clear or unencumbered ownership. For example, trading of shares obtained for vouchers is limited or not allowed. The result has been little change in management or in employment levels in agriculture and related enterprises, obvious indicators that these institutional changes are not having the intended effects. There has been little change in the efficiency of the processing and distribution systems for agriculture commodities. Also there is little incentive for the investment of foreign or domestic capital when property rights are not clearly identified and transferrable at reasonable cost. 2.30 The processing and distribution systems for agricultural commodities in these nations are in general not comparable to those in external market economies. The quality control necessary to access external markets is simply absent. Substantial investment will be required to rehabilitate the processing and distribution sectors. Initially, the capital will largely be foreign and private. Thus, it is important to alter the economic environment to attract foreign investment if the agriculture and the associated processing and distribution sectors are to grow and prosper. With the liberalization of trade, these changes will also be necessary to assure competition with food import and to support increased export. 2.31 The farm enterprises in all three nations have become primarily joint stock companies. But real land reform has not occurred. The land laws anticipate that land will be traded, but include restrictions sufficient to discourage serious privatization. For example, in Moldova, individuals can take land out of the former state and collective farms, but must take the land given by the former collective members (likely of poor quality). Also, the land once taken out cannot be sold. And, the land shares of the farm enterprises or joint stock companies can be traded among members but with serious restrictions. Finally, for all of the nations, the land titling and registration systems necessary to support land markets are only beginning to come into place. 2.32 The deeper institutional changes necessary for effective market systems are currently not being rapidly made in Belarus, Moldova, and Ukraine. This has caused problems with major implications for the increased agricultural trade. Prices of credit for agriculture discourage expansion, modernization, and restructuring. Farms must have clear ownership as a precondition for an effective agricultural credit system. Markets, which would move the land and other assets to the superior managers are simply not functioning. F. Sumtnary 2.33 The major current obstacles to the development of agriculture and the increased participation of agriculture in international markets are institutional. First, privatization, including land reform, must be accelerated. Assets must move to the more productive managers. Unproductive managers or firms and enterprises must be permitted to fail. Efficient transfer of assets is an essential feature of well-functioning market systems. These same asset markets assure the system of finance will function more effectively. If credits are normall) long-term. equity and the use of equity as collateral are important to the assurance of credir flows at rates consistent with those in the other sectors of the economy. The Transition 11 2.34 For inputs and outputs, the prices have been liberalized, but there remain problems with the associated markets. Many of these can be solved by appropriate government action. First, information systems that broaden the level of participation in these markets are essential. Contracting and other mechanisms that are transparent and in which the participants in markets have confidence are necessary to reduce transactions costs, and again increase participation. This will require grading systems, specifications standards, and more fully elaborated legal, regulatory, and administrative structures. Transportation systems also must be addressed, to assure competitive rates, link regional markets, and stimulate modernization. 2.35 For both the goods and services markets and the asset markets, competition policy remains a potential problem. Many of the agroprocessing and related enterprises are at least local monopolies. Clear and enforceable policies can mitigate the impacts of monopoly. Traditional approaches include breaking-up the enterprises, regulation of rates of return, and foreign competition. Given the sizes of these nations (especially Moldova and Belarus), foreign competition and openness of borders appears to be the best alternative. In addition to its attractiveness in terms of linkages to international markets, this approach to monopoly policy requires less government energy and intervention. 2.36 Finally, foreign and domestic investment will be necessary in agriculture and the processing and distribution sectors, if exports are to increase. The investment will be largely private, at least if the experience is similar to the developed and other developing market economies. This requires appropriate competition policies, efficient and transparent asset and goods and services markets, and trade and foreign currency regulations. Institutional change is a high priority for accelerating the economic reforms in agriculture, and the development of an agriculture and food sector that can be more completely integrated into both the CIS and external markets. 3. SUPPLY AND USE 3.1 Summary supply and use data for the commodities included in the Technical Reports (Belarus and Ukraine, 1995; Moldova, 1996) are provided in Appendix Table Al. These data are supplemented by corresponding information on supply and use for Russia. For most crops, Appendix Table Al contains planted area, yield, production, and food and feed use (as appropriate). For animal production, the data provided are for slaughter and production and/or figures that indicate production capacity and the trends over time. The trade data will be discussed in detail in Section 5. The data in this section are primarily from USDA supply and use tables. The trade data in the Technical Reports were developed from specific country statistics and provide more detail than those available from the USDA tables. 3.2 The intent in this section is to profile the adjustments in supply and use. As will be apparent, there are significant trends in the levels and patterns of supply and use. These trends in patterns and levels are assessed for their imnplications in terms of capacity and capacity utilization, and as responses to changes in price and/or policy incentives over time and among the nations. More detailed information on the "within and among republic" price comparisons is contained in Section 4. A. Grains 3.3 The first sets of supply and use data in Appendix Table Al are for coarse grain and wheat. In the Technical Reports (Belarus and Ukraine, 1995; Moldova, 1996), coarse grain and wheat were not included for all countries. Still, it is useful to review these statistics for all four nations in order to better understand the implications of the policy reforms and the time of the transition. The 1995 data, which became available recently, have been included in Appendix Table Al to provide more updated information. The general observation from the coarse grain and wheat supply data is that although policy- related output prices, procurement levels, the input prices, and subsidies changed significantly through the period, the area harvested fell, but less so than yields. 3.4 Yields during the period of analysis were more erratic, primarily due to differing annual weather conditions. There was a downward trend in yields, although not consistent for all the years. The decreases in yields (accompanied by decreases in harvested or planted area) resulted in decreased production. Feed use fell precipitously. The reduction in feed use reflected the declining incentives for animal agriculture and the decreasing domestic demand for animal products. Food use actually increased in several of the years, probably reflecting a shift in diets as real incomes decreased and relative prices for grain products became lower compared to those for livestock and related products. 3.5 For wheat, the situation was similar to that for coarse grain. Hectares harvested held about constant. The exception was Ukraine, where in 1994 and 1995, harvested area fluctuated significantly, reflecting the weather and the winter kill. From the data on food and feed use, note that total domestic consumption decreased. Food use held constant or increased. Wheat for feed use decreased relatively rapidly for all of the countries. The decrease in total use, feed plus food use, was largely reflected in decreased import of wheat. This trend is evident from Figure 3.1 and Table 3.1, which report grain trade balances for 1991-1994. Added detail by nation is provided for wheat and coarse grain in Figures 3.2-3.9. again for the period 1991-1994. Both production and imports fell, but imports fell proportionally more. 3.6 The general trends and patterns reflected in the grains supply and use data can be explained quite simply. Production expenses relative to output prices for livestock. poultry, and other animal products increased. These changes in production incentives resulted in a contraction of animal agriculture and Supply and Use 13 decreased feed use. For Russia, Belarus, and Moldova, there were substantial reductions in use, while domestic production held relatively constant. Also, the composition of domestic consumption was altered due to lower incomes and changes in relative prices of crop and anirnal products. These changes are indicated by Figures 3.2-3.9 for food use for wheat and coarse grain, but wheat in particular. In summary, the domestic grains economy has been, in fact, resilient during the reform. The major changes observed were not in terms of total area harvested, yields or production. Instead, they were in the composition of domestic use and, by implication, changes in import and export. Table 3.1: Grains trade for Belarus, Moldova, Ukraine, and Russia, 1991-1994 (1,000 metric tons). Grains 1991 1992 1993 1994 % change Total Total FSU Export 3610 9680 7970 7090 96 Import 43485 36075 19610 12235 -72 Belarus Export 240 280 100 25 -90 Import 2675 2010 1350 1200 -55 Moldova Export 60 20 20 0 Import 1000 715 300 575 -43 Ukraine Export 950 380 1609 190 -71 Import 2635 2150 1942 173 -91 Russia Export 1110 1300 975 1925 73 Import 25250 21655 8700 3525 -86 Source: USDA, Economic Research Service, Commodity Trade Balances, 1995. B. Oilseed 3.7 Both rapeseed and sunflower seed are included in the supply and use data summarized in Appendix Table Al. The rapeseed supply and use data are for Belarus, Ukraine, and Russia. Sunflower supply and use data are for Moldova, Russia, and Ukraine. For rapeseed, production levels have been relatively constant in Ukraine. Production has increased in Belarus and decreased in Russia. These changes in production levels are primarily due to changes in harvested area. It is difficult to support strong inferences about the use patterns for oilseed products, since both meal and 14 Multi-Country Trade Study 1 1=2 1 _W' ow mm M _nw M *Pm XFOo Un *FOd Um Fgure 3.1I. Grain trade ror Belarus, Figure 3.2. Belarus wheat supply and use Moldova, Ukraine, and Russia in trends. X991-1994. ISW ow - 110- s 101 10 66 O 16 *Peieu E Food LAW Fed Ue *Produom EFood Ue Fed UL. Figure 3.3. Moldova wheat supply and use Figure 3.4. Ukraine wheat supply and use trends. trends. Supply and Use 15 40 i4s UProlmi MFood Use EFd Ue *Podumn EFood UsM Fed Un Figure 3.5. Russia wheat supply and use Figure 3.6. Belarus coarse grain supply trends. and use trends. 1"110 1 10 19 110 1 121- " M Pm& QFoOWU MZ *Fd Um *PmdW MFood Lk* *Fd Use Figure 3.7. Moldova coarse grain supply Figure 3.8. Ukraine coarse grain supply and use trends. and use trends. ass- Is"~~~~~~~~t 111ii tlie 1Se tis 150 ii ls i 54 16 * O&W" Foo Us* Fee UF r Figure 3.9. RuMsia coarse grain supply and use trends. 16 Multi-Country Trade Study oil have many substitutes. The data indicate that in general the four countries were not active in export markets for rapeseed or rapeseed products. Domestic consumption for the categories reported tended to mirror production. 3.8 For sunflower, the major oilseed product of Moldova and Ukraine, harvested area remained relatively constant. The harvested area increased in Russia, perhaps in response to the decrease in rapeseed area. These patterns are consistent with the policies to hold historic production levels. Yields were erratic, probably due to weather. There was a slightly downward trend for yield in Ukraine. Feed use patterns for Russia and Ukraine reflect the decreases in animal products production, precipitated by price and other incentives less favorable than for grains and oilseed. C. Sugar 3.9 The sugar supply and use data reflect an apparent concern of these nations with self-sufficiency. The area harvested has remained fairly constant for all of the four nations. Yields have tended to decrease, albeit erratically. This yield variability was likely due to weather conditions during the period of observation. The decreasing yield trend, in the sense that it is systemic, is probably related to lower nitrogen fertilizer use. The reduced nitrogen use was in response to relatively higher fertilizer prices and limited availability of credit. Most of these nations tended to be relatively self-sufficient and/or their self- sufficiency ratios increased. Both trends were primarily due to the decreased domestic demand that occurred as a result of the farm and retail price liberalization and lower real incomes in all four nations. D. Pork 3.10 The supply and use data for pork are indicative of the fact of that for most animal commodities, domestic production decreased. Consumption declined with lower real incomes and higher relative prices. With the exception of Russia (which is still importing substantial amounts of meat), there was relatively little trade in meat. The pork production and slaughter data show a gradual decrease, accelerating in the latter years. The reason that production "held up" in the early part of the period compared to the later years involves the stickiness of the system, and the fact that the herd size was being reduced. When herd sizes are being decreased, production levels can be sustained, even when the incentives for the production are decreasing. Also, pork production shifted from the complexes to the farm plots and farm enterprises, reflecting other factors than the price and other incentives. One of these was the tendency for farm enterprises to pay in kind, making grains available for use as feed by owners of farmn plots. 3.11 What is not shown in information about pork production and in fact other animal production, is evidence of the problems for the processing and distribution sector. The processing and distribution systems for pork and other animal products are antiquated. Also, these subsectors tend to be dominated by large firms that can exercise at least local monopoly power. Most of the enterprises involved in slaughtering and processing swine were state owned. This resulted in relatively slow adjustments as output declined and efficiency decreased. The state-owned enterprises, for example, did not shed employment, but relied on subsidized credlis and emissions to continue their operations. even with much lower through-put or slaughter level Supply and Use 17 E. Poultry and Eggs 3.12 For poultry and eggs, the supply and use data indicate that Russia has been an importer. Moldova and Belarus, to a larger extent, and Ukraine were exporters. However, the implied export and import levels were modest compared to domestic production or use. Generally, production and consumption were coming closer together for all of these nations. Consumption has fallen due to decreases in food subsidies, higher relative prices, and lower real incomes. On the production side, the decreases have been stimulated in response to declining output price to production expenditure or outlay ratios. 3.13 Comparing the production levels, it is useful to distinguish between Belarus and the other nations. Belarus was the last of the four nations to decontrol prices. Production and use were held up in Belarus under the period of price control, with use decreasing primarily due to reductions in income. However, when prices were decontrolled in 1994, production fell rapidly in Belarus, as in Russia, and Moldova. All of the nations are essentially self-sufficient in egg production, except Russia. 3.14 Animal agriculture prices were less controlled than grains, oilseed, and sugar prices. Consumer prices moved rapidly. Domestic consumption decreased in response to the price increases and decreased real incomes. Similar responses to liberalization were occurring in surrounding countries, and the quality in the processing and distribution sectors limited opportunity in the external (non-CIS) market. The result has been poultry and egg industries oriented toward the domestic market. This trend is likely to continue until the asset markets and privatization along with competition policy reforms have reached the point that domestic and foreign private investment can be attracted to improve the efficiency of the processing and distribution sector. The processing and distribution sector will likely remain inefficient until there is significant investment, limiting opportunities for export. F. Summary 3.15 The trends in the supply and use data summarized in Appendix Table Al will likely continue until administrative and subsidy policies change and/or the deeper institutional reforms are implemented. This observation is supported by the fact that input and output prices are currently near border levels. Subsidies are not delivered through distorted prices, but through low rates of interest on credits. 3.16 Animal agriculture is relatively capital-intensive. Restoring production levels and improving productivity will require significant investment. Consumer incomes will likely increase slowly. They are currently at low levels, even compared to the recent past. Thus, the domestic demand for animal agriculture products will remain relatively low, or perhaps even decrease. Animal agriculture will be largely for the domestic economy. Access to export markets will be strongly governed by the efficiency of the processing and distribution industry and the quality of the animal products. 3.17 The simultaneous decline in output and the change in the structure of domestic consumption has resulted in an excess supply situation for selected commodities. Ukraine and Russia are moving to become exporters of grains. Ukraine and Moldova have surpluses of sugar for export. Even Belarus has small grains for export. If growth in production in response to the reforms occurs first in the crops sector, there could be a substantial exportable surplus of these commodities. For reasons already indicated, animal agriculture will lag in production increase and has limited export potential, especially to the external market. 18 Multi-Country Trade Study 3.18 Finally, it is important to keep in mind the differences in the agriculture resources of Belarus, Moldova, Ukraine, and Russia. The latter two countries are the dominant agriculture powers in the region. For example, the total agricultural land in grains and sugarbeet production in Belarus and Moldova together is only 5 % of that for the same crops in Russia and Ukraine. Total acreage in oilseed production in Belarus and Moldova is only 3.4% of that in Russia and Ukraine. Russia and Ukraine together account for more than 90% of the total cattle and swine number in the four nations. And, Russian agriculture is larger than Ukrainian agriculture (by an order of mnagnitude of five). Ukrainian agriculture is about three times larger than that of Belarus and Moldova taken together. Clearly, Russian agriculture and agriculture trade policies have an impact on all the countries in the region. Ukrainian agriculture trade policy, depending on the nature of the change, could have an effect on the other three countries. The agricultures of Russia and Ukraine will be largely unaffected by changes in Belarussian or Moldovan agricultural or trade policies. 4. COMMODITY ANALYSIS 4.1 The supply and use levels of agricultural commodities are determined by pricing, subsidy and trade policies directed at the agriculture sector, and macroeconomic policies that affect the sector more indirectly. These price and related incentives are reviewed in this section, with emphasis on their implications for agricultural commodity trade. First prices and gross outlays (designed to provide an indication of unit production costs) are evaluated for the period of analysis. This is followed by a more specific assessment of trends and possible implications for agricultural commodity trade. Then simulations are performed to relate gross outlays and prices, under alternative assumptions for border prices. These results are evaluated by commodity and country, and then interpreted in terms of areas of possible opportunity for trade and competitiveness. A. Prices and Costs 4.2 The process of liberalization in both input and output prices is reflected by the data provided in Appendix Table A2 (crops) and in Appendix Table A3 (animal products). Added detail on the prices and costs (indicated by gross outlays) is supplied in the Technical Reports (Belarus and Ukraine, 1995; Moldova, 1996). The data reported are in 1991 rubles for the crop and animal products in Appendix Tables A2 and A3. The 1991 ruble price and gross outlay values were obtained by using the average annual CPls reported in Table 2.2. These 1991 ruble price and gross outlay "estimates" should be carefully interpreted. The reason is that the annual rates of inflation in Belarus, Moldova, and Ukraine were unusually high during these years. The use of average annual CPIs for deflating could have introduced distortions. To correct for this problem, the information on prices and gross outlays for major crops is provided in ratio form in Tables 4.1 and 4.2. 4.3 The data for estimating the gross outlays were supplied by the ministries of agriculture and the agriculture research institutes in Belarus, Moldova, and Ukraine (Technical Reports; Belarus and Ukraine, 1995; Moldova, 1996). These gross outlay estimates were constructed from farm records and norms in terms of production coefficients. Essentially, for each crop there was a budget constructed on a per hectare basis. The budgets were used to "estimate" the gross outlays by multiplying the "norm" technical coefficients by the prices of the inputs. The prices used were those paid by the farms. These gross outlay data are more comparable between the nations in the early years of the period for evaluation. In the latter years the farm record systems began to fail and added judgmental input was introduced by the researchers at the agricultural economics research institutes. 4.4 It is important to emphasize that the data collected do not cover private farms and personal plots. The costs of production on private farms could be different from the costs of production on collective farms due to the overhead and marketing costs. Tiis is partially supported by anecdotal evidence showing that prices of basic foods at farmers markets have become comparable and/or lower than prices for similar products in retail outlets. For animal agriculture in particular, production levels on private farms and personal plots increased compared to the large farms even with lower output prices. 4.5 There are several reasons for electing to use the term "gross outlays" instead of "costs." First, the echnical coefficients used for the calculations of gross outlays were norms, and may not reflect the economic cost inimizing levels even for the individual farms. Second, the prices of inputs used were those available. For the tradeable inputs (e.g., fuel, fertilizer, pesticides, and feed 20 Multi-Country Trade Study Table 4.1: Price to gross outlay ratios per ton for major crops in Belarus, Moldova, Ukraine, and Russia, 1991-1994. Year % Change Commodity/Country 1991 1992 1993 1994 1991-1994 Sugarbeet Ukraine 1.64 2.66 2.61 1.74 5.9 Belarus 1.60 2.86 2.27 1.60 -0.3 Moldova 2.03 2.24 1.76 1.00 -50.8 Russia 1.08 2.49 2.26 1.20 11.1 Sugar Ukraine 1.23 1.31 1.86 1.60 30.0 Belarus 1.44 1.14 1.14 1.22 -15.2 Moldova 0.90 0.74 0.62 - - Sunflower Seed Ukraine 4.50 8.10 9.33 7.65 70.0 Belarus' - 5.08 2.48 - Moldova 2.36 6.46 4.28 1.98 -16.1 Russia 3.35 6.33 2.88 2.13 -36.3 Sunflower Oil Ukraine 1.16 0.98 0.64 1.48 28.1 Belarus- - 2.37 0.89 - Moldova 1.47 1.64 1.02 - - Winter Wheat Ukraine 3.36 13.74 10.30 6.31 88.0 Belarus (grain) 2.11 4.34 2.80 2.08 -1.5 Moldova 4.82 8.48 7.75 3.89 -19.2 Russia (grain) 2.34 6.12 2.77 1.37 -41.4 Corn Ukraine 2.93 2.26 6.49 5.31 81.2 Moldova 7.84 3.13 4.36 - - Flax Belarus 2.71 2.36 2.14 1.37 -49.4 Fruits Moldova 1.84 1.35 1.26 0.83 -54.9 Vegetables Moldova 1.24 1.24 1.01 0.87 - 29.8 Grapes Moldova 1.88 1.91 1.82 1.14 - 39.4 Soume: Technical Rports (Bclarus and Ukrain,c 1995. Moldova, 1996) Rapeaecd and mpeaced oil for Bclarus Commodity Analysis 21 additives) these prices are perhaps reflective of opportunity costs. For the non-tradeable inputs (e.g., labor, land, machinery, overhead) these prices were still determined by govermnent and likely not reflective of opportunity costs. Gross margins equal to output prices less gross unit outlays are best interpreted as indicators of incentives given the unavoidable problems of assembling the gross outlay and output price data. 4.6 In general, the price to gross outlay ratios show a pattern. Oilseed, coarse grain, and wheat procurement or output prices were set or determined at levels that yielded reasonable but declining gross margins (price less gross outlay per ton) during most of the years (Table 4.1). Specifically, the output prices during the period of analysis (1991-1994) were evolving, increasing to higher levels. However, reductions in input subsides together with input price liberalization resulted in increased gross outlays for production. Governments did not maintain procurement prices high enough to preserve gross margins, due perhaps to macroeconomic conditions and concerns over macroeconomic stabilization. 4.7 The situation was different for the animal products. Lower gross margins are indicated by the price and gross outlay ratios. This reflects a consistent theme in the agricultural policies of the three countries. The policies reduced subsidies for inputs and essentially decontrolled livestock prices. Aside from energy, the animal producing complexes were not subsidized. Profitability of animal production decreased sharply compared to crop production as indicated by ratios of procurement or output prices to gross outlays (Table 4.2). 4.8 The price to gross outlay ratios also provided incentives for adjustments in the structure of production. Animal production began to shift from the large complexes to the more diversified farms and to individual plots. For the individual plots, the reasons are more easily explained. Due to the demonetization of agriculture, many of the farm workers were paid in kind. Livestock grown on individual plots and sold in local farmers' markets was (and is) a way of converting these in-kind payments to cash. Due to difficult marketing problems, delayed payments, etc., grains were marketed through animal products, even though gross margins for animal products were not as favorable as those for grains and oilseed. 4.9 Assembly and distribution in the domestic markets remains largely in government hands even though the procurement prices appear high relative to gross outlays, there were often delays in payment and other marketing problems, providing disincentives to production. This in turn has resulted in less favorable incentives for crop production than is indicated by the direct comparisons of the reported procurement prices and gross outlays. Another source of possible bias in price to gross outlay ratio calculations is the deficiencies in accounting for production expenditures and existence of clear incentives for agricultural producers to overestimate production outlays in order to improve their bargaining positions in negotiations with govermnent on levels of procurement prices. 22 Multi-Country Trade Study Table 4.2: Price to gross outlay ratios per ton for major animal products in Ukraine, Belarus, Moldova, and Russia, 1991-1994. Year %Change Commodity 1991 1992 1993 1994 1991-1994 Pork (live weight) Ukraine 1.08 1.22 1.01 1.27 17.8 Belarus 1.35 1.22 0.80 0.80 -40.4 Moldova 1.01 0.56 0.58 - -42.6 Russia 0.92 0.57 0.96 0.63 -31.2 Poultry meat (live weight) Ukraine 1.06 1.27 1.03 1.18 11.3 Belarus 1.08 0.73 1.06 0.98 -9.0 Moldova 1.00 0.49 0.47 - -53.0 Russia 1.31 0.99 1.13 0.89 - 32.6 Eggs (thousand) Ukraine 1.48 1.91 1.93 1.53 3.4 Belarus 2.08 1.24 1.26 1.18 -43.6 Moldova 1.13 0.59 0.86 0.88 -22.6 Russia 1.75 0.99 1.40 1.18 - 32.9 Beef (live weight) Ukraine - 1.06 0.78 - Belarus 1.29 1.36 0.85 0.55 -57.4 Russia 0.86 0.46 0.69 0.44 -48.6 Mfilk Ukraine - 1.32 1.24 - Belarus 1.19 1.00 0.88 0.78 - 34.7 Russia 1.15 0.85 1.09 0.79 -31.2 1991-1993. Source: Technical Reports (Belarus and Ukraine, 1995; Moldova, 1996). 4.10 The procurement prices were often changed, even during the crop year. Also, there were multiple procurement or output prices, conditioned on current to historic output and designed to provide incentives for increased production. The procurement prices provided for crops in Appendix Tables A2 and A3 and used for calculating the ratios in Tables 4.1 and 4.2, are the best estimates of the prices on which the agricultural production decisions were made. In most cases, they were the prices initially announced. Details on the selection of these prices are provided in the country Technical Reports (Belarus and Ukraine, 1995; Moldova, 1996). Commodity Analysis 23 B. Trends and Implications 4.11 The trends among the countries and commodity 10 production and use patterns reflect differences in the pace of the reforms and priorities during the transition. Gross a- margins are sunmarized for key crops in Figure 4.1. In a- Ukraine and Moldova, there were clear differentials in comparing the gross margins between the grains, oilseed and 4- sugarbeet, and the animal products. Also, for sugar there 2- were larger gross margins for sugarbeet than for sugar IL production. In many cases, the sugar refineries in Ukraine o kP and Moldova were operating at significant losses. How these *WHEAT *5SUNFLOWER *SUET losses were handled is not reflected in the calculations of *auWA EoPoR *POULTY gross outlays by commodity. In most cases, the losses were I__ - ______d__.-_ _ - _ ._.__ _ -.-_ I apparently either forgiven directly or essentially eliminated Figure 4.1: Indicators of gross by the high inflation rates compared to low interest rates on margins by comnodity, 1994 (ratio of loans from government to cover the short falls of the output price to gross outlay). refineries. 4.12 The changes in price to gross outlay ratios for the 10D period 1991-1994 are provided in Figure 4.2. What is - shown is the gross outlays (and how they changed over time) OD- relative to the prices (and how they changed over time). The 0 implications are clear. For animal products, the price to gross outlay ratios declined significantly for all the so-R countries. The major declines for animal agriculture o occurred for Moldova and Belarus. For Ukraine there was -m a less pronounced change for animal agriculture. 4o- Alternatively, for Ukraine and Moldova, more favorable conditions for sunflower and wheat production are implied. o 1155kWk_I The prices of inputs and outputs in these nations are *WHEAT *BUS#wV,E EWSUGAFtET increasingly approaching border levels, which in future will WaM 3PORK *POULTnh limit the ability of the governments to increase output prices. Figure 4.2: Change in price to gross The result of the existing price structure has been strong outlay ratios during the period incentives for crop production in Moldova and Ukraine, 1 1994 decreased incentives for crop production in Russia and 199 Belarus, and decreased incentives for animal production (indicated by poultry and pork) for all of the countries. 24 Multi-County Trade Study C. Analyses of Potential Competitiveness 4.13 Analyses of the potential competitiveness for Belarus, Moldova, and Ukraine are presented in detail in the Technical Reports (Belarus and Ukraine, 1995; Moldova, 1996). The approach in analyzing potential competitiveness was straightforward.' The main conclusions are based on estimates of gross outlays obtained by using available technical coefficients and alternative assumptions on input prices. These outlay estimates were deflated to be expressed in 1991 rubles, and compared among the countries. "Adjusted gross outlays" were also estimated using different assumptions for exchange rates and border prices. Thus, two approaches were used to estimate deflated gross outlays. 4.14 Appendix Tables A4 and A5 contain real and adjusted gross outlay estimates in 1991 rubles. Deflated domestic input prices are used in calculating the "real" gross outlays. The Technical Reports contain a number of simulations for adjusted gross outlays, based on different input price and exchange rate assumptions. The results provided in this report for the adjusted gross outlays reflecting current (1994) border prices of tradeable inputs. These simulated or adjusted gross outlays could be calculated because of the detailed information on technical production coefficients and/or cost shares obtained for the Technical Reports. 4.15 In general the adjusted gross outlays were calculated using the same technical coefficients or norms used to calculate the real gross outlays. The estimated adjusted gross outlays reported in Appendix Tables A4 and A5 reflect border prices for tradeable inputs. That is, information on border prices of tradable inputs was obtained. These prices were then used along with the technical coefficients to estimate the adjusted gross outlays. Thus, the adjusted gross outlays reflect border prices for tradeable inputs (e.g., fertilizer and energy) and actual domestic gross outlays for non-tradeable inputs (e.g., labor overhead). To afford comparisons of the commodities across countries and time, these gross outlay estimates were then expressed in 1991 rubles, using the CPls. 4.16 The Technical Reports for the three countries, in fact, utilized slightly differing assumptions on border prices and the methods for calculating adjusted gross outlays. This was due to the available input price and technical production coefficient data. In each case, the most detailed breakdown of outlays for production was used. Also, border prices were differently calculated, using information available from the in-country records and from local collaborators. Thus, the values for adjusted gross outlays are conceptually identical but calculated using the best information available, which was not the same for the three countries. The detailed methods of calculating adjusted gross outlays are presented in each of the Technical Reports along with documented data sets and related assumptions. 4.17 Specific commodity results are provided for wheat, wheat flour, corn, sunflower, sugarbeet, sugar, pork, poultry, dairy, fruits and vegetables, flax and flax seed, and eggs. These are the important or potentially exportable commodities identified for Belarus, Moldova, and Ukraine (Technical Reports: Belarus and Ukraine, 1995; Moldova, 1996). Results on potential competitiveness are for both the real and adjusted gross outlays. The results in Appendix Table A4 are for crop commodities and in Appendix Table A5 are for animal commodities. The directions of change in real or adjusted gross outlays can be used to indicate changes in production efficiency, and potential competitiveness. Since real input prices were increasing throughout the 1990s, the only way producers could decrease the real gross outlay was through adjustments in input use levels I The more comprehensive framework used for anaJyzing competiniveness in agriculture employed by FAO. OECD, and The World Bank can be found in Tsakok (1990), Tower (1984). Masters and Winter-Nelson (1995). Appleyard (1987) (see references). Commodity Analysis 25 (techrical coefficients). Hence, declines in real or adjusted gross outlays can be interpreted as signs of moves toward increased competitiveness. Comparisons of real and adjusted gross outlays for production provide indicators of the long-run potential to sustain current relative competitiveness. This convergence is also an indicator of trade liberalization. D. Commodity Results 4.18 Suunflower: Real gross outlays of sunflower production (Appendix Table A4) show a regional competitive advantage for Ukraine, compared to Belarus, Moldova, and Russia. Moreover, this advantage appears to be increasing over time compared to Russia, albeit slightly. However, the ability to capitalize on apparent opportunities for specialization in the production of sunflower depend on the efficiency of the crushing capacity. In Belarus (rapeseed), Moldova, and Ukraine the available information indicates that the efficiency crushing for sunflower seed is below international standards. For the adjusted gross outlays (Appendix Table A4), the implications are similar. This is further illustrated in Table 4.3, which shows that the ratio of adjusted to real gross outlays is closing over time, as the economies of the three countries become more open to trade. 4.19 Slgadihez: The real gross outlays of sugarbeet 1 production are comparable among Ukraine, Moldova, and Russia. In fact, the out-lier in Figure 4.3 is Belarus. Real 20- gross outlays for production of sugarbeet were increasing in Belarus. This gross outlay pattern reflects the increases in 160- energy prices and the unfavorable technical production I coefficients for Belarus. Clearly, if Belarus is to be 100o competitive in sugarbeet production, the advantages will have to come through production and/or processing so- technologies that are improved over those available in the neighboring nations. Ukraine and Moldova are the major o &~. D. .. &W sugar producers and exporters. The situation with adjusted u _ and real gross outlays is strikingly different for Ukraine EUI, 1992 *19 EIG.4 (Table 4.3 and Appendix Table A4). Real gross outlays Figure 4.3. Sugarbeet real gross outlay have not tended to converge toward the adjusted gross per ton of production (1991 prices). outlays, indicating significant remaining distortions in Ukraine. The results are similar but less pronounced for Moldova. 4.20 Sugar: The real gross outlay data for production of sugar from beets for Ukraine, Belarus, and Moldova are summarized in Figure 4.4. These outlays have increased over time as energy and other prices have approached border levels. Also, the outlays reflect the prices of the raw materials. Farm prices have been set relatively high to encourage sugarbeet production. On the basis of both gross outlays and the technical coefficients of production, Ukraine and Moldova appear roughly comparable, and Belarus appears noncompetitive. Figures 4.3 and 4.4 would appear to be particularly useful to those responsible for sugar policy in Belarus. The indication is that "production costs," reflected both in terms of sugarbeet procurement price and the sugar content of beet, are relatively high. The processing gross ouday is also high. Ukraine and Moldova are currently clearly relatively more competitive in sugar production. 26 Multi-Country Trade Study Table 4.3: Adjusted gross outlays per ton for selected crops as percent of real gross outlays in Ukraine, Belarus, Moldova, 1991-1994. Year Commodity/Country 1991 1992 1993 1994 Sugarbeet Ukraine 446 441 145 373 Belarus 1093 232 145 91 Moldova 384 138 109 - Sugar Ukraine 445 253 92 251 Belarus 557 188 110 - Sunflower Seed Ukraine 786 907 198 379 Sunnower Oil Ukraine 282 441 41 163 Winter Wheat Ukraine 298 374 171 395 Belarus (grain) 2309 511 360 250 Moldova 525 169 108 Wheat Flour Ukraine 102 85 44 135 Corn Ukraine 370 427 658 - Flax Belarus 3321 682 276 214 Flaxseed Belarus 6605 1640 713 320 Source: Technical Rcports (Belarus and Ukrainc, 1995; Moldova, 1996). 4.21 Pork: On a real gross outlay for production basis, there have been marked changes for pork production (Figure 4.5). In general, the gross outlays have increased in Belarus and Moldova and decreased in Russia and Ukraine. These decreases in outlays are reflective of adjustments in the production technology, and in the prices of mixed feed. In the longer run, Ukraine, being a producer of coarse grain and other feed, is likely to have a relative competitive advantage in pork production. What is not shown by the results Figure 4.5 is the gross outlay compared to border (Russian) price, and the adjusted gross outlay (Appendix Table AS). These results suggest quite another observation, not reflected in the relative real gross outlays figures. The adjusted gross outlay estimates show that Ukraine and Belarus have relatively high gross outlays compared Commodity Analysis 27 to border prices. The implication is that all four countries a. are currently noncompetitive in external markets for pork. The reasons relate both to production outlays and 6- to processing costs. Processing plants in all four countries 4- are highly inefficient compared to those for the nations l participating in the external market. Moreover, quality E control is lacking. Substantial investment will be necessary l2- to develop an export industry for pork. 4.22 Pnultry: The real gross outlays for production of poultry were increasing until 1994 for all three o- Uk_s^ L] ^ countries (Appendix Table AS). The poultry production outlays are directly related to energy and feed prices. They *M S 192 SIM M14 reflect the technology of large-scale production as well- Figure 4.4: Sugar real gross outlay per Most of the poultry in Belarus, Moldova, Ukraine, and ton of production (1991 prices). Russia is produced in large complexes. Thus, there is not much difference in the technical coefficients of production. The major differences among countries are for feed (Figure 4.6). It is clear from the adjusted gross outlay estimnates that there is no apparent major comparative advantage among the countries, or in international markets due to outdated technology. Thus, poultry production is likely to become a domestic industry, at least in the short run, especially when we add data on high processing costs. However, if the industry does not improve its efficiency, even the domestic 82- markets could be lost to external producers if trade barriers are reduced. Ukem BW&nw M." 4.23 Fgg Prahlction: Information similar to that *r MIM DIM M1 provided for the other commodities is supplied in Figure 4.7 1 for egg production. For egg production, there are slightly Figure 4.5: Pork real gross outlay per ton larger differences in real gross outlays than for poultry. The of production (1991 prices). differences are related to technology and energy and feed prices. Feed prices are relatively higher in Belarus and Moldova than in Ukraine and Russia. The differential between Ukraire and Russia is probably due to energy prices. There is evidence suggesting more inter-country trade in eggs than poultry. Still, it is likely that in the near term, egg production will be largely for the domestic market in the four countries. These real gross outlay results and the observation on domestic compared to international prices are confirmed by the real adjusted gross outlay calculations. 4.24 Wheat: Real gross outlays for wheat production were highest in Belarus and lowest in Ukraine (Figure 4.8). The general trend in real gross outlays for wheat production for Ukraine, Moldova, and Russia was down, except for 1994. Since the gross outlays for wheat production can be viewed as an approximation to gross outlays for grain production, the implications of these trends are important for the future competitive position of the livestock and poultry sectors. For example, it is hard to conceive that Belarus could develop a competitive grain-based livestock sector, give the changes for gross outlays for grain 28 Multi-Country Trade Stut production. From the evidence at hand, Ukraine has the advantage in producing lower cost grain for livestock. However, conclusions on the international competitiveness of livestock sector in Ukraine are premature, since there are still substantial differences in real and adjusted gross outlays of wheat and corn production (Table 4.3). 4.25 Specialty Crn: Real gross outlays for the country-specific commodities (wheat in Ukraine; fruits and vegetables and grapes in Moldova; milk, flax, and rapeseed in Belarus) have decreased substantially during 1991-1994, o- indicating unexploited export opportunity (e.g., Tables u . A2-A5). The Technical Reports contain detail on these real *SI *S8 *NIO 01U04 and adjusted gross outlay estimates. It is in these specialty Figure 4.6: Poultry real gross outlay per crop areas that the major short-run opportunities for export ton of production (1991 prices). and expanded production may exist. Um m sus Md- *ti E m *t 1U4*m Ukraft ~ ~ ~ ~ ~ ~ ~ ~ *z Q1"2 M*kl ftAM Figure 4.7: Eggs real gross outlay per Figure 4.8: Wheat real gross outlay per thousand of production (1991 prices). ton of production (1991 prices). Commodity Analysis 29 Table 4.4: Adjusted gross outlays per ton for selected animal products as percent of real gross outlays in Ukraine, Belarus, and Moldova, 1991-1994. Year Commodity/Country 1991 1992 1993 1994 Pork (live weight) Ukraine 920 599 259 181 Belarus 1583 296 250 219 Moldova 251 143 125 - Poultry Meat (live weight) Ukraine 1291 911 377 207 Moldova 393 143 113 - Eggs (thousand) Ukraine 1179 906 375 203 Beef (live weight) Belarus 1902 586 544 485 Source: Technical Reports (Belans and Ukraine, 1995; Moldova, 1996). Table 4.5: Ranking of commodities by percent change in real gross outlay per ton of production, 1991-1994. Moldova Belarus Ukraine Russia Percent Percent Percent Percent Comnunodity Change Commodity Change Commodity Change Commodity Change Grapes -54.4 Milk -15.2 Corn -73.7 Beef -43.3 Fruits -41.5 Flax -12.1 Sunflower -44.4 Milk -42.9 oil Wheat -5.3 Beef 5.7 Pork -42.4 Grain -35.6 Sunflower -2.6 Grain 33.5 Sunflower -31 Poultry -23.8 Vegetables -1.3 Pork 63.9 Wheat -18.5 Pork -21.3 Sugarbeet 0 Rapeseed 69.6 Beef - 16.2 Eggs -8.5 Sugar 1.7 Sugarbeet 92.6 Milk - 14.8. Sunflower -6.8 Poultry 38.5 Poultry 132.7 Wheat Flour - 12 Sugarbeet 5.2 Pork 42.3 Eggs 176 Poultry 4.9 Eggs 79.2 Sugar 317 Eggs 27.4 Corn 167.7 Sugarbeet 31.4 Sugar 83.3 '1991-1993. Per thousand eggs. 1992-1993. Source: Technical Reports (Belarus and Ukraine, 1995; Moldova, 1996). 30 Multi-Country Trade Sudy E. Indicators of Export Opportunity 4.26 Identification of opportunities for export is important to both the private sector and those responsible for policies that will lead to the restructuring of agriculture in Belarus, Moldova, and Ukraine. Rankings of the commodities or products that have been included in the analysis, according to the percent changes in real gross production outlay observed for the period 1991-1994, are provided in Table 4.5. These rankings show that there is reason for the existing patterns of production. This specialization reflects natural climatic, soil, and other conditions as well as the policies that have existed historically in these nations and during the transition. These changes also suggest the possibility for exploiting related trade opportunities, at least with neighboring nations, if not in the external market. 4.27 The results in Table 4.5 suggest a fairly clear grouping of commodities likely to provide opportunity for export, if the trends observed during the period of analysis continue. For Moldova, the commodities that surface from this comparison are grapes, fruits, wheat, sunflower, and vegetables. In contrast, there apparently will be substantial problems associated with sustaining or increasing the levels of production of major animal commodities in Moldova. For Belarus, the opportunities appear for the milk/dairy/beef complex and flax. Again, there appears to be less reason for believing that there will be growth or opportunity in export of sugar and animal products other than dairy and beef. 4.28 For Ukraine, the analysis shows that the traditional staples that were grown productively in the nation as promising for export. Coarse grain, oilseed, and wheat are the candidates. Also, from these data, it would appear that once there is sufficient investment for improving the processing industry, pork and poultry could emerge in Ukraine as commodities with export potential. The reason is the opportunity for a regional advantage in the domestic price of feed. 5. TRADE PERFORMANCE AND POLICY 5.1 The gross value of agricultural production and total agricultural trade for Belarus, Moldova, Ukraine, and Russia (Tables 5.1 and 5.2) fell during the period 1991-1994. The fall in total trade was much larger in percentage terms than the fall in GDP for the same period. Also, the shares of agricultural exports to the FSU decreased from nearly 100% in 1991 to around 75% in 1994. That is, the fall in exports was thus greater for the FSU than for the non-FSU. This is a result of the very significant reduction in trade with the CIS nations. Detailed information on FSU and external market agricultural trade shares is provided in Table 5.3. 5.2 The agricultural trade balances, which can be easily inferred from Table 5.3 were positive for the three countries for most years. Belarus started a negative trade balance in 1991. Ukraine had exports equal to imports in 1994. The balances are perhaps less important to the economic condition of agriculture than total trade. The reduction in the total means as well that interindustry trade decreased, an indication of the level of specialization within broad comrnodity groups, and the development of subsectors even within commodity groups that are competitive in the CIS and external market. Of course, these changes in trade patterns and in the balance of trade for Belarus, Moldova, and Ukraine are reflections of macroeconomic, domestic agriculture, and trade policies. As well, they reflect the highly variable conditions for crop production in this region of the world. A. CIS Trade Performance 5.3 Detailed information on CIS trade is provided in Table 5.4, for the selected commnodities analyzed for Belarus, Moldova, and Ukraine. For the commodities analyzed, most of the trade of Belarus, Moldova, and Ukraine was with Russia. Table 5.4 also shows the decline in CIS trade, by country (Russia, Belarus, Moldova, and Ukraine). For most commodities total trade declined more than 50% during the four years. The counter-result was sugar. Ukraine increased sugar exports to Moldova and Belarus, while Moldova increased sugar exports to Belarus and Russia. These changes may have been associated with the reduced raw cane sugar imports from Cuba. Moldova also increased exports of fruits to Russia. 5.4 Thus, the situation for the three countries is one of rapidly declining trade with the CIS. As already indicated, this is in part due to the declines in agricultural production and domestic food consumption. Other reasons for the decline include changes in the inter-republic trade agreements and the policies pursued in the transition. As prices of energy and agricultural products approached international levels, the reasons for inter-republic agreements were more or less eliminated. Also, the evolution of the macroeconomic conditions and reductions in concerns about food security influenced trade policy and trade patterns (as perhaps reflected by the sugar export data). 5.5 Agricultural trade also decreased significantly during the period 1991 to 1994. These changes reflect both national trade policies and the breakup of the FSU. For example, in addition to tariff, licensing, hard currency, and other more specific national policies, the reductions in trade reflect the collapse of the payments clearing system of the FSU. While there remained in place a number of inter-republic trade agreements, largely for energy, the FSU trading system had largely disintegrated by 1991. The precipitous fall in trade, which accompanied the decline in GDP for these countries is indicated by the data in Table 5.2. 32 Multi-Country Trade Study Table 5.1: Gross value of agricultural production in Belarus, Moldova, Ukraine, and Russia, year-to-year percent changes, 1991-1994. Year Country 1991 1992 1993 1994 Belarus -5 -9 4 -14 Moldova -2 -16 10 -28 Ukraine -13 -8 2 -17 Russia -5 -9 -4 -9 Source: USDA, Former USSR Situation and Outlook Series, May 1995. Moldova data are from CIS Statistical Committee, Bulletin #5, 1995. Table 5.2: Agriculture trade for Belarus, Moldova, Ukraine, and Russia year to year percent changes, 1991-1994. Year Country 1991 1992 1993 1994 Export Belarus - -24 -5 - 75 Moldova -36 -51 - 1 -40 Ukraine - -42 - 85 -65 Import Belarus - -21 86 - 83 Moldova - -5 -38 -76 Ukraine - -35 - 53 Source: Technical Reports (Belarus, 1995; Moldova and Ukraine, 1996) and The World Bank Statisical Handbook 1995, States of the Former USSR. 5.6 The situation depicted by the trade results, along with the sector-level data in Table 4.1, reflects a common scenario. Agricultural production and consumption in all three countries decreased. This decrease was initially sharp and has continued at a slower rate. Trade has been more or less residual, in large sense due to policies placing a high priority on food security. Both imports and exports have fallen more rapidly than agricultural production and consumption. Recovery in trade will depend on reforming trade policy, improvements in income and domestic consumption as the economic decline is reversed, and on increased agricultural production and productivity with the introduction of market systems and incentives. For grains (Table 2.2 and Figure 3.1), there has been a clear trend to declining domestic use due to the contraction of livestock industry. Note that this trend allowed Russia and some other FSU countries (except Moldova, Belarus, and Ukraine) to increase grain export. 5.7 The decline in agricultural trade resulted in some of the farm policies described above. Comparison of real outlays and procurement prices across the countries reveals yet another reason for declining trend in inter-republic agricultural trade. which will likely remain even after formal and informal trade barriers are abolished. Since Russia is the main market for Belarus. Moldova. and Ukraine. comparison of gross outlays for these countries with Russia may be used as an indicator of competitiveness. Trade Performance and Policy 33 According to estimates provided in this report, Russia in 1994 was the "least-cost" producer of poultry, eggs, beef and milk. It ranked second in sugarbeet (after Moldova) and sunflower, grains and pork (after Ukraine). A major reason that production expenses in Russia were in general lower may be that Russian producers were first to experience real input price shock, which led to deeper adjustments in input use than in Belarus, Moldova, and Ukraine by 1994. Procurement prices in Russia were also lower for all commodities (except sugarbeet in Moldova). Gross margins in Russia were in general, tighter than in Belarus, Moldova, and Ukraine, which also would have induced Russian producers to lower costs. The conclusion is that Belarus, Moldova, and Ukraine producers were in general not able to compete in the Russian market without significant improvements in the efficiency of input use. They also had lower incentives to reduce input use, because they were paid higher procurement prices than producers in Russia. Moreover, where the differences in cost of production between Russia and the next least cost producer were observed, they were still lower than the transportation costs from that country to Russia. This fact alone would have made food export to Russia unattractive. These observations should be interpreted with caution. However, anecdotal evidence tends to support them. B. External Trade Performance 5.8 Detailed external trade data for Belarus, Moldova, Ukraine, and Russia are provided in Appendix Tables A6, A7, A8, and A9. These tables are of use in indicating what agricultural goods are being imported and exported to non-FSU countries. For Belarus (Appendix Table A6) the major non-CIS imports were grains and sugar. For Moldova (Appendix Table A7) the imports were grains. For Ukraine, the major imports were grains, animal products and sugar in 1991 (Appendix Table A8). By 1994, there were essentially no imports from the non-FSU nations. The major external trade import in 1994 was fruits and berries and in other processed products. 5.9 The situation for Russian non-CIS import (Appendix Table A9) is different from the other three countries. The significant increase in retail food prices in the large cities and a relatively liberal import regime have led to a surge in private food imports. Grains import has continued to decrease (from 20 million tons in the beginning of the 1990s to 3-4 million tons in the middle of the 1990s), largely as a result of a decline in livestock population. However, processed food import has increased at a rapid rate. These two trends have had offsetting effects, and resulted in relatively stable volumes of Russian agricultural and food import. An interesting feature of Russian food import is that about 85 % goes to a few large Russian cities. These markets are easier to reach and the concentration of the high-income population is much larger than in the smaller cities or the countryside. Currently there are two separate, independently evolving markets for food in Russia. Imported, high-value food products are sold to the so-called new Russians. Domestically produced food is consumed predominantly by the average- and low-income segments of the population. The recent increase in import duties for food did not have a significant effect on the volume of imported food and had only a marginal effect on prices of domestically produced food. There is real question as to whether the same patterns will emerge in Belarus, Moldova, and Ukraine as trade policies are fully liberalized. The urban centers in these nations are smaller. Incomes of the urban populations are lower. 5.10 There is currently strong pressure on the Russian government to introduce higher tariffs on food imports. Russian agrarian lobbyists contend that high levels of food import are hurting domestic producers. However. import and production of snack food, soft drinks, highly processed meat and dairy milk products was limited in pre-reform Russia. The beginning of the economic reform produced the first of the foreign 34 Multi-Country Trade Study consumer goods and food in the Russian market. The so-called new Russians could afford to buy expensive consumer goods and food. However, for the rest of the Russian population those types of foods were luxury items. Most of middle-income Russians set aside a small percentage of their monthly income to buy these food items for special occasions. With the exception of the new Russians, the Russian population is very insensitive to the price of the imported food. Increases in tariffs on foreign food imports will likely affect only prices of the imported food and leave prices of domestically produced food unchanged. 5.11 Agricultural exports to non-CIS nations are summarized in Appendix Table AIO. The levels of exports are very modest. Russia exports fish and meat products and, increasingly, grains. Beverages are also exported, e.g., vodka. Exports from Ukraine are animal products, oil, and sugar. For Belarus and Moldova, little export activity is indicated in Appendix Table AIO. The exception for Moldova is wine and fruit products. Still, even though these products have low unit gross outlays, they are apparently not highly demanded on the external market. The likely reasons are inadequate trade services to support domestic enterprises with exportable product, and product quality and consistency. 5.12 In summary, the level of import and export activity with the external market is relatively low, and has not shown an increase during the period of analysis. In fact, this trade, with the exception ,,f Russia, appears to be more or less reflective of special situations. These situations could involve, for example, joint ventures and new partnerships with foreign firms. The current trade figures emphasized the importance of the deeper institutional reforms that can result in improvement in the processing and distribution sectors as a prerequisite for expanded external trade. Until these institutional changes and associated adjustments in processing and distribution occur, it appears safe to conclude that in the short term most of the trade will be with the other CIS nations. C. Policy Results and Prospects 5.13 The major policy changes that appear to be underway, reflecting the current state of the macroeconomic conditions in these nations and the conditions of the agricultural sector, involve trade with the CIS. Moldova and Belarus signed a free trade agreement in 1994. Russia and Ukraine concluded a free trade agreement in 1995. A customs union was established for Russia and Belarus in 1995. And, in April of 1996, the customs union between Russia and Belarus is being extended to include Kazakhstan and Kyrgyzstan. These agreements are important, not for their specifics, but as an indication of the initiatives of the governments of these nations for consolidating and expanding trade within the CIS. 5.14 The implications of the customs union and, in fact, the free trade agreements are to give priority to trade within the CIS. In other circumstances, these kinds of agreements could be viewed as highly distorting. However, for the CIS nations and the products that are available for trade, they may not be as important to the external trading nations. In general, the agricultural and related commodities available for trade in the external market, and that can be competitive, are primary commodities. That is, the trade in the external market is likely to involve highly specialized commodities (e.g., flax, fruits, vegetables, wine) and basic agricultural commodities (e.g., grains and oilseed). Trade Performance and Policy 35 Table 5.3: Role of agriculture in trade of goods and services in Belarus, Moldova, and Ukraine, 1991-1994 (in million 1991 rubles). % Change Country 1991 1992 1993 1994 1991-1994 Belarus Total export NA 40008 39853 36433 -9* To FSU (in %) 93.1 84.7 59.9 58.9 Agricultural export 4762 3633 3466 865 - 82 To FSU (in %) 97.3 87.5 92.1 72.2 Total import NA 42108 51357 44508 1* From FSU (in %) 86.6 88.4 55.9 68.2 Agricultural 4915 3890 7232 1199 -75 import From FSU (in %) 64.5 64.5 37.7 62.9 Moldova Total export 8128 4836 4418 1674 -79 To FSU (in %) 91 71 63 72 Agricultural export 3923 1920 1895 1133 -71 To FSU (in %) 88 89 90 78 Total import 8442 6917 5723 1974 -77 From FSU (in %) 82 76 71 73 Agricultural 1066 1015 632 149 -86 import From FSU (in %) 54 41 31 38 Ukraine Total export 60531 86209 55326 44821 -26 To FSU (in %) 94 74 60 57 Agricultural export 6227 5754 8006 2352 -62 To FSU (in %) 90 85 94 94.32 Total import 53244 79310 56119 44821 - 16 From FSU (in %) 96 92 89 74 Agricultural 1951 3361 1213 - -38 import From FSU (in %) 50 59 46 *1992-1994. Source: Technical Reports (Belarus and Ukraine. 1995; Moldova. 1996). The World Bank, Statistical Handbook 1995. States of the Former USSR. Studies of Economies in Transition. No. 19. Washington, DC, 1995. 36 Multi-Country Trade Study Table 5.4: Intra-CIS trade in selected agricultural products for Belarus, Moldova, and Ukraine, 1000 tons. % change Trade 1991 1992 1993 1994 1991-1994' Meat and Meat Products Export Ukraine, total 227 195 99 135 -42 Ukraine to Russia 193 155 92 127 -34 Belarus, total 165 94 64 53 -68 Belarus to Russia 165 64 63 52 -68 Moldova, total 30 28 22 16 -47 Moldova to Russia 29 11 9 10 -65 Milk and Milk Products Export Ukraine, total 1292 288 452 222 -83 Ukraine to Russia 621 48 424 193 -69 Belarus, total 1307 272 334 256 -80 Belarus to Russia 776 137 331 256 -67 Moldova, total 48 145 54 55 15 Moldova to Russia 48 51 11 19 -60 Eggs and Egg Products Export, million Ukraine, total 566 206 55 39 -93 Ukraine to Russia 341 81 16 26 -92 Belarus, total 88 95 77 90 2 Belarus to Russia 84 - 39 87 4 Moldova, total 34 3 6 - - Moldova to Russia 34 3 - - - Sugar Export Ukraine, total 1646 318 913 797 -52 Ukraine to Russia 1128 197 766 358 -68 Ukraine to Belarus 55 22 22 298 442 Moldova, total 7 9 47 27 286 Moldova to Russia 7 6 29 9 29 Moldova to Belarus - 0.7 1 4 471 Fruits and Berries Export Ukraine, total 65 16 20 24 -69 Ukraine to Russia 53 12 18 5 -90 Ukraine to Belarus 6 2 1 -83 Moldova, total 207 103 139 234 13 Moldova to Russia 165 74 II1 208 26 Moldova to Belarus 22 9 11 13 -41 Moldova to Ukraine 17 18 7 11 -35 Trade Performance and Policy 37 Table 5.4 Continued. Trade 1991 1992 1993 1994 % change Vegetables Export Ukraine, total 264 30 25 - -91 Ukraine to Russia 217 27 20 - -91 Ukraine to Belarus 26 3 1 - -96 Moldova, total 173 68 38 29 -83 Moldova to Russia 135 35 22 12 -91 Moldova to Belarus 20 8 9 7 -65 Moldova to Ukraine 15 25 6 10 -33 Vegetable Oil Export Ukraine, total 236 99 76 9 -96 Ukraine to Russia - 64 8 Ukraine to Belarus 0.17 32 0.7 - Moldova, total - 4 6.7 - Moldova to Russia - 1 1.2 - Moldova to Belarus - 1 1 Moldova to Ukraine - 2 2.7 - Percent change is for 1991-1994 or when 1994 is not available, the latest year. Source: CIS Statistical Committee, adapted and completed; USDA database on inter-republic trade (unpublished) 1995. 5.15 Even though there are customs unions and free trade agreements, the levels of tariffs among these countries and taxation policies are in the process of change. The essential impact of customs unions has been to expand the trade and/or tariff barriers of the dominant partner, Russia, to the borders of the included nations. Free trade agreements are similar, but include agreements among the signees for reductions in bilateral trade barriers (often to the lower of the two tariffs). The experience with the existing customs and free trade agreements has been mixed. There is considerable posturing and debate on the relative levels of tariffs, possibilities for decline, and implications for integration of the agricultural and food subsectors. 5.16 For example, under the customs union signed by Belarus with Russia in 1995, Belarus is negotiating for a lower tariff for imported foods. Belarus is being asked to compensate Russia for the difference in associated tariff revenues. Harmonization of price control, currency regulation, foreign trade regulation, antitrust regulation, and intellectual property rights laws are to be accomplished in a first phase, prior to the instituting of the "common customs territory." These will take time. The free trade agreements are easier to accommodate but here there have been problems with these negotiations as well. There is intense negotiation on how the existing tariffs will be phased out, and on exemptions (many of which are for agriculture and food products). 5.17 In short, FSU countries have three separate, but not mutually exclusive options in promoting free trade and economic cooperation: * Regional economic integration and creation of economic and customs unions within the FSU; * Cooperation with the European Union (EU): and 38 Multi-Country Trade Study * Participation in the World Trade Organization (WTO). The prospects and pace of economic integration in the three areas will depend on developments of agricultural and trade policy, and the institutional reforms in Belarus, Moldova, and Ukraine. Deep changes in the scope and level of producer support, methods and instruments of trade regulation will be required to accommodate requirements for joining FSU economic union, the EU, or the WTO. 5.18 Membership in FSU customs and economic unions, the EU, or the WTO will allow these countries to diversify their trade flows and exploit new trade opportunities. This is one of the reasons why all of the FSU countries have expressed interest in joining the WTO. 5.19 Net effects of customs union creation for the FSU can be positive only under special conditions, i.e., when trade creation effects outweigh trade-diversion effects. In general, the benefits of customs union are through trade-creation, defined as the increase in trade due to reduced trade barriers among the members. Under the customs union, consumers will be able to buy cheaper goods from producers of member countries, which will improve their standard of living. Gains due to this trade creation effect will also lead to increases in income and, indirectly, to possible increase in import from the external market. Hence, the creation of customs unions could result in overall benefit. Also, with a more efficient allocation of resources, patterns of trade and production may come more in line with comparative advantage. 5.20 The overall outcome will depend on the size of trade-diversion effects that emerge due to the fact that consumers will not have access to less expensive goods from nonmember countries due to tariffs imposed by the customs union. Assessment of net costs and benefits of the customs union for the CIS is an empirical question worthy of a separate study or investigation. Still, analysis of trends in gross outlays, production, and trade patterns in the FSU can be used to make selected general observations on the most likely directions of change of the FSU customs union is consolidated. 3 In general, the higher the trade barriers before creation of the customs union, the larger the trade-creation effect will be. Since, during the initial stages of the transition trade was effectively banned, it can be expected that the unexploited opportunities for trade may be substantial. Note, however, that at least some of these opportunities have already surfaced in largely unaccounted for and unrecorded barter and other formns of private trade. Anecdotal evidence of the size of uncontrolled trade flows provides an indicator of possible increases in official trade flows. * Potential gains from trade are increasing through the increase in the number and size of countries in the customs union. Hence, the possible enlargement of the newly created customs union could further promote trade. * The more diverse the countries in the customs union are, and the higher the difference in the natural resource endowsments and agriculture, the larger the possible relative cost differences and opportunities for trade. The fact that such diverse countries as Russia and Belarus on one side and Kazaklhstan and Kyrgyzstan on the other have joined the union is promising. * Transportation costs will be important in determnining the size of the trade-creation effect. Improvements in infrastructure. including promotion of private trade, regulation of transportation monopolies. and dismantling procurement systems will increase Imner-republic trade flo%%s Trade Performance and Policy 39 * If the customs union is part of a more general integration agreement, as was the case for the FSU, then such positive side effects as the establishment of a better payments system and a free information flow may be important for promoting trade, decreasing uncertainty and transaction costs. * The dynamic effects of the customs unions, e.g., increased competition within the union, the ability for domestic producers to enjoy the economies of scale due to expanded markets, the possible in-flows of foreign investment to overcome trade restrictions, may dominate the static effects already mentioned. 5.21 Strategic trade policies employed by the European Union and the new industrialized Asian states are becoming more popular among decision makers in the FSU. However, in the case of the FSU, it will likely be difficult, if not impossible, to pick industries that can be competitive in the future. The information needed for such decisions is almost especially not available in the FSU, as a result of lingering effects of the planned economic system. 5.22 Many CIS countries have applied for membership in the WTO and are under review. The effects of the Uruguay Round on agricultural commodity markets in Russia and Ukraine have been recently analyzed. Based on the results of the FAPRI World Agricultural Model, the overall welfare effects for FSU countries were assessed as positive, although they are not expected to be large (Meyers, 1996). The overall conclusion of the FAPRI study is that the WTO cannot be viewed as a substitute for deep institutional reforms and that the net benefits would be small for FSU countries. In any case, the FSU countries should carefully weigh the possible short-run negative effects for their consumers (due to overall higher prices) compared to the long-term gains in income, efficiency, and allocation of resources when considering joining the WTO. D. Summarv 5.23 Perhaps two factors are affecting extemal trade in an unnecessarily disruptive way. Clearly, broader external trade will depend on the deeper institutional reforms that have been already mentioned, and the resulting incentives for capital investment to improve product quality and consistency. But, the minimum export prices and the currency management conditions currently in effect represent obstacles to trade that appear unnecessary. In addition, these measures do not appear to be yielding the results for which they were intended. Minimum export prices are essentially impossible to set for agricultural commodities. This instrument was designed to counter the avoidance of tax, the illegal transfer of capital outside the countries, etc. However, there are other ways to deal with such problems. For currency management, the implications have been somewhat reduced by the stabilization of the economies and the associated less distorted exchange rates. 5.24 The immediate policy recommendations evolving from the analysis of trade pattems, policies, and domestic agricultural policies are: * Elimin1ate or reduce foreign currency management associated with trade. As progress is achieved toward macro-economic stabilization, the justification for hard currency surrender requirements and other restrictions is reduced. 40 Multi-Country Trade Study * Eliminate minimum export pricing. This is a major obstacle to trade and contributes to inefficient forms of trade. Minimum export prices were introduced due to concerns about food security and capital flight. Experience in the past five years has shown that economic reforms do not compromise food security, and instead create more efficient means of achieving it. Moreover, capital flight will not be so important if the countries have reached a certain degree of macro-economic stability. * Improve trade services. Governments retain a major role in trade, but governments are typically not good at providing trade services. More importantly, government participation tends to crowd out the private service industry. Some assistance to the growth of the private sector and an appropriate legal framework for foreign firms that provide these services could contribute to the development of trade. * Do not allow customs unions andfree trade agreements with the other CIS nations to impede integration into world trading relations. Within the CIS there remain strong opportunities for trade in energy and food and agricultural commodities. Traditional trading relationships are being reactivated. Customs unions and free trade agreements are not likely to disrupt external market participation in the short run, because commodities traded within the CIS at present are imperfectly substitutable for those traded with the rest of the world. * Keep tariffs uniform and relatively low. Trade outside the CIS is actually relatively small at present. High tariffs in anticipation of large government revenues are tempting. But these same high tariffs are likely to reduce the opportunities for the development of export industries. Longer-term objectives such as stimulating the development of an export subsector in the agriculture and food area, should be pursued. r Exploit opportunities for "specialty crops. " Examples of these are flax in Belarus, fruits, vegetables, and wine in Moldova, and grains and oilseed in Ukraine. Developing domestic agricultural policies and trade policies that provide opportunities to the private sector in production and trade of these specialty crops is important to the development of stable, market-based agriculture. * Undertake deeper institutional reforms neededforfull integration into world trade. Membership in the WTO will require time. Therefore preparation should begin immediately. Deeper institutional reforms will be needed for fuller participation in external markets. Most importantly, the removal of remaining direct government interventions in intemal and external markets, and improved public services for agricultural trade, is urgently required. 6. OVERALL SUMMARY 6.1 The detailed analysis of commodity trends in agriculture and trade for Belarus, Moldova, and Ukraine (and Russia for comparison), has been revealing. The results on prices, gross per unit outlays, and gross margins compared to levels of production, domestic use, and trade, show that during the period of analysis all three nations went through several stages of transition. Production and trade patterns are the response of agricultural decision makers to the incentives provided by government policy and the emerging markets. Just as the governments can be viewed as having developed predictable policies as priorities evolved from food security to efforts of macroeconomic stabilization to deeper institutional reforms, there is evidence of the responsiveness of the agents in agricultural and trade policy and other incentives. Gross outlay to output price ratios for animal products were not as favorable as those for crops. Accordingly, the animal agriculture subsector declined or contracted while the crop subsector remained stable, at least in terms of use of production capacity (land). Thus, the general output patterns were consistent with the incentives implied by the policies. 6.2 The argument for deeper institutional reforms is supported by the results gathered from production patterns, yields, and more generally, productivity. Although the general production patterns responded to prices and other policy incentives, productivity and production, even for the favored commodities, did not increase. That is, the production technologies and the organization of production and processing and distribution did not change. Reforms required to achieve these changes involve more efficiently manage asset markets, competition policies, and broad participation in markets for goods and services, as well as greater integration of the domestic and international economies. A. Commodity Analysis 6.3 The results of the commodity analysis generally reinforce perceptions about the competitiveness of the agricultures in Belarus, Moldova, Ukraine, and Russia. The major contribution of the analysis is to give an indication of the magnitudes in the differences of the domestic, compared to border price-based gross outlays for production. The gross outlays used for comparison were estimated using specialized and limiting assumptions. Still, there are conclusions from the commodity analysis that appear to be reasonably robust. They are as follows: * The animal agriculture production in these countries will be largely for the domestic market. The processing of animal products is highly inefficient. Also, it is likely that the crops subsectors will develop prior to the animal agriculture subsectors. Low-gross outlays for feeds are essential to a regionally and internationally competitive animal agriculture. Privatization and other conditions to attract foreign and domestic investment in the processing sector have moved slowly. This suggests that it will be a period of time before the necessary investment to upgrade the animal production and processing technologies occurs, even with low-cost feeds. * The competitiveness results for crop agriculture generally favor the existing production patterns. Exceptions are for situations in which countries have, or are currently pursuing, high-gross outlay import substitution policies. Examples include coarse grain in Moldova, sugar in Belarus. Ukraine is the country with the most agricultural potential of the three, and the best alternatives in terms of competitive production or major crop commodities. 42 Multi-Country Trade Study * Specialty agricultural production deserves added attention. Examples are flax in Ukraine and Belarus, fruits and vegetables in Moldova, food and coarse grain in Ukraine, and dairy in Belarus. There are good reasons for these historic specializations, which persisted even under the highly distorted incentive system of the FSU. The analysis confirms that attention should be given to these traditional production systems as commodity subsectors that are likely to expand as the reforms progress. * Comparisons of real (domestic) deflated gross outlays and adjusted deflated gross outlays (reflecting border prices for tradeable inputs) show that the agricultures of these countries became more linked to international markets. In general, real gross outlays are approaching adjusted real gross outlays. The implication is that the agricultures of these countries will increasingly respond to the incentives of the CIS and external markets. B. Trade Policy 6.4 Trade policy implications of the transition analysis in Belarus, Moldova, Ukraine, and Russia, are of special interest. These primarily follow from the discussion in Section 5. There are also implications from trade experience that will be useful for guiding future policies. Implications from the analysis of trade policies and responses of the agriculture community systems point as well to a higher priority for deeper institutional reforms. General conclusions for trade policy are: * Most of the trade for Belarus, Moldova, and Ukraine is with the other members of the CIS. In fact, most of the trade is with Russia. With progress in macroeconomic stabilization, and in agricultural policies that are less distorting, initiatives have been undertaken to facilitate increased integration of the CIS nations. Free trade agreements and customs unions are replacing old forms of organizing trade, the inter-republic agreements. These customs unions and free trade agreements have their own problems, however. Uneven tariffs and border practices appear to have remained, for example, even between Belarus and Russia, which were early partners in a customs union. Still, it appears that there is a priority and opportunity, for the initiation of customs unions and free trade agreements with other CIS nations. * Particularly for Belarus, Moldova. and Ukraine, agricultural commodity trade has fallen with the decline in agriculture output, GDP, and domestic use. These nations are more food self-sufficient than in earlier years. In part, this is by design, stemming from concerns with food security and the associated slowness in reducing trade barriers. It is also due to the fall in food consumption that occurred with the reductions in income, the increases in relative prices, and the elimination of food subsidies. * Opportunities for the developing subsectors that can generate tradeable surpluses are available to all of these nations. These have been indicated by the results on potential competitiveness. But even in the subsectors exhibiting opportunity for trade, relatively small surpluses for export are being generated. For significant exports to materialize, production will have to increase. There are two ways this can occur for the crop and crop-related commodities, increased yields and/or increased harvested area. Real potential exists for increasing yields. But, the necessary incentives must be in place. If land resources pass from Overall Summary 43 bad managers to good managers, it is likely that the opportunities for generating exportable surpluses will be realized. In short, real land reform is alrnost a prerequisite for capitalizing on the opportunities suggested by the results on competitiveness for crop production. * Trade opportunities for the "specialty" crops, flax, fruits and vegetables, and even sugar, are similar to those for grains and oilseed. There is, however, a qualification. These specialty crops normally require processing for export. And, although current processing capacities (on the basis of historical throughput) appear adequate and expandable, there is substantial evidence of inefficiency. That is, attention will have to be given to the inefficient processing and distribution systems for these specialty crops in order to realize opportunities for the development of export, and more generally the concentration of agriculture resources in areas of low cost compared to nearby nations. * For animal agriculture, the trade implications are more difficult to assess. Calculations for gross and adjusted (to border prices) gross outlays indicate that these subsectors will likely be largely domestic in the near future. Like the specialty crops, there are a number of factors influencing the potential for the development of these sectors to access CIS and external markets. Again, the issue is the inefficiency of production processing and distribution. Substantial investment will be required to develop processing and distribution systems that are competitive for product quality and other characteristics with those now available from the developed market economies. * Transportation system integrity and low cost transport are important to expanded trade, even within the CIS. Although not a major part of this analysis, the data collected on transport suggest problems for expanded trade. These are; monopoly structures, state ownership, a lack of unified systems, and lack of necessary investment to improve efficiency. * Customs unions offer an opportunity to expand inter-republic trade. But, the CIS customs union should be viewed as transitional. Trade disciplines necessary for joining the WTO are consistent with the evolving market reforms. There are dangerous incentives for protectionism in the customs union approach to expanding trade. These should be recognized and monitored. 6.5 Thus, the implications for trade are double edged. There are indicators of potential for developing subsectors for export. These are primarily for specialty crops and grains and oilseed. Livestock products require processing. Processing facilities are antiquated and inefficient. These conditions have significant implications for trade potential and trade policy. As well, they have implications for the pace and depth of the economic reforms. 6.6 Customs unions of the CIS customs union is likely to be expanded and consolidated. This can be a short-term positive development, if the opportunity is taken to expand interregional trade and trading capacities. That is, the customs union can be positive in the short-run if it is used to prepare the countries for trade in the external market. The negative potential of the movement to a consolidated customs union is, however, significant. There will be pressures to isolate the CIS producers through the use of trade and other barriers. The customs union should be broad, include more countries, and be committed to a transition to more open trade. These responsibilities will lie heavily with Russia, the dominant partner. 44 Multi-Country Trade Study 6.7 Reducing protection makes consumers better off, an objective of trade policy. However, it puts agricultural producers at a decided disadvantage if land reform and asset markets are not functioning and if the processing and distribution sectors are not efficient compared to those in the competing countries. The implication is for gradual reductions in tariffs, accompanied by deeper institutional reforms that prepare the processing and distribution sectors and primarily the agriculture production systems for the competition that will be forthcoming. C. Recommendations 6.8 A number of recommendations that follow from these summary comments, and the previous analysis in this report as well as the more detailed Technical Reports (Belarus and Ukraine, 1995; Moldova, 1996). Most of these involve deeper institutional reforms, a more stable overall economy, liberalized prices, and trade policies that are more transparent and less protectionist. These reforms can stimulate domestic productivity and result in a domestic agriculture and food sector that is more internationally competitive. The recommendations are: * Accelerated progress on the deeper institutional reforms, e.g., privatization, competition policy, enforceable contracts, and taxation. If progress is not made in these areas (which will contribute to efficient asset and goods and services markets) more open trade with "external" nations may have undesired short-term effects. * More open trade with the CIS members is evolving. The customs union can be viewed as replacing inter-republic agreements that were carry overs from the FSU. In this sense, it is more transparent and open, and likely to yield improvements in economic performance. Also, these countries are more or less facing the same transitional problems. Thus, more open regional trade is likely to result in trade and specialization in the short run. * Subsidies continue to be important in agriculture. With the change of the instruments for delivering subsidies, they may have become less targeted. Credit subsidies issued to multi- product enterprises have commodity-specific impacts that are difficult to trace. The true gross cost of the subsidies should be made clear to the policymakers and the public. Effective analytical capacities for calculating and/or anticipating levels of subsidies could lead to improved targeting, the use of instruments that are less distorting, and fewer bad surprises from agricultural and trade policy. * A new government and bureaucratic culture will be necessary as the markets develop. The old culture will be severely tested as the deeper institutional reforms, which must occur for consolidation of the transition, are implemented. The government must take the role of a facilitator rather than a director in the case of resource allocation and distribution. Government must also deal more effectively with market failures, such as monopolies in the input manufacturing, processing, and distribution subsectors. * Markets go hand-in-hand with democracy. At the district and oblast levels in these countries, authoritarian practices remain. Democracy is not deep. And, the local authorities in agricultural communities, in many cases. maintain their leverage by participating in the Overall Summary 45 distribution of subsidies to agriculture and the processing and distribution industry (subsidies become more distorting). A first step is to design subsidy policies that essentially take these local authorities out of the loop. * With macroeconomic stabilization, concerns about the illegal transfer of capital through double pricing of exports should be reduced. Unreasonable hard currency regulations, excessive taxation, and poorly functioning asset markets (which reduce opportunities for foreign and domestic investment) are obvious targets. Minimum export prices, especially for agriculture commodities which have market prices and qualities that are highly variable, represent a major barrier to trade. Minimum prices should be replaced by other measures to address the reasons for their perceived necessity. * If countries choose to become more integrated in international markets, technology development and adoption become increasingly important. In all three countries, the educational and technology development and delivery systems that existed under the old system have more or less collapsed. There are two possible reasons. The first and more obvious is the stringent budget situation. The second and perhaps more subtle is the fact that the way that the educational, research, and delivery institutions were organized is not effective in the new economic environment. Structural reforms and new science and education policies must accompany integration into world markets if longer-term comparative advantage in agriculture and related sectors is to be maintained and enhanced. 6.9 To summarize, the recommendations on agriculture trade and trade policy, lead to priorities for deeper institutional reforms. Trade and agricultural policy can be modified to result in reductions in distortions associated with deliveries of subsidies, fuller integration of domestic and international markets, support of improved productivity, and adjustments in employment between agriculture and other sectors. But, these policies are unlikely to be successful unless they are accompanied by institutional reform. TABLE APPENDIX 48 Multi-Country Trade Stu Cable Appendix 49 Table Al. Indicators of supply and use for key agricultural commodities, Belarus, Moldova, Ukraine, and Russia, 1991-1995. Belarus Coarse Grain Year 1991 1992 1993 1994 1995 Area Harvested 2,349 2,426 2,480 2,517 2,430 (1000 ha) Yield (mt/ha) 2.45 2.77 2.8 2.29 2.16 1,000 Metric Tons Production 5,754 6,720 6,937 5,768 5,250 Food Use* 1,250 1,278 1,342 1,388 1,260 Feed 6,046 6,019 5,935 4,725 4,485 Moldova Coarse Grain Year 1991 1992 1993 1994 1995 Area Harvested 448 383 487 343 429 (1000 ha) Yield (mt/ha) 4.32 2.74 3.74 2.40 3.61 1,000 Metric Tons Production 1,934 1,048 1,819 824 1,549 Food Use 145 150 145 293 303 Feed 2,252 1,412 1,495 878 894 Russia Coarse Grain Year 1991 1992 1993 1994 1995 Area Harvested 33,504 33,363 32,085 30,250 28,100 (1000 ha) Yield (mt/ha) 1.38 1.67 1.59 1.50 1.24 1,000 Metric Tons Production 46,179 55,787 50,889 45,250 34,750 Food Use 15,100 15,100 14,800 14,501 12,647 Feed 44,233 45,580 39,363 29,492 27,230 Ukraine Coarse Grain Year 1991 1992 1993 1994 1995 Area Harvested 5,827 5,812 6,751 6,998 6,300 (1000 ha) Yield (mt/ha) 2.58 2.68 3.01 2.65 2.65 1,000 Metric Tons Production 15,058 15,585 20,289 18,526 16,700 Food Use 3,950 4,000 3,909 3.536 3,677 Feed 12,552 12.235 14,922 15.058 13,110 'Food. industrial. and seed use. 50 Multi-Country Trade Stu Table Al. Continued Belarus Wheat Year 1991 1992 1993 1994 1995 Area Harvested 86 106 119 118 165 (1000 ha) Yield (mt/ha) 2.81 3.11 2.97 2.12 2.12 1,000 Metric Tons Production 242 330 354 250 350 Food Use 970 1,015 894 715 650 Feed Use 415 273 227 223 200 Moldova Wheat Year 1991 1992 1993 1994 1995 Area Harvested 303 282 346 250 300 (1000 ha) Yield (mt/ha) 3.49 3.28 4.03 2.56 3.50 1,000 Metric Tons Production 1,057 926 1,393 640 1,050 Food Use 935 940 935 750 830 Feed Use 535 515 375 180 240 Russia Wheat Year 1991 1992 1993 1994 1995 Area Harvested 23,152 24,284 23,518 22,150 23,000 (1000 ha) Yield (mt/ha) 1.68 1.9 1.85 1.45 1.22 1,000 Metric Tons Production 38,900 46,170 43,500 32,100 28,000 Food Use 24,100 24,000 22,900 22,200 22,200 Feed Use 29.723 32.617 26.045 20.426 16.320 rable Appendix 5 Table Al. Continued Ukraine Wheat Year 1991 1992 1993 1994 1995 Area Harvested 7,023 6,329 5,748 4,507 5,500 (1000 ha) Yield (mt/ha) 3.01 3.08 3.80 3.07 3.00 1,000 Metric Tons Production 21,155 19,508 21,831 13,857 16,500 Food Use 10,500 10,450 10,401 10,472 10,400 Feed Use 12,469 11,370 9,810 5,390 6,300 Belarus Rapeseed Year 1991 1992 1993 1994 1995 Area Harvested 30 30 50 50 50 (1000 ha) Yield (mt/ha) 1.1 1.1 1 1 1 1,000 Metric Tons Production 33 33 50 50 50 Feed, Other Use 16 9 18 18 18 Russia Rapeseed Year 1991 1992 1993 1994 1995 Area Harvested 198 177 113 147 140 (1000 ha) Yield (mt/ha) 0.91 0.93 0.85 0.83 0.71 1.000 Metric Tons Production 181 164 96 122 100 Feed. Other Use 44 34 20 50 30 52 Multi-Country Trade Stuw Table Al. Continued. Ukraine Rapeseed Year 1991 1992 1993 1994 1995 Area Harvested 67 54 60 60 60 (1000 ha) Yield (mt/ha) 1.21 1.30 1.25 1.25 1.25 1,000 Metric Tons Production 81 70 75 75 75 Feed, Other Use 14 12 16 16 16 Moldova Sunflower Year 1991 1992 1993 1994 1995 Area Harvested (1000 127 145 140 120 120 ha) Yield (mt/ha) 1.33 1.36 1.37 1 1.33 1,000 Metric Tons Production 169 197 192 120 160 Food Use 0 0 0 0 0 Feed, Seed, & Waste 40 46 40 40 40 Russia Sunflower Year 1991 1992 1993 1994 1995 Area Harvested (1000 2,576 2,889 2,920 3,113 4,100 ha) Yield (mt/ha) 1.12 1.06 0.95 0.82 1.02 1,000 Metric Tons Production 2,895 3,073 2,765 2.553 4,200 Food Use 0 0 240 240 340 Feed. Seed. & Waste 694 730 250 230 380 rable Appendix 53 Table Al. Continued. Ukraine Sunflower Year 1991 1992 1993 1994 1995 Area Harvested (1000 1,578 1,630 1,640 1,650 1,660 ha) Yield (mt/ha) 1.55 1.40 1.34 0.97 1.27 1,000 Metric Tons Production 2,448 2,277 2,200 1,600 2,100 Food Use 0 0 0 0 0 Feed, Seed, & Waste 585 541 550 450 480 Belarus Sugar Year 1991 1992 1993 1994 1995 Area Harvested 45 51 55 55 50 (1000 ha) Yield (mt/ha) 25.6 21.9 28.4 19.6 24 1,000 Metric Tons Production 130 110 130 90 120 Moldova Sugar Year 1991 1992 1993 1994 1995 Area Harvested 80 83 74 74 74 (1000 ha) Yield (mt/ha) 28.3 23.9 30.4 18.9 24 1,000 Metric Tons Sugarbeet 2,262 1,973 2,250 1,400 1,800 Production Production 222 200 200 160 200 54 Multi-Country Trade Sti Table Al. Continued. Russia Sugar Year 1991 1992 1993 1994 1995 Area Harvested 1,395 1,435 1,333 1,104 1,090 (1000 ha) Yield (mt/ha) 17.4 17.8 19.1 12.6 17 1,000 Metric Tons Sugarbeet 36,168 28,783 33,717 28,138 33,00 production Production 2,200 2,5400 2,700 1,655 1,900 IJkraine Sugar Year 1991 1992 1993 1994 1995 Area Harvested 1,549 1,485 1,519 1,467 1,420 (1000 ha) Yield (mt/ha) 23.4 19.4 22.2 19.2 23.2 Sugarbeet 36,168 28,783 33,717 28,138 33,000 Production 1,000 Metric Tons Production 4,178 3,965 4,188 3,600 4,000 Belarus Pork Year 1991 1992 1993 1994 1995 Slaughter (1000 head) 4,804 4,648 3,855 3,605 3,533 1,000 Metric Tons Production 381 350 330 310 300 Table Appendix 55 Table Al. Continued. Moldova Pork Year 1991 1992 1993 1994 1995 Slaughter (1,000 head) 2,014 1,668 Production 160 124 Russia Pork Year 1991 1992 1993 1994 1995 Slaughter (1000 head) 40,223 37,200 31,400 41,100 35,300 Production 3,190 2,787 2,560 2,260 1,940 lUkraine Pork Year 1991 1992 1993 1994 1995 Slaughter (1000 head) 17,917 15,737 11,968 11,591 11,300 Production 1,421 1,185 1,013 910 825 Belarus Poultry Year 1991 1992 1993 1994 1995 Production 135 125 120 115 Moldova Poultrv Year 1991 1992 1993 1994 1995 Production 53 45 40 38 Russia Poultrv Year 1991 1992 1993 1994 1995 56 Multi-Country Trade Stu Production 1,751 1,577 1,490 1,170 1,100 Table Al. Continued. Ukraine Poultry Year 1991 1992 1993 1994 1995 Production 671 600 550 525 Belarus Egg (Million) Year 1991 1992 1993 1994 1995 Production 3,718 3,417 3,300 3,300 Moldova Egg (Million) Year 1991 1992 1993 1994 1995 Production 1,061 801 600 550 Russia Egg (Million) Year 1991 1992 1993 1994 1995 Production 47,132 42,552 39,000 37,400 35,100 Ukraine Egg (Mlillion) Year 1991 1992 1993 1994 1995 Production 15,188 13,445 12,000 11,500 9,500 Source: USDA; PS and D tables, April 1996. rable Appendix Table A2. Real procurement prices and gross outlays for major crops in Ukraine, Belarus, Moldova, and Russia, 1991-1994, 1991 rubles per ton. 1991 1992 1993 1994 Commodity Price Cost Price Cost Price Cost Price Cost Sugarbeet Ukraine 115 70 229 86 217 83 160 92 Belarus 182 114 439 154 412 181 351 220 Moldova 156 77 157 70 127 72 75 76 Russia 83 77 162 65 131 58 97 81 Sugar Ukraine 1280 1044 3097 2548 4493 2415 3184' 1914 Belarus 1801 1250 4693 4115 5955 5222 6364 5212 Moldova 1556 1720 1389 1870 1082 1750 - - Sunflower Seed Ukraine 900 200 1709 211 2237 240 1056 138 Belarus (rapeseed) 549 711 2799 551 2311 931 Moldova 826 350 1673 259 1088 254 676 341 Russia 837 250 1222 193 467 162 497 233 Sunflower Oil Ukraine 1589 1375 1042 1063 1908 3003 1135 765 Belarus (rapeseed) - - - - 9900 4213 4434 4977 Moldova 1970 1340 1380 840 1710 1670 - - Wheat Ukraine 453 135 1503 109 889 86 694 110 Belarus (grain) 448 212 880 203 685 245 589 283 Moldova 723 150 916 108 775 100 553 142 Russia (grain) 487 208 741 121 285 103 184 134 Corn Ukraine 536 183 538 238 1395 215 260 49 Moldova 1576 201 981 313 1128 259 553 538 Russia 420 - 904 - 718 - - - Flax Belarus 704 382 700 296 702 327 462 336 Linseed Belarus 2851 1038 2270 1147 1600 1121 1140 1115 Fruits Moldova 1486 768 895 574 390 346 324 449 Vegetables Moldova 700 547 521 420 460 453 471 540 Grapes Moldova 2082 1108 1313 687 351 522 574 505 'Retail instead of procurement prices. Source: Technical Reports (Belarus and Ukraine. 1995; Moldova, 1996). 58 Multi-Country Trade Stt Table A3. Real procurement prices and gross outlays for selected animal products in Ukraine, Belarus, Moldova, and Russia, 1991-1994, 1991 rubles per ton. 1991 1992 1993 1994 Commodity Price Cost Price Cost Price Cost Price Cost Pork (live weight) Ukraine 4666 4318 6029 4949 4746 4694 3177 2487 Belarus 5563 4130 6256 5118 5391 6730 5435 6769 Moldova 4868 4820 2993 5337 4151 7196 - 6860 Russia 4505 4920 2142 3758 3372 3530 2439 3870 Poultry meat (live weight) Ukraine 3800 3600 6489 5120 5329 5192 4487* 3778 Belarus 2624 2425 3727 3881 5234 4958 5554 5642 Moldova 4100 4090 2700 5577 3300 7086 - 5667 Russia 5333 4056 3038 3080 3404 3006 2739 3090 Eggs (thousand) Ukraine 200 135 322 169 314 163 263 172 Belarus (rapeseed) 208 100 216 174 276 218 325 276 Moldova 194 171 148 250 222 258 269 307 Russia 228 130 122 123 160 114 140 119 Beef (live weight) Ukraine 4900 - 4935 - 3072 - 1842 - Belarus 6421 4960 6408 4702 4506 5261 2889 5245 Russia 5084 5900 1540 3358 2181 3165 1482 3343 Milk Ukraine 700 - 760 - 603 - 359 - Belarus 692 583 437 506 573 383 494 Russia 817 711 359 423 414 381 321 406 Source: Technical Reports (Belarus and Ukraine, 1995; Moldova, 1996). 'Retail price. Table Appendix 59 Table A4. Real and adjusted gross outlays for crops and crop products in Ukraine, Belarus, Moldova, and Russia in 1991-1994, 1991 rubles per ton. 1991 1992 1993 1994 Commodity Cost Adj. Cost Cost Adj. Cost Cost Adj. Cost Cost Adj. Cost Sugarbeet Ukraine 70 315 86 379 83 120 92 343 Belarus 114 1244 154 356 181 262 220 199 Moldova 77 296 70 96 72 78 76 - Russia 77 - 65 - 58 - 81 - Sugar Ukraine 1044 4641 2548 6440 2415 2222 1914 4800 Belarus 1250 - 4115 - 5222 - 5215 - Moldova 1720 9580 1870 3520 1750 1930 - - Sunflower Seed Ukraine 200 1571 211 1913 240 475 138 523 Belarus (rapeseed) 549 - 711 - 551 - 931 - Moldova 350 - 259 - 254 - 341 Russia 250 - 193 - 162 - 233 - Sunflower Oil Ukraine 1375 3271 1063 4683 3003 1221 765 1246 Belarus (rapeseed) - - - - 4213 - 4977 - Moldova 1340 - 840 - 1670 - - - Winter Wheat Ukraine 135 402 109 408 86 147 110 434 Belarus (grain) 212 4897 203 1035 245 881 283 708 Moldova 150 787 108 182 100 108 142 - Russia (grain) 208 - 121 - 103 - 134 - Wheat Flour Ukraine 491 498 1207 656 1767 525 1316 437 Corn Ukraine 183 678 238 1017 215 1415 49 - Moldova 201 - 313 - 259 - 538 - Flax Belarus 382 12685 296 2017 326 898 336 720 Flaxseed Flaxseed 1038 68558 1148 18826 1122 8001 1115 3567 Source: The World Bank. Technical Reports (Belarus and Ukraine, 1995; Moldova, 1996). 60 Multi-Country Trade Sti Table AS. Real and adjusted gross outlays for animal products in Ukraine, Belarus, Moldova, and Russia in 1991-1994, 1991 rubles per ton. 1991 1992 1993 1994 Commodity Adj. Adj. Adj. Adj. Cost Cost Cost Cost Cost Cost Cost Cost Pork (live weight) Ukraine 4318 39715 4949 29655 4694 12153 2487 4499 Belarus 4130 65372 5118 15159 6730 16838 6770 1483 3 Moldova 4820 12100 5337 7654 7196 8994 6860 - Russia 4920 - 3758 - 3530 - 3870 - Poultry Meat (live weight) Ukraine 3600 6489 5120 46641 5192 19500 3778 7808 Belarus 2425 - 3881 - 4958 - 5642 - Moldova 4100 16100 5577 7967 7086 8039 5667 - Russia 4056 - 3080 - 3006 - 3090 - Eggs (rubles/1000 eggs) Ukraine 135 1590 169 1530 163 611 172 350 Belarus 100 - 174 - 218 - 276 - Moldova 171 - 250 - 258 - 307 - Russia 130 - 123 - 114 - 119 - Beef (live weight) Belarus 4960 94341 4702 27564 5261 28602 5245 2541 4 Russia 5900 - 3358 - 3165 - 3343 - Milk Belarus 583 - 431 - 573 - 494 - Russia 711 - 423 - 381 - 406 - Note: Calculations of adjusted cost in the different Technical Reports made utilizing slightly modified methods and assumption on input prices, due to data availability. Source: Technical Reports (Belarus and Ukraine, 1995; Moldova, 1996). Table Appendix 61 Table A6. Agricultural imports from non-CIS countries for Belarus, 1991-1994 (1,000 tons). & change 1991-1994 (or Commodity 1991 1992 1993 1994 1991-1993) Animal products Animal fats 5.4 -- - Fruit Fresh fruit & berries 5.6 2.3 4.8 5.0 -10.7 Tropical products Coffee 0.8 -- -- -- Tea 80.0 -- -- -- Grain & grain products Wheat and/or wheat-rye mix 824.0 859.0 348.0 370.0 -55.1 Rye -- 627.0 0.9 -- Barley 420.0 901.0 121.0 -- -71.2 Corn 1,209.0 399.0 276.0 37 -96.9 Rice 63.9 -- -- -- Wheat flour -- 131.0 117.0 -- Oilseeds & products Vegetable oils 21.9 12.0 52.4 40.3 84.0 Soybean oil -- -- 19.3 -- Sunflower oil -- -- 17.6 -- Oilcake and meal -- 131.0 117.0 -- Sugar & confectioneries Raw sugar 218.4 0.5 23.5 -- -89.2 White sugar -- 142.0 208.0 200.0 40.8 Cocoa beans 1.1 -- -- -- Processed fruit & vegetables Processed vegetables -- -- 2.3 -- Jams, preserves, etc. -- 0.5 5.1 -- Source: USDA, Economic Research Service, Trade Statistics, 1995; Technical Report (Belarus, 1995). OECD. Review of Agricultural Policy, Market and Trade Development in Belarus in 1995. 62 Multi-Country Trade Stid Table A7. Agricultural imports from non-CIS countries for Moldova, 1991-1994 (1,000 tons). % change 1991-1994 Commodity 1991 1992 1993 1994 (or 1991-1993) Animal products Milk & milk products 9.1 - - 0.1 Vegetables Potatoes 33.2 - - 9.7 Grain & products 1,265.0 361.7 379.2 60.5 Wheat - - - 25.4 Barley - - - 0.1 Corn - - - 34.9 Wheat flour 39.4 - - - Sugar & confectioneries Sugar - 0.9 1.9 0.1 Raw sugar 64.0 - - - Source: USDA, Economic Research Service, Trade Statistics, 1995. Technical Report (Moldova, 1996). Table Appendix 63 Table A8. Agricultural imports from non-CIS countries for Ukraine, 1991-1994 (1,000 tons). % change 1991-1994 (or 1991-1993) Commodity 1991 1992 1993 1994 Animal products Meat & meat subproducts 96.1 - 24.0 5.0 -96.0 Animal fats 12.4 - - - 7.8 2.0 - 1.7 Milk and milk products Vegetables Potatoes 62.9 7.6 0.7 4.0 Vegetables, fresh/processed - 2.1 0.0 4.8 Fruit Fresh fruit & berries 19.2 -- -- 19.3 0.5 Tropical products Coffee 4.7 -- -- -- Tea 7.5 -- Grain & grain products Wheat 1,324.5 -- 42.9 -- -96.8 Barley 75.0 -- -- -- Corn 809.0 -- 1,199.5 -- 48.3 Rice 42.0 -- 30.2 -- -28.1 Groats 113.6 -- -- -- Oilseed & products Vegetable oils 11.2 -- -- 1.7 -84.8 Sugar & confectioneries Raw sugar 701.7 -- -- -- Refined sugar 1.5 0.7 7.5 1.4 Confectionery products -- -- 6.0 11.7 Cocoa beans 4.4 ---- -- Source: USDA. Economic Research Service. Trade Statistics, 1995. Technical Report (Ukraine. 1995). 64 Multi-Country Trade Stu Table A9. Agricultural imports from non-CIS countries for Russia, 1991-1994 (1,000 tons). % change 1991-1994 Commodity 1991 1992 1993 1994 (OR 199 1-93) Animal products Fresh/frozen meat 516.7 288.1 85.1 358.4 -30.6 Poultry 88.8 45.7 73.9 495.9 458.4 Fresh/frozen fish 546.0 40.7 43.5 221.5 -59.4 Condensed and/or dry milk 76.9 49.7 14.6 33.5 -56.4 Butter 153.1 25.0 70.1 102.6 -33.0 Cheese 9.1 7.7 -- -- Sausage 16.0 3.5 15.6 -- -2.5 Meat conserves 139.2 150.0 167.2 201.0 44.4 Vegetables Potatoes 509.6 141.5 7.0 54.3 -89.3 Onions, garlic 12.6 54.8 13.3 139.8 1009.5 Cabbage -- 9.8 -- -- Frozen vegetables -- 5.0 -- -- Fruits and nuts Bananas, fresh or dried 7.5 1.6 19.0 -- 153.3 Dates, fresh or dried 4.9 10.0 14.2 17.3 253.1 Raisins 14.3 6.6 -- -- Apricots, dried 10.1 -- -- -- Apples 155.9 79.2 81.4 260.6 67.2 Citrus Fruit 266.0 42.6 172.5 609.0 128.9 Oranges 167.7 33.1 108.0 -- -35.6 Grapefruit 78.2 -- -- -- Mandarins -- -- 21.0 -- Lemons 14.3 8.1 29.1 -- 103.5 Nuts 8.8 5.7 4.4 -- -50.0 Cashews 2.9 -- -- -- Almonds 2.7 1.3 -- -- Hazelnuts 3.2 3.0 -- -- Tropical products Coffee 44.9 34.7 12.9 27.5 -38.8 Tea 143.3 47.4 55.4 84.6 -41.0 Spices 12.8 4.7 3.6 -- -71.9 Grain & grain products Wheat 10,689.0 17.593.0 5.699.0 1,180.0 -89.0 Rye -- 1.773.0 317.0 Barley 2.882.0 3,967.0 655.0 15.2 -99.5 Corn 5.457.0 5.490.0 4.391.0 864.0 -84.2 Rice 321.6 6.7 43.4 - -86.5 Table Appendix 65 Table A9. Continued. Wheat flour 555.9 944.0 53.7 13.2 -97.6 Corn groats -- 72.7 95.3 -- Rice groats 206.5 495.5 181.1 4.4 -97.9 Starch 12.4 -- -- -- Baby food 16.4 12.0 4.2 -- -74.4 Macaroni products 71.8 342.0 129.0 -- 79.7 Baked goods (cookies, etc.) -- 8.1 26.6 -- Oilseed & products Soybeans 169.6 67.6 - - Peanuts 35.5 - Sesame seeds 107.9 - - - Oilseed meal and cake 486.7 1,929.5 934.0 91.9 Soybean oil 56.7 223.6 32.1 20.7 -63.5 Olive oil 6.2 12.2 9.4 - 51.6 Sunflower oil 33.1 181.4 51.5 53.2 60.7 Palm oil 75.0 - - - Coconut oil 29.9 5.1 Rapeseed oil -- 41.1 -- -- Margarine 2.5 14.0 10.2 -- 308.0 Sugar & confectioneries Raw sugar 3,171.0 2,137.0 1,667.0 1,081.0 -65.9 White sugar 97.8 1,554.0 1,442.0 369.0 277.3 Confectionery products 5.7 27.0 59.2 -- 938.6 Cocoa beans 17.5 24.0 21.8 57.8 230.3 Chocolate & chocolate products 1.4 5.0 39.4 213.1 15121.4 Processed fruit & vegetables Canned vegetables and fruits 12.2 25.9 69.0 -- 465.6 Ketchup & sauces 7.6 2.0 -- -- Soups and bullion 5.5 4.2 -- Jams, marmalades & spreads 14.3 19.0 40.2 -- 181.1 Fruit & vegetable juices 28.3 9.4 189.3 383.5 1255.1 Coffee extracts & concentrates 11.6 4.8 17.1 -- 47.4 Beverages Beer 1,554.0 6,354.0 8,910.0 -- 473.4 Wine 7,833.0 6,703.0 2,030.0 -- -74.1 Vodka I.1I1.0 7,193.0 308.0 -- -72.3 Mineral water/non-alcoholic bev. 260.0 8,537.0 112.0 -- -56.9 Source: USDA, Economic Research Service, Trade Statistics, 1996. Technical Reports (Belarus and Ukraine. 1995: Moldova, 1996). 66 Multi-Country Trade Stu Table A10. Agricultural exports to non-CIS counties for Russia, Ukraine, Belarus, and Moldova, 1991-1994 (1,000 tons). % change, 1991-1994 or Country 1991 1992 1993 1994 1991-1993 or 1992-1994 Russia Animal products Meat and meat products 1.0 2.7 0.7 2.3 139.6 Fresh/frozen fish 413.0 444.7 1,061.0 1,332.5 222.6 Butter and animal fats 35.9 6.4 -- 0.1 -99.7 Dry or condensed milk - 7.7 13.4 53.0 588.3 Eggs - 8.1 -- -- Cheese 3.2 0.9 -- -- Honey 5.4 1.3 -- -- Fish and seafood conserves 19.5 17.6 8.1 -- -58.5 Meat conserves 10.3 -- -- -- FLruits and nuts Treeberries, fresh or frozen -- 12.0 -- -- Cranberries, fresh 4.3 -- -- -- Hazelnuts 2.5 -- -- -- Walnuts 2.0 -- -- -- Spices -- 2.5 -- -- Grain & grain products 211.4 5.1 14.9 320.0 51.4 Wheat 165.3 2.7 1.8 18.6 -88.7 Rye 42.5 -- - -- Barley -- 1.8 2.5 264.0 14566.7 Corn 0.6 10.6 13.9 2216.7 Rice 28.6 11.3 -- -- Wheat flour 7.6 1.6 1.6 16.4 115.8 Rice groats 14.8 1.6 0.1 13.2 -10.8 Macaroni products -- 0.2 0.5 2.1 950 Oilseed & products Soybeans -- 22.5 -- Sunflower seed 169.4 169.2 125.0 - -26.2 Sunflower oil 29.1 0.3 0.1 56.9 95.5 Soy oil - 1.5 - 0.1 -96 Margarine 3.4 -- Sugar & confectioneries White sugar 19.5 6.2 0.1 6.1 -68.7 Processed fruits & vegetables Canned vegetables and fruits 2.8 -- -- - Fruit and vegetable juices - 6.6 5.1 11.9 80.3 Apple juice 10.0 6.4 - -- Table Appendix 67 Table A10. Continued Beverages Wine 2,641 -- -- -- Vodka 1,789 2,333 3,683.0 -- 105.9 Spirits -- 94.2 118.0 -- Mineral water 386.0 -- -- -- Ukraine Animal products Meat & meat subproducts 5.4 0.0 0.0 19.8 266.7 Milk and milk products 62.8 4.0 7.0 10.0 Animal fats 4.2 -- -- -- Fish and fish products 121.1 -- -- -- Vegetables, fresh/processed - 2.1 3.8 5.9 Vegetable oils 117.0 48.0 15.9 81.4 White sugar 0.0 3.4 0.6 45.2 Beverages Wine 19.5 -- -- -- Vodka 21.1 -- -- -- Belarus Animal products Live cattle -- 6.3 0.9 -- Meat and meat products 1.2 9.2 -- 0.2 Animal fats 2.4 -- -- -- Milk, condensed or noncondensed -- 10.4 5.0 2.4 Cheese -- 1.1 1.1 -- Vegetables, fruits, and berries Fresh vegetables 0.2 6.5 2.8 3.0 Fresh fruit & berries 0.2 0.5 0.5 0.5 Grain & oilseed products Mixed feed ingredients -- 21.0 -- - Moldova Animal products Eggs 12.9 6.9 2.9 2.2 -89.2 Meat & meat products 0.09 0.37 0.23 8.6 Animal fats - - - 0.1 Fruit juices - - 29.6 Sunflower seed 0.5 0.4 17.5 Wine 28 163.9 153.8 Canned fruit 0.05 1.38 39.54 Vegetable oil 2.5 - - 6.9 Sugar - - 01 69.3 Source: USDA. 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