USSR grain imports: past and future

1For example, Mr Brezhnev presenting the 1982 Food Programme in a speech on 24 May of that year: 'The draft proceeds from the need to reduce imports of foodstuffs from capitalist countries. The interests of the country demand that we should have adequate food and fibre resources of our own which would put us beyond the reach of chance. At the same time, as you know, the leadership of certain states is striving to turn ordinary commercial operations such, for example, as grain sales, into a means of putting pressure on our country, into an instrument of political pressure. We have never put up with that, nor are we going to do so.' 2Between 1951 and 1970 the trend in net agricultural output more than doubled, but since then it has been virtually flat. As regards the risks of unrest, the Kremlin may have feared that some Polish food riots in the 1970s would be catching. A more direct reminder appears to have come in 1980 when food protests were reported in major factories in Togliatti and other Soviet cities. (David Satter, Moscow Correspondent, Financial Times, 2 July 1980.) 3In case comparison should be made with the gold estimates derivable from Dr Bor- sody's Tables 1 and 4, it should be noted that 1980 was an exception with sales of only some 90 tonnes, worth around $0.7 billion.

George Allen is a consultant to agribusi- ness and to national and international government organizations. He was Profes- sor of Agricultural Economics at the Uni- versity of Aberdeen in 1971-76, and is a former Director of Economic Planning, Agricultural Chemicals Group, for W.R. Grace, New York. He can be contacted at West Woodlands, Newton Tracey, Barn- staple, EX31 3PP, UK.

This note is an introduction to the following three articles on USSR grain imports, Dr Ennew and Dr Borsody give distinctly different econometric interpretations of the behaviour of annual imports over the last 25 years, while Dr Cook considers the prospects for the recovery of domestic production and the implications for imports to 1990.

Before 1972/73 (July/June) international trade in grains and livestock products played a generally insignificant role in the feeding of the Soviet people, one year with another. Even the decision in 1965 to import sufficient feed, to avoid repeating the long-standing policy of slaughter- ing livestock in the face of periodic harvest failure, left the Soviet Union as marginally a net exporter of grains in 1961/62-1971/72. By contrast the large 21 million tonnes of grain imports in 1972/73 was the beginning of 15 years in which the USSR has been a major net importer of grain, peaking at 55 million tonnes in 1984/85 (USDA estimate), as well as increasing imports of livestock products substantially, in both cases almost entirely from the West. The changes for grain can be seen at various places in the following articles, such as Ennew Figure 2 or Borsody Table 2.

To this day the Soviet Union is not happy to rely on large net imports of temperate-zone feed and foods despite its probable gain in terms of comparative advantage, even at today's relatively low real prices for its principal export to the West - energy. Periodic major policy statements have reaffirmed the autarchic inclination. ~ The large imports of the last 15 years have reflected both a need and an opportunity - the need to raise per capita food consumption substantially in the face of a stagnant agriculture and probably of fears that failure could lead to serious social unrest; 2 and the opportunity provided firstly by a declining real unit cost of grain imports and secondly by the strong improvement in the net barter terms of trade, following principally from the post-1973 and post-1979 increases in international energy prices and also from the post-1971 transformation of the gold market, as well as favourable raw material export prices for most of the period.

As can be seen in Borsody Table 2, the real annual import price of cereals has fluctuated substantially from 1969 onwards and has been low after 1975, especially in 1980-85.

In 1970 energy represented some 16% of total Soviet net exports, rising to 31% in 1975 and 47% in 1981. By 1981 total energy exports were $38 000-$40 000, as against $2000 in 1970. Sales of energy outside C O M E C O N yielded some 30% of hard currency earnings in 1970, rising to some 60% in 1976 and then to around 80% in 1980-84. The values of annual gold sales are not easily measured and estimates often differ substantially. However, a broad indication of the change are estimates of not more than $100 million in 1970-71, rising to around $1100 million in 1973 and then generally much higher, reaching perhaps $2000 million in 1981 and $3000 in 1982. 3

International price developments in energy, other raw material and in grains have given the USSR the extremely favourable and, as will be

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USSR grain imports: past and future

seen below, analytically critical improvements in the net barter terms of trade 4 and in the real price of imported cereals, both of which Dr Borsody discusses and sets out in his Table 2. His Tables 1,3 and 4 give other background on the substantial changes in the pattern and scale of Soviet trade with the developed market economies, including the fivefold increase in the real value of merchandise exports between 1970 and 1982.

4Also called the commodity terms of trade, ie the price index of exports divided by that for imports. SSee my review in Food Policy, Vol 9, No 2, May 1984, pp 172-174. 6D. Gale Johnson and Karen McConnell, Prospects for Soviet Agriculture m the 1980s, Indiana University Press, Bloomington, IN, USA, 1983. r Joint Economic Committee of the US Congress, Soviet Economy in the 1980s: Problems and Prospects, Part 2, USDA staff presentation on US-USSR Grain Trade, December 1980, pp 41-59. 8padma Desai, 'Soviet grain and wheat import demands in 1981-85', American Journal of Agricultural Economics, May 1982. 9Elizabeth Clayton, 'Rising demand and unstable supply: the prospects for Soviet grain imports', American Journal of Agri- cultural Economics, December 1985. mReaffirmed in the 1982 Food Pro- gramme. ~Desai, op cit, Ref 8. Wbid.

Explanations of import growth Outside the financial and business press and the periodic studies for the Joint Economic Commit tee of the US Congress, little detailed attention has been paid to the foregoing economic factors, either in interpreting past imports or in projecting their future. They are entirely omitted in some important studies, such as the O E C D Prospects for Soviet Agricultural Production and Trade 5 and in Professor D. Gale Johnson's assessment of the outlook for production and imports in the 1982 study he co-authored. 6 They are barely mentioned in the annual reviews of USSR agricultural production and trade by the Economic Research Service of the U S D A prior to an item in the May 1986 report , even though the evidence of the same group of analysts to the US Congress indicates their awareness of the critical influence of foreign exchange availability. 7 Desai considers the use of an international price variable for cereals and concludes by relating the author 's projections of imports to her expectation that there would be adequate foreign exchange to finance them. ~ However , as indicated by Dr Borsody, she rejects the importance of the price variable and uses an equation which, in effect, has a time trend as a proxy for this or other international economic influences. Clayton has a similar approach. ~

The reasons for these gaps in interpretation are not always clear. However , as Dr Borsody notes, many analysts seem to have seen the growth of agricultural imports solely as the consequence of the government ' s policy decision in 19711° to improve standards of food consumption and to maintain livestock inventories. In this interpreta- tion the food consumption targets are determined as an overriding priority more or less independently of the performance of domestic agriculture or of international trading opportunities or difficulties. Imports become virtually or entirely the sole short-term and medium- term balancing item - the domestic supply-demand balance approach cited by Dr Ennew from Desai.ll

This approach is incomplete. The policy decisions were a necessary, but not a sufficient, condition for the agricultural imports of the last 15 years.

Dr Borsody's article is the first comprehensive econometric analysis to isolate the contributions of the underlying international influences and to demonstrate how they have combined to favour post-1971 food consumption policy. Like Gaul, his article falls into three parts:

(1) Equations (1)-(3) restate and revise the main analysis in Desai. 1: The dummy variable originally used to represent the 1971 policy change is shown to become statistically insignificant when data for five additional years, 1981-85, are included. In any case, the identified time trends reflect and are proxies for omit ted economic factors.

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USSR grain imports: past and future

13Equations (5) and (6) are sufficiently close to infer this conclusion from Table 5. ~4However, a qualification should be added. As Dr Borsody will appreciate, the demand responses measured by the equations would quite likely be no longer valid if any fundamental changes in domestic production or in the international economic factors took the USSR's pur- chasing power for cereal imports in relation to annual food targets far outside the experience of 1961-85. For example, if their combined effect were so favourable that the USSR could significantly exceed these targets, there would likely be a shift of the 'supplementary' foreign exchange to other purposes or a reduction in net exports of energy or other items rather than more grain imports. A converse adjustment would likely result if they were so unfavourable that per capita food con- sumption was threatened to fall substan- tially below the annual targets. In either case, the implicit general policy assump- tions of Dr Borsody's analysis would no longer apply fully, and the response coeffi- cients (and elasticities) would likely be much greater than his estimates. There is little chance of such extreme scenarios developing in at least the next five years.

(2) Equations (4)-(6) are the basis of his own analysis, which test the influences on annual grain imports of four independent variables - the prior year's domestic production, the real international cereal price index (actual index divided by the price index of USSR exports), an index of the USSR's commodity or net barter terms of trade with developed market economies, and an index of USSR livestock production (dropped after the initial test). Tables 5 and 6 and Figure 1 summarise the main conclusions.

(3) The third section, centred on Equations (7) and (8), seeks to measure the ultimate, longer-term effect on imports of a once-for- all change in either domestic production or the real international price of cereals, assuming all other influences unchanged. Tables 7-9 and Figure 2 relate to this analysis.

In the present introduction it is sufficient to concentrate on the second part. Equations (4) and (5) have weaknesses noted by Dr Borsody, but are still satisfactory. The standard Generalized Least Squares refine- ment used to produce Equation (6) gives an extremely strong econometric result, both in statistical tests and economic plausibility. It demonstrates that the real international price of cereals and the terms of trade, especially the former, are likely to have been far more important than changes in domestic grain production, in determining the levels of cereal imports in the last 25 years. In 1961-85 the cereal price accounts for over 50% of the annual variations in imports, the terms of trade for around a third, and domestic production for most of the balance. 13

Figure 1 illustrates the generally very good fit obtained with Equation (6), as does footnote 17 below which is developed partly from it. The three conclusions with which Dr Borsody ends his paper are most important and completely convincing. 14

Dr Ennew has a totally different objective, namely to develop a model which will 'recognize explicitly the role of the planning process in determining import requirements' . The levels of annual cereal imports are seen as determined by four independent factors the pre-harvest expected difference between likely production and domestic grain requirements, the unexpected post-harvest difference between actual and expected production, a hard currency/world price term, and a dummy variable to catch the 1971 policy change. The expected and unexpected differences in grain production are shown in her Table 4.

Dr Ennew argues that the grain production targets in the official plans 'are most appropriately viewed as statements of domestic grain requirements' . This may be a reasonable approach. However, it should be noted that in 1980-84 total annual grain availability from production and trade averaged only 217 million tonnes, with stocks being marginally increased, as against the Plan production (Dr Ennew's requirement) target of 239 million tonnes, even though this was an economically favourable period for imports, as Dr Borsody's indicators show. By 1980 Soviet planners were probably well aware that climatic influences were likely to be less favourable than implicit in the official Plan and may have scaled down their grain requirement targets. A growing awareness of the potential for increasing forage output may have worked in the same direction, as also for cheap imports of livestock products. If so, this point does not invalidate Dr Ennew's analysis. Appropriate adjustments, admittedly judgemental, for recent year requirements would change values in her equations, but the net effect

92 FOOD POLICY May 1987

lSA backward calculated trend with a changing period would have been prefer- able, eg 1950-59 for 1960, 1950-60 or 1951-60 for 1960, or longer periods and so on. ~61n this context annual changes in the price of gold become significant and ideally should be tested as an additional foreign exchange variable notwithstanding the measurement difficulties. The gold factor is much less critical in an analysis stressing the longer-term trade factors. 17The following estimates are read off the two charts. Some minor errors are inevit- able, but every effort has been made to avoid bias one way or the other between the two articles.

Deviations of actualfrom calculated impo~s (million tonnes).

Ennew Borsody

1961 -6 -5 1962 -4 5 1963 0 1 1964 3 3 1965 0 0 1966 7 2 1967 -2 0 1968 1 2 1969 2 2 1970 -2 -1 1971 -8 -5 1972 6 7 1973 8 6 1974 -7 -2 1975 0 2 1976 -1 0 1977 -5 -2 1978 0 0 1979 -2 0 1980 2 3 1981 4 1 1982 -4 -4 1983 0 -2 1984 14 6 1985 -5 3 To~ldeviat~ns ~ons Onored) 1961-70 27 21 1971-85 66 39

The authors' different sources, respective- ly USDA and FAO, should not affect their comparative results.

181 should hesitate to challenge the USDA's formidable base on this matter. However, was not a summer drought balanced by a favourable spring and good harvesting weather? 19probably much less than the average 38 million tonnes of 1981-85. C. Beaucourt ( 'Les perspectives des achats ceraliers de I 'USSR, apres le 27me Congres du CCPC', Economie Rurale, No 173, 1986) puts net imports at 25 million tonnes in 1990, which seems on the high side.

USSR grain imports: past and Jumre

would more likely be a slight strengthening, rather than any weakening, of the statistical results.

Expected production is taken as a linear time function, as indicated at the beginning of her section on estimation. This procedure poses a conceptual problem since it appears to rest on a single function calculated over the whole 26 years, implying that the earlier the date the more planners were influenced by experiences they had not yet had and could not foresee. ~5 However , this is not a serious problem. It may mean that the balance of influences between expected and unexpected differences in production are somewhat misrepresented, but not their combined effects.

The hard currency/world price term is the world market price of wheat deflated by an index made of the ratios of total annual Soviet trade values for exports and for imports. This index may give a reasonable measure of year-to-year changes in the relative availability of hard currency, ~' but it effectively excludes the major international influence discussed above and mentioned at several points in Dr Ennew's article.

Even with the caveats noted earlier, the results shown in Table 3 are statistically well based. However , they are not so strong as those obtained in Borsody Equation (6), shown particularly by the respective R-squares and the closeness of fits in Ennew Figure 2 and Borsody Figure 1. w

But, a much more fundamental problem of interpretation seems to remain. With or without the modification of 1981-85 grain requirements discussed above, Dr Ennew has clearly established a close association between this variable and expected and unexpected differences between it and actual domestic production. But she does not establish how this association has come to be realized, ie how the USSR could afford the necessary imports rather than reduce its requirement targets. This consideration takes us back to the independent variables of Dr Borsody's model, plus the roles of livestock product import prices, gold sales and periodic forced sales of other raw materials.

Without any disregard to its importance, Dr Cook 's review of the prospects for Soviet grain imports in the rest of the decade may be more briefly introduced. One might disagree on points of detail - for example, giving more emphasis to the farm price incentives introduced in March 1986, or wondering whether last year 's crop improvements were obtained 'despite weather conditions which were generally evaluated as being unfavourable 'Is - or wish for more than the one line reference to international prices of energy and grain. This said, the analysis rightly emphasizes the scope for increasing the operating efficiency of agriculture and related sectors, and the measures being taken to exploit it. Others, as well as myself, will agree with his general conclusion that the USSR is likely to import less grain during 1986-90 than it did in 1981-85. m

General conclusion

An explicit consideration of the principal international economic factors should be for the time being a sine qua non in any analysis on the outlook for net imports of grain by the Soviet Union.

George Allen Bamstaple, Devon, UK

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