Capitalism and Russia's daily bread

Issue 

In the final years of perestroika, when there was little in Soviet shops except bare shelves and bored salespeople, Russians could still comfort themselves: at least you could always get bread. In four or five varieties, at prices so low they are almost painful to remember: about 25 kopecks (at the time, a few US cents) for a half-kilo loaf.

Wrathful newspaper articles used to claim that peasants were exploiting the cheapness of the traditional Russian staple, and using bread to fatten pigs. The former Soviet President Mikhail Gorbachev scored his compatriots for failing to value bread sufficiently, recalling how he had observed boys using a loaf of bread as a substitute for a football.

It was during those years that controls on the Soviet press were first loosened, then dropped altogether. Pro-capitalist journalists were able to refer sarcastically to the Soviet Union's huge grain imports, and to the heavy subsidies needed to make cheap bread freely available. Under the market system prior to the World War I, readers were reminded, Russia had been a major grain exporter!

How times change. Capitalism has returned to Russia, and in the first half of November Muscovites were being terrorised with predictions that early in 1996 bread would cost 10,000 roubles (about US$2) a loaf. Leonid Cheshinsky, head of the state grain corporation Roskhlebprodukt, reportedly cited this figure — which would represent a quadrupling of the price of bread in less than three months — at a Moscow city government session on October 31.

Quite untrue, a spokesperson for the Moscow city government's food resources department retorted. The real price in January of a typical half-kilo loaf of white bread would be about 3000 roubles, up from around 2500 roubles early in November.

The same official had to admit, however, that bread prices in the Russian capital had been rising during the autumn at 8 to 10% each month, compared with general monthly inflation of 4 to 5% Other sources indicated that if the market were allowed free play in determining bread prices, these prices would at least double in the near future. A writer for the business paper Finansovye Izvestiya noted that the cost of grain accounted for about 30% of the price of bread in Russia, compared with 8-10% in the West; on this basis, current world grain prices would translate into prices for Russian bread of more than 5000 roubles (US$1) a loaf.

For scores of millions of Russians, this suggested, bread would soon cease to be a staple and become a luxury item. For the country's rulers, already facing ballot-box revolt in the parliamentary elections due on December 17, the thought must have been numbing.

Grain shortage

Grain in Russia these days has taken on the character of a scarce and diminishing resource. The 1995 harvest is now almost complete, and according to Finansovye Izvestiya, the final tonnage will be 23% less than last year's mediocre crop. Yield per hectare will be almost 25% below the Soviet-era average for 1986-90. Drought during last spring and summer is only part of the reason; also of fundamental importance has been the inability of farms to afford machinery, fuel, seed and fertiliser.

In theory, this situation is not the immediate business of the federal Russian government. The problems of ensuring food supplies in Russia are now supposedly resolved by the "invisible hand" of the market, with central state agencies playing only an incidental role. Commercial organisations buy grain from farms and sell it to private milling firms or to local government authorities.

The "invisible hand", however, has turned out to be more like a clenched fist. Early in October the economist Yevgenia Serova, head of the division of agrarian policy at the liberal Institute for the Economy in Transition, warned: "Financial structures — many banks and financial corporations — are now accumulating grain stocks, buying both abroad and inside the country. They can monopolise the market this year, and they will accelerate prices".

Reserves

The main potential obstacle faced by speculators out to corner the Russian grain market is the continued existence of federal grain reserves. These reserves are supposed to be maintained through state purchases from farms, and are used to provide back-up stocks for major cities, as well as to supply the army, government agencies and remote regions such as the arctic north.

However, funding for centralised grain buying this year has been cut to a trickle. On November 1, agriculture minister Alexander Nazarchuk told a news conference that instead of a targeted figure of 8.5 million tons, the federal reserves currently contained only 800,000 tons. Partly as a result of low reserve stocks Russia's second-largest city, St Petersburg, was reported in October to be facing an acute shortage of grain for its bakeries.

At least in theory, the problem of price-rigging by private trading firms could be circumvented through imports. But the federal government insists it will have no money to buy grain on the world market in 1996, and Russian milling firms and local authorities generally lack both the expertise and the credit lines needed to import on their own account. Meanwhile, chance has struck another malign blow: strong demand and a poor crop in North America have driven world wheat prices to their highest level in 15 years.

With imports a dubious possibility in most of Russia, it remains to be seen whether the country's hard-up population will be able to pay the prices the grain speculators are demanding. If they cannot, the answer for the traders is simple: export, to the world market where prices are sky-high and customers are waiting.

On November 2 the English-language Moscow Tribune quoted agriculture minister Nazarchuk warning that despite the shortages and the poor harvest, Russian grain was likely to be shipped abroad to markets that could pay for it.

If that happens, liberal ideologues will presumably express delight that the return of capitalism is again allowing Russian grain to be sold on world markets, just as in pre-revolutionary times. However, the market-worshippers would probably be happier if the historical parallels were not explored in too great a depth.

The boom in Russian grain exports in the late nineteenth century coincided with a marked decline in the nutrition levels of the Russian population. The exports continued during years of catastrophic famine.

No-one is predicting that barricades will go up in the streets of Russian cities if bread prices explode in the next few months. But one politician who is not taking any chances is Moscow Mayor Yuri Luzhkov.

Perhaps reflecting on the consequences if his 9 million constituents were to turn into bread rioters, Luzhkov has curbed his free-market rhetoric and beaten a careful retreat on the issue of food supplies. On November 17 it was announced that the Moscow city government would spend the equivalent of US$12 million to import wheat from Ukraine, Kazakhstan, Hungary and the former Yugoslavia. Earlier, an order was issued limiting one-time price rises for bread and some other goods in the Russian capital to 5%.