Full text of "Current agricultural situation in Russia : hearings before the Subcommittee on Foreign Agriculture and Hunger of the Committee on Agriculture, House of Representatives, One Hundred Third Congress, first session, March 30, 31, and April 1, 1993"

See other formats

. r. CURRENT AGRICULTURAL SITUATION IN RUSSIA

Y 4. AG 8/1:103-9

Curreit Agricultural Situatioa in R...

nr^ARINGS

BEFORE THE

SUBCOMMITTEE ON FOREIGN
AGRICULTURE AND HUNGER

OF THE

COMMITTEE ON AGRICULTURE
HOUSE OP REPRESENTATIVES

ONE HUNDRED THIRD CONGRESS

FIRST SESSION

MARCH 30, 31, AND APRIL 1, 1993

Serial No. 103-9

"^'2%»..

AU6

Printed for the use of the Committee on Agriculture ^•'Rlfil'^

61993

U.S. GOVERNMENT PRINTING OFFICE
68-443 WASHINGTON : 1993

For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-041045-2

. r. CURRENT AGRICULTURAL SITUATION IN RUSSIA

Y 4. AG 8/1; 103-9

Curreit Agricultural Situatloa in R.

ARINGS

BEFORE THE

SUBCOMMITTEE ON FOREIGN
AGRICULTURE AND HUNGER

OF THE

COMMITTEE ON AGRICULTURE
HOUSE OP REPRESENTATIVES

ONE HUNDRED THIRD CONGRESS

FIRST SESSION

MARCH 30, 31, AND APRIL 1, 1993

Serial No. 103-9

Printed for the use of the Committee on Agriculture

U.S. GOVERNMENT PRINTING OFFICE
68-443 WASHINGTON : 1993

For sale by the U.S. Government Printing Office
Superintendent of Documents. Congressional Sales Office, Washington, DC 20402
ISBN 0-16-041045-2

{ ^

COMMITTEE ON AGRICULTURE

E (KIKA) DE
GEORGE E. BROWN, Jr., California,

Vice Chairman
CHARLIE ROSE, North Carolina
GLENN ENGLISH, Oklahoma
DAN GLICKMAN, Kansas
CHARLES W. STENHOLM, Texas
HAROLD L. VOLKMER, Missouri
TIMOTHY J. PENNY, Minnesota
TIM JOHNSON, South Dakota
BILL SARPALIUS, Texas
JILL L. LONG, Indiana
GARY A. CONDIT, California
COLLIN C. PETERSON, Minnesota
CALVIN M. DOOLEY, California
EVA M. CLAYTON, North Carolina
DAVID MINGE, Minnesota
EARL F. HILLL\RD, Alabama
JAY INSLEE, Washington
THOMAS J. BARLOW III, Kentucky
EARL POMEROY, North Dakota
TIM HOLDEN, Pennsylvania
CYNTHIA A. McKINNEY, Georgia
SCOTTY BAESLER, Kentucky
KAREN L. THURMAN, Florida
SANFORD D. BISHOP, Jr., Georgia
PAT WILLIAMS, Montana
BLANCHE M. LAMBERT, Arkansas

LA GARZA, Texas, Chairman

PAT ROBERTS, Kansas,

Ranking Minority Member
BILL EMERSON, Missouri
STEVE GUNDERSON, Wisconsin
TOM LEWIS, Florida
ROBERT F. (BOB) SMITH, Oregon
LARRY COMBEST, Texas
WAYNE ALLARD, Colorado
BILL BARRETT, Nebraska
JIM NUSSLE, Iowa
JOHN A. BOEHNER, Ohio
THOMAS W. EWING, Illinois
JOHN T. DOOLITTLE, California
JACK KINGSTON, Georgia
BOB GOODLATTE, Virginia
JAY DICKEY, Arkansas
RICHARD W. POMBO, California
CHARLES T. CANADY, Florida

Professional Staff

DiANNE Powell, Staff Director
Vernie Hubert, Chief Counsel and Legislative Director

Gary R. Mitchell, Minority Staff Director
.. i^vi.. James A Davis, Press Secretary

■i*.--

\u-

Subcommittee on Foreign Agriculture and Hunger

TIMOTHY J. PENNY, Minnesota, Chairman

^CHARLIE ROSE, North CaroUna,
r Xice Chairman
THOMAS J. BARLOW III, Kentucky
CYNTHIA A. McKINNEY, Georgia
SgOTTY BAESLER, Kentucky
- -:'KARE^ L,. THURMAN, Florida
,,,»;,;,EARL POTvffiROY. North Dakota
"^ CHARLES W. STENHOLM, Texas

WAYNE ALLARD, Colorado
TOM LEWIS, Florida
JOHN T. DOOLITTLE, California
CHARLES T. CANADY, Florida

(II)

CONTENTS

March 30, 1993

Page

Allard, Hon. Wajme, a Representative in Congress from the State of Colorado,

opening statement 6

de la Garza, Hon. E (Kika), a Representative in Congress from the State

of Texas, opening statement 4

McKinney, Hon. &mthia, a Representative in Congress from the State of

Georgia, prepared statement 8

Penny, Hon. Timothy J., a Representative in Congress from the State of

Minnesota, opening statement 1

Prepared statement 3

Roberts, Hon. Pat, a Representative in Congress from the State of Kansas,

opening statement 4

Witnesses

Glickman, Hon. Dan, a Representative in Congress from the State of Kansas . 16

Prepared statement 45

Goldthwait, Christopher, Acting General Sales Manager, Foreign Agricultural

Service, U.S. Department of Agriculture 32

Prepared statement 56

Kauzlarich, Richard, Deputy Assistant Secretary, Bureau of European and

Canadian Affairs, U.S. Department of State 24

Prepared statement 50

Severin, Keith, senior associate, Soviet and East European Affairs, E.A.

Jaenke & Associates 38

Prepared statement 87

March 31, 1993

Penny, Hon. Timothy J., a Representative in Congress from the State of
Minnesota, opening statement 99

Roberts, Hon. Pat, a Representative in Congress from the State of Kansas,
opening statement 103

Witnesses

Cashman, Martha, vice president, international development division, Land

OT,akes, Inc 113

Prep£u-ed statement 174

Evans, Cooper, member, board of directors, Volunteers in Overseas Coopera-
tive Assistance 100

Prepared statement 139

Gashler, Ted, associate dean, trade & industry division, Northcentral Tech-
nical College, Wausau, WI 101

Prepared statement 163

Infanger, Craig L., Resident Agricultural Policy Advisor, Russian Federation,

Ministry of Agriculture 129

Prepared statement 193

Johnson, Stanley R., director. Center for Agricultural and Rural Development,

Iowa State University, Ames, lA 115

Prepared statement 180

Joseph, Burton M., president, Joseph Companies, Inc 117

Prepared statement 189

(III)

April 1, 1993

Penny, Hon. Timothy J., a Representative in Congress from the State of Page

Minnesota, opening statement 203

Witnesses

Brookins, Carol L., president, World Perspectives, Inc 223

Prepared statement 268

McCoy, Steven A., president. North American Export Grain Association, Inc .. 224

Prepared statement 287

Raup, Philip M., professor emeritus, department of agricultural and applied

economics, University of Minnesota, St. Paul, MN 221

Prepared statement 261

Van Atta, Don, research associate. Center on East-West Trade Investment

and Communications, Duke University, Durham, NC 204

Prepared statement 235

Wegren, Stephen K., assistant professor, department of political science,

Southern Methodist University, Dallas, TX 206

Prepared statement 250

CURRENT AGRICULTURAL SITUATION IN

RUSSIA

TUESDAY, MARCH 30, 1993

House of Representatives,
Subcommittee on Foreign Agriculture and Hunger,

Committee on Agriculture,

Washington, DC.

The subcommittee met, pursuant to notice, at 9:30 a.m., in room
1300, Longworth House Office Building, Hon. Timothy J. Penny
(chairman of the subcommittee) presiding.

Present: Representatives Barlow, McKinney, Baesler, Pomeroy,
Allard, and Lewis.

Also present: Representative E (Kika) de la Garza, chairman of
the committee. Representative Pat Roberts, ranking minority mem-
ber of the committee, and Representative Bishop, member of the
committee.

Staff present: Joseph Muldoon, associate counsel; Gary R. Mitch-
ell, minority staff director; William E. O'Conner, Jr., minority pol-
icy coordinator; John E. Hogan, minority counsel; Dale Moore, mi-
nority legislative coordinator; Glenda L. Temple, clerk; Jane Shey,
Anita R. Brown, Joe Dugan, and Lynn Gallagher.

OPENING STATEMENT OF HON. TIMOTHY J. PENNY, A REP-
RESENTATIVE IN CONGRESS FROM THE STATE OF MIN-
NESOTA

Mr. Penny. I want to welcome all of you to the first hearing of
the Foreign Agriculture and Hunger Subcommittee. This will be
the first of three hearings that will provide an overview of the cur-
rent agricultural situation in Russia. This hearing is especially
timely in light of the summit next week between President Clinton
and President Yeltsin.

The former Soviet Union and Russia have been important agri-
cultiu-al markets for the United States for many years now. Obvi-
ously, any drastic changes in Russia's ability to import United
States grain and other agricultural products will have a significant
ripple effect throughout the United States agricultural sector and,
for that matter, all of the United States economy.

In addition, however, our country is well-positioned to provide a
tremendous amount of support for the forces of democracy and eco-
nomic reform within Russia. I have long maintained that agricul-
tural assistance is central to our ability to provide aid, and agri-
culture is clearly central to any successful economic and political
reforms within Russia and the other former Soviet Republics.

(1)

We will start today's hearing with opening remarks only from
myself and the ranldng Republican on the subcommittee, although
we do have the ranking Republican on the full committee here as
well, and I would defer to lum for comments in just a moment. No
other subcommittee members will be allowed to make opening
statements, but we will allow statements to be inserted in the
record as requested.

We will also ask each of the witnesses to summarize their testi-
mony. I would hope that none of them would rely on their text, but
would instead use the 5 minutes available to summarize as best
they can their input to this subcommittee.

In addition, we will have a period of time in which we will view
a video, in which two Russian farmers are expressing their views
about the situation within their country, and then we'll have a tele-
phone hook-up with one of those individuals and also £in official
from the ag ministry in Russia where we can ask a series of ques-
tions. From there we will move on to our other panels for the re-
mainder of the morning, and we would hope to adjourn this hear-
ing by 12 noon.

[The prepared statement of Mr. Penny follows:]

TMOTHT J »tMMT MIimtSOT*.

CMAWK KOM «0«IM CAJKHIM* TOM KwiS 'lOWO*

ViCt CHAinUAM JOHN T OOOiinLi CAllfOMNI*

TNOM*S J «AWOWtU KiNtUCK* CHAMllS t C*«<«>V HOWO*

llihrHEiH^" ?H.S). J^ouit of iRepre£(entatibc«

(AMI POWtnOt kfOATN DAKOTA /9* • «

c-«.s«s..»Mo.MT„.s Committre on agriculture

*ubtommitt« on :f ortign laffritulturf an6 ^^unger

Soom 1301. lonstDorlh Ifouar Offitt jiuiltiing

iBasbinQton, 1&€ 20515

STATEMENT OF THE HONORABLE TIMOTHY J. PENNY, CHAIRMAN
80BCOMMITTEE ON FOREIGN AGRICULTURE AMD HONGER
30 MARCH 1993

I want to welcome all of you to the first hearing of the
Foreign Agriculture and Hunger Subcommittee. This is the first
of three hearings that will provide an overview of the current
agriculture situation in Russia. This hearing is especially
timely in light of the Summit next week between President Yeltsin
and President Clinton.

The Former Soviet Union and Russia have been important
agricultural markets for the U.S. for many years and it is
important to bear in mind that any drastic changes in Russia's
ability to import U.S. grain and other agricultural products has
a ripple affect throughout U.S. agriculture.

Our country also has a tremendous opportunity to promote the
forces of democracy and economic reform in Russia. Withholding
our support would be a tragic mistake, not only for the plight of
hundreds of millions of people in Russia, but for the security
and economic health of the U.S. and the world as well.

We start these hearings with film footage and interviews
with private farmers who have recently ventured out on their own.
The reason that the U.S. trades and interacts with Russia is not
only for our own farmers benefit but to assist their nascent
private farmers as they take the first steps to privatize their
economy .

For a relatively small financial investment, we could help
budding entrepreneurs start and grow businesses, aid farmers in
creating supply and marketing cooperatives, and support rural
banks that can provide credit. In short, we must promote the
private sector through technical assistance projects and, in
doing so, help destroy the long tentacles of the Communist
system.

Nearly 50 years ago, we came to the aid of war-torn Western
Europe with the Marshall Plan. Today, that area is a bastion of
democracy, the largest market in the world, and one of our
biggest trading partners. Clearly the payoff was worth the
investment. Unlike the Marshall Plan, an aid program to Russia
doesn't have to be expensive. But the vision is similar: We must
invest with an eye toward long-term political and economic gains
for both East and West.

Mr. Penny. I would ask first Mr. de la Garza, then Mr. Roberts,
and then Mr. Allard for any opening statements they might have.
Mr. de la Garza.

OPENING STATEMENT OF HON. E (KIKA) de la GARZA, A
REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

The Chairman. Thank you, Mr. Chairman. This is indeed a very
timely hearing inasmuch as the President and all of our Nation is
interested in the events in the former Soviet Union, and especially
in the last few days in Russia.

From my long association with members of the former Soviet
Union's ministries of agriculture and agencies in agriculture, we
have always seen two things: One, that their system would eventu-
ally fail, which it has; and, two, that it was at one time, is now,
and can be in the future a very valuable market for us in agri-
culture. I do hope that any assistance that we render at this time
would be in two directions: First, that we assist them in order for
them to be able to supply, to the extent possible, their needs in ag-
riculture; and, second, that we foster their friendship in such a way
that the market is available to us for our mutual benefit.

I commend you and the subcommittee for delving into this issue
in a very timely fashion. We look for the whole committee to work
with you and this subcommittee so that we might, if we need legis-
lation, be ready to present it. It is possible we won't need legisla-
tion at this time. I think that much can be done under existing law,
possibly with some executive modification. But should there be a
need for legislation, we would be ready to accommodate the Presi-
dent and the administration.

Thank you, Mr. Chairman.

Mr. Penny. Thank you, Mr. Chairman.

Mr. Roberts.

OPENING STATEMENT OF HON. PAT ROBERTS, A REPRESENT-
ATIVE IN CONGRESS FROM THE STATE OF KANSAS

Mr. Roberts. Thank you, Mr. Chairman. First, I'd like to associ-
ate myself with the remarks of the chairman of the full committee,
and just in case, Mr. Chairman, let me indicate to you that Mr. Al-
lard, Mr. Smith, Mr. Emerson, Mr. Barrett, Mr. Bereuter, and my-
self have introduced legislation. It's in the hopper. I would hope
that we do not need it, but at least in terms of a possible means
to answer some of our challenges, we have already done that in co-
operation with the Secretary and talking with him. He has not en-
dorsed the legislation per se, in that obviously there's an inter-
agency task force involved in this in the big picture, but we did,
as of yesterday, introduce the legislation.

Mr. Chairman, I want to thank you for calling this series of hear-
ings on the plight of Russia and what we can do to help. Of course,
over the long haul, Russia will move toward the real modernization
of their food and agricultural system, and we need to help in that
process. But that process is going to take several years, and Russia
needs food imports now to feed their population and help to sta-
bilize their political situation.

We have witnessed this past weekend just how precarious the
democratic reforms are in Russia. President Yeltsin once again ral-

lied the people to support him in holding off the reactionary forces
that want to prevent any kind of reform. This struggle for democ-
racy will continue, but President Yeltsin's task is made much hard-
er by the continuing failure of the Russian agricultural system to
deliver adequate food to the urban population. It is very difficult
to march for reform if you have to stand in line for tomorrow's din-
ner.

The Russian's need our abundant food supplies, and our farmers
need this major export market. Our commodity prices in this coun-
try first dropped and have now stagnated with the loss of the Rus-
sian export market. It is now estimated the taxpayers will have to
pay an additional $1.3 billion in deficiency payments to make up
for the lost sales to the former Soviet Union. Meanwhile, our export
competitors in Europe, Australia, and Canada do continue to make
sales to Moscow. If they can make these credit sales, the question
is, why can't the United States?

In recent weeks there has been much talk of opening niassive
new food aid programs for Russia — in other words, simply give the
Russians the food they need. Personally, I feel very strongly this
is the wrong approach. First, United States agricultural exports to
the former Soviet Union have been averaging over $2 billion on an
annual iDasis. Since the Federal Government owns almost no food
stocks now, any donated food would have to be purchased on the
open market, and the present condition of the Federal finances will
not permit this kind of spending, at least in the agricultural budg-
et.

Second, any t3rpe of donation or concessional sales program must
have 75 percent of the shipments made on U.S. bottoms. This so-
called cargo preference requirement can raise the shipping costs to
$70 to $90 per ton, badly cutting into scarce dollars for donation
and reducing the actual grain that is shipped.

Finally, the Russians themselves, when they were here, have in-
dicated that they do not want to be the recipients of large-scale
food aid. Russia has perhaps the richest natural resource base in
the world and possesses a fijUy developed industrial economy,
though it is presently in need of restructuring. Over the long term,
Russia is fiiUy capable of repaying any commercial credit for food
imports. It is my sense that both the Russian and American people
would be more satisfied with ag trade on a commercial basis than
any kind of food aid.

To facilitate the reopening of commercial trade with Russia, on
Monday I introduced the Agriculture Commodity Export Expansion
Act that I referred to earlier. This is a simple bill that provides
greater flexibility for the Secretary in making countries eligible for
the GSM export credit programs. It establishes three criteria for
eligibility: One, the credit needs of potential purchasers of U.S. ag-
ricultural exports; second, the long-term ability of those countries
to repay the credit; and third, whether the GSM credits will main-
tain or improve the competitive position of U.S. agricultural ex-
ports in the world market.

Eff'ectively, this bill would shift the focus of USDA analysis away
from a narrow examination of meeting a payment schedule toward
promoting U.S. ag export expansion to countries that have the
means to repay the credits over the long term. This simple change

would allow the USDA to reopen a commercial export relationship
with Russia and the other Republics of the former Soviet Union.

Mr. Chairman, the fate of the Russian democracy and reform
hangs in the balance over the next months and years. U.S. agri-
culture can make a significant contribution toward ensuring the
survival of freedom in that country. We need to provide the prac-
tical technical assistance directly to the Russian farmers as they
attempt to reform their ag sector. While those reforms are under-
way, we need to revive our commercial commodity exports as of
today. Now. Their economy needs our food; our farmers certainly
need their market.

Again, Mr. Chairman, I thank you for your leadership and asso-
ciate myself with the remarks of Chairman de la Garza.

The Chairman. Will the gentleman yield briefly?

Mr. Roberts. I'd be happy to jdeld to the chairman.

The Chairman. I thank the gentleman, and I appreciate his very
excellent statement. I would like to mention, though, that we
should not be dealing solely with Russia. We should also be dealing
with the Ukraine, with Georgia, Turkmen, all of the other former
Soviet Republics. And although it has been mentioned that we
might involve ourselves in dealing solely with Russia, this should
not be the case. It is only, because of the predicament of Mr.
Yeltsin that we're speaking about Russia solely, but we should not
forget that there are other viable and valuable markets for us in
the rest of the former Republics.

I thank the gentleman.

Mr. Roberts. If I could just say one other thing, Mr. Chairman,
I certainly agree with the chairman of the full committee and w£int
to stress again that this legislation, while its practical effect would
be Russia-specific, is a policy change that affects all countries, the
long-term ability of all countries to repay the credit. Again, we're
trymg to change the focus on a rather narrow USDA interpretation
of existing law to certainly meet the challenges of all countries, as
the chairmsm has indicated.

Again, I thank you, Mr. Chairman.

Mr. Penny. Thank you, Mr. Roberts.

Mr. Allard, and then we'll move on to the video tape.

OPENING STATEMENT OF HON. WAYNE ALLARD, A REP-
RESENTATIVE IN CONGRESS FROM THE STATE OF COLO-
RADO

Mr. Allard. Thank you, Mr. Chairman. This is our first hearing
of the Foreign Agriculture and Hunger Subcommittee. This is a
new subcommittee, and I'm looking forward to working with you
and the rest of the members of the subcommittee on the many is-
sues within our jurisdiction.

It is appropriate that the first series of hearings will focus on
Russia. With the current situation being as fluid as it is, I'm not
alone in wondering what the final outcome of the current struggle
will be.

It is my hope that the administration is seriously pursuing the
possibilities available to agriculture. We have a tremendous oppor-
tunity to assist Russia to continue its transition to democratic re-
form and to make a market-based economy. Many of us want to

help Russia in that process, and I believe that the hearings the
subcommittee will have this week can provide significant insight
into reaching conclusions toward this end.

Our witnesses include several people who have spent time in
Russia and the other Republics of the former Soviet Union. Their
comments will be useful as we look at the status of agriculture in
Russia and the newly created Republics. The United States must
be responsible, as well as responsive, for meeting the needs of the
Russian people.

I am particularly pleased that we'll have the opportunity to
speak with a Russian ag producer. I look forward to hearing his
perceptions of America's effort to this point.

Furthermore, it is my hope that the administration's response to
the situation in Russia will include agricultural programs, particu-
larly, the credit guarantee programs, and commercial sales of bulk
commodities and value-added products. Over the past several
weeks, I've joined with Congressman Roberts, the ranking minority
member of the Agriculture Committee, and others to urge the ad-
ministration to resume agricultural sales to Russia. In meetings
with Russian officials, they have made clear their preference for
agricultural trade with the United States. Mr. Chairman, after
these meetings, it's my feeling that Russia has the natural re-
sources to be credit- worthy, they are illiquid. The natural and in-
dustrial resources of Russia are great, and they have the ability to
pay for United States agricultural products over time.

Other countries are currently pursuing agricultural trade with
Russia, under far friendlier terms than are currently being ex-
tended by the United States. For example, it is my understanding
Canada has bartered wheat for timber and cotton with Russia, and
they are considering participating in a three-way sale of wheat for
Russian diamonds. Australia sold 1.5 metric tons of wheat to Rus-
sia this month for a combination of cash and aluminum. Additional
major purchases are currently under negotiation by other coun-
tries.

I fear that if we don't proactively address ways to restart trade
with Russia, opportunities for access will be lost. Our farmers need
to have this market reopened. Exports, including sales to Russia,
are essential to the vitality of American agriculture. The adminis-
tration must be innovative in devising a plan to assist Russia and,
at the same time, maintain and expand markets for United States
agribusinesses.

Thank you, Mr. Chairman.

I'd also request unanimous consent that members be allowed to
insert their remarks in the record.

Mr. Penny. Without objection, so ordered.

[The prepared statement of Ms. McKinney follows:]

CYNTHIA A. MCKINNEY
1 tTH District, Georgia

Congre£(£( of tfje ^nttetr States;

J^ouit of l^tpvtitntatiiiti
raa^dtngton. Mt 20515-1011

Statement of Cynthia A. McKinney to the Committee on Agriculture,
Subcommittee on Foreign Agricultvire and Hxmger

AIDING RUSSIAN AGRICULTURE

Thank you Mr. Chairman for holding these hearings and for the
opportunity to express my concerns before this panel this morning. I also
thank the panel for your testimony before us today.

Mr. Chairman while I do believe that Russia is in need of support from the
United States, and I believe this country should support those countries that
are in need, I do look forward to the day when Russia can feed and support
itself. I look forward to the day when Russia's farmers can rely on its on
farming.

I'm concerned about the lowering of credit standards for Russia. If we
lower credit standards for Russia, does it mean that we will have to lower
credit standards for other countries that are served by government credit
programs? Should we keep extending credit or should I ask the question.
Does the law permit us to keep extending credit? If we can afford to lower
Russia's credit standards it means increased risk to the United States
government. How do you justify increasing that risk to Russia when there
are other coimtries that have equal or greater needs? Russia unfortunately
is already in default of its agriculture debt to the United States on grain
received since the 1970's. There needs to be some agreemen about these old
debts.

Another concern that needs attention is the environment and Russia's
environmental practices. Pesticides were used that could damage the
environment and the Aral Sea was drained for irrigation. These kinds of
practices cannot continue if there is to be a safe environment for the citizens
of Russia.

Again, thank you Mr. Chairman for this opportunity to address my
concerns.

Mr. Penny. We now want to proceed to the video. This is about
a 10-minute video in which two Russian farmers express their
views about the agricultural situation within their nation. The
video highlights Vladimir Zamaratskii and V.L. Simutin. Both are
of Klin County in a region north of Moscow. As the video concludes,
we will then have a telephone hook-up with one of those two farm-
ers and an advisor to the ag minister.

[Video shown.]

[The video transcript follows:]

FARMING IN RUSSIA
FIIM FOOTAGE TRANSCRIPT

Shot of snow-covered field and panorama
Shot of Victor Simutin CG: "Victor Siinutin"

My name is Victor. We are in agriculture. These days we've
gone over to breeding horned cattle and producing milk. I
started this activity in 1991 and during the period from 1991 to
1993, I built the farm, built the storehouse and bought the
cattle. I started everything from zero. I didn't have any
money. I took the credit in the Moscow Peasants' Union, and
little by little I got the equipment. I was also given some
equipment, and so I built the farm and bought the cattle.

Shot of Vladimir Zamaratskii CG: "Vladimir Zamaratskii"

Zamaratskii Vladimir Veniaminovich, born in the town of
Klim, head of peasants' farm "Prima." I graduated from the
Polytechnic Institute with the diploma of an electrical engineer,
then worked in the State farm as an electrical engineer. And
afterwards I decided to open my own business and become a farmer.
Collective economy on the collective and state farms, their
relationship toward land is a little different than a private
owner. I mean, if you compare how an owner treats his land and
how the administration treats its collective property and its
land, as they say in Odessa, "It's a big difference." Now I have
my own land. Of course our laws haven't yet determined how we
can buy or sell it. There are some proposals for this. But
private ownership — we don't have this law yet, as far as we
know. We were informed we don't have it yet.

Pause

I don't have enough tools now. I'm also finishing up my
house. Prices on construction materials are very high these
days. And people want big salaries. And the government is not
helping us any more, they are just talking.

Victor Simutin

We don't have enough land. It's not enough. For example, I
would want to have 20 cattle heads, well, maybe 25. And then you
can come up with 50 heads, if they in their turn give you more
land. But they don't give us land. We wrote letters and want to
appeal to the state farm "Druzhba." They refused us all the
time, they won't rent us land, they won't give us equipment,
nothing.

Vladimir Zamaratskii

They've just stopped financial benefits for us, they only
loan us 80 to 85 percent under the commercial credit. Everything
is very expensive. The tractor that I received from the
Peasants' Union was very weak, his tractive class was 6.6. Last
year I bought a new tractor, a strong one, 14th class, and I
spent a million and a half of my commercial credit. Today this
tractor cost three million.

Victor Simutin

We have two farms. Victor Zamaratskii and I started
together and will continue together, because I don't think you
stand a chance to survive by yourself.

Vladimir Zamaratskii

Other farmers are companions for me, we help each other with
equipment, people. It is necessary to help each other, mutual
assistance is very important.

Victor Simutin. Then shots of fields, cow-sheds, pigties,
animals.

Three of us are dreaming, we want to open a processing
plant, a little plant at least, to process meat and milk —
that's our dream. We would like to ask somebody to help us.

Now that referendum is going on, everyone forgot about
farmers. And Yeltsin and his apparatus per se, are paying too
little attention to farmers' needs.

Vladimir Zamaratskii

.Our country is exploding. People's conditions are very
difficult and we know that we, farmers probably won't get more
assistance from the government. But we hope that American
farmers and American congressmen would be interested in helping
us to build these mini-plants, help us with investment and also
assist us in getting established and help feed our country.

Victor Simutin. Then his Voice-over shots of work inside
agricultural complex.

Last year we had some good news, we were told that America
will allot us pedigree horned cattle for our farms. We hoped

that it was cheaper and more productive cattle. But it was last
year. A year passed and we haven't heard anything else. We were
asking what happened. Anyway the excuses are that the cattle was
sent but apparently got stuck somewhere, maybe on the border, I
don't know.

Vladimir Zamaratskii

We would like to get assistance from American congressmen in
delivering to us pedigree cattle, cows, pigs. That's what we
need to restore Russia to its former might.

Victor Simutin

Certain American structures need to have direct contact with
a farm, with me for example or any other. The contact is
important to control what's being sent, for example, a farmer or
anyone who is helping me from America will contact me directly
and I would get from him that help I am talking about.

Vladimir Zamaratskii

We would like to meet with American farmers, look at how
they work on their farms and learn from them. We all like the
magazine "New Farmer," it's a very good magazine. But there you
just read it and we would like to see ourselves how real American
farmers, those that are in farm business for 100 years conduct
their business. Judging by pictures from the magazines, they are
very successful. It would be good for us to learn from them
agriculture and then transfer it to our land.

Mr. Penny. It will take a minute or so to get the telephone hook-
up.

These two farmers are part of a growing population of independ-
ent farmers within Russia. I think in just the last 4 years or so
we've seen growth from about 10,000 to 200,000 independent farm-
ers in that country. All of them, of course, are operating on parcels
of land that are, in a sense, rented to them or made available to
them, but not in a way that transfers ownership. As a consequence,
they are unable to borrow against the value of that land, and that,
among other difficulties, is a major impediment to modernizing and
expanding their operations.

We'll be visiting with Vladimir Zamaratskii, one of the farmers
who was highlighted in the video. Vladimir is the one that kept re-
ferring to help from the U.S. Congress, so we certainly look forward
to a little bit of a dialog with him.

In addition, we'll have on the line Dr. Eugenia Serova, a special
advisor to Agriculture Minister Viktor Khlystun. It will give us an
opportunity, I think, to ask her what steps they intend to take to
improve the situation for private farmers within their country. If
you were paying attention during the video, there seemed to be a
pretty heavy dose of criticism that the bureaucracy was still imped-
ing a movement toward private agriculture, and that the Yeltsin
administration didn't seem to be terribly interested in private agri-
culture at this point.

Do we have them on the line?

Hello.

Mr. Zamaratskii [through translator] . Hello.

Mr. Penny. Greetings from the U.S. Congress. We're delighted to
have both Vladimir and Eugenia with us this morning.

I want to start with a question to Mr. Zamaratskii. We just
played a video in which he made some remarks about his efforts
to establish his farming operation. He made reference to the Mos-
cow Peasants' Union, and I'm curious to learn more about the peas-
ants' union and the kind of financial assistance that it has been
able to make available to beginning farmers.

Mr. Zamaratskii. This union distributes massive credit through-
out the farmers in the Moscow region. The money comes from the
Government.

Mr. Penny. And it can be used for capital acquisitions or simply
equipment?

Mr. Zamaratskii. Originally, they were giving larger sums of
credit to farmers because there were very few farmers. Now there
are more farmers, and they're getting smaller amounts. Earlier
they were giving credits for machinery and construction of farm
buildings. Now they're giving credits for bujdng spring seeds.

Mr. Penny. I know that Vladimir is in partnership or cooperation
with two other farmers, but as a general rule, have farmers consid-
ered the possibility of establishing cooperatives in which they pool
their resources and share their equipment and work together to es-
tablish processing and marketing capabilities?

Mr. Zamaratskii. Life required us to do this. The farmers that
wanted to leave the state farm decided to break up into three or
four private farms and not only be involved in the production, but
also in the marketing of the product.

Mr. Penny. Could we ask of Dr. Serova a discussion or an expla-
nation of any recent steps that are underway to improve the situa-
tion for private farmers? We're particularly interested in any legis-
lation to promote land reform £ind private ownership, as well as
any legislation to support the establishment of agricultural co-
operatives.

Ms. Serova [through translator]. The way things are set up in
Klin, the area in the Moscow region that they're in, is that farmers
are allowed to buy outright 30 hectares of land for private use.
They can rent, at this time, 20 additional hectares, which, in total,
forms 50 hectares of land, and they have the right to buy out these
last rented 20 hectares. So that's the way the situation is now in
that area.

Mr. Penny. As I understand it, the land is not transferrable by
these farmers to other individuals, and you can't really borrow
against the value of the land. Am I correct in that assumption?

Ms. Serova. As far as the first question about transferring, there
may be some laws being discussed in the halls of congress, but we
don't know an5^hing about them. They have not gotten to us yet.
As far as taking out a mortgage on the land, private banks will do
that.

Mr. Penny. I want to allow an opportunity for Congressman Al-
lard to ask some questions at this point, and then I'll probably ask
a couple more before we conclude.

Mr. Allard. Thank you very much. I appreciate this opportunity
to be able to ask you some questions about the Russian farmer.
How do you get your products to market?

Mr. Zamaratskii. In our cars.

Mr. Allard. How far away are your markets, and how long does
it take you to get your products there?

Mr. Zamaratskil It's 10 kilometers, 20 minutes to get to market.

Mr. Allard. In asking for help, in what areas do you need the
most technical assistance?

Mr. Zamaratskil In the area of processing of the farm goods.
Processing equipment.

Mr. Allard. Did I understand you correctly? Farm equipment?

Mr. Zamaratskil Processing equipment.

Mr. Allard. Could you use American farm equipment?

Mr. Zamaratskil Small-scale processing equipment for getting
the meat, milk, eggs ready for market. Equipment to make coats
out of skins and stuff like that. It's a small farm.

Mr. Allard. Thank you. I have another question. I'm curious
about the land situation in Russia. Russia is a large country. How
much of that is owned by private ownership?

Mr. Penny. Did we lose him? Is he still there?

The Translator. The last thing he said was, "I don't know about
the whole country. I don't have the facts and figures about that.
But in our small area where we're located, we have 70 private
farms, each about 10 hectares in area."

Mr. Allard. How many total acres in that area? You indicate
that there are 70 farms that are privately owned, each 10 acres.
You have about 700 acres in private ownership.

The Translator. Hectares.

Mr. Allard. Hectares. How many hectares are in that area? An
estimate.

The Translator. Hello, Moscow. Do you hear us?

Mr. Allard. I haven't heard a response. How many?

The Translator. We don't hear Moscow. I think the line
dropped out.

Mr. Allard. I see. Would you say that private ownership is one-
tenth of that area or one-twentieth?

The Translator. The signal keeps coming in and out.

Mr. Allard. What I'm trying to determine is, is most of the land
in private ownership, or is most of it still owned by the Govern-
ment? And if the Government still owns some of the farm oper-
ations, how do those farmers react to those farmers that are in
business for themselves?

The Translator. I don't hear anything.

Mr. Allard. It seems to be cutting out.

The Translator. I don't hear anything. The last thing he said
was that the majority of the land is in Government ownership, and
after that I don't hear any signal.

Mr. Penny. I wonder if we might attempt one last question, and
if we still have a disconnect somewhere between here and Moscow,
we'll probably have to conclude.

The Translator. The signal just came back.

Mr. Penny. If the signal seems to be coming back, I think I'll
defer now to the chairman of the full committee, Mr. de la Garza,
for a couple of questions, and then I'll have a concluding question.

[Remarks in Russian by the chairman.]

The Chairman. I'll tell you later what I told him. [Laughter.]

Mr. Zamaratskil We'll be looking forward to some help. We hope
you'll help us.

Mr. Penny. This is Congressman Tim Penny again. I have one
concluding question, and it relates to the farmer-to-farmer ex-
change program which is being administered by VOCA, Volunteers
in Overseas Cooperative Assistance. I'm curious to know whether
Vladimir has had experience with this program, and then, in gen-
eral terms, what level of value they attach to this program. In
other words, is this the kind of assistance that is meaningful and
beneficial to the private sector within Russia?

Mr. Zamaratskil In one word, it's very useful. We've been in
contact with them for half a year.

The Translator. He's trying to establish how long they've been
in contact.

Mr. Penny. What was that?

The Translator. He's trying to establish how long they've been
in contact with the VOCA volunteers.

Mr. Penny. I see.

Mr. Zamaratskil About 6 months.

Mr. Penny. Did we lose contact again here?

The Translator. No.

Mr. Penny. In terms of the assistance that they specifically have
received, have they had a VOCA volunteer on-site on their farm?
And if so, what t5rpes of assistance have these individuals provided?

Mr. Zamaratskil What we need is practical help. They've agreed
to consulting help, and the only thing that we've seen so far is Dan,

who came with the fihning group. We talked to him, they left, and
we haven't heard from them since.

Mr. Penny. We need to do better in that regard.

Mr. Zamaratskii. Dan Wagner was the name of the gentleman.

Mr. Penny. We'll talk to Dan about that. Let me ask one con-
cluding question, and that is, I'd like Vladimir's response to this
question: How optimistic are you about the success of your own op-
eration? And, second, how optimistic are you about the prospects
for further privatization of agriculture within Russia?

Mr. Zamaratskii. I'm optimistic about the future of our farming.
At this point, a few of us farmers have united. We've created a pri-
vate farm, and we will bring it to its logical conclusion. That's why
it is so important to get some aid from VOCA. What we need is
favorable credit. We need some consultation and practical help and
technical aid in order to get processing equipment necessary for our
small farm. That's meat processing and milk and things like that.

Mr. Penny. We want to thank you very much for your assistance
this morning. It's been tremendously helpful in terms of getting our
hearings on Russian agricultural assistance underway. Would you
convey our appreciation to our two contacts in Moscow, and wish
them the very best of luck. Thank you.

With that, we want to proceed to our first witness this morning.
Representative Dan Glickman, a member of this committee, chair-
man of the Intelligence Committee. Dan has recently expressed his
thoughts on the Russian situation particularly as it pertains to ag-
ricultural aid, and we welcome him this morning.

The Chairman. Mr. Chairman.

Mr. Penny. Mr. de la Garza.

The Chairman. Mr. Chairman, if I might just have a second to
translate what I said, hopefully, in good Russian, I said hello to
Vladimir, and I said, "My finend, brother farmer, I'm Congressman
de la Garza, chairmsin of the Agriculture Committee in the United
States. We offer you friendship, good will, understanding in agri-
culture, and the committee and the Congress and I will help you."
That's when he answered, "Thank you" and sounded very happy.
That's basically it. So I have committed us, as a committee, and
we, as a Congress, to help Vladimir, at least.

Thank you, Mr. Chairman.

Mr. Penny. Thank you, Mr. Chairman. Now we'll have to think
of some legislation, won't we?

Mr. Glickman.

STATEMENT OF HON. DAN GLICKMAN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF KANSAS

Mr. Glickman. Thank you, Mr. Penny.

I would just say I had the privilege of being with Mr. de la Garza
in Russia, I guess it was 2 years ago, and he speaks Russian better
than any of the locals. He also is the best Ambassador that I have
ever been with. We went out to a farm in Tula, I think it was, a
collective farm, and we were in the midst of a festive occasion at
limch, and we were toasting the beautiful air and the beautiful
leaves and the relationships and every toast in the world, and ev-
erybody was kind of incapacitated, but our chairman was still talk-
ing Russian as clearly as anybody that we have heard, and it was

a splendid job. If we really wanted to send a goodwill ambassador
to Russia, it would be Chairman de la Garza, because he connected
with those people.

This week's Newsweek has an article by James Baker, and I
would commend it to you. It talks about the stakes for them and
us. If we do nothing, he says, "Across Russia the tendency toward
fragmentation and the regionalization of power would increase.
With Moscow paralyzed, local bosses would seize even greater con-
trol from the center, and the autonomous Republics would then
seek more autonomy, perhaps complete independence. The long-
term danger in this scenario is that Russia could become ungovern-
able and descend into greater chaos. In a country with thousands
of nuclear weapons, the dangers of fragmentation are obvious. Cen-
tralized and luiified command and control of nuclear weapons could
be jeopardized."

Then he goes on and says, "The greater danger over the next
years, if not months, is the rise of a virulent Russian nationalism —
indeed, what one might call fascism that preys on the economic
deprivation sweeping Russia and the psychological disorientation
brought on by the end of the empire. These extremists would draw
their power not from what they stand for, but what they stand
against — against democracy, against capitalism, and against the
West."

He succinctly puts why it's necessary for the West to take some
action to try to help these folks out.

I have a fairly short statement, and I'd like to read it, if possible.
I thank you for the opportunity of allowing me to testify today.

As deeply intertwined as American interests are in the reform
process underway in the former Soviet Union, the direction and
pace of the processes are, in the end, questions the Russians must
determine for themselves. The United States can, and should en-
courage that process, however. We have substantial interests in
seeing the process continue toward the creation of a democratic,
market-oriented state. Having spent trillions and devoted our natu-
ral energy for four decades to winning the cold war, we cannot af-
ford to lose the peace, nor can American farmers and agribusiness
afford to lose this customer.

The credits the USDA has extended to Russia and the former So-
viet states are the primary forms of assistance the West has made
available to the conversion process. They have also been of im-
mense benefit in keeping open one of the single most important
markets American agriculture has.

In the legislation I have proposed and want to discuss with you,
I propose that we use the leverage of these credits to encourage the
reform process in Russia and advance our interests there, and I
want to reinforce that point. The American people, I think, will
have a difficult enough time supporting increased aid, which I
think we should do, but I think that they would support it a lot
more easily if they knew that there was some leverage to get the
Russians to do things. I propose that leverage will be to get them
to not only continue democratization, but reduce their nuclear
weaponry, which they have agreed to do as a part of the START
agreement.

The Russians need debt relief, including rescheduling of the
USDA debt, and they will need additional food assistance from the
West. American agriculture needs to get back into that market,
and we all have an interest in seeing the Russians convert their
military to peaceful uses and in encouraging the movement toward
a market-oriented economy.

My bill gives the President the authority to achieve these goals.
Under it, he may write down the outstanding USDA debt in ex-
change for agreements from the Russians or other states for the
following purposes: To dismantle military facilities, to convert the
facilities to peaceful uses, to permit U.S. businesses to enter into
commercial joint ventures in state-owned enterprises, or other rea-
sons the President determines to be in the national interest.

Additionally, once a state enters into such an agreement, the
President may extend new export loans to that state and release
previously approved credits to make new sales. He may also pro-
vide surplus commodities to those states and provide technical as-
sistance to achieve the terms of the agreements.

The legislation is based on a practice common in the private sec-
tor: Debt-fcr-equity swaps. It has a precedent in the public sector:
The agreements under which Western creditors wrote down Latin
American debt in return for programs those governments initiated
for such things as preventing environmental degradation.

In looking at the immediate problems the United States faces
with respect to the Russian situation, we must also be cognizant
of the long term. We need to provide assistance which will jdeld
long-term results in the United States interest, such as the dis-
mantling of the Russian military and the opening of its economy
to United States investment.

We need to recognize that rather than simply waiting for the
Russian economy to improve enough to allow it to become current
on its debt, the United States needs to act now to restart food ship-
ments to ensure that the Russian population gets what it needs
and that American agriculture can make additional sales.

Additionally, to those who will criticize my proposal because it
will relieve the Russians of some of their repayment obligation, I
would point out that it is in the best interest of the United States
to get some return on the loans in the form of the policies the Rus-
sians would be required in return for the write-down. The legisla-
tion establishes a quid pro quo instead of simply writing the debts
off altogether.

Let me acknowledge that this legislation will have a cost, de-
pending on the amount of debt forgiven. I know this will concern
all of us, but these costs are minuscule compared to the costs we
have spent winning the cold war and to the costs we might face if
the Russian reform process fails, as so adequately and succinctly
put by former Secretary Baker.

In closing, let me say that I think we need to be both bold and
imaginative in meeting the challenge before us. I think this pro-
posal offers a creative and constructive component to solving the
problem. I am attaching to my statement an explanation of the leg-
islation, which I dropped in yesterday. I had offered it previously,
and I made some changes in it.

I would be glad to work with your committee, Mr. de la Garza,
and anybody else in trying to make sure that we can both help our
farmers as well as help the cause of peace and reduce the prospects
of nuclear proliferation.

I thank you very much for allowing me to testify.

[The prepared statement of Mr. Glickman appears at the conclu-
sion of the hearing.]

Mr. Penny. Thank you, Mr. Glickman. You mentioned in your
testimony not only food sales, but food assistance. In what form
would you suggest that we offer the food assistance? Would that be
tied to the same conditionality as the credit sales?

Mr. Glickman. Well, it could be. This bill explicitly offers the
conditionality for debt write-down. That's where their most press-
ing need is right now in order to allow them to then begin either
to buy more food and more equipment or whatever else they would
need. You would basically use the authority under existing statutes
giving the Commodity Credit Corporation the authority to provide
either food sales or technical assistance under the Freedom Sup-
port Act. I think the terms of existing legislative authority are
probably there to do just about anything that we want to do.

I think what we don't want to do is to give them cash. That
would be adamantly opposed by the American people. It wouldn't
do them any good right now. I think what we do want to do is to
try to provide them, in terms of food assistance, both bulk commod-
ities to the extent that they need it, but more technical assistance
and help in logistics.

Mr. Penny. It's been suggested that we could use food assistance
efforts in a fashion that would allow those goods to be monetized
in the local market, with those dollars, the proceeds, then going to-
ward these development assistance programs, technical assistance,
establishment of credit unions of some sort. Have you given any
thought to that sort of initiative?

Mr. Glickman. That parallels, to some extent, what we have
done in the Third World, particularly in Latin America. We've al-
lowed some of these sales of commodities transferred to be mone-
tized to create some sort of networking economy there. Obviously,
they would also need technical assistance to help them set up the
institutions as well.

Mr. Penny. In looking at our policy to date, what's your general
sense? I know you used former Secretary Baker's article in News-
week as a preface to your remarks, but in looking back over the
last couple of years, do you have a sense that the administration
was as focused in their policies toward Russia as Mr. Baker now
seems to be?

Mr. Glickman. Probably not, but in all fairness, we were coming
out of a 50-year fixation of the Soviet threat as the evil empire, and
I think culturally it was difficult to modify our mindset of what
was going on there. Again, in my role on the Intelligence Commit-
tee, there has been some criticism that the information wasn't as
current and realistic and we weren't looking for the changes that
were happening there, but I suspect as much as anj^hing else we
thought the status quo would go on forever, and we were amazed
at the rapidity of change that happened over there. I mean, I think

that historians will look at this as a mind-boggling experience, how
quickly things have taken place.

That's the great danger in a society that has never known democ-
racy, that has an extraordinary history of kind of virulent national-
ism and authoritarianism, that if we don't move in and try to help
them, we could find ourselves in mighty dangerous territory. And
then we'll look back and we'll look, for example, in the area of nu-
clear proliferation. The biggest challenge we have right now, fi*ank-
ly, with the Russians is to try to get them to honor the terms of
their nuclear agreements, reduce nuclear weapons, and not ship or
transfer either the weapons or technology to other people in order
to get cash to be able to pay for food and whatever else they have.
That's another reason why we have an obligation to now forget
maybe some of the mistakes we've made in the past and move
ahead.

Mr. Penny. How do you anticipate monitoring the agreement? I
mean, if, for example, a write-down or an offer of new credit is con-
tingent on military reforms, dismantling of the military apparatus,
what's the oversight mechanism?

Mr. Glickman. I don't think there's any magic to it. I think you
can quantify it by perhaps setting some standards in terms of mis-
sile delivery systems, warheads, that kind of thing. I mean, we do
that in arms control agreements now. We monitor those reductions,
and we've had pretty good success — in fact, we have had very good
success in getting compliance to be monitored. I wouldn't see that
that would be an enormous problem. The question for us would be
that we'd have to make it realistic enough so that we know the
agreement would not be ignored, and I think we could do that.

Mr. Penny. Mr. Allard.

Mr. Allard. Thank you, Mr. Chairman.

Mr. Glickman, I appreciate your comments. In looking over your
proposal, you had indicated in your remarks that you think it's im-
portant that we move along in a very expeditious manner and
quickly get some assistance to the new Baltic States, particularly
Russia. It seems to me that if we're going to do that, that we best
accomplish that through keeping the GSM program as a commer-
cial program and not get the State Department involved, which I
don't know is particularly expeditious in reaching their agree-
ments, or even the military.

So my question to you is, why tie the U.S. credit guarantee pro-
gram to foreign policy considerations? It seems to me we're just
going to delay the process.

Mr. Glickman. Well, they're one and the same, unfortunately.
They are one and the same, because the Russians and the other
Republics historically are in a situation of default, and the United
States Government and the taxpayers are going to have to pick up
the tab. Quite honestly, private companies would not be lending
money there. There are much better commercial places to lend i
money unless we provide some incentive, guarantees, some sort of
help to move the process along.

I don't think that you can remove it from foreign policy. I think
it's one and the same, £md I think what you try to do is to protect
yourself as best as you can from having foreign policy jerk the rug
from underneath you.

But, look, the long-term economic benefits to the United States
are extraordinary from this in terms of open markets, in terms of
jobs. We have a part of the world that's never bought an5rthing in
their lives. Just think if each Russian would, let's say, double or
triple their consumption of meat. It would have a powerful effect
on the American livestock industry.

So I do think that you — I mean, my belief is that foreign policy
is as much related to economic policy as anj^hing else, so I don't
think you can totally remove it. But I don't want to do away with
the GSM program. I think it's logistically a very convenient way to
get the aid in.

Mr. Allard. I agree that our businesses, when they look at Rus-
sia, they look at the business opportunities, and we have tremen-
dous opportunities for American business if we can get the Rus-
sians to move toward a free market and begin to recognize some
of those basic things that you have to have in order for a free mar-
ket system, such as clear ownership of property, which we weren't
able to clarify with the video that we heard this morning.

I hear you on your concern about nuclear weapons and disman-
tling them, but how are we going to place a value on particular
types of nuclear weapons? Is one type of missile going to open up
the market for a certain number of bushels of wheat, or is a dif-
ferent type of nuclear warhead going to open it up for more wheat?
How do we arrive at this? I don't see that as an expeditious proc-
ess.

Mr. Glickman. Let me tell you, first of all, I think it's a good
question. Again, we provide good methods of computing compliance
with arms control agreements now. Let me tell you why I arrived
at this approach. No. 1, the most pressing problem in the world is
nuclear proliferation. We are on the verge of seeing dozens of coun-
tries have both nuclear weapons and delivery systems capable of
transporting them to people whom they don't like, and that's a far
greater danger than anything we've ever faced before. The Russian
Republic and the Ukrainian Republic both possess a large number
of nuclear weapons.

No. 2, American people want to help the Russians, but they also
know we have serious problems at home, and they don't want to
provide extraordinary public taxpayer help here without at least
getting something from it.

So I'm trying to put these two things together: Nuclear prolifera-
tion stability, and giving the American people some reason to be-
lieve they're getting a bang for their buck here, that it's not just
more Government assistance that will never come back. That's why
I tied the two things together.

Now, let me give you a hypothetical. It could be as simple as re-
quiring full compliance with the START agreement that would
allow write-downs to take place, in which case you don't have to
go with this kind of weapon— an SS-18, an SS-19, an SS-20. I'm
not sure we want them to get into that kind of situation. It could
be accelerating the destruction of warheads that would get them
more relief. I don't know exactly what it would be, but I think
that's along the lines of what I'm talking about.

Mr. Allard. Well, I'm not sure about this, and maybe you can
clarify this, but I don't believe the Ukraine has agreed to the
START.

Mr. Glickman. That's correct.

Mr. Allard. So you're talking about not only the Russians, but
maybe the other Baltic-

Mr. Glickman. There's one other Republic that-

Mr. Allard. We're talking about monitoring agreements on nu-
clear weapon proliferation, and they won't even agree to the basic
nonproliferation agreements that we have, and I'm wondering how
we're going to work through that.

Mr. Glickman. They want our food assistance desperately, they
want our economic help desperately. I mean, it's certainly worth-
while talking to them about it.

I think you raise a very interesting point. I had a gentleman
from one of the Ukrainian parties in my office, and I pressed him
on compliance with the START agreement, and his response to me
was something like, 'Well, you don't have to worry about us. You're
not our enemy. Our missiles are not going to be pointed at you."
Kind of like, well, where are they going to be pointed at. East in-
stead of West, and that's not going to affect the world as well?

I mean, there wasn't a specific threat carried out there against
Russia, but you know that the challenges in the future are much
more serious, and I just think that the nuclear threat is so great
that if we can somehow tie it to this — and by the way, my bill does
not exclusively tie it to reduction of nuclear weapons. It gives the
President pretty much a blank check here or carte blanche — not a
blank check — to try to find ways for debt reduction and other
things that they might be willing to do.

Mr. Allard. Mr. Chairman, just to wind it up here, I think we
really need to keep the process as simple as we possibly can and
make it as market-oriented as we possibly can. I think most of our
business people are comfortable with that. I'm not sure that the
State Department, the military, and all these other people that get
involved appreciate how important it is in business to expedite
things because time is money, and it costs American business to
wait. So I hope that perhaps we can figure out ways to expedite.

I think I agree with your initial intent of this, to try and open
up markets for American agriculture. We need to do it with a mini-
mum of regulation.

Mr. Glickman. If I may just make one point, the heart of what
I'm talking about here is debt forgiveness. You see, they can't buy
anything else, they can't expand their markets unless they deal
with the existing debt the Soviet Union has. Now, we have a Free-
dom Support Act which is in place, and we have other things that
are trying to deal with new methods of assistance, and CCC has
some pretty good generic authorities here. But the question is,
what do you do with that overhanging debt now? Do we write it
off? We just don't worry about it? I think the American people
wouldn't particularly care for that. And they can't go out in the
marketplace very easily and buy anj^hing else. The IMF won't be
a very cooperative force xuiless they deal with this preexisting debt.

Mr. Allard. I think barter may be something we could look at.
You know, Australia, Canada, France are all looking at that as an
alternative. I don't think we've looked at that seriously enough.

Mr. Glickman. Sure.

Mr. Allard. Thank you very much, Mr. Chairman.

Mr. Penny. Mr. Pomeroy.

Mr. Pomeroy. Congressman Glickman, first let me commend you
for advancing a very interesting idea. I think it's one that this
country ought to pursue.

Do you have any sense of domestic Russian response to the types
of linkages you're proposing? I think the IMF conditions have gen-
erally been viewed as so stringent as to be unrealistic. I'm wonder-
ing if a less stringent set of conditions ultimately could produce
some backlash for foreign meddling with their domestic concerns,
but I really don't have any notion in terms of how that's playing
over there.

Mr. Glickman. My judgment is that, yes, we could create an
anti-Western backlash by micromanaging their world, as imperfect
as theirs is. Perhaps the simplest thing to do would be to maybe
tie mere compliance by all the Republics with existing agreements
and establish some sort of a timetable of existing agreements so
they wouldn't think that some excessive interference is being foist-
ed upon them, and then, through a carrot approach, maybe say,
just hypothetically, "If you accelerate that, we're going to reward
you."

I think that there's a problem in us becoming too interfering, and
you already see that with Vice President Rutzkoi, who is a very
popular politician in Russia, equally popular with President
Yeltsin, who has taken a very public position about the West dic-
tating terms to the great motherland Russia, which is a potential
problem for us.

Mr. Pomeroy. I think that is a big potential that needs to be
pursued, particularly relative to compliance with agreements
they've already entered or other steps which, frankly, might be
helpful to them. It will be, however, the nationalists for self-serving
political reasons that will try and stir this pot.

Mr. Glickman. Absolutely.

Mr. Pomeroy. I hope that your proposal helps us frame debt re-
lief in its appropriate context, which is national defense. This isn't
foreign aid, this isn't international charity. This is national inter-
est, getting rid of nuclear weapons pointed at our country with a
delivery system capable of getting it here. If we want to use labels,
I mean, this truly would be a strategic defense initiative, not debt
forgiveness or foreign aid, and I hope in the process of your legisla-
tion we can begin making new associations through the strategic
use of, in particular, ag credit to advance important policy goals for
this country.

Mr. Glickman. I think you've stated as I intended it. I just don't
state it as succinctly as you did.

Mr. Pomeroy. You say it much better. But count me in. However
I can help you, please let me know.

Mr. Penny. Thank you, Mr. Glickman.

Mr, Glickman. Thank you very much.

Mr. Penny. We appreciate your appearance this morning.

Mr. Glickman. Thank you.

Mr. Penny. Our next witness is Mr. Richard Kauzlarich, Deputy
Assistant Secretary, Bureau of European and Canadian Affairs at
the U.S. Department of State.

Welcome to the subcommittee. Please summarize your remarks.

STATEMENT OF RICHARD KAUZLARICH, DEPUTY ASSISTANT
SECRETARY, BUREAU OF EUROPEAN AND CANADIAN AF-
FAIRS, U.S. DEPARTMENT OF STATE

Mr. Kauzlarich. Thank you, Mr. Chairman. With your permis-
sion, I'd like to submit my full statement for the record.

Mr. I*ENNY. Without objection, your prepared statement will ap-
pear in the record.

Mr. Kauzlarich. I'm pleased to come before this subcommittee
today to discuss the administration's programs to encourage the de-
velopment of private agriculture in the new independent states of
the former Soviet Union. I commend the subcommittee for conven-
ing this meeting and, indeed, for the format that you've used for
it. I think it's a rather masterful way of bringing the views of the
people who are most affected by what we're discussing so vividly
before us.

I think we all have to recognize the critical role that agriculture
is playing to the reform process underway in Russia and the other
independent states. I know we've been focusing our attention this
morning on Russia, but certainly as we look at this problem, we see
it more broadly affecting all of the other 11 newly independent
states of the former Soviet Union.

The reform process which President Yeltsin both inspires and
leads represents the greatest strategic challenge of our generation.
Secretary Christopher emphasized in his speech last week before
the Chicago Council on Foreign Relations the stakes that the Unit-
ed States has in this reform. They're monumental, and they affect
the very foundation of our security and prosperity into the next
century.

In responding to the opportunity that's presented, the United
States must extend a hand of partnership to President Yeltsin and
the Russian people. This must be a partnership based on demo-
cratic and free market values. While President Clinton is still con-
sidering the specific initiatives that he will announce at the sum-
mit next week in Vancouver, Secretary Christopher reaffirmed our
clear intent to increase and accelerate our support for Russia's de-
mocracy and its efforts to build a market economy.

He also set out guideposts for our assistance program: First, it
will be better targeted and coordinated; second, it will focus on
areas and constituencies in Russia that can have the greatest im-
pact on reform's long-term success; third, it will catalyze our pri-
vate sectors to take a leading role in Russia's transformation
through trade, investment, and training; and fourth, that our help
will be felt at the grassroots level.

Our assistance program in the newly independent states has
been grounded in the principles of the Freedom Support Act, which
clearly directed that our assistance recognize and bolster the eco-
nomic and democratic reforms in all the Republics of the former So-
viet Union. As each Republic in the newly independent states

makes progress toward building free market economies and demo-
cratic institutions, we're going to be able to implement a range of
assistance activities, including programs in the agricultural sector.

Clearly, the agricultural sector is one of the keys to the restruc-
turing of these economies. So far this year we've signed agreements
with eight of the newly independent states, for a total of $337 mil-
lion in grant food assistance and commercial and concessional sales
of U.S. agricultural commodities.

We've also been active in the technical assistance area to address
four bottlenecks to development of market-oriented agriculture:
Public policy, agricultural credit, infrastructure, and inputs. We've
already committed over $100 million in technical assistance to the
agricultural sector in these states over the next 3 years.

Our programs fall into four categories: Policy advice, agricultural
exchanges, agribusiness development, and agricultural demonstra-
tion and training projects. In the policy advice area, we need to
help develop the necessary policy framework for the development
of a market-oriented agricultural system. Our agricultural ex-
changes try to develop the farmer-to-farmer concept as well as fel-
lowship programs that bring people from Russia and the other
states to the United States to get involved with United States agri-
business. In the area of agribusiness development, we're providing
incentives for investment in trade by U.S. businesses in the agri-
business sector, particularly activities that will increase the effi-
ciency of the NIS food system. Finally, in the demonstration and
training area, we're trying to set up projects that will help in the
development of wholesale markets, model farms, agribusiness
training, and low-cost storage programs to reduce post-harvest
losses.

Many of our technical assistance projects are just now beginning
to be implemented, and we look forward to tracking the progress
of these programs and assessing their impact on the development
of private agriculture in the newly independent states.

The contribution that our agricultural policy advisors — one of
whom will here be tomorrow — have made has been enormous.
You've already heard dramatic first-hand testimony of Russian
farmers about their needs in this area and the importance of farm-
er-to-farmer volunteers.

It's important to recognize the full range of these programs that
will be implemented in those districts, regions, and countries where
enterprising and courageous leaders are implementing reforms.
We're confident that we'll see regions where private agricultural
production, processing, marketing, and distribution systems have
taken root that will allow both farmers and consumers to taste the
fruits of economic reform.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Kauzlarich appears at the con-
clusion of the hearing.]

Mr. Penny. Thank you, Mr. Kauzlarich. Given the fact that Rep-
resentative Glickman preceded you at the table this morning, I
think before I ask questions that are specific to your testimony, I'd
like your reaction to his linkage of debt forgiveness with other con-
ditions and how that tracks with the thinking of the State Depart-
ment at this point.

Mr. Kauzlarich. Well, we clearly need to look at creative ap-
proaches to promoting all of the problem areas that he identified —
dismantling of nuclear weapons, conversion of defense facilities,
privatization of state enterprises. There is a need to look at this in
nontraditional ways, because we've never had to face the problem
the same way that we do today.

However, on the specific point of debt, I want to emphasize a dif-
ference between the pohcy that the administration has taken to
date and what he is suggesting. We view debt rescheduling as
being pursued within a multilateral fi'amework, specifically the
Paris Club of Creditors, and the objective of the exercise of debt re-
scheduling is to maintain the present value of Western claims. In
other words, we haven't contemplated any form of debt reduction
as his legislation, as I understand it, would require.

So, therefore, we sort of have a different approach here, and I be-
lieve the Russian interest, too, is to emphasize the rescheduling as-
pect of this as opposed to a debt write-down. They want to reestab-
hsh their own creditworthiness, and what we need to try to do in
the debt area is to give them the breathing space, and that's what
a successful rescheduling program would give them, so that they
can take advantage of their natural economic strengths and re-
sources that they have to begin to become current and to become
a full participant in the commercial credit market.

His proposal obviously takes in a multiplicity of issues that cut
across agency lines, and certainly we'd have to talk with USDA,
Treasury, Defense, and others as we review thi& legislation. But I
think it's important to look at it comprehensively and
programmatically, look at the budgetary implications, and then get
back to you with our views.

Mr. Penny. You mentioned in your testimony and again just now
the need for coordination across agency lines. How, in the Clinton
administration, do you intend to provide for the proper degree of
coordination? How can you assure us that that will not impede the
pace at which we need to proceed on this issue? Incidentally, how
does Strobe Talbot fit into all of this?

Mr. Kauzlarich. Well, once he's confirmed. Strobe Talbot will be
that glue, if you will, that holds the coordination process within the
U.S. Government together, and the objective would be to, through
a system of very close interagency cooperation, deal with the spe-
cific problem areas that we've been talking about this morning.
Clearly, this is not an issue that one single agency has the sole re-
sponsibility for. That's why we've got to bring everyone together.
We've been working very carefiilly with USDA, Treasury, 0MB as
we've looked at specificadly these issues relating to agricultural as-
sistance in particular.

But what the President intends to do by creating the position of
Ambassador-at-large for the newly independent states, the position,
when he's confirmed, that Strobe Talbot will occupy, is to provide
the coherence that brings together both policy as well as the oper-
ational aspects of this. I know from my conversations with Mr. Tal-
bot and fi*om his testimony in his confirmation hearings that he's
very concerned about making the assistance programs deliver — not
just setting the policy, but making sure the policy is imple-
mented— and that's going to be, I think, a clear result of the sum-

mit that will come out of the Clinton-Yeltsin meetings, a program
that then will be operationalized in ways that are concrete and, as
Secretary Christopher said, bring our assistance to the grassroots
level,

Mr. Penny. That leads into my next question. It's clear in your
testimony that agriculture has been and will continue to be central
to our efforts of assistance for the former Soviet Republics, both in
terms of general commodity sales as well as technical assistance
and direct food aid. You seem to imply in your testimony that we
need to think small and think local, think grassroots, in terms of
our aid efforts here.

Can we expect an expansion of the farmer-to-farmer exchange ef-
fort? Can we expect more creativity on the part of the administra-
tion in terms of targeting some of our food aid, perhaps monetizing
that aid in the local economy so that that money can stay there to
support democracy and market reforms? What glimpse can you
give us in terms of our policy in that regard?

Mr. Kauzlarich. I think at this stage, certainly in this period
just before the summit, we're still putting together that package of
measures, including those from the agricultural area, and I'd feel
a little better if these hearings were after the summit, and then I
thiri we could probably get into more detail than I can this morn-
ing. I'd welcome perhaps some follow-up after the summit on that.

I think the areas that you identified are areas that we see, as
I've mentioned in my testimony, as being very important to making
this grassroots contact work. The monetization issue is one that
we've looked at as well. So far, at least, we've followed a dual ap-
proach in our food aid programs, both targeting nutritional pro-
grams to ensure that the food reaches the most vulnerable popu-
lations, and some monetization through PDO's or recipient govern-
ments.

I think on the monetization side, it's important to keep three fac-
tors in mind if you're going to have a monetization program that
really works. One, you have to make sure that local production is
not going to be disadvantaged by the introduction into the market
of U.S. commodities and, most important, I think, that the value
of the commodities is not lost, especially when you're looking at in-
flation rates in Russia and many of the other Republics of 20 to 30
percent a month. If you have a slow or inefficient monetization
process and disbursement process, you're going to reduce the value
of any monetization program. Finally, and perhaps self-evidently,
you have to make sure that the proceeds are going to be used for
what you want them to be used for.

But, yes, we're looking at that. As I say, we have used it in the
past. I would only point out at the end that there is some resist-
ance to this kind of program in Russia, but still it's been used and
deserves to be looked at.

Mr. Penny. Before I yield to Mr. Allard for his questions, it's my
understanding Mr. Bishop has kind of a follow-on question to my
line of questioning.

Mr. Bishop. Yes. Thank you very much, Mr. Chairman.

This follows up on the monetization issue of some of our food aid
programs. Are you exploring looking at — and I understand your re-
luctance to go into it prior to the summit — the possibility of mone-

tizing some of our food aid and the creation of perhaps a revolving
loan fiind that could help in the democratization process, but also
the capitalization process, for developing small entrepreneurs on
the grassroots level in the former Soviet Union? In other words,
monetizing the food aid so that you can then have a pool that can
be utilized as a revolving loan fund for the creation of entre-
preneurs in the Russian economy at the grassroots level.

Mr. Kauzlarich. Mr. Congressman, if I may, I'd really like to
sort of defer and get back to you when we're in a position to com-
ment more precisely about just what we are going to be going
ahead with with the Russians. As I say, I wish the timing were a
bit different in this hearing so that I could do that. But we will get
back to you with the details on that.

Mr. Penny. We'd appreciate that. And, of course, the timing of
these hearings was set before the timing of the summit.
Mr. Kauzlarich. Exactly.

Mr. Penny. But we understand the dilemma that you're faced
with.
Mr. Allard.

Mr. Allard. Mr. Kauzlarich, I just had a news release here in
front of me where the President had made some comments that he
was considering some form of aid to Russia, and there was some
speculation that came out with the news release that he was con-
sidering aid that would be of benefit to small business in general,
a loan guarantee for housing, some environmental clean-up, and
even maybe some nuclear reactor safety clean-up issues. But what
struck me was that there was no mention of agriculture. So I just
am asking of you and would like to have your comments on a very
serious commitment as far as agriculture, because I think that's
where we can be of most assistance to the Soviet Union, and I
think it benefits the United States as well. Would you comment on
that, please?

Mr. Kauzlarich. I don't think it's fair to say that agriculture is
out. I mean, there's going to be a whole package of measures that
fall into the area of microeconomic assistance, and agriculture is
one of those areas. There are also going to be other measures that
will fall into the area of macroeconomic assistance, which will be
coordinated with our G— 7 industrial alUes, where we will be look-
ing to multilateral institutions to become involved. I would expect
that some of their programs as well would fall into the agricultural
area.

So all I can say is I think you'll have to evaluate the summit
package as it comes out and reach your own conclusions on that.
But agriculture is important in our microeconomic package.

Mr. Allard. What role will the Secretary of Agriculture play in
devising the Russian aid plan?

Mr. Kauzlarich. Well, in the interagency process that we have
underway both for the preparations for the simimit as well as for
the future activity, as I described earlier, that Stroke Talbot will
be responsible for, USD A is directly and actively involved. They're
critical to making this work. They know agriculture, they know the
problems in Russia, and they've been very helpful as a full partici-
pant in our interagency preparation.

Mr. Allard. As an expert on Russia, c£in you tell the subcommit-
tee what the status is of the private sector in Russia, as you see
it, especially as it relates to agricultural production, processing,
and marketing?

Mr. Kauzlarich. Well, the private sector generally in Russia is
just at its very beginning stages, and the privatization program of
the Yeltsin government has begun emphasizing small- and me-
dium-sized businesses and service industries. They have not tack-
led the obviously tougher questions of full privatization of large in-
dustries or of the agricultural sector as a whole, and I think that
with just really a little over a year's experience, it's very hard to
argue that there's been a radical shift toward the private sector in
the food processing industry. It still tends to be dominated by the
larger and still state-owned companies.

What I would hope for the future is that both as the Yeltsin pro-
gram for expanded privatization — and in his March 20 speech, he
made clear that he did intend to expand the privatization effort —
that this would provide greater opportunities for private investors,
both domestic as well as foreign.

I think, as some of the discussion earUer today has pointed out,
there are a lot of changes that have to be made in the pohcy frame-
work in Russia itself to provide the sort of predictability as well as
the clarity necessary for investors, whether they're domestic or for-
eign, to make the kinds of investments that will be necessary for
this sector to really show a dramatic involvement of private activ-

ity.

Mr. Allard. In the video that we saw this morning and in con-
versation over the phone with the Russian farmers, I got the dis-
tinct impression that they were looking for a way for d^ect inter-
action between our farmers and our agricultural processors with
theirs. Do we have in place the laws to allow that to happen in an
expeditious manner?

Mr. Kauzlarich. Well, what we have tried to do in terms of the
United States' private sector's involvement there is to set a frame-
work of agreements with the Russians in the trade area, in the in-
vestment area, in the Overseas Private Investment Corporation as
well, so that we can lay in place the kind of framework that a Unit-
ed States investor would look at and say, "Yes, I'm comfortable
with putting my money in that process."

Where we still have a lot of work to do is on the Russian side
itself in providing both Governments and their own industry and
farming communities with the sense of the need for a Western-
style legal and commercial environment that will allow these kinds
of investments to take hold.

So we've addressed one element of the equation, but the other
element, which really is going to require an awful lot of technical
assistance from our side, will be helping the Russians themselves
at all levels to get their policy framework right so that private in-
vestment can work.

Mr. Allard. The yellow light is coming on here, and I have a
Umited amount of time, so I want to editorialize a little bit. I hope
that we don't intervene too much in that marketplace, because I
think we slow down that — ^what I hope is we open it up so that
there can be a free exchange between the Russian farmer and the

68-443 0-93-2

American farmer or commodity or marketer or whatever and let
the individuals decide on their own what kind of risk there is and
whether it's something they want to assume without us being so
regulatory in that process that you take that flexibility.

I don't think we can guarantee a risk-free society even here in
this country, and I would hope that we wouldn't do that, because
I think our markets would develop much faster if we can leave it
up to individuals and try and expedite that.

Mr, Kauzlarich. I would agree with you. I think the more you
can encourage that kind of contact, the better. But I know in our
contact, with American business people in particular, they come to
us with the same set of problems — the lack of predictability in
terms of who can sign contracts on the Russian side and the very
concept of ownership itself, the lack of a tax system that you can
say from one day to the next isn't going to change, the need for
some sense of relationship between local and federal-level officials
in Russia.

If we can help in that area, I'd like to do it, but as much as pos-
sible stay out of the way of the contacts that are so important on
the person-to-person level, which are obviously the ones that are
going to be most likely to bring success.

Mr. Allard. Thank you, Mr. Chairman.

Mr. Penny. Ms. McKinney, do you have any questions for this
witness?

Ms. McKinney. I do have a few, Mr. Chairman. Thank you.

Really, the first question is in response to something you said
about Representative Glickman's bill, and I'm just wondering, has
the creditworthiness of Russia already been negatively impacted
because of this arrears?

Mr. Kauzlarich. [No audible response.]

Ms. McKinney. It has been. Would, Mr. then, Mr. Glickman's
write-down proposal add to that negative stain on their credit-
worthiness rating?

Mr. Kauzlarich. Well, that's almost a question that you'd have
to ask a commercial banker in terms of how they would interpret
that kind of development. I think our objective has been to try to
get Russia in the position where it can service the debt that it has.
Once that's done, if the credit markets look at a country, even
though it may have a large amount of debt, if it's servicing that
debt, then they're going to be prepared to lend.

I think we ought to focus on the objective here, and, at least in
our view, the objective is to get Russia to the point where it can
come back into the credit markets for this and other purposes as
a full participant. As I say, I think that's where the distinction is
between what was suggested earlier and what I described as our
approach toward debt rescheduling.

Ms. McKinney. Then do you or do you not believe that this pro-
posal that is before us is a way to bring Russia back to credit-
worthiness? Is that a viable way?

Mr. Kauzlarich. Well, again, I'd like to study it a little more
carefully, and, as I say, there are a number of other agencies who
may have even more precise views on some of the issues you've
been addressing. I just would not feel, at this point, able to give

a final answer to your question. As I say, well want to look at it
and respond in a coherent fashion to the proposal.

Ms. McKlNNEY. Tell me about your farmer-to-former program.
Where is it operating other than in Russia?

Mr. Kauzlarich. Perhaps my colleagues from USDA know. I be-
Heve in Armenia. Oh, almost every Republic in the former Soviet
Union. I would guess in Tadzhik and some of the more problematic
areas as far as civil disturbances, they would not be operating, or
in Azerbaijan, because of the limitations imposed by the Freedom
Support Act on United States assistance activities there.

Ms. McKIlNNEY. Is that a program only for Russia and the other
independent states?

Mr. Kauzlarich. I think the program is in Eastern Europe as
well. It's a worldwide progremi, but I'm talking in terms of this re-
cent manifestation of the program. I think over the years we've al-
ways had some degree of farmer-to-farmer exchange in our foreign
aid efforts, but in the last several years we've established it in
Eastern Europe, and then about a year ago took steps to set up a
very aggressive program in Russia and the other Republics.

Ms. McKiNNEY. What about the Western Hemisphere and Afri-
ca?

Mr. Kauzlarich. What I'd like to do is perhaps provide to your
office in writing a more detailed response, because you're getting
into areas which I'm just not familiar with. But I do understand
that it does operate in many developing countries, including Latin
America

Mr. Penny. We will have a witness from VOCA tomorrow. Not
that they're the only entity that handles these farmer-to-farmer
programs, but they have been one of the key agencies or organiza-
tions in terms of distributing this type of aid around the world, and
we can maybe get some answer then. But if not, we'll certainly

Mr. Kauzlarich. Well, we can try to provide more details.

Ms. McKlNNEY. That would be very helpful. Finally, could you
just give me a ballpark figure of the total amount of United States
dollars that are going to assist Russia and the independent states
as far as agriculture is concerned?

Mr. Kauzlarich. Well, if you look at it in terms of technical as-
sistance, we've committed $100 million over a 3-year period for all
of the newly independent states. In fiscal year 1992 we provided
around $368 million in food assistance to those states. This in-
volved $271 million in USDA food aid, $62 million in Department
of Defense excess stock donations, and $35 million in private dona-
tions.

So far this year, fiscal year 1993, as I mentioned in my testi-
mony, USDA has signed agreements with eight of the newly inde-
pendent states for $377 million in food aid. There are other agree-
ments also being negotiated, I would add. But in addition to that,
we expect to provide about $40 million in excess DOD stock dona-
tions and about $40 million in private donations. But, again, that's
just up to this point in this fiscal year.

Ms. McKlNNEY. Thank you.

Mr. Penny. I have one last question before we move on to our
next panelist. You mentioned that the idea of monetization was en-

countering some resistance within Russia. What's the basis of the
opposition?

Mr. Kauzlarich. I think in a sense they regard it as rather in-
trusive involvement of the United States or of Westerners in a
process that they would very much like to decide on their own. I
think they would clearly like to see themselves treated as a normal
customer for grain purchases the way they want to purchase it and
then distribute it the way they would like to distribute it.

It is in part a reflection, I think, of the political tension within
Russia today of the reformers versus the more conservatives, who
regard any Western activity, and particularly the activities that
seem to involve the West telling Russia what to do, as something
to be a threat rather than part of the process of helping support
the reform process. So I think in a sense this reaction is reflective
of the very basic political differences that are present in Russia
today.

Mr. Penny. There must be some regions within Russia where the
local authorities are more committed to reform and would be more
receptive to that type of distribution effort.

Mr. Kauzlarich. That's right.

Mr. Penny. Is there an overlap between the degree of coopera-
tion and the degree of need, or do we have disconnect there?

Mr. Kauzlarich. Not always. There may be, I think, a bit of a
disconnect in that sense, but it is possible to try to match some of
these programs. I will have to defer on the detail of what we're
doing in the monetization area, but it is possible to match some of
these programs with more reform-minded regions. Nizhnovgorod,
which is the one area that's always cited, I think, as having a par-
ticularly reform-minded leadership and population, I think has
benefited more fi*om our general privatization efforts than many
other regions in Russia where there is, unfortunately, more resist-
ance to the idea of reform,

Mr. Penny. I thank you for your testimony this morning.

We want to move next to Christopher Goldthwait. Christopher is
the Acting General Sales Manager, Foreign Agricultural Service,
within the Department of Agriculture. This is not the first and
probably won't be the last time we'll discuss with Christopher the
USDA's involvement in food shipments to Russia.

We welcome you this morning and would ask that you summa-
rize your testimony, and then we'll move directly to questions.

STATEMENT OF CHRISTOPHER GOLDTHWAIT, ACTING GEN-
ERAL SALES MANAGER, FOREIGN AGRICULTURAL SERVICE,
U.S. DEPARTMENT OF AGRICULTURE; ACCOMPANIED BY
ALLAN MUSTARD, DEPUTY COORDINATOR, EAST EUROPEAN
AND FORMER SOVIET UNION SECRETARIAT; AND CHRIS-
TOPHER J. FOSTER, LEADER, FORMER SOVIET UNION SEC-
TION, ECONOMIC RESEARCH SERVICE

Mr. Goldthwait. Thank you very much, Mr. Chairman. I appre-
ciate the opportunity to be with you again and to address the sub-
committee. With your permission, I will ask that my full statement
be entered into the record, and I'll confine myself to a few remarks.

Mr. Penny. Without objection, your prepared statement will ap-
pear in the record.

Mr. GOLDTHWAIT. I've brought with me, in addition, two special-
ists from the Department — Mr. Allan Mustard, who is the Deputy
Director of our East European and Former Soviet Union Secretar-
iat, as well as Chris Foster, who's the Leader of ERS' Former So-
viet Union Section — and they may be helpful with very detailed
questions you may have.

I'd like to begin by laying out the two assumptions that have
been behind the administration's agricultural activities with Russia
and the other countries of the former Soviet Union, and I believe
they both were adumbrated by a number of the comments that you
and the other members made at the beginning. These are that
progress in agricultural reform and restructuring is critical to the
success of the overall reform effort in Russia and the other coun-
tries, and second, that success in the FSUs restructuring in agri-
culture is good for American agriculture as well as that of those in-
dividual countries.

From these two assumptions emerge, I think, two themes that
are very, very important and that have lain behind all of our activ-
ity: First, the need to ensure continued access to U.S. agricultural
exports during the economic restructuring because adequate food
supply is necessary for its success, as well as because we want to
maintain a market position in what will be an important farm mar-
ket for U.S. products longer term; and, second, in assisting with
the restructuring of Russian agriculture, we need to focus particu-
larly on the needs of the emerging private farm sector — the rep-
resentatives we heard from this morning — as well as the off-farm
market and distribution system that, under the old Soviet regime,
was the weakest link in the food chain.

If I may, I'll comment briefly on the specific topics that were
raised in your letter of invitation before closing. First, with respect
to United States efforts to aid Russian agriculture, the United
States approach to assisting Russian agriculture has been devel-
oped by relying not only on the expertise that we have within Gov-
ernment in our Department, in AID, and in our other sister agen-
cies, but also by the involvement of a host of United States private
sector representatives, including farmers, agribusiness persons,
and academicians that have been with us on our various trips to
Russia and the other countries of the former Soviet Union.

In working together, we have identified the post-harvest side as
the portion of the equation needing the most attention. I think re-
cently, as we've seen more private farms emerge, we've increased
our attention to production agriculture as well. But I think if you
look at all of the various technical assistance activities we've devel-
oped, they will fit around two points: First, improvements that
focus, importantly, on the management skills in handling, market-
ing, distributing, and processing farm products after they ve grown;
and second, the skills and inputs that are needed by the new
emerging private farmers.

If I could comment briefly on the second point, agricultural cred-
it, as the farmers we heard from this morning mentioned, is a key
area, and there, in point of fact, USDA has already signed two
monetization agreements with private voluntary organizations that
are designed to provide rural lending to farmers and other rural
entrepreneurs with the proceeds from the commodities that we're

providing. However, as we've heard this morning, the Russian au-
thorities have a bit of a suspicion of monetization. In point of fact,
they find it very difficult to understand why commodities that are
donated to their country should be sold for cash as opposed to dis-
tributed directly to needy persons. We're working with them to try
to overcome that resistance. I think more than anything else it un-
derscores that reform is as much a matter of mindset as it is any-
thing else.

Let me turn, if I may, to the history of United States grain sales
to the former Soviet Union. As you know, since the early 1970's,
the Soviet Union, and Russia and the other countries more re-
cently, have been a very strong market for United States agricul-
tural commodities, particularly grains. In the period of the late
1980's and 1990, US. exports averaged roughly 4.5 million tons of
wheat and over 10 million tons of feed grains annually. I think that
underscores the importance to United States agriculture. In these
years, the FSU was indeed often our second or third largest mar-
ket.

If I may get to the other question you asked about changes in
our overall approach, I believe that the overall approach, two-point-
ed, as I outlined, remains valid, but that as we look at cir-
cumstances that change with breathtaking speed over there, we
may indeed need to change the various mechanisms that we use to
achieve those approaches. I don't think that we have all of the an-
swers. I don't think, given the unprecedented nature of change,
anyone can expect to have all the answers.

In looking, for example, at the mechanism that should continue
U.S. agricultural exports, we are examining a very wide range of
options, and we recognize that what may be the best short term is
not necessarily the best longer term option. We're looking at food
aid. We're looking at barter, which was mentioned. We're looking
at how we might continue to use our commercial programs. We're
considering whether or not it would be advisable to develop a new
legislative approach entirely. Again, none of these are ideal, and all
of these options have costs.

I see the time has expired. I will, therefore, stop at this point and
offer to answer any particular questions you ana the others of the
committee may have.

[The prepared statement of Mr. Goldthwait appears at the con-
clusion of the hearing.]

Mr. Penny. Can you discuss, first off, the grains offered but not
shipped and elaborate a bit as to the various factors that are at
play?

Mr. Goldthwait. Yes. There are roughly 250 million dollars'
worth of commodities which had been registered under the GSM-
102 program before the arrears that accumulated led to the sus-
pension of that program. After that point, the various U.S. banks
that were involved in the process became reluctant to process the
letters of credit that would have resulted in the shipment of those
commodities. There were questions, I think, also on the part of the
U.S. exporters.

We have worked very closely with these various parties to indi-
cate that we stand ready to amend the pending credit guarantees
so that those transactions can go forward. In fact, in recent days.

we've seen some movement on the issue, and we have now ap-
proved two amendments to cover roughly 600,000 tons of grain,
and I expect that there will be some additional movement on that
issue very shortly. I would caution that those exports have not yet
taken place, but that USDA has done what it must do to make it
possible for them to.

Mr. Penny. Could you talk a little more about barter? Under the
Freedom Support Act, and I think in earlier legislation, probably
in the 1990 farm bill, we made some reference to barter. I know
that some attempts have been made to negotiate barter sales, but
I think our sense is that we haven't been as aggressive as some of
our competitors. In recent months we've seen evidence that France,
Australia, Canada are involved in significant barter sales to the
former Soviet Union. Where do we stand, and what are the pros-
pects for development of barter sales for the future?

Mr. GOLDTHWAIT. First of all, the Commodity Credit Corporation
has several direct barter authorities, most of which, however, per-
tain to commodities that CCC itself may own. Today CCC does not
have large surplus inventories other than of butter. But we have
looked and are continuing to look at whether or not there are ways
that we can facilitate private sector barter trgmsactions, and the
development of a mechanism to do that is among the various op-
tions that we're studying for maintaining the major portion of our
trade.

However, what we have done so far really relates to the use of
our export enhancement program, where in effect we amended the
requirement in the program that said that a buyer must be located
in the country of the commodity's delivery. By permitting buyers in
third countries to purchase for delivery to the countries of the
former Soviet Union, we in effect enabled ourselves to participate
in the barter trade that is going on there. We have approved for
export under the EEP roughly 1.5 million tons of wheat bonuses
and bonuses for 20,000 tons of barley under that adjustment in our
export enhancement program.

So I think we are already participating in the barter trade, and
most of those deliveries have been to Uzbekistan and Russia.

Mr. Penny. I think, at least, for my purposes — I don't pretend to
speak for the rest of the subcommittee — a more aggressive pursuit
of barter possibilities would certainly be welcomed. It seems to me
that, first of all, we have to reschedule the existing credits. That,
then, will provide some signal to us as to what terms need to apply
to future credit sales, and barter is one-way of locking in a return
on those sales of commodities, and it seems to me it ought to be
a more central element in our trading relationship.

Are we likely to move the GSM-t103 — once the Paris Club makes
its decision on the current credits, are we likely to offer additional
credits under GSM-103?

Mr. GOLDTHWAIT. I can't say at this point the degree to which
we will be able to resume use of the credit program after reschedul-
ing. Certainly, 103 could be considered along with 102, but we
would have to look not only at the exact terms that emerge from
Paris Club rescheduling, we would have to work with the Russians
to handle those arrears that would not be rescheduled, and they
would be significant, according to the most recent estimates. And,

again, we don't yet know exactly what the terms of a rescheduling
will be. Further, we would have to look at the overall situation
within the Russian economy and its ability to generate foreign ex-
change that is not encumbered by previous obligations.

So we would have to look at all three of those things to make
a determination as to what and how much we might return to use
of the commercial programs.

Mr. PE>fNY. What thought has been given to offering credit, prob-
ably GSM-103 credit, for sales of agricultural equipment, process-
ing equipment? As you heard in the video this morning, that seems
to be a key area of demand among the private sector farmers with-
in Russia. I think we have authority under GSM-103 to include
these types of sales in our offerings.

Mr. GOLDTHWAIT. We do have that authority. It was given to us
in the most recent farm bill, and we have developed a regulation,
which was published just a week or two ago, to implement that au-
thority. We are in effect ready to start that as soon as we have the
question of the arrearages out of the way.
Mr. Penny. As soon as you have what?

Mr. GOLDTHWAIT. The question of the arrearages out of the way.
Mr. Penny. I understand. And what's the latest indication in
terms of a decision by the Paris Club?

Mr. GOLDTHWAIT. I do not know. I can't comment in any detail
on the timing for a rescheduling. There does appear to have been
some movement on some of the questions that are delaying that.
I understand there may be some additional meetings scheduled.
Mr. Penny. Thank you.
Mr. Allard.

Mr. Allard. Thank you, Mr. Chairman. I'd like to follow up on
your Paris Club questions a little bit.
What type of questions is it that's holding up rescheduling?
Mr. GOLDTHWAIT. Well, one of the principal problems had to do
with the difference of views between Russia and the Ukraine on
the handling of the debt of the former Soviet Union and whether
or not an arrangement could be worked out under which basically
one party made the pa5nnents that would be required under the re-
scheduling. Again, without being privy to the precise details, I've
read in news reports that some visits over the weekend in Kiev did
indicate some progress on that issue.

Mr. Allard. Now, Russia, the Republic, has given us some $15
million here recently on interest. Have we received £iny attempt
from the Ukraine to pay on any money that they may owe the
United States?

Mr. GOLDTHWAIT. Under the separate GSM- 102 program that
was made available to the Ukraine beginning not quite a year ago,
the Ukrainians have been making and are fully current with the
interest payments that have come due. No principal payments
under that programming have yet fallen due. The Ukrainians, to
my knowledge, have not made any payments on obligations to the
former Soviet Union.

Mr. Allard. Getting back to the food for aid program, what ef-
fect would the cargo preference rules have on assistance to be pro-
vided for Russia and the other Republics of the former Soviet
Union?

Mr. GOLDTHWAIT. If we provide concessional assistance under
any of the USD A programs, cargo preference applies.

Mr. Allard. How is this going to affect our ability to provide
that aid to Russia?

Mr. GOLDTHWAIT. Well, in effect, it makes the cost of doing so
considerably higher, and it is a limiting factor

Mr. Allard. Can you give us some specific figures on how much
higher?

Mr. GOLDTHWAIT. Well, right now for foreign flag vessel ship-
ments between gulf ports and Black Sea or Baltic destinations,
you're looking at maybe $28 to $30 a ton. The most recent tenders
that I've heard about for U.S. flag vessels were about $67 or $68
a ton. So you're looking at a difference of between two and three
times in cost.

Mr. Allard. Wow. Now, USDA runs a Polish-American extension
project that was created and operated by its Extension Service, and
I'm informed that this is a successful program that has helped Pol-
ish farmers. Is there any intention to establish a similar program
in Russia?

Mr. GOLDTHWAIT. We have, actually, established a similar pro-
gram already in Armenia, and that's in its first year of operation
and off to a good start. We are currently looking at whether we
would also extend this program to Russia. I can't say at this point
that we will with certainty be able to do so. As always in these
cases, funding is a question.

Mr. Allard. Getting back to the Paris Club, if those negotiations
get delayed, do you have some alternate plans where we would
move ahead with some credit provisions?

Mr. GOLDTHWAIT. We are looking at steps that we might take on
a kind of an interim basis in the event that we are not able to re-
sume use of the commercial programs.

Mr. Allard. Now, those countries that are using barter as a way
of negotiating with the Russians right now, are those countries
part of that Paris Club?

Mr. GOLDTHWAIT. The countries except for Ukraine have all as-
signed to Russia responsibility for the former Soviet Union's debt.
So the Paris Club is focusing at the moment only on Russia and
the Ukraine. The other countries are no longer involved in that
process.

Mr. Allard. I see. What about the creditor countries?

Mr. GOLDTHWAIT. The creditor countries?

Mr. Allard. Yes.

Mr. GOLDTHWAIT. There are several of them. Most of the G-7
countries are the central players in that.

Mr. Allard. So France and Canada and Australia

Mr. GOLDTHWAIT. Germany.

Mr. Allard. Germany are creditor countries, and they are doing
some barter arrangements with the Russians. Why aren't they
waiting on the Paris Club negotiations like we supposedly are?

Mr. GOLDTHWAIT. I think the barter arrangement that the Cana-
dians undertook recently, which was a very small one of only about
50,000 tons, in effect is very similar to the kind of thing that we're
doing under the export enhancement program. That, as I under-
stand it, was sold through a Turkish trading company. In point of

fact, the Australian arrangement I think is perhaps a little bit
more closer to what is thought of in terms of a direct barter. But
there we have only been able to confirm that one-half of 1 million
tons of that business is solid, and the other 1 million tons that has
been talked about is still potential, shall we say. I don't know what
it is in the Australian business that differentiated that from our
abilities.

Mr. Allard. Thank you, Mr. Chairman. I see my time is up.

Mr. Penny. Ms. McKinney, do you have any questions of this
witness?

Ms. McKlNNEY. No, Mr. Chairman.

Mr. Penny. I appreciate your testimony this morning, Chris-
topher. I did want to ask one last question about the Foreign Agri-
cultural Service. Given the nature of the newly independent states,
are we adequately represented through the FAS in the former So-
viet Union? It seems to me that we now have 12 Republics, and yet
I think we still only have one or two FAS offices in the entire re-
gion, and I'm just curious, given the variables that exist between
governments there, whether we really are properly staffed through
the FAS.

Mr. GOLDTHWAIT. We are doing the best we can to expand our
staffing in the former Soviet Union. We have added an additional
American position in the last year to our Moscow office, which re-
tains responsibility for most of the Republics. We have transferred
responsibility to one or two of the more remote Republics — for ex-
ample, Moldavia — to regional attaches that are operating from out-
side the former Soviet Union. We are, I suspect, going to make
some other modest changes in our staffing there.

Again, this kind of thing is what we're constantly trying to work
with in terms of taking what we have available in terms of re-
sources and using them where they're most necessary.

Mr. Penny. Thank you. I appreciate your testimony this morn-
ing.

We want to move now to our final presenter, Mr. Keith Severin,
senior associate for Soviet and East European Affairs, with E.A.
Jaenke & Associates here in Washington, DC.

By way of background, I want the audience to be aware that Mr.
Severin has retired from the Foreign Agricultural Service. His ex-
perience with Russia dates back to 1963. He served 2 years as an
agricultural attache in our Embassy there. Beginning in 1974 he
led annual study teams to Russia, the former Soviet Union, to focus
on various aspects of our bilateral arrangements with that nation.
In 1992 he was requested by Richard Crowder, the Under Sec-
retary of Agriculture for International Affairs, to be a special as-
sistant to advise the Department on programs pertinent to the
former Soviet Union.

So his background in this area is extensive, and we're delighted
that he was able to be with us here this morning.

Mr. Severin.

STATEMENT OF KEITH SEVERIN, SENIOR ASSOCIATE, SOVIET
AND EAST EUROPEAN AFFAIRS, EA. JAENKE & ASSOCIATES

Mr. Severin. Thank you, Mr. Chairman. It's indeed a pleasure,
almost more than I can express. I will let my testimony that I en-

tered in last week stand on its own, but with one regret. I'm sorry
that Chairman de la Garza did not have the opportunity to proof-
read it for me. There is one error that he would have caught.

Over on page 3, in the top line of the last paragraph, I talk about
day care centers and I say "deutsche sad," and they're really
"detsche sad." "Deutsche sad" is kindergarten. But the chairman,
with his proficiency and love for languages — which is terribly im-
portant, I think, these days in our trying to deal with the former
Soviet Union. We need people who are sensitive. We need people
who understand that Russia, the countries there, they are not
America. They are not America.

It concerns me a great deal when I hear, like was said in the
paper the other day, 'The Russians don't understand the word,"
and the word referred to there was "democracy." It's been said here
this morning that we really don't understand them, either. I don't
know what the term "private" means. The way I would define that
is simply that it is not state; therefore, if it's not state, we'll say
that it's private.

Another term that concerns me a great deal is the term "farmer."
When we use the term "farmer," we visualize someone in our coun-
try who makes decisions, implements the decisions, and then lives
with the results of those decisions. They are just only beginning to
be able to do that in Russia. Let's be sensitive.

This is terribly important, too, when we send people there. If
they're not experienced — and certainly we've got a great paucity in
inexperienced people to go there, no one really as richly endowed
as I nor nearly fortunate as I — but at least let's get sensitive people
who go there, and if people go there to deal with agriculture, let's
hope that these people have an idea a little bit about what agri-
culture is. Agriculture is a biological science. It's not a pushbutton
affair. If you miss a planting season by 10 days, you've got to wait
luitil the next planting season comes around. Timeliness is terribly
important, and sometimes the next planting seasons doesn't hap-
pen until the next year.

Well, many, many things have happened since I submitted my
testimony last week. We're very much aware of this. One of the
things that I wish that more people were aware of is the fact that
we keep referring to Moscow, we keep referring to Russia, but
they're almost sjnionymous in the way we speak. But they are not
synonymous. They are not synonymous. The people on the other
side of the Urals don't care a whole lot for the people who live in
Moscow. Some of the people out in Siberia are there because of the
people in Moscow. So there's not a great deal of love lost there.

Regionalism is building. We need to be represented in every re-
gion of Russia and the former Soviet Union. We have a public pol-
icy advisor in Moscow. That's good, terribly needed, but at the
same time — and I witnessed this last August when I was traveling
with former Secretary L)mg — we witnessed in Novosibirsk how
painfully needed a public policy advisor is. We need to put people
there, and at the same time we need to bring people here.

I was very fortunate in being able to bring the Lieutenant Gov-
ernor of Ulyanovsk over here, along with a group from Virginia
Tech. He had the opportunity not only to go to the land-grant uni-
versity to see how that operates, including the Extension system,

he visited farms, and also went to Richmond. He saw how the
whole thing comes together.

We need package approaches. Too often, we'll say — for instance,
I go there and I look at the link in the chain that I'm expert in.
I ignore the other links in the chain. But it's the entire chain that's
necessary, and, unfortunately — and here is where I hope that Mr.
Stroke Talbot will be effective. We need to coordinate every action
on our side in looking at the entire chain, and, unfortunately, ac-
tion needs to be taken on each of these links at the very same time.

We need people who are visionary, and, sir, I would commend
you for the visionary approach that you've taken to these hearings
here with the video that we had and then with the telephone hook-
up. That was marvelous. But the things that we saw here, don't
take for granted. The first thing I noticed was there was a roof out
there. It's been only in the last couple of years that roofs for stor-
age, open-sided sheds, have been found in Russia. Don't go there
and talce our things for granted.

My time is running out, but you will see in my paper that I have
suggested a program which I think could be terribly important. It's
a targeted program, and it's one I think that can be undertaken
successfully and without backlash, and this thing of backlash that
Steve Cohen mentioned in his column in Sunday's Washington Post
is awfully important. This is a program that is targeted to take
care of crying needs over there. I call it the children's assistance
program. It can be broader than that.

But too many of the children in the Soviet Union, they're not un-
dernourished, as in Somalia, but they're malnourished. We could
target that, and that would be terribly important, I think, in the
long term in creating markets over there. I read a statement just
yesterday that said that men being bom today, 34 percent of them
will not live to see their pension years, which, for a case of a man,
is 60 years old. For each one of those people that we can get to live
to 60, 65, or 70 years, think how much American produce goes
there.

There's a lot more that I could say. I'm addicted to the subject,
and I'll try to respond to any questions. I can't answer, but I can
try to respond.

[The prepared statement of Mr. Severin appears at the conclu-
sion of the hearing.]

^ Mr. Penny. Well, as a way of extending your period of testimony,
I'd like you to elaborate a little more on the children's assistance
program and how we would target that, what volume of commodity
we're looking at, and who would administer this. Do we work this
through private voluntary organizations? How do we make sure
that we reach the appropriate population?

Mr. Severin. I would not only look in Moscow, I would not only
look in St. Petersburg. In fact, I would look beyond them to start
with. I would go, again, to the regions, like I say, and there are
regions out there where there has been a great deal of environ-
mental pollution. In west Kazakh, in Aktyubinsk, they say that 40
percent of the babies are bom deformed because of the pollution
there. There are areas in the former Soviet Union where the moth-
ers are advised not to breast feed the babies because of the pollu-
tion that they've been subjected to.

There is enough literature available here in our country, there is
enough knowledge here that specific areas could be targeted. Just
like the man said this morning, "We were promised cows 12
months ago, but we don't know what happened to them." I would
not create anymore expectations that we cannot fulfill. That doesn't
do anybody any good.

But how much food would be required for this, I don't know, but
at the same time, again, just yesterday I read a statistic that some-
thing like a little over one-quarter of 1 million fetuses and babies
die before they reach the age of 1 week just because of social and
economic difficulties. I would make this a total children's care
package, with nutrition being an integral part of it. Baby food is
always something that they ask for. They would like to be able to
set up baby food processing plants. But this is something that we
could send there relatively easily, relatively inexpensively, but it
would be a part of a total children's care program, including the
inoculations and other pediatric needs.

Just to continue on, I would do this, again, in small communities
and rural communities, because if the children are taken care of,
then that would help. I'm a private farmer or I've just been given
the use of 40 hectares of land fi'om your farm, and you're not com-
pletely for that, but I have it. So you remind me, "Severin, the next
time your children need to go to the polyclinic or go to school or
your wife needs to come to the store here and buy something, you
can't do that, because you're no longer part of our farm." This
would be one way of helping to break — as my good colleague here,
Allan Mustard, says, that would be one way of breaking the stran-
glehold that the people in the countryside have placed on them by
the still-existing system.

Mr. Penny. It sounds an awful lot like America's WIC program,
in which we would try to get the commodities to distribution cen-
ters— as you say, kindergartens, day care centers, et cetera, where
the children are — and then, in turn, send those specific nutritional
commodities home with those families. I appreciate your suggestion
in that regard.

I also had a sense fi"om your written testimony that you believe
quite strongly that we ought to have a very focused approach to aid
and that we not take a scattergun approach where we try to do
more than we can actually do, but focus in three or four key areas
and provide the bulk of our assistemce in those areas.

Mr. Severin. Yes. I feel very strongly there, and, again, I would
rather send a very, very few good people there than inundate the
place with people who may be well-intentioned, but not sufficiently
sensitive nor qualified.

Mr. Penny. How do you analyze the existing VOCA farmer-to-
farmer exchange program, and how does that fit with your overall
theme of trying to provide support at the grassroots level, but also
trying to provide support that addresses all levels of need?

Mr. Severin. I understand the principles of VOCA are to send
people there who have nothing to sell except their own good will
and their own experience and their willingness to help. That is in-
deed admirable, and so long as those principles are adhered to,
that's fine. I've had a personal experience that showed me that it

could be a little better, but their heart is in the right place and I
think is beating pretty well.

Mr. Penny. We have, I think, slated about 1,700 personnel over
the next 2 or 3 years that will be on the groimd in Russia and the
other Republics. Is that too much, too little, about the right size for
an exchange program of this sort?

Mr. Severin. Russia is a big, big place, and I would say more
important than how many they are, that they be the right ones in
the right place. But it's a good ballpark figure, and I would cer-
tainly go out and try to find retired Extension Service people, re-
tired vocational agricultural people, retired home economists, re-
tired public health nurses, and young people who want to learn,
who want to serve.

Mr. Penny. Mr. Allard.

Mr. Allard. Thank you.

Mr. Severin, you're talking about children's programs for the Re-
publics of the former Soviet Union. It seems to me like those are
value-added products. What can we do to make those more avail-
able?

Mr. Severin. Finance them and get them there. Finance is al-
ways the bottom line.

Mr. Allard. But we do provide dollars for food for hunger and
these other programs. Are you saying we don't have enough, or is
it just a matter of redirecting some of the dollars that are already
there?

Mr. Severin. That would be my opinion, to redirect some of the
dollars that are already there. In so doing, it would help to encour-
age production on Russian farms of the basic products that they
can produce. They're great producers of bread grains. We all know
about Turkey red wheat, we all know about Shishkin's lovely paint-
ing of rye. They're great producers of bread grains. Other things,
they cannot produce. But I would suggest that we could do better
simply by reallocation of what we are allocating.

Mr. Allard. How do we determine which value-added products
we send over there? Do we open this up to a bid process? Somehow
or the other, as you mentioned earlier in your comments, we have
to be sensitive to the needs of the Russian people back in the Re-
publics, at least, so how do we make — we have sort of a bridge
there. We have areas here where we have plenty of surpluses, but
not where their needs are in the Russigm Republics. So how are we
going to bridge this with our value-added products?

Mr. Severin. I would simply go back and talk with a lot of the
experts and specialists who went there last year from our country.
Maybe they had not had previous experience in that country. But
they're nutritional experts, they're health specialists. They went
under AID programs of one kind or another, and I know some of
the young fellows that I met there last year — met them there —
they're Ainericans. The/re Americsin pediatricians. I would draw
on the experience that we gained last year, and there are other
people here in our country who are knowledgeable simply from the
Russian literature.

Mr. Allard. So you're saying that they can help us identify
areas where they need value-added products, and once that's been

identified, then we come back over here and we look at those
needs. What if it's a product over here that there's no surplus?

Mr. Severin. If we're serious about it, we'll manufacture it and
provide it.

Mr. Allard. Are you suggesting that we bid it out to various
companies? Is that what you're suggesting?

Mr. Severin. Yes, but I would get this done in a very expeditious
manner, because it's been mentioned here this morning that time
is money.

Mr. Allard. Yes.

Mr. Severin. And, again, the Russians remember all the things
that we did to help them in World War II with lend-lease, and they
look at us as being good and effective business people, and they ex-
pect us to not only do things, but to do them in a timely way, and
they expect us to do them, to carry out.

Mr. Allard. It might be that there's not a demand for certain
American products in Russia because they don't know about them.
They don't know the value of it. Can we educate those people to
appreciate those products? And if we can, what's the best medium
to do that?

Mr. Severin. I'd start right off with making sure that institu-
tional feeding, in one way or another, for the children would incor-
porate that in a subtle, subliminal way, to start with. Friends of
mine there now, I say, "I'm coming over. What can I bring for you?"
"Bring me two plastic cans of peanut butter, creamy, not chunky."
Communications has helped ever so much in broadening their
world of experience, their world of knowledge, and they're no longer
subject to the central press, to the central media, the way they
were before Gorbachev left.

Mr. Allard. Is there opportunity through their various types of
media to get our message across as to what's available?

Mr. Severin. They're hooked on America. The first time I saw
youngsters wearing their baseball caps backwards was over there
last summer. I came home and found it here.

Mr. Allard. Thank you.

Mr. Penny. Ms. McKinney.

Ms. McKinney. Nothing, Mr. Chairman.

Mr. Penny. Keith, we do appreciate your testimony this morning.
I know that you also had some thoughts about the presence of For-
eign Ag Service personnel within the former Soviet Union. Maybe
you could elaborate for us this morning as to how we could better
spread our resources and better serve the local need through the
FAS.

Mr. Severin. I don't know if the word "spread" is quite appro-
priate. There are certainly more resources needed. What FAS is
doing here, they're doing a pretty good job, but, fi'ankly, they're
strapped, and we need more resources within the former Soviet
Union, and we need more people. Everybody has suddenly discov-
ered Russia, and it's a good thing to study that Russian language
and Kazakh and some of these other funny things we haven't
thought about before.

I would do my utmost to encourage young people to come into the
Foreign Agricultural Service and to take those who are ready to go
out, get them out there, and I would certainly embark on a con-

stant training program, get them in-country, and don't overlook the
land-grant universities and colleges of agriculture. Now, if you're
going to do economics, do Ag Econ 51, not Econ 101. We want the
application of theory, not just theory for the sake of theory.

But, no, I wouldn't say it would be more of a case of spread, be-
cause there are so many needs, but rather simply more, and then
make sure they're placed right. I don't think that we're doing the
American taxpayer or the American farmer well by not having pro-
fessionally trained agricultural attaches represent U.S. agriculture/
agribusiness interests around the world.

Mr. Penny. Keith, thsink you very much for your testimony this
morning. It's been tremendously helpful. I think today, all in all,
has been a good kickoff to our 3 days of hearings on the Russian
situation. We appreciate not only you, but the others that testified
this morning, and we'll certainly stay in touch.

With that, the subcommittee stands adjourned.

[Whereupon, at 12:10 p.m., the subcommittee recessed, to recon-
vene, on Wednesday, March 31, 1993.]

[Material submitted for inclusion in the record follows:]

REVISED COPY

STATEMENT OF

THE HONORABLE DAN GLICKMAN (D-KS), CHAIRMAN

PERMANENT SELECT COMMITTEE ON INTELLIGENCE

ON HR 1507.
"THE DEBT FOR DEMOCRACY ACT OF 1993"

BEFORE A PUBLIC HEARING OF THE
FOREIGN AGRICULTURE AND HUNGER SUBCOMMITTEE

TO REVIEW RUSSIAN AGRICULTURE

9:30 AM, TUESDAY, MARCH 30. 1993

1300 LONGWORTH HOUSE OFFICE BUILDING

WASHINGTON, D. C.

MR. CHAIRMAN: Thank you for the opportunity to testify. You are to be
commended for calling this hearing and for devoting your Subcommittee's attention
to the situation in Russia. Not only do I believe this is among the most important
issues facing Americaa farmers, it is among the most important of all challenges
confronting the American public today.

As deeply intertwined as American interests are in the reform process
imderway in the former Soviet Union, the direction and pace of the process are, in
the end, questions the Russians must determine for themselves.

The United States can, and should, encourage that process, however. We have
substantial interests in seeing the reforms culminate in a democratic, market-
oriented state. Having spent trillions and devoted our national energy for four
decade to winning the Cold War, we can not afford to lose the peace. Nor can
Americtin farmers and American agribusiness afford to lose this customer.

The credits the Department of Agriculture has extended to Russia and the
other former Soviet states are the primary form of assistance the West has made
available to them in the Ifist two yetirs. The lotms have also been of immense benefit
in keeping open one of the single most important markets American agriculture has
and will have in the near future.

In the legislation I have introduced, I propose that the US use the leverage of
these credits to encourage further reforms while advancing our interests.

The Russians need debt relief, including rescheduling of USDA debt. They will
need additional food assistance and American agriculture needs to get back into that
market. We have an interest in seeing the Russians convert their military to peaceful
uses and in encouraging the movement towards a market oriented economy.

My bill gives the President the authority to achieve these goals. Under it, he
may write-down outstanding USDA debt under agreements with the Russians, or
other states of the former Soviet Union, if they agree: to dismantle military
facilities, to convert military facilities to peaceful uses, to permit US businesses to
enter into commercial joint ventures with state-owned enterprises, or for other
reasons the President determines in the US national interest.

The President may extend additional export loans and release previously
approved credits to make new sales once a state enters into debt reduction
agreement. He may also donate surplus commodities to those states and provide
technical assistance to achieve the terms of the agreements.

The legislation is based on a practice common in the private sector. Debt for
equity swaps are frequently used to help debtors restructure their affairs. What I am
proposing has a precedent in the public sector. Western creditors wrote-down Latin
American debt in return for programs those governments initiated for such things as
preventing environmental degradation.

The US needs to act now to restart food shipments to the Russian population
to meet their needs and so the American agricultural economy does not become
weaker. These steps need to be taken now. We would be foolhardy simply to wait,
doing nothing but hoping for the Russian economy to improve enough, on its own,
to permit Moscow to become current on the debt it owes us.

As pressing as the immediate problems in Russia are, we must also be
cognizant of the long term. Whatever we do, we need to provide assistance which
will yield long term results in the US interest, such as dismantling of the Russian
military and opening of its economy to US investment.

To those who will criticize my proposal because it will relieve the Russians of
some of their repayment obligation, I would point out that even if the loans are not
repaid or can not be repaid, for whatever reason, this legislation will make sure the
US gets something in return. Instead of simply writing off the loans as uncollectible,
this legislation establishes a quid pro quo for the benefit of both sides.

Let me acknowledge that this legislation will have a cost, dependent on the
amount of debt forgiven. I know that will concern you, Mr. Chairman, as it should.
But, those costs are minuscule compared to the costs we have spent winning the Cold
War and to the costs we might face if the Russian reform process fails.

In closing, I believe we need to be both bold and imaginative in meeting the
challenge before us. I think this proposal offers a creative and constructive
component to solving the problem. I am attaching to my statement an explanation
of the legislation as well as an article I wrote about it. I appreciate your
consideration of .the idea and for the time to testify before you.

(Attachments follow:)

OTHE DEBT FOR DEMOCRACY ACT OF 1993, HR 1507

THE HONORABLE DAN GLICKMAN (D-KS), CHAIRMAN

PERMANENT SELECT COMMITTEE ON INTELLIGENCE

The Debt for Democracy Act of 1993 gives the President authority to reduce
the debt an independent state of the former Soviet Union owes the United States
under Department of Agriculture export assistance programs if the state enters into
an agreement with the US -

1) to facilitate the development of joint ventures between US
businesses and state-owned enterprises;

2) to dismantle or convert military facilities to non-miUtary uses; or

3) for other purposes in the national interest.

States that enter into agreements under the bill become eligible for --

1) reinstatement to USDA's export assistance programs;

2) donations of agricultural commodities; and

3) techniced assistance.

The main provisions of the bill, which adds a new section, section 206, to the
Agricultural Trade Act of 1978, are:

SECTION 206(a)i^ - SHORT TITLE.

New section 206(a) provides that the bill may be cited as the "Debt for Democracy
Act of 1993."

SECTION 206(b) ~ PRESIDENTIAL AUTHORITY.

New section 206(b) gives the President authority to reduce the debt an independent
state of the former Soviet Union has incurred under any program under the
authority of the Secretary of Agriculture or Commodity Credit Corporation.

The President may exercise the authority notwithstanding provisions of the Act that

* Citations refer to the Agricultural Trade Act of 1978 as amended by the
new provisions added to it by the bill.

prohibit one, using USDA's export loan programs for foreign policy purposes and two,
extending credit to countries unable to service the debt.

The President is given authority to extend new credits to a state and approve
additional sales under credits previously extended to the state, notwithstanding one,
the restrictions of the Act and two, a state's arrearage on existing loans.

Section 206(b) gives the President authority to donate agricultural commodities to a
qualifying state that has entered into an agreement to reduce its debt.

To be eligible for a reduction in debt, additional credits, and commodities donations,
the state must enter into an agreement as provided for in section 206(c).

SECTION 206(c) - AGREEMENTS.

New Section 206(c) sets out the three types of agreements under which qualifying
states may have debt reduced:

1) To promote the establishment or maintenance of democracy or economic
reform and progress toward a market economy, the state agrees to give a US
business entity, including an agricultural business entity, an equity interest in
a state-owned enterprise. The interest would equal the amount of debt reduced
which the business agrees to repay.

2) The state agrees to dismantle nuclear weapons or other military-related
objects and facilities within the state or to convert military-related facilities to
non-military purposes.

3) The state agrees to other terms and conditions the President determines
to be in the national interest and consistent with the purposes of the Act.

SECTION 206(d) - IMPLEMENTATION.

New section 206(d) provides that to implement an agreement and to protect the
interests of the US, the President is authorized to provide technical assistance to a
state that is party to a debt reduction agreement to monitor and assist in the
implementation of the agreement.

The President may renegotiate or cancel an agreement if not implemented according
to its terms.

HR 1507. THE DEBT FOR DEMOCRACY ACT-BY MR. GUCKMAN
SUMMARY-PAGE 2 OF 2

O
<D

illl!

•a

III III P P^ ;ipii !it

till I till ||i| ||!l!ifli|-lli^

»« • a "■as
.9 ft S. s -a 9 a

I'lillrllllll -llslitli ^llgtfllli

tJiSgl

llfi

TESTIMONY OF

RICHARD KAUZLARICH

DEPUTY ASSISTANT SECRETARY OF STATE

FOR EUROPEAN AND CANADIAN AFFAIRS

BEFORE THE

SUBCOMMITTEE ON FOREIGN AGRICULTURE AND HUNGER

HOUSE OF REPRESENTATIVES

HEARING ON AIDING RUSSIAN AGRICULTURE
MARCH 30, 1993

I am pleased to come before this Subcommittee today to
discuss the Administration's programs to encourage the
development of private agriculture in the New Independent
States (NIS) of the former Soviet Union. I commend this
Subcommittee for convening this hearing, which recognizes the
critical role of agriculture to the reform process now underway
in Russia and the other NIS.

That reform process, which President Yeltsin both inspires
and leads, represents the greatest strategic challenge of our
generation. As Secretary Christopher emphasized in his speech
last week before the Chicago Council on Foreign Relations, the
stakes for the United States in this reform process are
monumental, affecting the very foundation of our security and
prosperity into the next century.

- 2 -

In responding to this historic opportunity, the United
States must extend a hand of partnership to President Yeltsin
and the Russian people,, a partnership based on democratic and
free market values. While the President is still considering
the specific initiatives he will anounce at the Summit,
Secretary Christopher reaffirmed our clear intent to increase
and accelerate our support for Russia's democracy and its
efforts to build a market economy. He also set out guideposts
for our assistance program: (1) that it be better targetted
and coordinated; (2) that it focus on areas and constituencies
in Russia that can have the greatest impact on reform's
long-term success; (3) that it catalyze our private sectors to
take a leading role in Russia's transformation through trade,
investment, and training; and (4) that our help be felt at the
grass roots level.

Our assistance program in the NIS has been grounded in the
principles of the FREEDOM Support Act, which clearly directed
that U.S. assistance recognize and bolster the economic and
democratic reforms in all of the republics of the former Soviet
Union. As each republic in the NIS makes progress toward
building free market economies and democratic institutions, we
are able to implement a range of technical assistance
activities, including programs in the agricultural sector.

- 3 -

The Administration considers the agricultural sector one of
the keys to the economic restructuring of the NIS. So far this
fiscal year, we have signed agreements with eight of the NIS
for a total of $337 million in grant food assistance and
commercial and concessional sales of U.S. agricultural
commodities.

We have been active in developing and implementing a
technical assistance program to address the four principal
bottlenecks to the development of market-oriented agriculture
— public policy, agricultural credit, infrastructure, and
inputs. We have already committed over $100 million in
technical assistance to the agricultural sector in the NIS over
the next three years. Our programs fall into four categories:
policy advice, agricultural exchanges, agribusiness
development, and agricultural demonstration and training
projects .

Policy Advice: To provide the necessary policy framework
for the development of a market-oriented agricultural system,
we have sent two resident agricultural policy advisers to work
with the Ministries of Agriculture in Russia and Kazakhstan,
and two agricultural extension advisers to Armenia, one of whom
is a policy specialist.

- 4 -

Agricultural Exchanges: We currently have three
agricultural exchange programs. Under AID'S $30 million
Farmer-to-Farmer Progragi, we will send about 1,700 volunteers
to the NIS over a three-year period; we have already placed
over 130 volunteers with counterpart organizations in the NIS
to share their expertise in agricultural policy, processing,
marketing, credit, distribution, and cooperative organization.
USDA's Cochran Fellowship Program has so far placed 87 NIS
participants in U.S. agribusinesses for short-term training.
Three American agribusiness executives have been placed with
newly privatized food industries in Russia and Kazakhstan under
USDA's Loaned Executive Program.

Agribusiness Development: We are also providing incentives
for trade and investment by U.S. agribusinesses in the NIS.
Under a $60 million agribusiness development project, AID
recently awarded grants to two agribusiness trade associations
to promote trade and investment activities that will increase
the efficiency of the NIS food system. These associations will
be providing funding to their member companies, and possibly
others, to encourage private U.S. investment in agricultural
processing, marketing, and distribution in the NIS.

- 5 -

Demonstration and Training Projects: As an important part
of this technical assistance effort, the United States supports
several demonstration and training projects, including a
wholesale market development program in Moscow, which we expect
to expand to Kazakhstan and Ukraine this year; a model farm
project outside St. Petersburg; an agribusiness training center
for private farmers and entrepreneurs established by Land O'
Lakes and AKKOR, the private farmers association in Russia; and
a low-cost storage program in Russia, Ukraine, and Kazakhstan
to reduce post-harvest losses in grain and potatoes. We are
also providing $6.5 million for a three-year Joint U.S. -Israeli
Agricultural Program for Central Asia and Georgia which, in
addition to joint research and exchange programs, is also
establishing model farms to share expertise on semi-arid
agricultural production and practices.

Many of our technical assistance projects are just now
beginning to be implemented. We look forward to tracking the
progress of these programs and to assessing their impact on the
development of private agriculture in the NIS. However, we
already know that our agricultural policy advisers, one of whom
will be here tomorrow to testify before this Subcommitte, have

- 6 -

made enormous, if behind-the-scenes, contributions to
legislation and public policy affecting land rights and rural
credit. You have also just heard the dramatic, videotaped
testimony of Russian farmers who have benefitted from the
expertise, advice, and dedication, of Farmer-to-Farmer
volunteers .

As the full range of our technical assistance programs is
implemented in those districts, regions, and countries where
enterprising and courageous leaders are implementing reforms,
we are confident that we will see regions where private
agricultural production, processing, marketing, and
distribution systems have taken root, enabling both farmers and
consumers to taste the fruits of economic reform.

statement by Christopher Goldthwait

Acting General Sales Manager

Foreign Agricultural Service

U.S. Department of Agriculture

Before the U.S. House of Representatives

Subcommittee on Foreign Agriculture and Hunger

March 30, 1993

Mr. Chairman, members of the subcommittee, I appreciate the opportunity to

discuss the agricultural situation in the former Soviet Union and the U.S.

Department of Agriculture's efforts to ensure food availability there.

We have used a variety of programs to assist the former Soviet Union — credit
guarantees, food aid, and technical assistance. Today, I will focus my comments
on these efforts, and the other topics you have asked me to address: the
agriculture and food situation in the FSU, agricultural trade with the former
Soviet Union, and the future potential of these markets.

I will first outline the importance of the former Soviet Union as a market
for U.S. agriculture.

For a number of years, the former Soviet Union has been a major overseas
market for commercial sales of U.S. agricultural commodities, especially corn
and wheat, and in more recent years, soybean meal.

To a large extent, credit availability, humanitarian assistance, and barter
agreements will continue to determine the former Soviet Union's agricultural
trade for the next few years, especially because of Russia's debt difficulties,
and the general economic situation in the region.

Soviet Grain Outlook

For the July/June 1992/93 year, USDA predicts that wheat imports in the
former Soviet Union, including the Baltic States, will be 15.5 million metric
tons, or about 70 percent of last year's level. This reflects a decrease in
demand because of an improved harvest, and decreased outside financing. The
1992/1993 forecast for coarse grains, calculated on an October/September
international marketing year, is expected to be about 10.5 million tons, or 56
percent of last year's level.

For Russia, our best estimates indicate that they must import at least
11-12 million metric tons of wheat from July 1, 1992, through June 30, 1993,
to meet pressing food needs. Sales commitments by the major exporters are 9
million tons, including 2.5 million tons from the United States, 5 million
tons from the EC, and 1.5 million tons from Canada. There is little chance
for Russia to purchase under credit terms more grain from the EC, France, or
Canada, leaving at least a 2-3 million metric ton wheat shortfall before new
1993/94 crop harvesting begins in Russia this July.

Coarse grain imports by Russia in the current October/September year may
be 8.5 million tons, of which approximately 1.5 million tons of corn and
barley, are still needed. Smaller livestock herds and high meat prices limit
demand for grains to feed animals, but, to stabilize production this shortfall

could be met by imports, or by domestic production if agriculture reforms are
implemented.

The high import demand stems from ambitious plans to increase consumption
of livestock products, with its heavy dependence on grain for feed. As
reforms take hold, the demand should fall.

This year wheat production in Russia was up 15 percent, but the Russian
Federation purchased from producers only 26 percent of the crop for
distribution to urban areas — a new low due to low prices paid by the State,
which has encouraged Russian fanners to hold some 5-7 MT of grains on farms.
Low procurement from domestic production puts pressure on the central
government to alter domestic agricultural policy or import to secure stable
grain supplies for the State-controlled system still used to feed cities.
Recent proposed changes to the Russian Federation's domestic procurement
system, if implemented, may improve future procurements after harvesting
begins this summer.

Relative to historical levels, U.S. wheat exports to the former Soviet
Union will hold up fairly well this year. In the past six marketing years,
shipments of U.S. wheat to the former Soviet Union have averaged 5.1 million
tons annually. Commitments this year so far are around 4.5 million tons.
Another 2-3 MT have been approved but not shipped.

The countries that now comprise the former USSR have been our largest
market for U.S. wheat exports for some time.

It is the U.S. corn trade that is hardest hit by the former Soviet Union's
economic turmoil. In the past six marketing years, U.S. corn exports to the
former Soviet Union have averaged 9.6 million metric tons. This year, so far,
U.S. commitments total only around 5 million tons. Another 2.5 MMT has been
announced but not shipped.

We are nearing the end of the first full international marketing season
for grain since the USSR's collapse, and the market situation is chaotic at
best.

Trade History

Mr. Chairman, you asked about historical patterns of U.S. -Soviet
agricultural trade.

From 1976 to 1990, U.S. grain trade with the USSR was covered by long-term
agreements which established minimum levels of annual trade. These agreements
were intended to provide some stability to annual USSR grain purchases.

-5-

During our first long-tenn grain agreement with the USSR, 1976-1983, U.S.
wheat exports averaged 3.7 million tons per year, while coarse grain exports
averaged 7.6 million tons. The U.S. market share of total USSR wheat imports
was 26 percent, and coarse grains were 46 percent of total imports, despite an
18-month embargo following the USSR's invasion of Afghanistan.

Under the second long-term agreement and its numerous extensions, from
1983 to 1990, annual U.S. wheat exports averaged 4.5 million tons, varying as
high as 9 million tons in 1987, and as low as 200,000 tons in 1985. Coarse
grain exports averaged 10.1 million tons per year.

It is noteworthy that U.S. coarse grain exports, mostly corn, were
two-thirds of the USSR's total coarse grain imports. U.S. wheat was 25
percent of total USSR imports.

After 1990, long-term arrangements no longer played a role in our trade
with the USSR, and trade was supported by the CCC export credit guarantee
(GSM-102) program. In 1991 and 1992, the U.S. share of total USSR/FSU wheat
imports was 35 percent; our share of USSR/FSU coarse grain imports was 41
percent.

-6-

Suspension of additional fiscal year 1993 credit guarantees in connection
with sales to to Russia and Ukraine, resulting from missed payments on
obligations previously guaranteed under GSM-102, has reduced our share of
their imports. Losses in wheat market share have been offset somewhat by our
use of food aid. Food aid programs have been used to support U.S. corn
exports, but the possibilities for programming corn as food aid are more
limited than for wheat.

If the United States makes no more sales on this fiscal year, our market
share will be 27 percent of the FSU's wheat import forecast and 38 percent of
coarse grain imports, reduced from earlier seasons. These estimates include
about 600,000 tons of wheat and 1 million tons of corn sold to Russia, with
respect to which guarantees were issued under the GSM-102 program and which
remains committed, but unshipped, because of problems with letters of credit.

USDA has assured exporters of its continued willingness to stand by its
commitments with respect to these transactions, if the Russian and private
U.S. parties can reach agreement on restructuring them. I believe these
shipments will begin to move shortly.

Looking at other exporters, the European Community has seen the largest
growth in its share of the FSU's wheat market. The EC share is up to 45

68-443 0-93-3

-7-

percent from the previous 5-year average of 24 percent. Other exporters have
not gained shares of the FSU's coarse grain import market, as lower U.S.
exports have translated into lower total FSU imports.

Agricultural Situation

As members of the Subcommittee know, one of the greatest engines that can
drive overall economic growth and support democratic reform is agricultural
development. Strong agricultural production, marketing, and distribution
systems are essential to provide a foundation for economic, political, and
social development.

Without agricultural reform and development, Russia and the other
countries of the former Soviet Union are not likely to achieve the status of
cash markets for U.S. agricultural products.

Agricultural reform and development is a key to helping transform the
FSU's centrally-planned economies during this time of both economic and
political hardship toward a market-oriented economy.

I would like to speak briefly about the structural problems we have
identified, and some of the reforms already undertaken.

-8-

I have visited the former Soviet Union numerous times in the past two
years. All of the officials of the newly independent states with whom we have
met have placed assistance in reforming agriculture and food at the top of
their lists of priority needs.

This emphasis on agricultural development and reform is shared by many,
although not all in the political and economic hierarchy. Supporters of
reform include mayors of cities, governors of oblasts, plant managers, and
very importantly, people on the street.

Currently, the FSU countries experience a high degree of loss of certain
food commodities between field and table. U.S. experts believe that
distribution, more than production, remains at the heart of the FSU food
problem. Economic mismanagement and shortcomings of physical infrastructure
are endemic.

There Is under- investment in the food distribution system, which creates
inefficiencies and bottlenecks. The physical plant is not structured
properly. Most facilities are outdated; others underutilized; and many
situated in the wrong location. There are no organized wholesale markets.
These structural problems are exacerbated by lack of confidence in the ruble
as a medium of exchange. FSU countries do not fully appreciate that part of
the value of food products is created in the distribution system.

There has been an over-emphasis on agricultural production with too little
attention given to post-harvest activities. Even a normal harvest, let alone
a record harvest, entails astounding losses due to the poor location and
inefficient use of storage infrastructure and processing facilities.

Food that moves through the state system is not privately owned and is
treated carelessly— a phenomenon which is intimately related to the failure to
appreciate the value added through distribution and processing.

Although the number of private farms is growing, the operators face
tremendous difficulties such as declining supplies of agricultural tractors,
combines, gasoline, lubricants, fertilizers, and pesticides; the lack of clear
land laws; the lack of marketing channels other than the state farm system;
and inadequate financing.

Agricultural reform has unquestionably moved more slowly than reform in
most other major economic sectors. This is not a surprise as agriculture is
traditionally conservative. While the Russian government is committed at high
levels to reform of the agricultural sector, the sector is replete with
barriers to the efficient functioning of the market, reflecting the continued
large role of the state. The commitment of middle and lower level officials
to reform is less clear. The government procured over one-quarter of Russia's

■10-

grain production last year at below-market costs. Agricultural subsidies
totalled some 12% of GDP in 1992. The Government announced in 1993 a series
of measures, including shifting from direct subsidies to indirect price
supports by the end of 1993, to assist the agricultural sector. Yet, the
government also announced new subsidies for this sector that could add 160
billion rubles to the Russian budget in 1993. It also announced a 3% tax on
agricultural enterprises to pay for the subsidies. Agricultural reform is
further hampered in Russia by the emotionally charged debate over land tenure.

Nevertheless, significant strides have been made in Russia even in the
face of strong opposition, including the following:

0 The Russian Government has taken action to reform the organization of
agricultural production, by forcing state and collective farms to re-register
under a new ownership system. By 1992, 77 percent of state and collective
farms were re-registered; by February 1993 the figure was 90 percent.
Two-thirds were converted to some form of corporate ownership or were broken
up into private farms. By year's end, 184,000 private individual farms
existed, occupying 7.8 million hectares, about three times the number of early
1992.

-11-

0 Direct subsidies for farms, paid through 1992, are being replaced in
1993 with a system of indirect support via guaranteed prices, somewhat similar
to the U.S. price support system,

0 Prices paid for grain for state procurement have been raised several
times. The starting price for 1993 crop wheat is 28,000 rubles per ton (about
$40 at current exchange rates) and this will be adjusted this summer to
account for input price increases. Compulsory sales of agricultural produce
to state reserves are to be abolished in 1993.

0 The Supreme Soviet is considering a bill which will permit land and
real estate mortgages.

Continued agricultural and food sector reform will depend on continued
support from a reform-minded government, and that government must be able to
deliver food to the major urban areas in the next few months.

Mr. Chairman, no one knows what course Russian agriculture will take over
the next few years, or what the pace of reform will be. Let me outline for
you some of our thoughts.

-12-

My USDA colleagues and I believe that, if President Yeltsin and his
reformist Government are maintained, the pace of agricultural reform will
accelerate. We will see more private farms, more decentralization, more
private marketing of agricultural output, and a clearer right to own and sell
land.

Initially, this may further exacerbate the current chaotic system of
distribution; the quantity of domestically-produced food reaching the neediest
in urban areas could drop as state procurements drop. There could be declines
in aggregate output for a year or two.

But slowly, production and productivity will increase, and in a few years
Russia will produce a larger share of its food. I will return later to this
point in the context of future U.S. exports. This is an uncertain outcome—it
depends on the continued strength of reformers in Moscow.

Food Situation

In the meantime, there is an immediate need for increased supplies of food
and feed grains to supply many of Russia's major cities and other FSU
countries.

•13-

The former Soviet Union total grain imports are forecast at just over 30
million tons, down about 12 million from 1991/92. The decrease reflects more
domestic grain output, less grain for feed use, and severe hard currency
constraints.

We estimate total 1992 grain output in the FSU was about 185 million tons,
up about 33 million tons from 1991' s poor showing, but just below the 1986-90
average of 186 million tons, which includes only wheat, coarse grains, and
milled rice. Grain production in Russia is up 20 percent from the
drought-affected 1991 crop.

Although some steps were made toward reforming the domestic grain market
and introducing market-oriented mechanisms and incentives in 1992, they were
not enough to induce producers to sell enough grain to the major metropolitan
areas.

Instead, producers have, in many instances, chosen to hold grain for feed
use or as an inflation hedge, despite a lack of appropriate storage. This
grain effectively remains out of reach of the urban areas now facing
shortages, due to continued disruptions in the immature domestic grain
markets, breakdowns in logistical and transport capacity, and basic
unwillingness of untrusting Russian producers to release grain to the state on
the basis of a promise that they will be paid someday.

-14-

Although aggregate grain supplies, as viewed from gross production
statistics, may appear at least barely adequate to feed the cities at some
minimal level, the fact remains that these supplies are not within the grasp
of the cities that badly need them now, and will continue to need them until
the new harvest this summer. These kinds of dislocations are not surprising
in the context of the beginning of the reform effort.

During recent discussions, Russian foreign trade officials have expressed
the greatest concern about maintaining supplies of milling quality wheat and
of feed components, such as corn and soybean meal, for Moscow and St.
Petersburg and to a lesser extent Yekaterinburg, and Nizhniy Novgorod. One
official said that bread is in such short supply in Moscow that it must be
purchased in the morning, because after noon-time bread stores are sold out.

These cities have historically relied largely on centrally-allocated food
supplies, much of which was sourced from foreign imports. Given the rapid
collapse of the Russian economy, the cities have not had time to adjust either
to the need to assume responsibility for importing on their own or for
procuring from domestic suppliers.

-15-

It Is highly unrealistic to expect that Moscow, St. Petersburg and other
major cities would have made such an adjustment in a little over a year.
Thus they find themselves dependent, for at least the time being, upon central
Russian Government authorities.

The situation bears the additional political dimension of historical
Russian sensitivity to food shortages. The issue is not merely one of
assuring adequacy of nutrition or of caloric intake.

It is, rather, an even more volatile issue, one revolving around potential
erosion of public support for the reformers in Russia if they cannot ensure
stable and sufficient supplies of staples.

Could Russia use more imports? Yes— meat production declined 10 percent
in 1992 from the previous year. Recovery and growth in the Russian livestock
sector will be impeded by declining demand due to drastically reduced consumer
purchasing power, a shortage of high protein feeds that caused herd
reductions, and disruption in the marketing infrastructure caused by the
re-orientation toward a market economy.

Soybean oil and meal are both in very short supply in the FSU, and
vegetable oil is the scarcest of the oilseed commodities.

-16-

The preliminary outlook for 1993 suggests oilseed production in the former
Soviet Union may increase slightly, but processing and distribution problems
currently reflected in internal food market supply and price reports are
expected to cause import and credit needs to continue.

Eventually, if reform and a private agriculture take shape in Russia and
the rest of the FSU, the countries will be more self-sufficient. Russia's
climate and soil conditions should enable it to import somewhat less wheat,
even if import levels of feed grains and oilseeds rebound.

We believe, however, that Russia will remain a major, if changing, market
for the United States. Over time, it will be a market for many new
commodities if reform succeeds and stimulates growth. American steaks and
California wines are already sold in up-scale Moscow hotels.

We, in USDA, are assisting Russia's agricultural restructuring not only
because its success is in the general American interest, but because we
believe a healthy Russian agriculture is critical to Russia's eventual return
to cash-customer status, even if the mix of U.S. commodities purchased
changes. This has been the pattern in our successful and mutually beneficial
agricultural trade in Japan, Korea, Taiwan, Mexico, and many other
agricultural markets.

-17-

U.S. Efforts

The U.S. Government's effort to help ensure food availability in the newly
independent states of the former Soviet Union during the transition from
comnunism to a market-oriented democracy has entailed three primary efforts:
export credit guarantees to help facilitate purchases of U.S. agricultural
commodities by the countries; long-term concessional sales for FSU countries
other than Russia, for additional help in meeting import needs; grants of food
assistance to help meet humanitarian needs in the countries; and technical
assistance to help develop various aspects of the food sectors in these
economies.

Technical Assistance Programs

USDA and the U.S. Agency for International Development (A.I.D.), have
several technical assistance programs under way in the former Soviet Union to
help develop the agricultural and agribusiness sectors of the FSU. USDA
received its first real agricultural developmental assistance authorities in
the Food, Agriculture, Conservation, and Trade Act of 1990, and the FSU has
been a focus for implementing them. This includes the following activities:

-18-

0 Model Farm Project — In an effort to demonstrate various aspects of U.S.
farm management and marketing practices to a group of newly privatized Russian
fanners, USDA is helping the Russians set up a model farm community near St.
Petersburg. Twenty-one Russian farmers were selected to participate in the
program funded over two years at $2.3 million a year. They have received
farmland as private fanners. U.S. advisers include a project director and two
fanning couples.

They are working with the Russians on a two-year project which is
featuring a variety of agricultural activities such as crop, fruit, and
livestock production and marketing. Last year, the model farm project covered
surveys and land use classification.

This week, a U.S. potato specialist is scheduled to go to Russia to
prepare the project for spring planting.

The Foreign Agricultural Service is also cooperating with a Texas A&M
model farm in Tatarstan helping to turn an old Russian state farm into a
vertically integrated agribusiness, with particular emphasis on marketing.

0 Loaned Executives— USDA and U.S. agribusiness firms are placing
private-sector executives in food handling and processing industries in the

-19-

FSU. In February, two meat processors from the Wilson Food and Oscar Mayer
Food firms were assigned to a large Russian meat processing plant in
Novosibivsk for one year.

In March, a retired U.S. bakery executive was assigned to the largest
bakery operation in Alma Ata, Kazakhstan. In Belarus, the program arranged
the contact of a major U.S. fruit exporter with a local fruit and vegetable
cooperative.

0 Cochran Fellowships— A total of up to 200 fellowships are planned this
fiscal year for the former Soviet Union in a wide variety of fields for
mid-level agriculturalists and administrators from the public and private
sectors. Topics include agricultural privatization, trade, agribusiness,
management, finance, and marketing. Participants meet U.S. specialists,
participate in field observations and industry visits, experience on-the-job
training, and attend U.S. university courses and seminars.

So far, fellows have been selected from all former republics except
Azerbaijan, Tajikistan, Georgia, and Moldova. To date, 80 participants have
arrived in the United States~40 from Russia, 12 from Ukraine, 9 from Belarus,
6 from Armenia, 6 from Kazakhstan, and 7 from Kyrgyzstan.

-20-

In May, a second round of interviews is planned in Russia, Ukraine,
Belarus, Kazakhstan, and Kyrgyzstan. The first interviews for possible
candidates will be held in Georgia and Moldova in the next two months.

0 Agricultural Policy Advisers—USDA has responded to requests from the
Russian and Kazakhstan Ministries of Agriculture for agricultural advisers to
assist with privatization and the movement to free market economies.

One adviser from the Cooperative Extension Service is in Moscow serving as
the USDA agricultural policy adviser to the Russian Federation of Agriculture.

The second adviser, from the Economic Research Service, is serving as
policy adviser to the Ministry of Agriculture in Kazakhstan. Both advisers
are working with the respective ministers of agriculture and other government
officials on the transition from a socialist economy to a free market
agricultural economy.

0 Wholesale Markets— USDA is promoting development and expansion of
wholesale markets in the former Soviet Union, beginning with a series of
projects in Moscow.

-21-

Specific missions have included improvements of market operations,
post-harvest storage and handling, and market information activities for
fruits and vegetables, as well as strengthening of commodity exchanges for
grains.

Follow-up activities will include a project on establishing market
information services in Russia and Kazakhstan and marketing seminars in
Ukraine. For fiscal year 1993, an expansion is under way which includes a
follow up of current activities, plus training in the United States and
working with the World Bank. Agricultural marketing survey teams are
currently in Russia and will travel to Ukraine and Kazakhstan in April as the
program looks to expand its activities there.

0 Russian Far East Project— A U.S. Government and private industry

agribusiness assessment team has returned from the Russian Far East and will

be making recommendations concerning this region. Its final report is due
this week.

In addition to these six technical assistance programs (funded for a total
of $5.5 million dollars) A.I.D is funding three agricultural projects
undertaken at the urging of USDA, in the newly independent states for $16
million a year. I understand that the witness from Department of State will
discuss them.

-22-

Food Aid

We have made special efforts to move U.S. agricultural commodities to the
former Soviet Union through our food aid programs. The Freedom Support Act
gives us added flexibility in this area.

The Freedom Support Act provides that the limitation in the Food for
Progress Act that not more than 500,000 metric tons may be made available in a
fiscal year does not apply with respect to commodities provided the FSU during
fiscal 1993.

This provision allows us to meet humanitarian food needs in the former
Soviet Union during this critical period of transition without limiting the
size of Food for Progress programs carried out elsewhere. And it maintains
exports of U.S. agricultural commodities.

The Food for Progress assistance, which includes food aid for human
consumption and much needed feed for livestock, is being provided through
three major efforts. First, we expect to commit over 1.8 million tons of feed
grains — I million tons of corn and 850,000 tons of feed wheat — valued at
$261 million, mostly through government-to-government programs. Those
countries receiving corn are paying all transportation costs, and 75 percent

-23-

of all the commodities will be shipped on U.S. flag vessels in accordance with
cargo preference requirements.

Our second major aid effort is a $250 million program for the Russian
Federation to meet humanitarian needs. Russia's Humanitarian Comnission is
coordinating the effort with the help of several U.S. private voluntary
organizations. As part of that effort, on March 12 Secretary Espy announced
the United States will donate 520,000 metric tons of wheat and 87,000 metric
tons of rice to the Russian Federation under the Food for Progress Program.
The $102 million donation will be distributed or sold by the Russian
government to help develop agricultural and economic reforms within the
Russian Federation.

Under the Food for Progress Program, USDA provides commodities in support
of countries that have made commitments towards economic reform, and Russia
agreed to carry out a number of measures to expand the role of the private
sector and improve food supplies.

Third, we are providing about 100,000 tons of food valued at about $58
million through nearly 20 U.S. private voluntary organizations to meet
critical human needs throughout the republics. This is partly within and
partly outside the $250 million government-to-government commitment.

-24-

Conmercial Programs-Export Credit Guarantees

Before the economic situation deteriorated so sharply, the United States
provided credit guarantees and other commercial assistance to Russia and the
other states of the former Soviet Union.

Since January 1991, USDA's Commodity Credit Corporation has made available
over $5 billion in export credit guarantees under the GSM-102 credit program
in connection with sales to purchasers in the FSU including Russia and
Ukraine. These guarantees were used to facilitate the purchase of over 33
million tons of U.S. agricultural commodities. Commodities purchased include
corn, wheat, wheat flour, protein meals, soybeans, vegetable oil, poultry,
tallow, rice, almonds, hops, and several processed products.

In fiscal years 1991 and 1992, some $3.8 billion in credit guarantees was
made available in connection with sales to purchasers in the FSU. In fiscal
1992, Russia received its own program allocation of almost $650 million in
credit guarantees.

In fiscal year 1993, $800 million in credit guarantees was made available
in connection with sales to Russia, of which $525 million was made operational
in October.

-25-

About $110 million of that $525 million remains unused because of the
suspension of the availability of additional credit guarantees in connection
with sales to Russia. In addition, a further $275 million was scheduled to be
made operational in January,

Although Russia has repaid nearly $900 million towards CCC-guaranteed export
credits, approximately $4.2 billion in combined debt of the FSU countries
remains to be paid and will come due over the next two and a half years. In
December 1992, Russia began to default on repayments for guaranteed export
credit, and the availability of additional credits in connection with sales to
Russia had to be suspended. The availability of additional guarantees will
remain suspended until arrearages are paid, the debt is rescheduled, or a
combination of the two.

We recognize that this is an extremely serious problem. We are looking at
every possible alternative to search for a solution to both the arrearages issue
and to how we can continue to export to this important market.

As of March 25, total arrears of Russia and the former Soviet Union were
more than $596 million and USDA has paid out about $180 million in claims.
Russia made several million dollars of payments in early March, but not enough
to remedy the situation.

-26-

USDA also announced the availability of $200 million in credit guarantees
under the GSM-102 program in connection with sales to Ukraine during fiscal
1993, of which $70 million was made available in October 1992. Because Ukraine
remains jointly and severally liable for the arrearages of the former Soviet
Union, USDA has not made operational any of the remaining $130 million in credit
guarantees allocated for the FY 1993 GSM-102 credit guarantee program in
connection with sales to Ukraine.

Export Enhancement Program

As it became clear that the credit guarantee program was no longer
appropriate for many countries of the former Soviet Union, or capable of meeting
the full demand of Russia and Ukraine, we began to look for other ways to
maintain exports outside the GSM-102 program.

We have adapted our export subsidy programs to accommodate compensatory
forms of trade ~ barter, countertrade, offset arrangements, and escrow
accounts.

-27-

These arrangements typically Involve a party in a third country who
purchases goods that the former Soviet Union wants to import and who is also
willing to purchase goods exported from the former Soviet Union. The resources
to finance the trade are in the third country, not in the countries of the
former Soviet Union that are the ultimate destinations.

Since September, U.S. exporters have sold nearly 1.5 million metric tons of
wheat to the former Soviet Union through third country buyers. This is equal
to nearly 20 percent of all U.S. wheat exports to the former Soviet Union in
fiscal 1992. Exporters have also sold 37 metric tons of milk powder. I would
stress that this business is ongoing, albeit on a smaller scale, even while the
availability of additional credit guarantees remains suspended.

The Future

The Administration is looking at all possible ways of supporting the
Russian reform effort, and has indicated its determination to find ways to
continue to export those U.S. agricultural commodities which Russia and the
other FSU countries continue to import. The long range goal is to promote
Russia's capability to remain a substantial commercail market for U.S.
agriculture.

-28-

Since Russia's participation in the CCC credit guarantee program was
suspended, the pace of U.S. exports to Russia has slowed dramatically.
Secretary Espy has stressed that this administration places top priority on
resolving the purchasing problems of Russia and Ukraine, so that we can resume
shipments to these important customers.

The Secretary has stated that the Department is reviewing several options.
The options under discussion include the following:

0 expanding the Food for Progress program for the sale of commodities on
credit terms to the FSU.

0 utilizing the Public Law 480 Title I program for Russia and the rest
of the FSU where concessional credit could be extended to the FSU on a large
scale.

0 using barter as a means to assist the Russians and supplement other
means of supplying commodities to Russia.

0 restarting GSM-102 credit guarantees.

0 using of other CCC credit programs, which also apply the
creditworthiness criteria of the credit guarantee programs.

-29-

0 Developing a special legislative authority, specifically related to
the FSU's current situation.

USDA and other relevant agencies are reviewing the options and a decision
will be made in the shortest possible tine.

Key Factors

As we look at options, a key factor will be Russia's ability to pay today,
in a year or two, and several years from now. This depends in a large degree
on the outcome of a Paris Club rescheduling. The government of Russia and its
creditors continue to work on a solution of the debt issue.

A Paris Club rescheduling is a key to Russia's future creditworthiness.
Until this issue is resolved, until the debts are either rescheduled or
repaid, the FSU is not eligible for further participation in the GSM 102 or
103 credit guarantee programs.

Russia's payment defaults have made it impossible at this time for USDA to
extend any new credit guarantees under the GSM- 102 credit guarantee program
because of the creditworthiness requirements imposed by the 1990 FACT Act.

-30-

The expected Paris Club rescheduling may ease Russia's current liquidity
crisis. However, the effect of such a rescheduling on USDA's assessment of
Russia's readiness to resume participation in the GSM-102 export credit
guarantee program has not been determined.

Immediate Steps

There are two things that we can do right away to help the former Soviet
Union meet its food needs without knowing the terms of a Paris Club
reschedul i ng agreement .

One step is to expedite food aid shipments. This has been done by
accelerating the normal tendering process.

We are tendering for immediate delivery and booking vessels on the spot
market. In addition, we have shortened the response period for bids from 10-14
days to seven.

The second involves a number of transactions to facilitate shipments of the
$260 million in connection with GSM-102 sales that have been registered, with
respect to which the commodities have not been shipped. USDA stands by its
commitments in regard to these transactions, and has signaled that they can
move forward as soon as arrangements can be made by exporters, banks and buyers
working out financial arrangements that are consistent with program
regulations.

Mr. Chairman, I assure you that we place top priority on resolving the

-31-
purchasing problems of Russia and Ukraine, so that we can resume shipments to
these important customers.

But in the longer term, we want to help with the structural adjustment that
will (1) make Russia and the other countries economically prosperous (2) return
them to the status of cash customers.

Tesdmony of Keith Scverin
Senior Associate, E. A. Jaenke A Associates

To The

Suboommittee oo Foreign Agriculture and Hunger
U^. House of Representatives Committee oo Agriculture

Russia - U^. Aid and Assistance in Food and Agriculture

March 30, 1993

Mr. Chairman, I greatly appredate this opportunity to appear here today. I feel I have some
thoughts and views concerning Russia and other states of the Former Soviet Union that could result
in more effective assistance on our part, and at less cost. While food and agriculture are central to
my comments, I will address broader issues which have a significant impact. This is essential, in my
view, if I am to critique what has been done to promote U.S. agricultural products and aid
agriculture in Russia. I understand that is my task.

(Given the highly charged political situation in Russia today and President Clinton's concern about
it, it is logical that the thrust of these hearings will be on Russia. However, for a good
understanding, Russia cannot be looked at entirely in isolation from several other members of the
FSU. Whether recognized or not, a high degree of interdependence between the former Soviet
Republics still exists and cooperation between them remains the most expedient way for many needs
to be met, if for no other reason than geographic proximity.)

2
To begin with, I believe we can do bener in assisting Russia and promoting our fiarm products there,
and at the same time help them along the road toward democracy and a free market. Moreover,
I believe we can do better with less money than we might think. All of this depends, however, on
good and effective management and understanding on our side. I am hopeful this is the kind of
leadership we Americans and the Russians will be seeing.

Generally speaking, the Russians do not need food aid. This is what they are saying. However, not
all "liunger' is as we have been shown in Somalia. There is a way in which we can still help them
in this general area of food aid, and that is with children who have been disadvantaged, and perhaps
the elderly. If we were to target specifically these two parts of the population that are within "the
safety net" and assure them complete health care packages - including the nutritional aspects - they
require, we could then subtract that from the size of the grain they would otherwise be required to
import. Theoretically, this would lessen the amount of credit or other concessions we might be
asked for. (I realize this would likely affect wheat more than other grains, and that could have
repercussions here, but it could well leave more financing available not only for livestock feed but
the equipment they need so desperately in the livestock industry, as well as processing equipment)

While a "Children's Assistance Program" as described above would be comparatively small, it would
be terribly important to its recipients and their loved ones. It embodies several advantages, the main
one of which is that it would address total health needs - immunizations, other pediatric necessities
and nutrition. In addressing the totality of the situation for youngsters whose health might have
been impaired by serious environmental pollution, we would be reminding the Russians that we
Americans are still the same compassionate people who came to their help with Lend Lease during
what they call The Great Patriotic War. In a subliminal way, and here we recall how the physical

stature of the Japanese has changed since American wheat began to be included in their diet about

40 years ago, we could accomplish some long term market development with those children in the
Children's Assistance Program.

The cost of the "food* part of the program would be relatively small, but it would be an integral
ingredient in a package which would come as close to assuring totally healthy children as possible.
This package would be labor intensive in its application, however. Management, supervision and
training would be critical. But if we care it could be done.

Enough knowledge alreacfy exists among specialists in our country to make the right approaches to
the Russians and to initiate this program. Children's specialists and nutrition experts were among
the many 'survey teams* that visited Russia last year. Certainly the need for still another team of
American experts 'assessing the situation" is not called for.

Institutions, not only orphanages, but schools and kindergartens and day care centers (detsche sad)
provide the sites where the program could be administered. And this could be a very important
feature of the program - where it would be sited - because as individuals try their hand at private
farming, or other types of private enterprise, they are cut off from the collective or state farm or
factory and left to fend for themselves and their families. In rural area this is terribly important,
because it is at the farm center where the school, the polyclinic and health care facilities are located.
This subtle, yet very powerful, stranglehold by a farm chairman or director could not only be broken
by the Children's Assistance Program package but not so subtly be used to help promote private
endeavor. It is not hard to imagine how democracy and progress toward free markets could benefit.

4
In tenns of numbers, perhaps the need for such a "Children's Assistance Program' mi^t not be
large, but its impact could be immense. Need for such a program exists in almost every one of the
republics of the Former Soviet Union - certainly in Russia, Kazakhstan, Ukraine, Belorus and
TurkmeiL The literature is replete with stories about the ravages of industrial pollution and its
e£EBCts on the youngsters, bom and unborn, in the surrounding area.

I repeat and emphasize, opportunity for suocess(es) in a Children's Assistance Program is great, but
it must be managed and administered with the utmost and thorough care. Also, that this program
would probably be administered in for flung places in Russia has positive aspects, too. The current
political situation makes regionalism look more definite and closer at hand. It would be to our
advantage to have a solid, well-intended presence in every part of Russia.

Sudi a program could be undertaken entirely by the United States, and this would be good since it
would help polish and bring back to life the image of America which I feel has been tarnished and
undermined rather baddy in the last year. The Russians and all the other former Soviets I have been
with in the last year would for rather do business with Americans than anyone else! And, let us not
forget that peofde there are no longer hostage to "the central press' or 'radio Moscow.' The average
Russian citizen has as good an idea of what's going on in the worid, and v^t we are saying and
promising him, as the average American does. Let's have no more unfulfilled aq)ectations, whether
created intentionally or inadvertently.

The idea of a special padcage program for the diildren embodies a coiKept overlooked by every
American businessman I have ever talked with vriio wants to do business in Russia. It must be taken
as a given if one wants to do business there. It is an absolute essential in any investment I am

5
referring to the sociological aspect of the package. Understandably, we would overlook this in a
business deal because we look only at the market economics of an opportunity. Or, here we
consider only the economics of the situation in doing business. But in Russia the social needs -
housing, schools, health care, etc. - come into the equation. The importance of this was pointed out
again recently when the Russian Deputy Prime Minister in charge of agriculture, Aleksandr
Zaveiyukha, whom I have known for about 10 years, was quoted in the press as saying it is essential
that the government make good on its commitment that 15 percent of the budget for agriculture go
to meet social needs.

Yes, the need to address social needs directly and in a financial way is foreign to American business.
But when one considers even for a minute that the State provided everything - work, housing,
education, health care, etc. - for the Russians as long as he can remember - and that he has no
e]q)erience or means to provide for himself in these matters • it is only natural that he expect it
today. We simply have to look at this as another and different aspect of doing business in Russia.

How should we approach doing business in Russia? Former Ambassador Robert Strauss told the
audience at the National Press Club last fall, "Look for a fellow who shares the same values as you,
and work with him.* That's not an easy thing, especially if you don't know the country or the
language or the peofrie, but it makes sense. Dr. Logvin Overchuk, former Soviet and Russian
Agricultural Attadie here in Washington, asked the audience at an AID-sponsored conference, "How
difiScult is it to be successful to start a new business here in your own country ^ere you know the
language and the system and have all the information you need available to you?" Unfortunately,
I did not detect a glimmer of appreciation or understanding of Dr. Overchuk's question in that

group \MA was meeting to consider the reports of teams that had been investigating needs for

storing grain and potatoes.

American business ventures are progressing only slowly into the Russian market in large part
because of pditical and economic uncertainty. This is understandable but altogether not bad, in ay
opinion, because it gives us a diance to learn more about Russia and the Russians. I would
emphasize, they are not the only tiewoomers to today's world. Nonetheless, we could be doing
better, at least on a small scale, using s<Mne of ^iriiat I feel are misused funds allocated for some of
the large and unsuited i»ograms to guarantee investments. West European governments are backing
their businessmen's ventures to an eitent and in places that surprise even me. ScHne of these
projects are relatively small, but effective. Some of our larger companies could do the sanie thing
on their own, and without risking a great deal of capital, but being accustomed to thinking in huge
terms and not being used to thinking in a 'down-sized mode* the business goes to the Italian, Dutch
or even Swiss.

SmaU-scale ventures in Russia would be attractive to small entrepreneurs here, if they knew about
them and had a bit of help and direction from our government or scMne associati<HL Hands-<Mi
expertise and business sense could go a long way in Russia if for no reason other than practicality
and timely decision making. After seeing vrfiat the Russians needed and had that could be used in
a project and what the likely payoff return and risks would be, the small entrepreneur would
probably make the decision on the spot whether to inoceed. This is over simplified, but the point
is the time to make boardroom decisions could be avoided. This is not to say conservative
approaches are not in order or the interests of shareholders are not to be protected. This b
something the budding Russian businessman does not yet appreciate fiiUy. Further, small-scale

7
ventures are best suited to the needs of the Russians and their financial capability, as well as their

managerial ability.

One fallacy I have noted in American businessmen's approach to ventures in Russia is their singular
focus. Perhaps this is acceptable here where supplies are more or less assured and where research
indicates there is a market for the product. That cannot be taken for granted in Russia. An
integrated approach seems best, with a good understanding of what is upstream and what the
downstream looks like, too. In fact, the best successes I know of involve the package approach, not
just simply selling a sin^e product

Besides providing some financial assurance to small businessmen interested in Russia's agriculture,
I feel our government could provide valuable assistance by sending there two types of advisors from
the private sector. Neither would have anything to sell. They would go to Russia only to offer
themselves and their knowledge, experience and willingness to learn. Young people, young farmers
like in the Young Farmer-to-Farmer bilateral exchange program that used to exist between the U.S.
and USSR, would be one type. Retired farmers or retired extension agents would be the other kind
of person who could lend invaluable help. Some of this is being broached by the Peace Corps, but
more could be done in the way of targeting specific needs and regions. It is worth noting we have
a special resource for programs sudi as this. In some farming communities here in America there
are pockets of ethnic groups and nationalities who have first generation relatives in Russia who live
in farming villages and with whom free and open contact is now possible.

U.S. agricultural interests are not being well served in most of the Former Soviet Union. They
cannot be, for only our embassy in Moscow has an OfBce of Agricultural Affairs. The Baltic states

68-443 0-93-4

8
are served by our Agricultural Attache in Stockholm, and Moldova is served similarly out of Sofia.
We are suffering from the lack of a full fledged, professional Agricultural Attache in each of our
embassies located in the FSU. The needs are esjjecially dire in Kiev for Ukraine and Alma Ata for
Kazakhstan.

There are many crying needs for assistance in Russian agriculture, but none have been voiced more,
and over the years, than for an extension service. Tell me, explain to me, please, how docs your
extension system work? How is it financed' What does the farmer pay for the use he makes of it?"
There has been no more universal or fi-equently posed question that I can recall in all of my years
dealing with people concerned with agriculture in the FSU. One of the Deputy Ministers of
Agriculture in Russia has been tasked with creating an extension service. They are serious about
this and have been. I cannot say our record is very bright, in my opinion. Unfortunately, we take
our own very successful agricultural extension service for granted and do not consider it terribly
glamorous. We are envied because of it, nonetheless.

One of my main concerns is about the comment all of us have heard, "Russia is just another Third
World country, but it has nuclear weapons." Clearly, the foct that Russia does possess such weapons
makes it different from other countries with very serious economic difficulties. It is a huge country
in many ways and we are used to thinking about it in terms of millions or hundreds of millions or
billions. That picture - amplified by our own mentality • is behind why we and others have already
spent so much, and pledged even more, where Russia is concerned.

There are many more and far reaching differences between Russia and other countries that we have
ever attempted to help, and here I feel the United States could do better. In foct, I would go so far

9
as to say that in the past 12 - 14 months we have hurt ourselves and not really helped the Russians.

Our mistakes have been costly in terms of money, time and image.

Who is to blame? While fingers can be pointed at one government agenqr or another, the blame
ultimately must rest on our government I do not pretend to know what our national policymakers
had in mind regarding getting aid to Russia, but I can say it was less than effective. Besides being
inordinately costly, some programs were duplicative and not suited to Russian circumstances. They
were not staffed professionally and were managed without tangible results. Generally, the smaller,
the more targeted the program is, and the more effective, possibly because a lower profile enables
better and closer supervision, usually by individuals with some background and knowledge about
Russia and the Russians, or who are at least sensitive to local circumstances. I can cite several
instances where small, integrated efforts are being successful in Russia.

Too often, it seems to me, large scale projects have attracted contractors without expertise but
primarily interested in profiting from the adventure. Of course, large disbursements quickly raise
the total amount of 'aid going to Russia.' A certain amount of PR was always invoNed. Large
projects can be effective, but they must be managed well and responsibly and carried throu^ to
completion.

Seemingjly endless numbers of study groups, assessment teams and delegations have gone to Russia
in the last year to find out what they need and how we can help the Russians. Many of these teams
follow the same itinerary and ask the same questions, but they are funded by a different account
Clearly, the impression made on the Russians is not good. Their time is used answering questions
they have come to believe will go unheeded. Expectations raised early, probably by the first

10
American investigative team, but almost surely going unfulfilled if for no other reason than the lack

of coordination in Washington. It is embarrassing to hear, 'Another team of Americans asking the

same questions. You will go home and that will be the end of it." The almost utter lack of

coordination of efforts and activities on our part has been costly. Top level interagency management

has to be the blame. Without clear cut lines of responsibili^ and direction, duplication and

ineffective coordination resulted.

I have attempted to point out opportunities we have to assist Russia and ourselves in mutual
agricultural interests. I have tried to emphasize what I consider what we Americans have special to
o£fer and what some of the pitfolls are that go along with these opportunities. The Russians look
at us Americans as being special, we should take advantage of that and do nothing to belittle or
disappoint them.

About my own badcground. I was bom on a wheat farm in the Panhandle of Texas, and agriculture
has been my career, begiiuiing as dairy and experiment farm manager in American Samoa following
my graduation firom the University of California at Davis. After three years in the Army, I attended
Stanford University where I earned a graduate degree at the Food Research Institute. From there
I went to the U.S. Department of Agriculture. In hfovember 1989, 1 retired from the Foreign
Agricultural Service there and joined E. A. Jaenke & Associates where I am Senior Associate for
Former Soviet Affairs.

My initial firsthand experience with the Russians came in 1963, ^en I was assigned to our embassy
in Moscow as Agricultural Attache. At the time I was an analyst in the Foreign Regional Analysis
Division of the Economic Research Service and worked for Dr. Lazar Volin, «4io was recognized

as our country's foremost specialist on Soviet agriculture. Following two years in Moscow, I
returned to USDA, where I mainuined my interest in Soviet agriculture while I was Chief of the
Wheat Export Subsidy Branch in ASCS and Deputy Director of the Grain Division of the Export
Marketing Service.

In 1974, under the terms of the U.S.-USSR bilateral agreement on agricultural exchanges, I led the
first U.S. team to the Soviet Union to study the production of winter grain. Thereafter, I took
agricultural study teams to the USSR aimually, with the exception of 1977, until my retirement in
1989. Travel with these teams took me to almost every part of the USSR, and while they mainly
dealt with different aspects of the grain industry, they included almost every facet of Soviet
agriculture. Farms, experiment stations, research institutes and local, republic and national
govenunental ofiBces and their personnel all came within my experiences. Many of the relationships,
professional and personal, continue to the present.

In February 1992, Dr. Richard Crowder, the Under Secretary of Agriculture for International Affairs
and Commodity Programs, requested me to return to USDA as his Special Assistant, to advise him
on the Former Soviet Union. I served in that capacity for four months, during which time I traveled
to the FSU three times, accompanying the Deputy Director of AID, Andrew Natsios and
Ambassador Richard Armitage; and as a member of the site survey team for the Lx)aned Executives
Program that was led by former Secretary Richard Lyng.

My last visit to the FSU was last August, when I accompanied two private businessmen who wanted
to learn about the agriculture of Russia, Ukraine and Kazakhstan, and with the Dean Emeritus of

the College of Agriculture and Life Sciences of Virginia Tech. During Dean Nichols' visit, he
concluded cooperative research agreements with four agricultural institutes in Russia.

My wife and I live on a farm in an agricultural community in Fauquier County, Virginia, where we
have resided for 23 years.

CURRENT AGRICULTURAL SITUATION IN

RUSSIA

WEDNESDAY, MARCH 31, 1993

House of Representatives,
Subcommittee on Foreign Agriculture and Hunger,

Committee on Agriculture,

Washington, DC.

The subcommittee met, pursuant to call, at 9:30 a.m., in room
1302, Longworth House Office Building, Hon. Timothy J. Penny
(chairman of the subcommittee) presiding.

Present: Representatives Barlow, McKinney, Stenholm, and Al-
lard.

Also present: Representative Roberts, ranking minority member
of the committee, and Representatives Nussle and Dickey, mem-
bers of the committee.

Staff present: Gary R. Mitchell, minority staff director; Glenda L.
Temple, clerk; Jane Shey, Anita R. Brown, and Lynn Gallagher.

OPENING STATEMENT OF HON. TIMOTHY J. PENNY, A REP-
RESENTATIVE IN CONGRESS FROM THE STATE OF MIN-
NESOTA

Mr. Penny. The meeting will come to order. The Republican cau-
cus of this subcommittee are meeting in an adjacent room. They
should be joining us shortly. I intend to get things moving right on
schedule, and over time I think as members understand that that
is the mode of operation, we will do a better job of getting them
here and holding them. I also try to adjourn on some type of sched-
ule and we would hope within 2 hours, but certainly no later than
noon we would wrap up today's hearing.

I try to do that as a convenience to all involved, both members
and to witnesses so that we don't waste your time or our time with
hearings that drag on throughout the day and result in too many
people speaking to an empty audience or an empty rostrum.

This is the second of 3 days of hearings on the Russian agricul-
tural situation. Yesterday we heard from Government officials as
to the effectiveness of existing aid programs. Today we want to fol-
low on with a continued discussion with experts in this regard.

Our first panel will include the Honorable Cooper Evans, a
former Member of Congress and a former member of the Agri-
culture Committee, a good friend of mine, a neighbor to the south
in Iowa. Cooper has been a board member and quite active in the
development of the Volunteers in Overseas Cooperative Assistance
program in Russia and the other Republics, as well as Eastern Eu-
rope.

(99)

100

We also call forward Professor Ted Gashler, associate dean,
Northcentral Technical College, Wausau, Wisconsin and a VOCA
volunteer. I have a bit of a bias regarding the worth of this pro-
gram, given the fact that my former agricultural staffer manages
this program in Moscow, but with that as a caveat or a label, as
a warning to the audience, I do feel that this aid program has the
potential of paying big dividends for both America and for the re-
cipients on the Russian side, and with that as an introduction, I
welcome you, Mr. Evans, to the subcommittee and ask you to sum-
marize your remarks and we will proceed from here.

STATEMENT OF COOPER EVANS, MEMBER, BOARD OF DIREC-
TORS, VOLUNTEERS IN OVERSEAS COOPERATIVE ASSIST-
ANCE

Mr. Evans. Well, thank you very much, Mr. Chairman, it is in-
deed a pleasure to be back in this room, and I am delighted to have
a chance to comment. In the 5 minutes available, I really want to
touch lightly on three subjects. First, the realities of the situation.
Second, what I think the prospects are, and third, some sugges-
tions that might improve the effectiveness of the program.

I think it is very important to understand the realities, and to
me one of the most important of those is that on those farms in
the former Soviet Union, there is a great excess of people. We have
perhaps 5 million people residing on our farms. There are like 35
million on their farms. Eighty percent of the people would have to
find other employment or other roles in life if they were to convert
to our form of agriculture. Clearly that is not going to happen over-
night.

The second point I think is a comparable social issue, and that
is the fact that their farms are not like our farms. Their farms are
communities that provide a wide range of social support to all of
their members. And including support of the elderly, and so when
you talk about making radical changes or leaving the farm, it is a
bit like saying, hey, let's do away with Social Security and Medi-
care. It is an extremely emotional issue.

The third point I would make, in reality is the curse of speciali-
zation. A very high percentage of people on those farms are highly
specialized in tasks that have nothing to do with management or
finance, and so when you say to those people, let's go out and farm
on our own, it is truly a terrifying thought. I think one also has
to note that there is no history of risk-taking in the Soviet Union,
even before the Communist days.

I think one has to note the absence of appropriate laws to sup-
port private agriculture, even the matter of what ownership of land
means is not at all well defined.

Finally, banks and credit, well understood that that is a problem
and I go into that at some length in my written testimony. The
point I am making is that solutions have to address these realities
or they are not real solutions, particularly the social realities.

The good news is that in spite of all of this, 1 percent of the peo-
ple have made the change. There are a number of farms that have
made the change totally, the whole organization. Who are these
people? Most of the people who have made the change are profes-
sionals. They are not the workers. I think the prospects then are

101

that it is going to take many years for a transformation. I think
the prospects are, however, that market principles will prevail.

The final point I would make on that is that their final solutions
to this problem are going to bear little resemblance to the structure
of agriculture in this country, at least for quite some time. What
to do to improve the program? To me, the most effective thing we
can do is provide some linkage between technical assistance and
capital. It is very easy to give them the technical assistance. They
will accept it. They will believe it, they would like to act, but then
they got the problem, how do you get it going unless you have some
capital?

We had a program in Poland that did that. There is no time to
go into the details of it here, it was very successful in Poland and
I would strongly recommend that for the NIS. I think if you want
to get the most bang for very few bucks, I think the best way to
do that is by distributing extension materials. You can get 10,000
copies of a pamphlet on grain storage, for example, 24-page pam-
phlet reproduced in the Soviet Union for $400. They are essentially
free. The network exists to distribute these, several networks.

The farmers' organizations, the command structure of Soviet ag-
riculture is still in place down to the county level. They are won-
dering what to do. They are searching for new roles. It could be
used extremely effectively.

I think a third point, we need to rethink the concepts of model
farms. The typical model farm that we come up with often is quite
irrelevant and more of a curiosity than 'anything else and to a great
extent, unattainable by most of the peasants and it is something
that does not really address the social problems that have to be
solved as part of the new model.

I think what we need to do, Mr. Chairman, is work with indige-
nous model farms, the real success stories, and make sure that
they succeed and that is the better line to giving them demonstra-
tions.

Thank you for the opportunity to testify. I would like to have my
written testimony in the record and will answer any questions
later.

[The prepared statement of Mr. Evans appears at the conclusion
of the hearing.]

Mr. Penny. Without objection, your written testimony will be in-
cluded in the record, and I appreciate the summary which you have
provided which does hit on all the main topics in your written testi-
mony in a very cogent fashion. We appreciate that.

We will move to the professor next and then have questions for
each of you. Professor Gashler.

STATEMENT OF TED GASHLER, ASSOCIATE DEAN, TRADE & IN-
DUSTRY DIVISION, NORTHCENTRAL TECHNICAL COLLEGE,
WAUSAU, WI

Mr. Gashler. I appreciate the opportunity, Mr. Chairman, to ad-
dress this committee today and talk about my experiences as a
VOCA volunteer in Russia and what I found works and what does
not work in United States assistance to Russia. My name is Ted
Gashler. I am associate dean at Northcentral Technical College in
Wausau, Wisconsin.

102

I am also a sheep farmer. I am very grateful to have the oppor-
tunity to go on many VOCA assignments in countries ranging from
Poland to Kazakhstan. I have had the opportunity to work on dif-
ferent projects from developing the first private meat processing
plant in Poland that is privately owned, to working with groups
from Russia, Ukraine, Belarus, and Poland to trade wool for trac-
tors.

I have also worked with other organizations that are financed
under the AID program, including the Cochran Fellowship Founda-
tion, Communicating for Agriculture, ACDI, and Georgetown Uni-
versity. Last summer under the auspices of VOCA, I had the oppor-
tunity to work and live with the new private farmers in the
Ivanovo region of Russia. There are approximately 200,000 private
farmers in Russia with 2.4 workers per farm for a total of 480,000
private farmers and more than 1 million people living on these pri-
vate farms in Russia. *

Many of the new private farmers came from state and collective
farm systems and a lot of them are specialists in various agricul-
tural areas with management expertise in farming. Many farmers,
both private and state farms, told me the food that America sends
to Russia is making things worse for Russian farmers, and ulti-
mately it will affect all of Russia, as farmers are not receiving
prices high enough to provide a profit.

They said as long as Russian leaders know the United States of
America will furnish cheap food, this situation will continue. Sev-
eral top Russian agricultural officials in Moscow told me this policy
will eventually hurt everyone in Russia. Large state farms are now
producing less because there is no profit incentive and thus are less
rubles to purchase all other consumable goods.

Business and industry will eventually feel the squeeze and this
will mean fewer jobs. They asked me, a farmer myself, "how Amer-
ican farmers would like it if Australia or New Zealand or another
country would ship milk and meats to the United States at prices
lower than American farmers can produce it?" I had to admit I did
not appreciate the competition any more than they do.

But on the bright side, private farmers are becoming more impor-
tant in furnishing the Russian food supply. In 1992, it is estimated
that private farmers produced 10 percent of the bread wheat in the
country and on only 3 percent of the land. Private farms and gar-
deners are producing over half of the fruit and vegetables in Rus-
sia, including 60 to 70 percent of the potatoes. This shows again
that production and efficiency increase with independent farmers.

I am a Wisconsin sheep farmer. I see a lot of similarity between
Russia and a baby lamb born in a January snowstorm in northern
Wisconsin. If the shepherd chooses to go out in the cold to bring
in the newborn baby lamb where it is protected from the storm,
dries it off, warms it up, gives it some life-giving colostrum and
then shows the lamb how to find its mother's milk, the lamb will
survive and grow and become a healthy productive member of the
flock.

If the shepherd chooses to stay in the warm house, rationalizing
that he has other things to worry about and leaves the mother and
natural consequences to take care of the situation, there is a 90

103

percent chance the shepherd will find the lamb dead in the morn-
ing.

As Americans, we now have the very short window of oppor-
tunity. We have to make a choice. Are we going to help this new-
born Russian farmer survive? Are we going to help sustain their
new democratic form of Government or are we going to stay in our
warm houses and let nature take its course, and watch democracy
die and witness dictatorial government return to Russia?

Recently President Clinton said: "If we are willing to spend tril-
lions of dollars to insure Communist defeat in the cold war, cer-
tainly we should be willing to invest in a tiny fraction of that to
support democracy's success where communism failed. This Wis-
consin shepherd agrees.

In my report, I have various means of overcoming this situation
and I would like that to be recorded. Also in my conclusion, I would
like to state this: Russian agriculture has the following needs: We
must continue to support VOCA and Cochran; continue to support
and advance the farmer-owned cooperative movement in all areas
of Russian agriculture; insure that all commodities sent to Russia
are noncompetitive with Russian supplies; establish a replica of the
successful United States/Poland Joint Commission for Humani-
tarian Assistance whereby the sale of United States commodities,
if they are going to be sent to Russia, will fund the financing of
small- and medium-sized food processing plants owned by private
farmers and farmer associations; create a Russian/American exten-
sion service; provide aid on evidence of democratic self-government,
not on the basis of Russia meeting immediate economic conditions
imposed by the West; earmark special funds for private farmers
and businessmen; and develop a foundation that can provide small
loans on current U.S. rates of interest to private farmers and small
business people that have successfully completed an apprentice-
ship-type of training program in the United States under the direc-
tion of a mentor.

I know what I am asking for is difficult, but it can be accom-
plished. The impossible may take a little longer.

Thank you.

[The prepared statement of Mr. Gashler appears at the conclu-
sion of the hearing.]

Mr. Penny. Thank you, professor.

Before I proceed to questions and then begin to call on the sub-
committee members for questions they might have, I want to defer
to the ranking Republican on the full committee, Mr. Roberts.

OPENING STATEMENT OF HON. PAT ROBERTS, A
REPRESENTATIVE IN CONGRESS FROM THE STATE OF KAN-
SAS

Mr. Roberts. I beg the indulgence of my colleagues, and I apolo-
gize for coming in late. The only thing that I wanted to do is to
make a personal appearance to give my personal best wishes and
welcome and thanks to a former member of our committee, Mr.
Evans. We have been meeting with Mr. Evans. We — that is Mr.
Smith of Oregon and myself — over a period of time to see what we
could accomplish in regard to the former Soviet Union situation in

104

Russia that would be a benefit not only to their agriculture, but our
agriculture as well.

And I wanted to thank Cooper for his patience, his diligence, and
his perseverance. I don't know of anybody who is more committed
to these goals or anybody who has been more helpful to them. So
thank you, Coop, we miss you on the committee, but I think you
are providing an equally valuable service in your current position.
And so it is with some degree of affectionate admiration that I
want to welcome Mr. Evans back to the scene of the crime in this
subcommittee room. There were many long days when we consid-
ered Mr. Evans' amendments to the farm bill, most of which if we
had the good wisdom to pass, were a benefit to farmers not only
in Iowa, but in Kansas and all over the country.

So anyway, thank you, sir, for coming back.

Mr. NUSSLE. Would the gentleman yield?

Mr. Roberts. I would be delighted to yield.

Mr. NusSLE. I too would add my welcome to my constituent now
whose shoes I have tried to fill in the new reconfigured Iowa's Sec-
ond District and it is a proud day to have you here to have the op-
portunity to get some wisdom on this particular issue. I, luckily,
Mr. Chairman, have the opportunity later on to visit with Cooper
Evans privately where maybe he can hit me over the head and let
me know what really is going on over there and I am looking for-
ward to that as well. So with that, I would yield back.

Thank you.

Mr. Penny. Thank you. Cooper, both you and Professor Gashler
spoke of the need to establish some kind of extension program on
the ground in Russia. How would you go about doing that? Who do
we work through to provide that information? How would that be
staffed?

Mr. Evans. I think it could be done with essentially no new orga-
nization or staff. I mean, it is mostly a matter of selecting appro-
priate documents that are available now in our Extension Service,
editing them slightly, getting them translated, and then getting
them reproduced in Russia where they can be reproduced at essen-
tially no cost, very, very low cost. 10,000 copies for $400, boy, you
can get a lot of material out.

The distribution system exists. It exists through their farmers'
organization at a national level all the way down to the county
level. They would love to have documents to distribute. They can
be distributed by volunteers in the farmer-to-farmer program very
easily, but the biggest network that exists is the old command
structure of Soviet agriculture. It is still in place. The command
function is gone. Even though those district offices, that I am famil-
iar with, they are wondering what in the world we can do to be
useful, and I think, one, by just making the materials available
might start the process of a natural evolution of a new Rome for
some of these offices £ind these people that they can't really let go
and are sitting there twiddling their thumbs in large measure.

So most any organization that is now in Russia could implement
this program at very little cost. VOCA could do it. Others could do
it. It is not a problem. A modest amount of money as a pilot effort
in 6 months time, would be very interesting to see what might
occur.

105

Mr. Penny. You mention that the farmer organization is evident
in every region of the country.

Mr. Evans. Yes.

Mr. Penny. Is that an organization that represents only the
emerging private sector farmers or is that a long-estabhshed orga-
nization for the farm constituency?

Mr. Evans. No, my reference really was to Russia and to an or-
ganization called AKKOR. It is a national farmers' organization
that sprung up just spontaneously over the last several years. It
has roughly 200,000 members, maybe that is a bit high, but that —
essentially all of the private farmers in the Soviet Union are mem-
bers of AKKOR.

Now, you know farmers and I know farmers and they don't al-
ways agree and it is not the smoothest running organization in the
world, but the network exists and there would be no disagreement
on the matter of distributing documents to the private farmers.

Mr. Penny. In your testimony you also mentioned that aside
from these farmers that are setting out on their own in somewhat
the American model or the small — at least the original American
model, a small-scale diversified farm operation, that there is some
degree of — pardon me if I don't phrase this correctly — some degree
of individualization or privatization that is going on even on the
corporate — or even at the corporate farm, the collective farms?

Mr. Evans. Yes, and I think this is of great interest and should
be given a lot of attention. Here and there there will be an occa-
sional mass conversion, if you will, of a whole operation. I will give
you what I think is one of the best examples, if I may take a
minute to do this.

Mr. Penny. Please do.

Mr. Evans. Something more than a year ago, we had a seminar
in Yalta for people from all over the Soviet Union who were inter-
ested in this sort of thing. There was attending that meeting a
state farm director chairman who was looking for new ideas on
what he ought to do to make these adjustments. He listened, he
went home to Moldova and he has come up with the neatest exam-
ple of an indigenous model farm that I have seen.

The property was distributed to each and every member. Their
income was dependent on what that plot produced or what rentals
came from that plot if it was rented. The central facilities and the
tractors were put in a cooperative that was managed for the benefit
of all of these individuals. He went to the most successful bank in
the country in Moldova, said I want a branch bank on this farm.
The bank came. The bank does all the bookkeeping. There is an ac-
count for every one of these farmers.

When the income from the sales are in, it is deposited in their
accounts. It is a terrific example. He had 600 people last year. The
income of those people was 1 Vi to 2 times the income that had pre-
viously gone to an individual. This year he thinks he will have 900
people. That is the kind of a model farm that I think we need to
really push and make sure that it has the support to succeed.

Mr. Penny. It really takes a cooperative model a couple steps
further than we have ever gone in this country in terms of actually
sharing the equipment and the rest.

Mr. Evans. Exactly.

106

Mr. Penny. I mean, in terms of the financing, that is a similar
pattern in terms of American agricultural co-ops providing financ-
ing and other inputs. But the sharing of the equipment and the
rest is

Mr. Evans. If I may add one point, Mr. Chairman. I think the
point of greatest importance about this is that the solution address-
es the social problems and solves the social problems.

Mr. Penny. It allows them to stay in a collective environment in
which they share the other social securities.

Mr. Evans. Exactly, yes.

Mr. Penny. And at less individual risk than they might be if
they were out on their own?

Mr. Evans. Yes.

Mr. Penny. I appreciate your observations in that regard.

Mr. Allard.

Mr. Allard. Thank you, Mr. Chairman. I was curious, on your
recent trip to the former Soviet Union, what were you expecting to
find when you went there and then when you got there, what was
it that you saw that perhaps was different from what you expected
to find?

Mr. Evans. I have been in the Soviet Union many times. I am
not really sure how many times, but this last trip had a special
function in that we had just been told that we could begin to work
in Belarus and in Moldova, and on several occasions I have done
this for VOCA, to go into the country when we are just beginning
the program to get acquainted with the Government officials, to
travel around the country, to try to identify groups of private farm-
ers that would like to look at us, to look at an industry that might
be interested in working with us, and so that is what I was doing.

I found in both instances things of — where we could do a lot of
good. The governments in both countries were most receptive and
interested in a VOCA-type cooperation. I will give you one example,
in Belarus, that I think is quite interesting and that is, they want
very much for someone to come and work with them there on what
they should do with the lands that have been contaminated by the
Chernobyl disaster.

They would like to be able to use that land that can be farmed
safely but the products can't be eaten or used for livestock food. So
we are starting a project there to look at the production of oilseeds
for the production of diesel fuel, for example, the production of
sweet sorghum for the manufacture of ethanol fuels, and we are
going to have some test spots out this year to see what the uptake
of radiation is, whether radiation ends in the plant and we will go
on from there.

The example of the farm that I gave the chairman a moment ago
was in Moldova and was also uncovered on this trip.

Mr. Allard. I am glad you brought up the issue on some of the
alternatives that they have for their farm products. That brings us
into the area of how technically trained are some of the
agriculturalists that we have over in Russia. I am a veterinarian
by background, so when I think of somebody as technically trained,
I think, well, who do we have over there that is qualified to do arti-
ficial insemination and embryo transplants and that kind of thing
which has helped make our — and you brought up a couple- exam-

107

pies — which has made our agriculturahsts very productive in this
area.

Are they trained and are they ready to take on that type of tech-
nology?

Mr. Evans. I defer to my colleague.

Mr. Gashler. I was very impressed with the technology training
and background these people have. That was one of the things that
surprised me on my first trip to the former Soviet Union. I found
that many of the private farmers, especially the ones who had the
knowledge, the background, were the leaders in the former state
farms.

One that I worked with is a veterinarian, his wife is also a vet-
erinarian. He was a very intelligent man, a leader among the peo-
ple, he had developed a fox farm, a no-cost fox farm that generates
a good profit.

Now, this guy is a mover. He goes to the state farm where he
was formerly employed, picks up the dead animals, and feeds them
to his fox. He has 300 female fox, and is selling the fox for $60 to
$90 apiece. He is making it happen, a very intelligent man. I was
impressed with him.

I was impressed with many more of the people, and the knowl-
edge they have.

Mr. Allard. Thank you. It seems to me about a year ago or 9
months or so, at least last year, I was involved in a discussion
group, and I can't recall whether it was here in a formal setting
in the Congress or where, but the issue was brought up that there
are areas of the Soviet Union where there are surpluses. The prob-
lem is getting it to the urban areas.

In your visits there, have you found that to be true? Do we have
pockets where there are surpluses of agricultural commodities?

Mr. Evans. I don't think there is any question about it. I mean,
the distribution and the storage problems are at the heart of the
food problems of the former Soviet Union, and to a considerable ex-
tent, the great markets that we had for several years were reflec-
tions of that. It was simpler and cheaper and more of a solvable
problem to buy the stuff here than it was to go to Moscow and St.
Petersburg than to get it collected from the farms and organized
and through all of the channels to those people.

So it is very much a part of the problem and this is something
that they are going to have to work on and that we can help them
on, the distribution processing marketing side. We are trying to do
that.

Mr. Allard. Is it your feeling that is an area where we can be
most helpful? How would you rate it in priorities in being able to
help?

Mr. Evans. I think one of the most important, but you have to
understand how we work. We go into an area and find a group of
farmers and say, hey, what are you interested in, what are your
goals, what would you like to do, and we don't try to force goals
on them. Very often it is this marketing and distribution, they rec-
ognize it is a need, and they say, we would like some help on how
we form a marketing cooperative along the patterns that you have
in the United States. But this is a common request.

108

Mr. Allard. Just one more question, if I might, Mr. Chairman.
I am curious as to how you select your farmers from this area to
go over there and to be representatives of the United States.

Mr. Evans. Well, we try very carefully to match the individual
to the request. We get a request in writing from these people, a
mission statement is drawn up, and then we begin to recruit, and
we literally recruit all over this country. And we have a big com-
puter base of farmers who are willing to go and we are recruiting
new people every day, and there is a great search to match the re-
quest to exactly the kind of person that can best serve that need,
and we try to get older people usually with a lot of experience that
have been successful in the specific field that they are inquiring
about.

Mr. Allard. Thank you very much for your frank responses to
my questions. I appreciate that.

Mr. Penny. Ms. McKinney, any questions?

Ms. McKinney. No, Mr. Chairman.

Mr. Penny. Mr. Nussle.

Mr. Nussle. I will pass. Go ahead.

Mr. Penny. Mr. Stenholm.

Mr. Stenholm. First Mr. Gashler, in reading your testimony,
sorry for missing it, and Cooper I welcome you back to the commit-
tee.

Mr. Evans. Thank you.

Mr. Stenholm. I am curious of the dilemma that we constantly
face. You point out that many in Russian agriculture observe that
the aid we are giving are destroying their farmers.

Mr. Gashler. That is correct.

Mr. Stenholm. And yet our farm policy is designed to produce
the wheat that the Russian market needs. So what do we do? Do
we stop producing the wheat for the Russian market because we
are destroying their market or do we produce the wheat and then
debate whether or not it is good for the people that we are, in fact,
trying to help?

You get into it, and I am not sure there is an answer to the ques-
tion.

Mr. Gashler. Briefly the question was asked, what was one of
the things that we were most surprised at. One of the things that
I was most surprised at was that the — there is not the shortages
that we see on television. The bread lines that we see commonly
are because bread is made in one little factory and it is only sold
at certain times of the day and to get it, they have to stand in line.
It isn't because there is a shortage.

Now, there is not a shortage of grain over there. In some com-
modities there are shortages, and where there are shortages, let's
help them. Let's provide it. But I am saying we are going in com-
petition with them. As a farmer myself, a few years ago we had
Australia dump a bunch of lamb on us. That didn't make me
happy. It doesn't make them happy to have a bunch of grain
dumped on them £uid for us to go in direct competition with their
farmers either, private or state.

Now, what can we do with the grain? I am saying there are plen-
ty of countries that do need it from Bangladesh to Somalia. Let's
provide it where needed, and let's use the grain that we have here

109

for something that will do a lot more good than sending it there.
Let's use it for ethanol production, start burning more ethanol. It
will be better for the environment, it will help our cars last longer,
and it will help the American farmer.

There is one ethanol plant that is trying to start up in Minnesota
right now that will take 6 million bushels of com right away and
they will build it up to 12 million bushels. They just need a little
prodding and they are ready to go. Another one is in the State of
Iowa that will take 20 million bushels.

Besides that, we can put this com into sweeteners and other
types of alcohol and other things. This is where it will do the most
good.

Mr. Stenholm. At what price must the alcohol be priced in order
to be profitable and at what price is the return to the com farmer
and the wheat producer for the conversion in your figures?

Mr. Gashler. The price of the ethanol will be higher than gaso-
line, yes.

Mr. Stenholm. How much?

Mr. Gashler. I am not sure.

Mr. Stenholm. That is the problem. That is the problem with
those scenarios. Let me ask you both one other question. You both
have been to the Soviet Union and a question that was asked ear-
lier today on a political sense, should the United States, perhaps
on an interparliamentary exchange, and I guess that is the way I
ask the question, even though we have healthy suspicions about
the current Soviet or Russian Parliament, the makeup there of
whether they are democratically elected or not, should we or should
we not make extraordinary efforts of communication with them
whether or not we like them or not. Parliament to Parliament?

Mr. Evans. I think very definitely you should. They are in a situ-
ation where they are devoting much of their time to broad political
issues rather than the specific things relating to agriculture that
they probably ought to address. But I have had a number of meet-
ings with the chairman of the agriculture committee, if you will, of
their Parliament. He has great interest in things that we under-
stand very well. He has great interest in our laws that do not exist
there, not that they are necessarily going to copy our laws, but to
get some insights as to how we approa:ch these problems.

I'll give you one good example. He went to his desk and took out
a book. You know what it was, it was a copy of the commercial code
of the State of Iowa, and there is no body of commercial law over
there, a great interest in how you solve these things. The extent
to which they would respond, I don't know, but I think it would be
very well worth pursuing.

Mr. Stenholm. Might I have one follow-up? Is there a potential
downside with the Russian people? For example, if we are trying
to promote democratic action, free ownership of land, private enter-
prise, is there a potential downside if we are perceived to be
cozying up to the old-line Communist-dictated government? Is
there a downside or is it worth the risk?

Mr. Evans. I think it is worth the risk. There is such a thing as
conversion, and I think we probably ought to work on that.

Mr. Stenholm. Thank you.
Mr. Penny. Mr. Barlow.

110

Mr. Barlow. Thank you, Mr. Chairman. Congressman Evans, it
is an honor to see you here today. I appeared before you back in
1970's and I always respected your judgment, your questions, and
your patience. You were always at the subcommittee hearings even
when it was just you and the chairman of the subcommittee. I
want to pay homage to you, sir.

I have a couple of questions for you all. Generally, the theme
that is being developed now — and it is an understandable theme —
in our agricultural relations with Russia, is that we are in some
fashion wanting to — and it is understandable, very understand-
able— tie our credit and our export policy to disarmament. That is
very understandable because of the cold war but I am nevertheless
a little bit concerned.

I too want to see both sides disarm, but if we tie agricultural
trade too much to disarmament, there might be a reaction on the
Russian side sajdng in effect, as we might in Kentucky, '*keep your
grain." We might see or be feeding, if we insist on too much link-
age, a resurgence of militarism. Would you have any comment on
that?

Mr. Evans. I think there can be too much linkage and I think
you could generate a backlash if you pushed too hard, particularly
among the members of the current parliament. I think you can
have linkage on some things.

You need to have linkage in some areas, but I think you can get
lots of leverage, adequate leverage, for the disarmament without
bringing food or agriculture into that linkage, and that those are
two things that should not be involved in those sorts of disputes
regarding disarmament.

Mr. Barlow. One other question. Do you think that we might
keep in mind our own history in our dealings with Russia? It took
us a number of years back in the 1700's to go from the Declaration
of Independence to become a constitutional nation. Perhaps be-
cause of the instant television coverage we get, we might be expect-
ing too much.

Constitutional government is built from the ground up.

Mr. Evans. I agree with you totally.

Mr. Gashler. Yes, I think we are expecting too much too early,
and I think that we have to provide help and reward advances in
democratic self-government. That is where we have to reward
them, in a democratic self-government.

Mr. Barlow. Thank you, sir. One more question, Mr. Chairman.
Is there any opportunity for exchanging ideas and technologies in
conservation, soil conservation, water resource conservation, pollu-
tion of various areas? I think this is an area that we can develop,
don't you?

Mr. Evans. Well, there is no question, and lots of people can do
that and one of the very first requests that I had when I went to
those people in the Soviet Academy of Sciences several years ago,
they had been asked to come up with ideas on soil conservation
strategies for the Soviet Union.

So I came back and sent them all of our laws and handbooks and
so forth, but there is great interest in that. Many people can do it.
VOCA participates in it. The environmental side of things is some-

Ill

thing that we are adding a lot more emphasis on because of their
interest in this subject.

Mr. Barlow. Do you think our food aid could be developed in
conjunction with soil conservation outreach?

Mr. Evans. You mean a linkage between the two?

Mr. Barlow. Not linkage so much as the two of them going
hand-in-hand.

Mr. Evans. I think that there are msuiy things that we can do
over there, and we can do a lot of them through technical assist-
ance, and as I say in my testimony, I think there needs to be a
linkage between that and some capital, and the food assistance is
one way to provide the capital like we did in Poland and that
worked very well.

Mr. Barlow. Thank you, sir. Thank you, Mr. Chairman.

Mr. Penny. Cooper, you didn't respond to Mr. Stenholm's ques-
tion about food or grain sales to Russia and whether that impedes
indigenous production within Russia and the other Republics?
What is your sense of the appropriate policy of the United
States

Mr. Evans. I think it could. You know, under the Communist
system, there weren't any complaints like this. There were no com-
plaints. It doesn't take you — ^you don't have to be a private farmer
very long before you become sensitive to imports, right? We under-
stand that extremely well, and, no, I don't think we have done any
great damage particularly in the last several years or — but there
is a feeling of resentment if we overdo it and we just got to be kind
of careful, I think.

Mr. Penny. How do you feel about the alternate approach of
monetizing commodities in the local market? The argument has
been made that we could better target our food distribution if we
were to essentially take finished products into local regions where
there is a demand for that particular good, whether it is a proc-
essed meat or dairy products or flour, whatever it might be, and
then use the money, locally monetize it, use the money locally to
support some of these agricultural reforms or other free market re-
forms.

Mr. Evans. I think there is a lot of merit in that. The people that
need to be targeted, if you are going to target of course, are the el-
derly, the retired, and those on fixed incomes. They find it very
hard to meet the rising costs of food. Of course it is not easy to tar-
get those people. It is not easy to get — it is a tremendous adminis-
trative task to do that and so I am not sure of the feasibility of it.

But the idea of monetizing it in modest amounts at least and
using it for seed capital, we very strongly support.

Mr. Penny. To the point of targeting the aid, Keith Severin sug-
gested to us yesterday that we — the most effective way in his judg-
ment to target food assistance would be sort of an international
WIC program where we take certain commodities and distribute
them at the elementary school and day care center levels, that you
have a distribution point and it is highly targeted on vulnerable
families.

Is that a more manageable approach? Because I know the struc-
ture over there is problematic. Is this an approach that might be
workable?

112

Mr. Evans. I am not really competent to give you advice on that,
Mr. Chairman — my intuition, I think that would be a better ap-
proach than some, but there are probably others here today that
can give you a better answer than I can.

Mr. Penny. Professor, do you have a reaction to that?

Mr. Gashler. I have a 15-year-old daughter going to school in
Ivanovo. She is attending college in Russia right now. I asked her
what the food situation was like in the schools there? She said the
college she is at has adequate food.

It is not the best tasting she says, but it is adequate, but the one
thing she does miss is milk. Now, if there was a way to get milk
there, I think it would help a lot of dairy farmers in this country
and not too many dairy farmers would be hurt in that country at
this time.

Mr. Penny. Land O'Lakes is on our next panel.

Mr. Stenholm. Mr. Chairman.

Mr. Penny. Mr. Stenholm.

Mr. Stenholm. It appears that there is one area that there is
a great amount of similarity between our two countries, in the
quality and definition of the school lunchroom program.

Mr. Penny. I don't know of any kids that like the food, but I
have been to Russia and I know what she is complaining about.
Cooper, do you envision this AKKOR — is that the way you pro-
nounce it, A-K-K-0-R, as being the engine for the development of
a cooperative farm structure within Russia? Is that our best

Mr. Evans. It is certainly one. I will just say to you, Mr. Chair-
man, that frequently the groups that we work where local AKKOR
groups, they form this association, they get together, they talk,
they lay out their goals, they ask us for assistance and we often
say to them, hey, you need to form a cooperative to do this, what-
ever it is they are thinking about doing.

So we have developed a very close working relationship with the
AKKOR groups at the local level, not so close at the national level,
but these are key players in the evolution of the private sector, no
question about it.

Mr. Penny. And how do you feel about the size of the VOCA ef-
fort? It is, I think, slated for about 1,700 farmers over the next 3
years. Given all that we would like to do, all that needs to be done,
are we in there with a large enough contingent to make a dif-
ference? Could AID and VOCA do more if we made the resource
available?

Mr. Evans. Let us respond to your office in writing on that one
right away.

Mr. Penny. I mean, it just seems to me that while we are in the
first months of an involvement, this seems to have been the type
of assistance that is the most well received. I don't want to overtax
the capacity of AID or VOCA to deliver efficiently the service, but
by the same token, we are talking about a huge country with 12
Republics and 1,700 farmers on the ground or other agricultural
experts on the ground is helpful in some degree, but it still leaves
us a long ways from where we need to go.

Mr. Evans. Exactly. We will get you something directly.

Mr. Penny. My last question is whether — and you may not be
prepared to answer this, but getting back to the Extension Service,

113

could that be a VOCA project? Would AID or does AID have the
authority now to fund that kind of a project?

Mr. Evans. Yes, it could be a VOCA project, and I think that
they could, but you would best ask them also. I will say to you, Mr.
Chairman, that we have begun a small pilot venture along these
lines ourselves based on present authority and I think that it fits
quite well, and we would like to see strong support for expanding
mat kind of a program and I think it could be very productive for
an extremely small amount of money.

Mr. Penny. I saw Don whispering in your ear. I thought maybe
he was

Mr. Evans. He wanted me to make a point, which I will, that
this sort of thing has worked very well in Poland, yes.

Mr. Penny. I do appreciate your testimony this morning. It has
been quite helpful and I appreciate your willingness to be a volun-
teer in so many ways over the years. Professor, and Cooper, for
your leadership particularly in this VOCA effort in the former So-
viet Republics.

We are quite excited about the work that you are involved in and
wish you continued success. It is tough to measure success in this
Russian system, but I think progress is being made.

Do you have any concluding remarks, Mr. Allard?

Mr. Allard. No, I don't, Mr. Chairman, except to thank both of
you for bringing your perspectives to this subcommittee. It will be
very valuable us to.

Thank you.

Mr. Penny. I thank you again.

Our next panel consists of Ms. Martha Cashman, vice president,
international development division. Land O' Lakes, Dr. Stanley
Johnson, director, center for agriculture and rural development,
Iowa State University, and Mr. Burton Joseph, president of Joseph
Companies in Minneapolis, Minnesota.

We would ask that you testify in the order that I have introduced
you. Our desire is to have you submit your written testimony for
the record and to summarize as best you can the highlights of your
remarks and then we will proceed to questions. Ms. Cashman.

STATEMENT OF MARTHA CASHMAN, VICE PRESmENT, INTER-
NATIONAL DEVELOPMENT DIVISION, LAND O* LAKES, INC.

Ms. Cashman. Mr. Chairman and members of the committee, I
would like to thank you for the opportunity to reflect on the future
of private agriculture in Russia and the role that we are playing
to provide private farms with technical assistance, training and
moral support. But specifically, Mr. Chairman, I would also like to
thank you for attending a Land O'Lakes annual meeting in Feb-
ruary and your attendance was especially appreciated by Dr.
Bosmasnokov and the Russian delegation from AKKOR that at-
tended the annual meeting. And I would like to tell you that the
international development breakout session, which essentially fo-
cused on Russian agriculture, was the single largest attended
breakout session of the annual meeting with over 800 farmer mem-
bers of Land O'Lakes attending that particular session.

And just as a side note, I would also like to say that I am also
very proud to be here as somebody that was bom and raised in

114

your district, from Watonwan, Minnesota. There are many
Cashmans, in fact we were debating that there were probably more
Cashmans per square inch and still counting in southern Min-
nesota than perhaps anywhere else in the United States, short of —
well, actually outside of Cork, Ireland.

At any rate, my testimony covers three subjects. First, some gen-
eral backgroimd on Land O'Lakes and its international programs,
second, our involvement in supporting private Russian agriculture,
and third, observations and recommendations to the United States
assistance programs to Russia. I would like to enter my written
testimony in the record and then just talk a little bit about — sum-
marizing my testimony and also making some comments based on
the previous testimonies.

Land O'Lakes is very fortunate to have been involved in Russia
for the last 6 years. We were with Dr. Bosmasnokov at the estab-
lishment of the AKKOR private farmers' association 2 years ago,
and Land O'Lakes actually got started in — actually in 1989 and it
was specifically at the request of President Yeltsin. During the Au-
gust coup. President Yeltsin, when he stood atop the Bryansk and
was tallang about reform in Russian agriculture, used the Land
O'Lakes program or efforts as the centerpiece for agrarian reform
and reform of the state cooperative movements.

So we have been working out there for a number of years, long
before Russia was the place to be and the thing to be doing. We
have been working on issues of civic participation based on the
grassroots organization of cooperatives and using that as the basis
of a civic society that is involved in governance and business is-
sues.

I listened to Cooper Evans talking about the model farm concept,
and I would have to agree with his concept that the historical
model farms that have been used in Russia only tend to highlight
the disparities between Russian agriculture today and Western ag-
riculture. And I think that the model farm consent is something
that really needs to be examined and rethought.

The Land O'Lakes approach to this whole issue has not been to
set up a Land O'Lakes member-type farm in Russia. It has been
working with private farmers, the individuals who were considered
only a few years ago as dissidents within the agricultural move-
ment, and really strengthening their abilities to exist outside the
state system. We have been working very much with the private
farmers as far as not over capitalizing their farm operations early
on, that there are other ways to improve production in the process-
ing of their materials.

We have decided that there really — if you watch the news and
so forth, that there is an urban versus rural politics, and what hap-
pens in the cities is not at all reflected as to what is really going
on in the countryside. There is an intense desire to emulate the
American model in agriculture. There is an intense desire to join
\vith the United States and really, as the Russians have told me,
it is a question of dignity and national pride.

Russia was once considered a superpower and now they feel like
the equivalent of the United States homeless. They are very con-
cerned about who their partners are in the future and seek out

115

American businesses that are willing to make a long-term commit-
ment to reform in their country.

The issue regarding grain exports or be it dairy products, grain,
whatever the commodity is, and how that is handled in Russia is
a major issue. It is a major issue in Russia. It is also a major issue
for Land O'Lakes members here. And I would have to say that we.
Land O'Lakes, has overcome a major stumbling block or an obsta-
cle to increased international development efforts by convincing our
Land O'Lakes members who grow wheat that unless they are out
there working shoulder-to-shoulder with the Russians and taking
an equity position in the future of private farming in Russia, that
indeed Russia will compete with them.

We do have specific models that are contained in my testimony
and documents to the United States Agency for International De-
velopment and the United States Department of Agriculture that
specifically address the monetization of surplus commodities from
this country to Russia. As an individual who used to work for U.S.
AID and was responsible for the Bellman determinations, I am
very cognizant of the issues that surround them.

And the programs that we have put forward out in Russia ad-
dress those issues. We believe that providing assistance, be it
through technical assistance, training, surplus commodity mod-
ernization programs, that it can be a win/win situation for Amer-
ican farmers and American agricultural business, as well as the
Russian farmers in the establishment and support of fledgling pri-
vate agricultural business entities.

Again, I would like to thank you for the invitation to present to
your subcommittee here and I will wait for questions.

[The prepared statement of Ms. Cashman appears at the conclu-
sion of the hearing.]

Mr. Penny. Thank you.

Dr. Johnson.

STATEMENT OF STANLEY R. JOHNSON, DIRECTOR, CENTER
FOR AGRICULTURAL AND RURAL DEVELOPMENT, IOWA
STATE UNIVERSITY, AMES, lA

Mr. Johnson. Thank you, Mr. Chairman, and other committee
members for the opportunity to talk with you about our experiences
in Russia. I was asked to speak in particular about the agricultural
business centers that we are operating there and I will do that. I
prepared material on the agribusiness centers which I would ask
to be included in the record.

My comments will be in three areas, the first of these are not
contained in my statement but are motivated by your questions of
Mr. Evans and the others earlier, and I just wanted to add one or
two specifics that will, I believe, help to give some perspective for
the situation that people in agriculture find themselves in Russia
and the other Republics of the former Soviet Union.

One of the things that wasn't mentioned is that there has been
a radical change in the relative prices of foods in these nations. For
example, in 1989, the Russian population was consuming over 70
kilograms, that is about 150 pounds of meat per capita. That is the
same amount that is consumed by the Western European popu-
lation. It is very likely that this consumption level will drop signifi-

116

cantly and, in fact, it was at the previous level due to the highly
distorted prices.

Thus, in addition to adjusting to a new economic system and a
new set of institutions, farmers there are adapting to an entirely
different pricing system, one that is more consistent with that in
the world markets.

The second point in terms of background is that the GDP per
capita in Russia dropped about 7 percent in 1990, about 17 percent
in 1991, and is estimated to have dropped about 20 percent in
1992. That means that their per capita income is down over 40 per-
cent in the past 3 years. And to give a little perspective, during the
Great Depression our per capita income was off about a third.

Thus, the Russians are dealing in a very difficult economic situa-
tion where not only the agricultural sector is under stress to adapt,
but the whole population is under economic stress.

The last point is to understand that as we deal with the eco-
nomic reform and our participation in reform of Russian agri-
culture, it is important to understand that the Russians have their
own set of institutions. In particular these farms, collective £md
state farms, have been both social and economic institutions. This
situation represents a difficulty associated with the reform that
will require very innovative developments if they are to succeed in
the short term.

Let me tell you about our agribusiness centers briefly. We ran
the agribusiness centers in Russia and Ukraine. Our discussions
about these centers are a long history, starting about 5 years ago
actually, and when we — most of the discussion was in terms of
model farms. It became clear, as we discussed this, that there real-
ly wasn't much of an interest in model farms, that is replicating
a farm from Iowa and Russia, but instead technology, management
methods, and other things.

We organized these centers as joint ventures, legal joint ven-
tures, which in itself was interesting, within the laws of Ukraine
in Russia, and they provided training on management methods and
market systems and institutions to about 1,000 participants in
1992. They also provided opportunities for demonstrating U.S.
technologies.

Small- and medium-sized firms in the Midwest were particularly
interested in participating because the centers provided a low-cost
way for them to assess the potential for commercial developments
in the former Soviet Union and a way to capitalize on what I be-
lieve is a very general feeling of wanting to support the reforms in
these countries by our Midwestern population.

The short courses were organized in a number of areas, crop pro-
duction, grain handling, meat processing, dairy processing, food
processing, and packaging, and we brought people to talk about
how those technologies and how the industry is organized in the
United States, not with the idea that they would copy it, but with
the idea that they could ask questions and adapt in their system
whatever parts of our methods and technologies seemed most ap-
propriate.

Based on this experience, a number of recommendations come,
not only about how these centers would be operated, but that relate

117

to how we might organize our assistance to the former Soviet
Union and Russia, and I would like to comment on those briefly.

First I think these centers represent a real opportunity for estab-
lishing the extension service. We worked with local agricultural
schools, with local organizations, private farmers, and the agricul-
tural establishment, and with the academies of agricultural
sciences which have a lot of technology and have no history of try-
ing to apply that in the land-grant system way that we do in our
country, the problems of agriculture.

The second point is that the firms that participated from the
United States side were very interested in following on, but there
is a lot of uncertainty about benefits to their firms. A policy that
would allow loan guarantees or some sort of Government participa-
tion for United States private sector involvement in Russia would
be very helpful in terms of transforming agriculture and very help-
ful in providing opportunities for United States agribusinesses
there.

The last point is that the institutional setting is under significant
change, including the policy setting. There is just tremendous con-
fusion about what the course of the agricultural policy in the coun-
try should be, and I have visited with leaders at the farm level and
at the Government level about this problem, and they feel that
some kind of assistance would help them chart a course that could
be credible to the agricultural people and that could be consistently
followed would be a great assistance in the reforms.

Thank you very much.

[The prepared statement of Mr. Johnson appears at the conclu-
sion of the hearing.]

Mr. Penny. Thank you.

Mr. Burton Joseph.

STATEMENT OF BURTON M. JOSEPH, PRESmENT, JOSEPH

COMPANIES, INC.

Mr. Joseph. Mr. Chairman, the Joseph Companies are our com-
panies— or are subsidiaries who have dealt directly with the Soviet
Union since 1963. Members of this committee in fact might remem-
ber that in November of 1963 a delegation of American grain ex-
ecutives, which I chaired, was invited to meet in Canada with the
chairman of Exportkleb, which is the Soviet grain export import
monopoly. We discussed at that time the lifting of the grain sales,
the embargo on grain sales from the United States to the Soviet
Union. My friend, Orville Freeman, who was then Secretary of Ag-
riculture and I met with President Kennedy then and the President
decided it was time to open trade between the two powers.

Unfortunately, President Kennedy's death in late November 1963
delayed that decision until the spring of 1964 when President
Johnson decided to go forward. Since that opening, with the excep-
tion of the interruption during the earlv part of the Afghanistan
crisis, the United States has participated in the shipment of a sub-
stantial quantity of wheat, feed grains, and soybean meal to the
Soviet Union. These quantities represent about 50 percent of the
total of Soviet imports.

On the average, the Soviets have imported between 30 million to
40 million tons of wheat and course grains each year during the

118

last 12 to 15 years. Their peak year was in 1984 when they im-
ported close to 60 million tons. These figures are outlined in the
attached schedule on the written material.

During this same period, the Soviet domestic wheat and course
grain production was between 180 million to 200 million tons. So
what we are pointing out here is that they are importing about 20
percent of their normal crop. It is well-known that one of the trage-
dies of the Soviet grain, oilseed, and potato production is that 20
to 25 percent of their crops in the field, ready for harvest, never
get to consumption.

It is no coincidence that since 20 percent of the 200 million ton
field production is 40 million tons, this crop loss roughly matches
the 30 million to 35 million tons of Soviet grain imports over the
last several years. If we use a delivered price — in the trade, we call
this GIF: cost insurance freight — of $100 a ton delivered to the So-
viet Union, now the former Soviet Union, FSU, is spending $3,500
million to $4 billion a year to pay for these grain imports. I use the
word "pay" in quotations since during the last 24 months, the Rus-
sians and many of the other Republics of the former Soviet Union,
using USDA credit programs, have defaulted on their payment
schedules, both interest and principal.

Commodity Credit Corporation, as well as the European Com-
mon Market is very worried of extending further credit. The heart
of the matter is not complicated. The central planning system for
agriculture and food, headquartered in Moscow, has, over the gen-
erations of the Communist era literally directed units of production
in the Soviet food system to go where each particular unit of the
system is directed to go, ordering how much tonnage or units to de-
liver, what each unit's quota or production would be, when to ship
and most importantly, at what price to sell.

The Agriculture and Food Central Planning Bureau in Moscow,
at its peak, employed more than 400,000 people to direct the food
production and distribution system within the Soviet Union. Is it
any wonder, then, that so much of the grain, oilseeds, and other
foodstuffs produced never receive timely nor revenue meaningful
decisions?

Consequently, the grain either rotted in the field or lacking stor-
age and transportation, laid in bags alongside of the fields and pro-
duced a harvest of the fattest rats in the world, combining with in-
sects and birds gorging on the unprotected grain and with inclem-
ent weather, adding the final piece of loss to the unprotected total.

Current Russian presidential staff, Mr. Yeltsin's staff, and lead-
ership knows this and desperately wants to privatize Russian
farms to see that the profit motive prevails and that decisions will
be made by the cooperatives, the collectives, and the private farm-
ers themselves to do what must be done to protect and preserve oil-
seed and grain supplies.

The solution is simple. Find a way to save 30 million tons of lost
grain. It then follows, no need to import 30 million tons of grain
and the final sequence, don't spend $3 billion. The waste and spoil-
age problems plaguing the FSU's, existing agricultural systems are
partly attributable to the use of the large grain storage facilities
that are not well distributed throughout the countryside and can-
not be relocated to reflect changing needs.

119

Moreover, the collectives and private farms have no option at
this time but to sell and ship their grain to the Government and
receive in exchange prices that are approximately one-fifth of the
world market price. Economic survival for the farmers at these dis-
astrous prices is not possible.

How to save 30 million tons of grain and give the Russian farmer
a chance to survive? The answer, private storage at the farm level.
Without farm storage, the farmer must ship to the huge distant
state enterprise silos and get paid 20 percent of the world fair price
or do not ship, and waste 20 to 25 percent of their grain.

Let me say this again, because this is the critical part of the Rus-
sian rural existence. If the Russian farm and farmer have an alter-
native method to store its and his grain, the waste is negated, the
prices received can increase dramatically and the private farm,
under private land ownership, will become the critical new impor-
tant feature of the total Russian economy.

In all of our travels throughout Russia we have come to one con-
clusion. Without a new and economic farm grain storage, the Rus-
sian state farmer and farm will never get a fair price for their
product. With the new alternative choice for crop storage, the Rus-
sian farm and farmer can break the cycle in grain and oilseeds sold
by the central planners to the state enterprise processing plants
and silos.

Mr. Chairman, I have about another 3, 4 minutes. May I con-
tinue? I see the red light is on.

Mr. Penny. Why don't you conclude and then we will move to
questions.

Mr. Joseph. All right, fine.

We have within the acts of Congress, particularly the Freedom
Support Act, the means to address this issue. One of our sections
within this act directly refers to the storage of agricultural com-
modities as an activity for which the President, our President, is
authorized to provide assistance to the FSU under the act. The con-
ference report of this Congress speaks in specific detail to the type
of storage assistance that is appropriate.

The goal, again, is a privatized farm so that the burden of rural
Russia to the center, Moscow, is reduced dramatically, and the cen-
ter has a chance to survive. Forty percent of Russia is rural. Pri-
vatization of rural farms is a must.

I would conclude, Mr. Chairman, by saying the hearing of this
committee and the implementation of your policy positions by the
American Federal bureaucracy are the essential elements to grow
private rural agriculture, Russian rural agriculture, and literally
save the Russian center from the tortures and the pressures it is
currently suffering from. What we are suggesting is microhelp,
with small cost and most promising results. It should be done.

[The prepared statement of Mr. Joseph appears at the conclusion
of the hearing.]

Mr. Penny. Thank you. I appreciate your testimony this morn-
ing.

Land O'Lakes is also interested in a monetization program.
Would you care to describe the outlines of that program and how
we benefit — and how they benefit fi"om that initiative?

Ms. Cashman. Yes, I would.

120

The monetization program that we have proposed to USDA is es-
sentially a program to front load the Russian market with qual-
ity— actually Russian-branded product. We — in working with the
Venev cooperative, which is a region in the Venev Oblast, about 2
hours south of Moscow, there is a processing plant there that we
hope over the next year will be able to produce butter on their own.
In fact, we are shipping some butter equipment which Land
O'Lakes is donating to this particular cooperative, private coopera-
tive.

The object of the USDA program is to take surplus CCC stocks,
ship them to Russia, monetize them and sell them to both local
currency Russian stores and also hard currency stores — for exam-
ple, we have had discussions with Super Value regarding their
store just outside of Moscow — and to establish a Russian brand on
the Russian market.

Now, in addition to it being branded with a Russian label, it will
also have "as a gift of the United States Government" and also
packaged or produced in cooperation with Land O'Lakes, but the
object is to establish a high-quality branded product on the Russian
market. The local currency and the dollars that would be generated
from the sale of this commodity will go back into providing some
of the capital expenditures required, for example, on farm grain
storage within this small local cooperative.

Mr. Penny. Cooperative members in that region would then have
the benefit of the proceeds?

Ms. Cashman. Yes, they would, but it would not stop there. In
other words, this is not simply a gift to that particular cooperative.
What it is is an investment in the cooperative, and it is expected
that they will repay this back into the fund. And as other regions
and other Oblasts indicate interest in this particular type of cooper-
ative model, that the resources then, as they are repaid, would be
reinvested in other regions. And, again, it is a self-regenerating
fund.

Mr. Penny. Revolving loan fund.

Ms. Cashman. That is correct.

Mr. Penny. For member borrowers.

Ms. Cashman. That is correct.

Mr. Penny. What have you found in your involvement with Rus-
sian agriculture — what have you found to be the most troubling
barrier to your company's projects? What are the biggest stumbling
blocks and how do you propose that we get around those? Or isn't
there any light at the end of the tunnel?

Ms. Cashman. There is always — well, if you use the term "light
at the end of the tunnel" with a Russian — for Americans that
means hope. For Russians, they say, well, that just means a train
is coming. However — and that says a lot right there about doing
business in Russia. There are vast cultural differences.

However, the one thing I would say is that there is hope. The ob-
stacles that we have had, quite frankly, are actively engaging the
American — the U.S. Government, quite frankly, in what it can do
specifically to address some of the constraints that American busi-
ness feels in moving forward out there which is not just the only
reason to be out there but also in looking at what is happening to

121

Russian agriculture and the concern that the Russians have about
being taken over by the West.

And we beheve that there is a way to work shoulder to shoulder
with the Russians, which we have done. With the monetization pro-
gram specifically, which we have suggested, the costs associated
with shipping and distribution of the immediate distribution from
the port of the product is covered under the existing program.

However, since — and this is speaking from personal experience in
the first monetization program in Jamaica — there are many prob-
lems that surface after the product has arrived in a country. And
right now there are no dollars to cover the cost of handling that
commodity and making sure that that commodity does not end up
in an alternate market. So we need financial resources so that the
U.S. Government's name and also the Land O'Lakes' name is not
tarnished once the product gets out of the St. Petersburg port.

The second issue, and it is not really a Land O'Lakes' issue but
it is an issue that we believe is fundamental to the survivability
of private farming in Russia, and that is, right now and for the
past 4 years, the grain shipments that have been going in osten-
sibly for the feed industry are still going to the state enterprises,
the agrienterprises, the state farms. And when you have a private
farmer who is out there struggling to make a farming operation,
a family farm, much along the same lines that we have in the Mid-
west, a survivable entity, what happens is that private farmer has
absolutely no access to input, no access to feeds, no access to fer-
tilizers, no access to seeds.

So if we were going to make a recommendation, future monetiza-
tion or future commodity export programs should be geared toward
a 25-percent earmark that would have to go to the private farming
movement within Russia. Right now that is not happening. I know
that the Russian Government says it is, bpt it simply is not hap-
pening.

Mr. Penny. Mr. Allard.

Mr. Allard. I am wondering if each of you would comment a lit-
tle bit on what you think the future for agricultural markets for
the United States and Russia might be. Is it in the sales of bulk
commodities or is it in the sales of value-added products or is it in
the technical services on production and processing of agricultural
produce? And maybe each one of you could make some statement
on that rather broad question.

Ms. Cashman. I would like to comment that I think it is all of
the above. It is not an either/or situation. And, quite frankly, if we
are going to be commercial partners with Russia, we have to do all
of the above.

However, I do think, and again this is speaking from experience
not only in Russia but in many other markets around the world,
the United States is shooting itself in the foot by shipping bulk
commodities. Because what happens is, when that commodity ar-
rives in a country and it is distributed, it loses the source identi-
fication of coming from the United States.

In fact, to be specific regarding dairy products, it generally is at-
tributed to an EEC commitment, commodity commitment, or a new
sea-land commodity commitment, and very seldom does the United
States get credit for shipping bulk commodities. The source identi-

122

fication is lost. And, therefore, we are doing nothing to build long-
term markets for U.S. agricultural commodities overseas.

Land O'Lakes recommendation is to actually look at value-added
processing that would — and you would ship the product out in
consumer portions, essentially. Butter, for example, could be done
in a 1-pound brick. And that, rather than have a specific company
br£ind identification, there should be generic U.S. Government — or
U.S. brand identification. But there is a major problem in that
commodities that we are shipping are doing nothing or very little
to support the long-term development of markets for American ag-
ricultural products overseas.

But, second of all, if we are going to be partners — and it is a
global economy so you can't just produce here and think that you
are going to be doing this in isolation and the world is your mar-
ket, as a result. I think it is very important — and this is what we
have been doing in Russia and every other country we have worked
in — we have worked consistently with the processing sector and the
production sector. In fact, we work with the entire system.

We don't want farmers to start producing more just to have to
dump it. We want to make sure that there is a processing sector
that is there, that is capable of taking whatever is produced at the
farmgate and actually processing that into some value-added prod-
uct that would then be sold to the consumer.

So, yes, it is technical assistance, and training is needed to im-
prove the capabilities within the Russian food processing sector,
distribution sector. And, yes, it is doing value-added commodities.
Yes, it probably still involves some bulk commodities. It is all of the
above. If we are going to really address this in a logical way, that
is the best way.

Mr. Joseph. Our experience is that the Russian rural system is
like the American rural system except they have never had a
chance to make a profit. These are decent, shrewd, wonderful,
hard-working people.

We have several joint ventures in Russia. We are prepared to
enter into more joint ventures with Russian rural business people,
most of them coming fi*om the farm economy. We would like very
much to construct a number of factories there that will produce
these storage units that I have referred to in my written material.

We think that, given the opportunity to have this storage, this
alternative to shipping at these horribly low prices to the state en-
terprise— through the state enterprise system, will give the Rus-
sian rural system a chance to make some money, and, with profit,
they can do marvels.

I don't think it is a very complicated kind of business when you
put the question to us: WTiat should we do? Let's find a technique
and a method to let them make a profit.

Mr. Johnson. My view is that the mix of our commercial activity
will change. We have been largely exporters of bulk commodities.
As their agriculture develops and becomes more diversified and be-
comes more linked with Western markets, we will have opportuni-
ties to export processing equipment and to participate in commer-
cial activities developing materials, technologies, and technical
assistance.

123

The way I think we could build the Russian market most effec-
tively is to do something to deal with the monopoly in the process-
ing and distribution system. And one of the ways to do that is not
to break up the monopolies. For reasons that were mentioned in
my written testimony it is very difficult to completely change these
enterprises in a short period of time.

But, instead, what we might do is to foster — to develop policies
that will foster new entry into the processing and distribution in-
dustry. And these could be joint ventures from the U.S. side. Ways
to encourage U.S. participation will be through various kinds of
loan guarantees, risk-sharing with the private sector participation,
particularly in the food processing and distribution sector.

With these loan guarantees, the pressure would be put on the
monopoUes to reform. The pressure would be on the existing orga-
nizations to reform in order to compete with the newly organized
private firms.

Mr. Allaeid. I thank each of you for your response.

Thank you, Mr. Chairman.

Mr. Penny. Mr. Barlow.

Mr. Barlow. Maybe this area has been covered.

This is a busy week here with a lot of high school students com-
ing in from western and southern Kentucky. I don't know about
you all, but a lot of people from Kentucky are in, and I have been
trying to get to these hearings as much as possible.

These hearings are very important, Mr. Chairman, and I very
much appreciate the way you are organizing them. We have set
ourselves a very daunting task to build relations with a country
that we have been at loggerheads with for decades.

I would like to follow up on what the chairman said — maybe you
all have already gone through it — about using private enterprise in
the Soviet Union to add value to basic agricultural commodities,
and then recycling it back into the economy. We have the experi-
ence of McDonald's and a couple of other companies that are using
foodstuffs to build very powerful, thriving enterprises within the
Soviet Union that help in terms of employment and that help in
terms of stability. Can that be done through the companies that
you all are associated with with our help?

Ms. Cashman. Most definitely, yes — speaking from Land
O'Lakes' perspective. In fact, we are actively engaged in that right
now.

We also have a proposal pending before USDA on a butter mone-
tization program which actually establishes a brand identification
that identifies United States branded butter as well as establishes
a Russian brand name based on the cooperative.

And I should make the point, when we talk about cooperatives,
we — Cooper was talking about member-owned cooperatives in Rus-
sia. And if you talk to a Russian, they will say, well, our co-ops
have always been member-owned, worker-owned cooperatives. So
what is the difference?

I think it is important that the distinction we have used is that
we are a free-market cooperative. In other words, the cooperative
which Land O'Lakes helped establish in December of 1992 actually
has individual private farmers who actually own their own sources
of production and are members of what is now a farm supply and

124

dairy processing cooperative. And the program that I was referring
to earlier addresses front loading the system for this private coop-
erative to compete against some of the larger monopolies.

The one — ^regarding some of the larger monopolies, I would agree
with Dr. Johnson that it is probably not in our best interests to try
to dismantle these in the near future.

However, I also believe that I think it is very — ^it will be a very
difficult sell to get American companies to go in with inexperienced
fledghng entrepreneurial groups that are going to compete against
these monopolies, because, quite frankly, the support by the Rus-
sian Government is not yet there for these private enterprises. And
even with all the technical assistance or the technical support from
the U.S. Government, it still is not going to make it attractive for
American businesses to go in and establish joint ventures with the
emerging entrepreneurs and especially if they are going up against
some of the larger monopolies.

I really beUeve that it is important to not discriminate against
the monopolies but certainly at the same time be very proactive as
far as providing some sort of incentive for American companies and
for emerging Russian entrepreneurs in making sure that the Rus-
sian Government provides some safeguards, some reasonable safe-
guards and helps establish a more level plajdng field so that there
is an ability to compete here.

Mr. Barlow. Don't we have an advantage, though, in that we are
ahead of them in marketing and in packaging and in developing
niche markets? Some of these entrepreneurs might have an idea
that we could pick up. And, with Land O'Lakes, say, help them just
carve out small niches and then not be in the position of taking on
the state-owned co-ops.

Ms. C ASHMAN. In fact, that is exactly what we are doing in the
Venev co-op. We are working with the private farmers who have
purchased from the center a processing facility, and we have, in
fact, donated a Vint Hill butter press, for example, and some
cheese-making and ice cream-making equipment.

Initially, it will be to service the Vinopleon consumer population,
but the discussions have been carried on with other American com-
panies that are involved in the restaurant business in Russia, and
the object is to look for an outlet for these products and establish
a high-quality branded product that then moves into, be it McDon-
ald's or Pizza Hut or whatever, but that is what the objective is.

Mr. Barlow. Is advertising developing? And the literature and
TV and so forth? And radio? I don't even know if they have com-
mercial radio stations in the Soviet Union.

Ms. Cashman. Yes.

Mr. Barlow. Are you all tying these enterprises to advertising
outreach?

Ms. Cashman. Yes, we are, but we are very careful not to over-
extend the ability to manufacture and produce what consumer de-
mand will be. So advertising is fairly limited.

I would say that in the development of the Russian branded label
we have relied primarily on United States advertising companies
simply because the — a lot of the thinking, as far as what is an ac-
ceptable advertising model, tends to go back a few decades with
some of the companies that we have worked with in Russia. Maybe

125

we just haven't found the right advertising company. But we have
been working with an advertising company in Moscow as well as
in Minnesota.

Mr. Barlow. Mr. Joseph, do you have any comments?

Mr. Joseph. The urgency of tiie problem is the important concept
that we must emphasize tiiis morning. Rural Russia, 40 percent of
the population has to have some comfort so that their pressure on
the center is reduced. Without that, we are going to lose the center,
and Lord knows what we are going to end up with.

I think short-term, microquick possibihties are available to us. It
has been suggested by Dr. Johnson that a bit of loan support in the
rural areas would go a long way, and it would mEike a very imme-
diate response. We need to put together the programs and the
projects that wUl give rural Russia a 40 percent chance to make
some money and to get themselves comforted and stay off the cen-
ter.

Mr. Barlow. Thank you.

Thank you, Mr. Chairman.

Mr. Johnson. I would underscore my earMer comment. I think
that we need to remember that, even in this country and in many
other countries in the world, the technology and service companies
that are the source of a lot of growth in agriculture are relatively
small.

And, in the case of our agribusiness center, every one of the com-
panies that we took there found some kind of a joint venture oppor-
tunity that they were interested in. But most of them are relatively
small companies, and they can't take the joint venture risk where
property rights are not very well defined, communication is bad,
nobody knows how the legal system will evolve, et cetera.

And I think some kind of a program that woxild energize what
is really a big private force out in the hinterlands in this country,
a great willingness to help with these reforms and share the risk
associated with broadening the participation or primsirily in the
processing aind distribution system, that would be very good. And
if that could be done in such a way that small- and medium-sized
agribusiness firms weren't closed out just because of the bureauc-
racy, it would be a great contribution.

Mr. Barlow. Thank you.

Thank you, sir.

Mr. Penny. Thank you.

Burton, you talked about the language in the Freedom Support
Act that dealt with storage facilities. Refi-esh my memory. Does
that deal with the utihzation of some of our credit guarantees or
the movement of that type of structure? And, if so, how do we sell
those products under the GSM program and yet get them down to
the individual farmer, which seems to be the centerpiece of your
plan?

Mr. Joseph. The Freedom Support Act encourages the use of
joint ventures. We are prepared and we have joint venture partners
in rural Russia to set up manufacturing plants to put together
farm storage. These are not large units. These are 500, 1,000-ton
storage units, but they are so desperately needed because, other-
wise, the grain lays on the ground.

fka-AA-i n _ 0-5 _ e:

126

The Freedom Support Act directly notes farm storage. It is in
there. The language is there. It talks even about the style of farm
storage, beautifully developed. Why we put together all this work
and this legislation and then we don't pay attention to it, I don't
understand.

Mr. Penny. So this would be — this would not be GSM credits for
the sale of this equipment?

Mr. Joseph. No, sir. This is encouragement to private enterprise.

Mr. Penny. The reason I ask is because we do specifically ref-
erence the sale of farm equipment, processing equipment, in the
GSM program. And yet I guess the thing I have been wrestling
with is just moving that equipment over there doesn't necessarily
get it down to the private farmers because it could get ducked
somewhere in the system if the state manages the distribution of
these things.

Mr. Joseph. It goes into these huge units now and the private
farm never has the chance really to make any money with that.

Ms. Cashman. a progrgim that would be very useful for Russia,
which does not exist to date, would be the commodity import pro-
gram, which actually would allow private Russian farmers or
smsdl- to medium-sized entrepreneurs to access United States
equipment, goods, services, artificial insemination straws and so
forth, and actually repay that loan in rubles. And the commodity
import program, I think, would be a very useful program for Rus-
sia.

Mr. Joseph. By the way, we can use rubles. Our businesses there
would be delighted to be paid for our services and our product in
rubles. We have a joint venture where we are buying round logs —
these are trees with the branches cut off— fi*om Siberia. We will
pay in rubles.

What we are referring to here is, candidly, an opportunity to join
in business ventures with rural entrepreneurs.

Mr. Penny. Dr. Johnson.

Mr. Johnson. If I could say just two things, I will be brief

One is that I think that many of the programs that have been
talked about here today have been programs to send technical ex-
pertise to Russia. It would be good if the programs could also be
modified so that the business leaders from Russia and these places
would have an opportimity to come and see what is going on in the
United States.

We ran a small U.S. Information Agency fiinded program that
brought about 50 people to the United States. They came and spent
time in Iowa communities. We sent them to see the agribusinesses,
but it turned out what they were as interested in how the commu-
nities are organized. Who pays for the schools? Who pays for the
roads? How do you elect your mayor? What does the mayor do?
What does the city council do? It was a very interesting experience
for the Russian farmers; learning about private sector agriculture.

The Russians went back. Of those, 50 people, 85 percent are now
involved in some kind of private enterprise as related to the experi-
ence they had in the United States.

So I think gm exchange program that could go both ways would
be extremely useful, coupled with the risk-sharing associated with

127

the loans to support small- and mid-sized United States firms in-
vesting in the former Soviet Union.

Mr. Penny. We have had — just as a follow-on, we have partici-
pated in two USIA-sponsored exchange efforts in my part of Min-
nesota. One about a year ago involved Russian entrepreneurs who
did about a 6-week apprenticeship program with local business peo-
ple in Rochester and some of the surrounding communities.

And then this year the USIA program for the Baltic States
brought civic leaders to Minnesota and somewhat to Georgia, and
they essentially worked in local units of government or in schools.

And, again, they were just trying to figure out how our civic
structure and our infi*astructure was managed here. And the goal
on the part — in both cases was to send them back with new ideas
and new approaches that they could hopefully initiate within their
own societies. At least the latest group was specifically tasked to
go home and sponsor seminars which kind of tracks with what your
business centers are trying to accomplish over there. So we have
tremendous challenges ahead.

Burton, in trjdng to establish joint ventures, do you have a rela-
tionship with AKKOR, this farm cooperative group, and is that a
potential avenue for you to pursue?

Mr. Joseph. We think not. We think it is bureaucratic.

Mr. Penny. You think that even though it represents kind of the
private farmers within the society there, that it is too bureaucratic
to work there? You are more interested in just one-on-one relation-
ships?

Mr. Joseph. Yes, sir. In the bureaucracy of Russia, it is no dif-
ferent than the bureaucracy of the United States. They don't make
decisions.

Mr. Penny. Ms. Cashman.

Ms. Cashman. Can I make one comment on the AKKOR?

Since Land O'Lakes was with AKKOR at its inception, I would
describe the AKKOR association as being — when people think
about AKKOR, they think about it as being a very bureaucratic or-
ganization in that it is Moscow based. And, to a large degree, that
is true.

However, Dr. Bosmasnokov himself is head and shoulders above
the other individuals within AKKOR. So what you have is you have
an individual that has great integrity and great vision and great
leadership capabilities, and then you have a Tot of individuals with-
in the national level of AKKOR who are — some are stronger than
others, some are not.

But when you get down to the local level, for example, many of
the private farmers are affiliated with AKKOR, because right now
AKKOR has been the only one that has been able to mobilize credit
and access to credit to what are called first-year farmers. But you
really — in fact, in many of our discussions when the Russians were
here for the annual meeting, you had the people from Venev say-
ing, now, let's keep Dr. Bosmasnokov out of this because this is
AKKOR Venev and it is not the Moscow center AKKOR that is dis-
cussing this.

So there are some disparities, and there is not an evenness of
leadership within the AKKOR association. As a result, you get a
lot of bureaucracy.

128

Mr. Penny. How does AKKOR provide credit? Where does
AKKOR get its financing?

Ms. Cashman. It initially got first a credit bump fi*om the Min-
ister of -Agriculture — fi*om the Russian Ministry of Agriculture. But,
subsequently, they have involved themselves or engaged them-
selves in a number of other joint venture activities and are trying
to generate their own revenues to provide credit, but that is an on-
going problem. In fact, part of the butter monetization program ac-
tually would be to provide credit.

Mr. Penny. Through AKKOR to its member

Ms. Cashman. But it would not be AKKOR Moscow, it would be
AKKOR, say, Venev or AKKOR Knitche. It would be at the local
level versus the Federal level.

Mr. Joseph. That would be very helpful.

Mr. Johnson. I would suggest that we use AKKOR, and we use
their bureaucracy, and we use them for what bureaucracies are
good for. They are good for communication and other kinds of link-
ages, but they are terrible as business partners.

Thus, we should use them to make contacts with the local people
and firms, £uid then, once we have achieved the contacts, go with
the individual operators. This two-step process can work very well.
And it is easy to bait, if you pardon the expression, AKKOR into
participation because you can use them to organize seminars and
meetings that raise their level of visibility within the Russian
farming community.

Ms. Cashman. Perhaps the single largest contribution that
AKKOR has to the private farmer is that it is actually able to en-
gage the Russian Government and focus — they are able to mobilize
the attention of the Russian Government on the plight of the peas-
ant farmer. And, quite fi*ankly, without an organization like
AKKOR, I don't think you would have Yeltsin or Khlystun or some
of the others paying the kind of attention that currently is being
paid to peasant farming in Russia and the problems of peasant
farming if you didn't have a stronger voice that is represented by
AKKOR.

Mr. Penny. Ms. McKinney.

Ms. McKinney. Thank you, Mr. Chairman.

I would like to commend the members of the panel for wonder-
fully enlightened presentations. And I have just a question for Ms.
Cashman — two questions actually. It is nice to see a wom£in in a
position like that.

Your farmer-to-farmer program, do you have it in other areas of
the world or is it specifically just for Russia?

Ms. Cashman. Well, actually. Land O'Lakes has been an active
supporter of the VOCA and has actually done quite a bit of recruit-
ing in placement of its own members and employees within VOCA's
operations all around the world.

However, if you think about Land O'Lakes' international develop-
ment commitment, we have been providing farmer-to-farmer assist-
ance without any kind of compensation from the U.S. Government,
just because of the commitment that we have to worldwide issues.
So even though — the answer is, yes, we do have a farmer-to-farmer
program in other countries, but it is not an official AID farmer-to-
farmer program.

129

And I should say it does not just involve farmer members of
Land O'Lakes. It also involves quite a number of our employees.
And, actually, increasingly it is involving a number of husband and
wife teams because, quite clearly, that is the success of the family
farming model in this country, and both parties in the marriage ac-
tually have a strong commitment to see a successful farming enter-
prise. So the women are very, very involved in our programs.

Ms. McKlNNEY. And the second question is about your agri-
business management training. Do you have a relationship with
farmers in Georgia?

Ms. Cashman. Not at this time. Georgia — ^you mean Georgia in
the United States, right?

Ms. McKlNNEY. Georgia in the United States.

Ms. Cashman. Well, we do, but it is not a real strong one. There
is an employee of Land O'Lakes who is a Georgian farmer and so
we do have some connections, but it has not been very strong at
this point.

We have had some discussions with — on other matters with the
Carter Center, and that directly ties to agriculture in child survival
issues in West Africa in particular.

Ms. McKlNNEY. Thank you.

Mr. Joseph. You know Georgia, the former Soviet Union, their
representative is Mr. Shevardnadze.

Mr. Penny. I want to thank this panel for their presentation this
morning. It has been quite helpful.

With that, we will move on to our final witness for the day, Dr.
Craig Infanger, Resident Policy Adviser. We have about 40 minutes
before my deadline, and so it seems to me that we are going to
have plenty of time to finish this up. We are well within schedule
this morning.

We do welcome you, and ask you to summarize your remarks.
Your written testimony will be included in the committee record.

STATEMENT OF CRAIG L. INFANGER, RESIDENT AGRICUL-
TURAL POLICY ADVISOR, RUSSIAN FEDERATION, MINISTRY
OF AGRICULTURE

Mr. Infanger. Mr. Chairman, members of the subcommittee, I
am pleased to respond to your letter of invitation and happy to be
here today.

I have prepared some written remarks that are with the commit-
tee staff which attempt to respond to the questions that were in
your letter of invitation, but let me just summarize some of my
thoughts.

For the last 5 months I have been the Resident Agricultural Pol-
icy Adviser in the Ministry of Agriculture for the Russian Federa-
tion. In that position, I am sponsored by the U.S. Department of
Agriculture's Foreign Agricultural Service and Extension Service. I
am officed just down the hall from the Minister's office next to his
other top aides.

Over these past 5 months, I have been able to establish what I
think is a pragmatic working relationship with the Minister and
some of the top leadership within the Ministry and in other organi-
zations of the Russian Federation. I would want the committee to
know that there is a very small group of dedicated Government of-

130

ficials who are intent upon making privatization of agriculture and
the development of what the Russians call the farmer movement
successful. But it is indeed a smsdl group of people at the highest
levels of Grovemment.

Agrarian reform is underway in the country, and there is devel-
oping now a farmer movement which increases each month. The
last count — ^the March count was up to 214,000 farms, maybe a
half million farmers.

But this grassroots farmer movement is pushing forward in a
very fragile political environment. This is a Government deeply di-
vided on agrarian reform and agricultural policy. There are three
or four strong reform-minded agencies, the Ministry of Agriculture
being one, the committee on land being another, AKKOR — the or-
ganization representing private farmers — being another, but they
are separate institutions which have agrarian reform policies that
are not at all market oriented that would retard the growth of the
farmer movement and which have support at the highest levels of
the Russian Government. So what you are ending up with is a Gov-
ernment deeply divided and a fragile environment for the farmer
movement.

Now, there has been considerable, almost chaotic, change under-
way in Russia, but we should not interpret this — much of this
change as reform or transition toward a market-oriented agri-
culture. The growth of the farmer movement had very high goals,
Russian goals. Their goal for the end of 1992 was to have 30 per-
cent of the cropland in private hands. Currently, they have about
3 percent. Their goal was to have all the 25,600 state collective
farms reorganized at the end of 1992. Just a little over 19,000 have
submitted reorganization plans.

I have spent some time looking into what exactly these reorga-
nization plsms mean. I am unable to conclude that these adminis-
trative changes are, in fact, effective changes in structure and
property rights within these farms. So I think we as a Government
and a community in the world have a responsibility to continue to
work with the reform movement inside Russia.

There are some things that I think are working successfully to
raise awareness and education about market-oriented agriculture.
These include programs like the Cochran program, the farmer-to-
farmer programs that are just now getting up Eind operating. And
I should add, Mr. Chairman, that on days when I get very frus-
trated and despair about change, I am only a block away from
Brian Foster who is wilUng to listen to me let off a little steam
about things that might not be happening at the Ministry.

Mr. Penny. Brian is also an eternal optimist.

Mr. Infanger. Yes, very much so.

Mr. Penny. I think that applies in Moscow.

Mr. Infanger. I wsint him to stay there at least as long as I am
there.

Let me conclude, Mr. Chairman, by saying if agricultural reform
is truly a priority goal for our Government in Russia — and I know
we have other goals — but if agricultural reform is truly a priority
goal, then we are going to have to do something to target our as-
sistance, our technical assistance and other assistance to support

131

those reform organizations that are fostering the transition right
now to a market-oriented agriculture.

Many of the Russians are getting impatient with the dehvery of
technical assistance. They want it linked to more tangible forms of
assistance. And that idea, that frustration, needs to be addressed
through the kinds of aid programs that we have on line and the
kinds of creative efforts that we can come up with.

I believe there is a collective expertise developing among Ameri-
cans and Westerners who are working in Russia, and we can use
this expertise and experience to carefully target aid that will sup-
port reform institutions. I believe that we can identify ways to help
these reform agencies and these dedicated individuals. And I think
that unless we do so the farmer movement will be retarded and
blundered.

I am happy to have responded to your invitation and will be
pleased to answer any of your questions.

[The prepared statement of Mr. Infanger appears at the conclu-
sion of the hearing.]

Mr. Penny. I appreciate your being here this morning. And I
think, after two mornings of hearings, we are beginning to sense
and share the frustration you must feel as you try to deal with this
on a firsthand basis.

It was mentioned this morning that, at the regional level, agri-
cultural reforms in some instances are leapfrogging well ahead of
the country as a whole. What are the factors that play in those
areas where the reforms seem to be moving forward? What are the
key elements that you see that make that possible? And how is it
possible when at the local level they still are inhibited by the ab-
sence of land reform and other overarching policy changes?

Mr. Infanger. Mr. Chairman, I don't think many of us appre-
ciate what is developing there in terms of this federation govern-
ment, this loose-knit connection between the independent Republics
and other forms of organization they have outside of Moscow. The
connection between the units of the federated government, makes
it very difficult for me to understand how the regional departments
of agriculture relate to the Ministry of Agriculture in this new envi-
ronment. It is quite clear that they have independent agendas.

So, in some instances, you can explain some of the differences in
the amount of privatization. Like in Nizhny Novgorod, you can ex-
plain a good part of the privatization there because this oblast has
a very progressive young reform-minded Governor appointed by
Yeltsin who has sponsored the sale of trucks and the privatization
of shops.

And I just returned last week from their latest effort, an attempt
to completely reorganize six state and collective farms up there.
And the Governor just may pull this off with the assistance of the
International Finance Corporation, IFC.

I don't know how to explain the differential in the privatization
of agriculture in different oblasts, but it is there, and we ought to
capitalize on it. And we ought to be working with oblasts where the
private farmer movement has a good base and is exerting influence
on the administration. Those are regional organizations we can
work with. We can bypass the Moscow bureaucracy that is inhibit-
ing change and move directly to working with them.

132

Mr. Penny. Is AKKOR also a bypass or do you share the view
of Mr. Joseph that AKKOR is just a different form of bureaucracy?

Mr. Infanger. AKKOR would be difficult for you, Mr. Chairman,
to appreciate. It is something like having the American Farm Bu-
reau officed in the south building of the Department of Agriculture.
AKKOR is officed within the Ministry of Agriculture and it receives
state budget support although it represents private farmers.

But it is clearly a reform organization with a political agenda of
change. It faces political constraints and it is developing a bureau-
cratic mode that is not appreciated out in the oblasts.

And there is lots of flak in the newspapers, and I receive it
through visits from AKKOR members in my office to talk about dif-
ferent kinds of projects. It is the same sort of complaints that you
would hear out in the States about any large bureaucracy.

I don't feel that is an excuse not to work with them. They are
the single organization in Russia which ties the private farmer in
Siberia to the private farmer in Krasnodar, and if you can't work
with AKKOR, you are just giving up an opportunity to work with
the single organization that is linked across the country.

Mr. Penny. Does the agricultural reform agenda have any allies
within the Parliament? And, if so, what efforts are being under-
taken at that level to produce some type of agrarian reform legisla-
tion?

Mr. Infanger. It is certainly my impression that the Minister of
Agriculture enjoys President Yeltsin's support. There are a few
members of the Supreme Soviet, which is the upper body in their
legislature, which support reform, although in differing ways.

Mr. Karpov, who is an influential member of the Supreme Soviet,
just returned to Russia from a Cochran-sponsored visit to the Unit-
ed States. It is my intent to speak with him next week about his
visit, and he had given me his plan for agrarian reform, which
would be the fourth or fifth plan that I have seen for agrarian re-
form. But I want to talk to him and see what impact his Cochran-
sponsored visit had.

There are not, however — my impression, of course — a whole lot
more of those peoples' deputies and members of the Supreme So-
viet which are outspoken advocates of land privatization, individual
responsibility, the development of an "agri-industrial complex," as
they call it, that is market-driven.

Mr. Penny. Mr. Allard.

Mr. Allard. Thank you, Mr. Chairman.

Welcome to the committee.

Mr. Infanger. Glad to be here.

Mr. Allard. You have probably had to deal with the Foreign Ag-
ricultural Service, so I would like to hear your insights on what
needs to be done to improve the USDA Foreign Agricultural Serv-
ice and its operation in foreign countries.

Mr. Infanger. Please allow me to respond only in a very limited
fashion to that question. I live just 2 blocks from the Embassy's ag-
riculture office. I visit there every morning to collect mail and mes-
sages. I communicate quite often with the agricultural attaches
who are there within the Foreign Agricultural Service. I am not a
career FAS person.

Mr. Allard. That is why I am asking you the question.

133

Mr. Infanger. I have to be — and you will probably appreciate
this — I have to be very careful what I say. They are sponsoring me.

Mr. Allard. Yes.

Mr. Infanger. I have developed an intense interest in the mone-
tization of the humanitarian aid. I see humanitarian aid, as being
administered by FAS in Russia at the current time, as a window
of opportunity for support for the farmer movement and the reform
institution.

I have worked with several Russian groups at Oblast and na-
tional levels, encouraging them to come forward with projects, to
try to get the Minister to claim some of the monetized proceeds
from this humanitarian aid. The com agreement includes language
encouraging, suggesting, cajoling the Russians to come forward
with projects that are focused on agricultural reform, processing
agricultural credit, education, and training.

I, unfortunately, have to report — and maybe this is due to my
own inabilities — that not a single project has come forward yet.
And, in fact, I was pulled aside by one of the Russians within the
last week, and he led me to believe that no projects may come for-
ward in the very near future. I have a hard time understanding the
political dimensions that are operating there.

The Minister particularly pointed out that he needs a stronger
legislative basis for the Ministry to claim ruble proceeds of mone-
tized aid. What he means is stronger language in those agreements
in order for him to go into the Council of Ministers and lay claim
to that monetized aid. He wants to do this, but he is hamstrung
at the current time.

So I am hoping that FAS can assess how this aid is being mone-
tized and develop ways for meeting not only the reform objectives —
there are other objectives there — ^but using at least a portion of it
in direct support of reform.

Mr. Allard. I appreciate your response.

We have heard some testimony in this committee about dealing
directly with the Russian farmer trying to circumvent the bureauc-
racy. Last time it was suggested that you use government agencies
for communication and for making contacts, but then, once you are
in contact, try and deal with the individuals that would be the free
enterprise Russian and have them work with the free enterprise
American.

What is keeping businesses like we had in the previous panel
from just going ahead and making their own arrangements, busi-
ness arrangements with individuals in Russia?

Mr. Infanger. Please, I wouldn't want to speak for American
business and their problems.

Some delegations have come to my office and talked to me about
problems like the sovereign guarantee repatriation of their dollars,
the bureaucracy, the lack of property rights. They go through a
laundry list of problems, and some of them are policy related. But
I am sure there are other people who can speak more directly to
those issues thsm me.

Mr. Allard. Is it more policy related on the Soviet or the Rus-
sian side than on the American side I assume?

Mr. Infanger. Well, the Russians are eager, intent upon devel-
oping joint venture relationships, not only with the Americans but

134

with the Eiiropeans. That is not progressing as well as they had
hoped. And there are obvious problems with investing in an econ-
omy that is inflating at 20, 30, 40 percent a month, that doesn't
have a commercial code, that doesn't have a banking system that
works. And the hst goes on. But I can't speak for American busi-
ness about the exact reasons why some of these haven't worked
out.

Mr. Allard. The .reason I asked is because I am interested in
your perspective as sort of from an outside-t5TDe perspective. So I
appreciate your comments and thank you.

Mr. Penny. Mr. Barlow.

Mr. Barlow. Thank you, Mr. Chairman.

You are from Kentucky? What is your background, please?

Mr. INFANGER. I am in the college of agriculture. I work for Dean
Little. I am an Extension specialist in the department of agricul-
tural economics.

Mr. Barlow. How long have you been on the university staff?

Mr. Infanger. Nineteen years including 2 years in Washington,
DC, 2 years in Thailand and various other short-term departures.
Now this 1 year in Russia.

Mr. Barlow. Do you speak Russian?

Mr. Infanger. Chute, chute.

Mr. Barlow. Just for my information, how many countries are
we deaUng with when we are talking generically about Russia
here?

Mr. Infanger. When you are talking to me about Russia, you are
dealing with one.

Mr. Barlow. Just Russia.

Mr. Infanger. The Russian Federation. Although there are close
economic ties and other ties to countries like Ukraine and Belarus,
my perspective is only Russia, the Russian Federation.

Mr. Barlow. How many languages are there in Russia? Is there
just Russian in Russia or are there other languages spoken?

Mr. Infanger. It is my impression that Russian is the commer-
cial and educational language. There are lots of ethnic groups who
have their own language, but the common denominator for busi-
ness and education is Russian.

Mr. Barlow. You have met Dr. Arnold Kerrs at Murray State
University.

Mr. Infanger. I have dealings with him, sure.

Mr. Barlow. From the areas of soil conservation, have you got-
ten into any of that with your "Russian counterparts?

Mr. Infanger. Not greatly. There are lots of problems, and there
are groups out in the countryside coming to the Ministry for assist-
ance. Some of it has been directly addressed to me. My name has
appeared in some Russian newspapers, and people have written to
me saying, "You are the American adviser. Help us with these ra-
dioactively contaminated lands, other poisoned lands, and some
erosion problems." I have tried to link them with VOCA voliinteers
or with other programs.

But, within the Ministry, that has not been a priority at this
point.

Mr. Barlow. I am just barely aware that the Russians over time
have been real leaders historically in analyzing soil and soil prop-

135

erties through their university systems. And I am wondering if
there are any ways we can foster interchange between Murray
State University, because we have got one of the few agricultural
schools in the country that gets into soil research and classifica-
tions. If you could respond to that some other time I would appre-
ciate it.

Value-added products — in my thinking, value-added products are
distinct from the commercial grain production sector. Can we make
progress with the value-added products that flow into commerce to
your food stores and lend themselves to advertising? Can we make
progress in privatization there more rapidly, say, than in dealing
with the commercial grain production area?

Mr. Infanger. I tMnk we have to make more progress with that.

But, from my perspective, I find it difficult to conclude that the
change that is occurring on that score is real change. A lot of these
organizations report themselves as joint stock companies or cooper-
ative societies now that are doing the processing within the
agriprocessing sector, but they still maintain regional monopoHes.
Tliey have very close ties with the Government, if not, in fact, re-
ceiving Government credit, other kinds of state support.

So even though they have been reorganized and ostensibly have
moved toward a market-oriented organization, I have a difficult
time concluding that that is really what is happening.

Mr. Barlow. Are they selling stock in the corporation? Do you
see these articles

Mr. Infanger. In certain forms they are, but the holders of that
stock are all other state organizations or state banks. They are not
privatizing to any large extent.

Some of this is occurring with the use of these vouchers, the sale
of the cracker factory and things. Some of it is occiirring, but I
mean this is a big country, and the fact that you sold a few shops
up in Nizhny Novgorod and a few factories in Moscow doesn't mean
that we have real progress towards a more market-oriented proc-
essing system.

Mr. Barlow. Thank you.

Thank you, Mr. Chairman.

Mr. Penny. Ms. McKinney.

Ms. McKinney. Nothing, Mr. Chairman.

Mr. Penny. Doctor, in your experience, is there a pattern to the
joint ventures that have been established so far? I mean, it seems
to me that, given the Russian system and the lack of credit, infla-
tion rate, et cetera, that we have to be quite creative in setting up
a joint venture because their side of the equation may not be, you
know, dollar for dollar what we are putting in as an American firm.

What are some examples of joint ventiu-es that you have seen?
And what is the contribution from the Soviet participant in that
joint venture or that former Soviet participant in that joint ven-
ture?

Mr. Infanger. Again, my experience is Hmited on this score. But
the pattern that I see is that the joint ventures that — some of
which I have visited, like the McDonald's joint venture, if you want
to call it — the pattern is that the companies have to be in for the
long haul. They have to be ready to stand enormous losses at the
beginning, to be patient and get a foothold there and expect that

136

the economy will stabilize in some reasonable simoiint of time and
then they will be able to make a profit.

But I meet with some of these people professionally and pri-
vately, and it is a difficult environment. It is a difficult environ-
ment for real joint ventures to be concluded and be successful right
now.

Mr. Penny. They really have to be looking many years down the
road to a reformed economy and a higher standard of living and a
nominal inflation rate. I mean, all kmds of factors really have to
come into play before you are looking at much in the way of profits
out of any venture of this sort.

But some must be making some money. I am told that there is
money being made in the system. Is all the money being made in
the system being made in the black market?

Mr. Infanger. Not necessarily in the black market, but there is
considerable money being made by bringing products into Russia or
taking raw products out.

What I do not observe in my travels is substantisd joint venture
investment in productive facihties within Russia. There is evidence
all over that American and European products are being brought
in and sold and, of course, there is substantial export of fertilizer,
oil, other kinds of raw products.

Mr. Penny. How do you feel about barter arrangements? I imder-
stand France, I believe Australia, I think Canada, have undertaken
modest barter trade arrangements with Russia. Is that an avenue
for the United States to pursue?

Mr. Infanger. I am sure it is, but I would defer to Mr.
Goldthwait's comments yesterday. I am not the person to ask about
that.

Mr. Penny. You are not the one who would have to help us nego-
tiate or make contacts for that kind of a deal, I take it?

Mr. Infanger. I am there, and I will help in any way, but I just
can't speak to the consequences of that back on this end.

Mr. Penny. How about the Extension Service proposal that was
made earlier today where we try to provide Extension Service ma-
terials relating to production techniques, conservation practices? Is
that the kind of technical assistance that you believe is in urgent
need at this stage?

Mr. Infanger. There is definitely urgent need and an interest,
and I think some progress can be made, following on Mr. Evans'
proposals, which I have heard him make in Russia to groups.

But there is a larger institutional question. There is an enormous
vacuum there between the research establishment under the Min-
istry and under the Russian Academy of Agricultural Sciences and
any new private farmers or the emerging processing sector. There
is no question this is a serious problem.

Before 1991, there was a direct connection between the large
state and collective farms and the research establishment. The col-
lective farms contracted for research. The collective farms had spe-
cialists hired directly out of the research training system. For the
private farmers, that link to research doesn't exist. For the emerg-
ing processing sector, that doesn't exist.

In this vacuum, there are lots of training schools and educational
efforts emerging, some of them media based, some of them school

137

based. They are training, certification-type efforts, not an extension
education effort as we would think of it.

In fact, there is a problem with the Russians understanding our
system, what we mean by extension education. And as I listen to
how the word "extension" is translated by different Russians, it has
several meanings. There is no consensus. Sometimes it is trans-
lated meaning consulting services, sometimes training, sometimes
information services. So we have to accomplish something about
awareness there and then figure out an institutional base from
which we can build an extension service if that is what the Rus-
sians want to do.

Personally, I think it is sorely needed, especially to help those
private farmers out there who have no access to the research estab-
lishment.

Mr. Penny. We heard from two private farmers by videotape yes-
terday, and one of them was then connected with us here by phone.
And a strong interest seems to exist in acquiring production equip-
ment and processing equipment, but the request is, first, kind of
farm-based processing equipment so that they can make their com-
modities mstrket ready.

So we are not talking about a larger creamery, let's say. We are
talking about pasteurizing and other farm-based equipment.

How best do you — ^would you propose we respond to that de-
mand? Here, again, I know that the GSM credit program could be
utilized to move equipment of any sort over to Russia, but that
may not get it down to the private farmers. It may sit in some
warehouse somewhere or it may go to support the state farm struc-
ture. It may not support entrepreneurial farmers.

Do you have any suggestions as to how we could move this farm-
based processing equipment into the Russian economy?

Mr. Infanger. Mr. Chairman, I have heard this same request
from lots of farmers. These two farmers you had on the telephone
link are just representative of a more common request.

What is motivating their desire to have on-farm processing is
their inability to access a competitive marketing structure. In fact,
many of them are simply shut out of the marketing system. They
have to go hat in hand to the state and collective farm to get things
marketed or to the state monopoly firms.

Personally, I don't think it is a solution to have every little farm-
er have a creamery. Personally, I like the proposal made earlier by
Ms. Cashman about a joint commission that would help take some
of this monetized £dd and get it out to small groups that in a coop-
erative way would establish some sort of feasibly sized production
facility that would be a competitive facility to compete with the ex-
isting monopoly processing and distribution system. That is not
happening, of course, right now.

Mr. Penny. When do you head back?

Mr. Infanger. Friday. Take my photocopying machine and go
back.

Mr. Penny. Are you going to take spring with you?

Mr. Infanger. I wish you had sent a little spring over. I wish
I had known the Cats were going to be in the final four. I would
have delayed my departure 2 or 3 days.

138

Mr. Penny. We appreciate ybxxr work and wish you the best as
you return to Moscow. And please greet Brian for me.

Mr. Infanger. I will, of course.

Mr. Penny. Thank you.

The meeting stands adjourned.

[Whereupon, at 11:55 a.m., the subcommittee was adjourned, to
reconvene, subject to the call of the Chair.]

[Materials submitted for inclusion in the record follows:]

139

U.S. TECHNICAL ASSISTANCE TO NIS AGRICULTURE

by
Cooper Evans

It is indeed a pleasure to appear before this subcommittee today.
I am grateful for the opportunity to offer a few observations on
the changes taking place — and those not taking place — in
agriculture in the NIS.

Some 60 years ago the Soviets began the process of collectivizing
their agriculture. It can be argued that this was the largest
agricultural experiment in the history of mankind. After 60 years
it is clear that the experiment was not only a failure but a
disaster.

Now, the NIS has embarked on what is probably the second largest
agricultural experiment — searching for ways to decollectivize and
move toward a market-oriented agriculture.

This will be difficult. The realities are quite grim, in the sense
that change is occurring only slowly. Major reasons include the
following:

* Excess People

Perhaps the most serious problem is what to do with all
the excess people who live on the farms. The U.S. is
substantially larger than Russia in terms of population.
But in the U.S. only about 5 million people reside on
farms while in Russia the number is something like 35

140

million. Transition to a U.S. -type agriculture would
require more than 80 percent of those living on Russian
farms to depart, in some manner, from the system. In the
short term this is totally impossible. There is no
housing elsewhere and no jobs. On a more positive side,
it should be noted that many of these people are quite
elderly, and that over the longer term some others will
certainly be absorbed into the supply, processing,
distribution and marketing sectors of agriculture.

Social Services And Safety Net

It is important to recognize that a Soviet farm is far
more than a "farm" in the Western sense of the word. A
Soviet farm is a community which provides residents with
all essential social and supporting services — food,
housing, electricity, heat, health care, education, child
care, recreation, etc. Most important for this
testimony, the farm provides pensions, security and care
for the elderly. To many, the thought of leaving the
farm or of transforming it radically raises the same
fears that would occur in the U.S. from a proposal to
end Social Security and Medicare.

141

The Curse Of Specialization

Labor on Soviet farms is highly specialized. Some milk
cows, some drive tractors, some repair equipment, etc.
Many spend all their lives in one narrow specialty and
never have to make management or business decisions. To
the great majority having this narrow perspective, the
very thought of farming independently is truly
terrifying.

The Matter Of Risk

Life on a Soviet farm may be dull, but it is relatively
secure and predictable. Most peasant farmers have a
strong aversion to risks. Only 12 percent express
interest in farming independently.

The Absence Of Appropriate Laws

Developing a market-oriented agriculture is very
difficult in the absence of an appropriate body of law
governing property and commerce. Also missing is a court
system experienced in settling commercial disputes.
Unfortunately the quick evolution of essential laws is
unlikely in most republics, given the preoccupation of
governments with broader political issues.

142

The status of Russian law relating to private ownership
of real property is one good example of the problem. In
Russia an individual may "own" land, but ownership means
lifetime use of property and the power to pass such use
to heirs. The power to buy and sell is severely
restricted and the subject of continuing debate. The
power to rent, mortgage and foreclose has not yet been
seriously addressed.

However, it should be noted that many agreements are made
between private parties on all such matters without the
benefit of laws. The hope is that some day law will
catch up with reality. Obviously risks are high.

Banks And Credit

The almost total absence of a "real" system of banking
and credit poses serious problenis. Typically, the new
private farmer has only one major asset, his land. He
must borrow for buildings, equipment, livestock, and
operating capital. Only a fortunate few can obtain the
necessary credit. There are a number of practical
obstacles to correcting this situation. They include the
following:

143

As mentioned earlier, there are no laws covering
mortgages and foreclosures.

The typical role of Soviet banks has been to
dispense government money and credit to state
enterprises. These banks have little if any
experience assessing risks and managing true loans
in a market economy.

Perhaps the greatest problem arises from the common
belief that the only important source of loanable
funds is the government. The western concept that
loanable funds accrue from deposits and sale of
interest bearing paper is not generally understood.
Of course, attracting deposits would be difficult
today in view of the high rates of inflation in the
NIS. To attract deposits would require tax breaks
on interest income and indexing of deposits against
effects of inflation.

The ability of NIS governments to "print" money in
the traditional manner to fund agricultural credit
is severely limited by the certain increase in
inflation which would result.

144

- On the brighter side, the Yeltsin government has
drafted a sound proposal for a Russian agricultural
credit system. Under this proposal the system would
be capitalized not by paper rubles, but by granting
it title to large amounts of farm land. The bank
would be authorized to buy and sell land and make
loans to farmers. A key feature of the proposal is
that all loans would be secured by a first mortgage
on land. Such a system could work and be non-
inflationary. Unfortunately this proposal has
little support among Russian legislators.

These then are some of the realities that should temper our
expectations and influence our assistance program. A point of
great importance is that successful solutions must address the
social as well as the technical problems which exist.

The good news is that in spite of the formidable obstacles roughly
one percent of the farmers in the NIS have made the transition to
private farming. In large measure these new farmers come from the
elite in Soviet agriculture. Many are university trained
professionals — agronomists, veterinarians, livestock specialists,
agricultural engineers and the like. Others are former chairmen
of state and collective farms. Still others are professionals from
non-agricultural walks of life, including the military, who have
no desire to live in the cities.

145

It is important to note that not many "peasant workers" have
switched to the private sector.

Prospects of success for these private farmers varies widely. Some
have yet to produce any crop or product, mostly because of
inability to obtain credit. Others are very successful and serve
as excellent role models.

Perhaps most promising are the handful of state and collective
farms which have elected to convert en masse to true private
agriculture. Here each worker owns and operates (or rents to
others) his or her specific tract of land. Typically, equipment
and central support facilities are reorganized into cooperatives
or joint stock companies owned and operated for the benefit of the
individual farmers. Here the prospects for success are truly
excellent.

However, it should be noted that while the majority of state and
collective farms are being "privatized" (as required by law)
most of the transformations are far more a matter of words and
titles than of substance.

With respect to how the transition to a market-oriented agriculture
is likely to progress, several points can be made:

146

The transition will take many years, perhaps decades.
(We should recall the slow but continuing evolution of
U.S. agriculture.)

For some years, "collectivized" agriculture and small
private plots will continue to provide the bulk of food
and fiber produced in the NIS.

Eventually "free-market" principles will probably prevail.

Through trial and error, new structural forms of "free-
market" agriculture will evolve and be accepted in the
NIS.

It is unlikely that many of these new forms will bear a
close resemblance to those common in the U.S. — at least
for many years — because of the social problems which
must be addressed.

To state the case somewhat differently, NIS agriculture is now
engaged in a series of structural experiments. Fortunately, both
policy and chaos permit great flexibility for local governments and
state and collective farms to decide on their own how best to
approach the problem. From these experiments, sensible solutions
will gradually evolve which are economically sound and socially
acceptable.

147

It would be a grave error for any authority, either domestic or
foreign, to presume that it is endowed with the wisdom to define
a "best" solution and attempt to impose that solution on NIS
agriculture.

For about one year the U.S. has been providing technical assistance
to agriculture in several NIS countries, including Russia. Based
on this experience it is clear that the effectiveness of our
programs can be increased.

* Link Technical Assistance And Access To Capital

Clearly, tangible results could be increased several fold
if technical assistance can in some manner be linked with
access to capital. Under the farmer-to-farmer program
senior persons, experienced and successful in U.S.
agriculture, go to the NIS to provide technical advice
and counsel to their counterparts. It has been
relatively easy to find promising groups of private
farmers to counsel. They are organized, well led, and
have well-defined goals. Typical projects of interest
are small processing plants, feed mills, and marketing
cooperatives all of which would compete with state
monopolies (or their privatized successors) .

The problem is that technical assistance alone is not

148

enough. To make something happen, there must also be
capital. And in the NIS, capital is scarce.

A point of great importance is that small sums can work
wonders. Typically, $3,000 to $30,000 is sufficient.
And such small sums do not attract the financial
"vultures" who are drawn to larger projects.

The successful model for such a program exists in Poland.
There, U.S. aid was sold for local currency (monetized).
The proceeds were used as seed capital for small agri-
industrial projects selected by a joint U.S. -Polish
commission. Details are readily available, and I will
not repeat them here.

In my judgment, a seed-capital project based on the
Polish model would do more to promote privatization of
NIS agriculture than anything else that could be done.

Distribute "Extension" Publications

A substantial impact can be had by widely distributing
translated and edited versions of readily available USDA
Extension Service publications. There is great interest
in many subjects.

149

The cost of producing the material would be extremely
low. In Russia, I recently received a firm estimate of
$400 to print 10,000 copies of a 24 page pamphlet on
grain storage technology. Distribution of such materials
also could be accomplished easily and at little cost.
An "extension system" as we know it would not be
essential. Other distribution systems exist, including:

Organizations of private farmers have been formedni
essentially all countries and political subdivisions
down to the district (county) level. Most would
enthusiastically provide materials to their members.

Ministries of agriculture also have organizations
in all political subdivisions. These are relics of
the Soviet system. They have lost most of their
management functions and are searching for new
roles. Distribution of extension materials could
begin the evolution of extension offices as we
know them.

Organizations of holders of private plots exist in
the vicinity of all major cities. These groups and
their members constantly seek technical materials.

150

Farmer-to-farmer volunteers have excellent
opportunities to distribute publications.

* Rethink The Model Farm Program

The role of U.S. -type model farms in the NIS technical
assistance program should be re-examined. Their role and
value depend in large measure on how we define our goals.

If our goal is to promote the evolution of true private-
sector, market-oriented farming then existing concepts
of model farms may not be particularly helpful. They are
merely irrelevant curiosities to typical private farmers.
To these people our model does not address fundamental
problems and is totally unattainable.

On the other hand, if the goal is to increase
productivity of the large state and collective farms
which have been nominally "privatized", then U.S. -type
model farms can be useful. Production of food and fiber
will increase, but the transition to free-market
agriculture will most likely be delayed.

In my judgment we should be searching out and supporting
the handful of promising indigenous "model farms", (or
associations of farms) that occasionally spring up

151

randomly across the NIS. The point is that these models
are relevant.

Essential characteristics of promising models include the
following:

Locally acceptable solutions to the serious social
problems outlined early in this paper.

Outstanding and innovative leadership.

Commitment to market-oriented goals including:

* True private ownership of land.

* Land-owner tillage or rental of the land.

* Reward to the individual according to the
profitability of that person's land.

* Ease and equity of departure or entry for
those wishing to leave or enter the system.

A strong commitment to mutual support among local
private farmers. Development of market-oriented
institutions to provide that support. For example,
formation of joint stock companies or cooperatives
to own and operate for the farmer-owners' benefit
equipment pools, processing facilities, and the
like.

152

Models that meet these criteria are rare, but do exist.
Each is somewhat different. It is from such experiments
that the new and successful structural forms of post-
Soviet agriculture will eventually evolve. These are
relevant models which warrant strong support.

Work With Owners Of Private Plots

Private plots on state and collective farms have long
made substantial contributions to Soviet food supplies.
This is well known. What is not so widely recognized is
the increasing importance of "dacha plots" owned by city
dwellers.

Granting small plots to urban residents has been
dramatically expanded. Many cities are surrounded by a
belt of such tracts. Most are intensively tilled. Many
are sites of substantial new residences. Some areas are
beginning to resemble American suburbs.

Collectively, plots are now of major importance in food
production. They produce a very high percentage of all
fruits and vegetables consumed in Russia. These are true
free-market operations. Produce not consumed by owners
is sold on streets and in markets.

153

Dacha owners are a promising new group with which to
work. They have organized into associations. They are
generally well educated, hard working and innovative.
Many are retired professionals. They hunger for all
sorts of technical information on food production and
preservation.

Clearly, food production faces fewer obstacles on the
dacha plots than on the private farms. As a concept,
plots have almost universal public support. Private
farms are controversial.

The collective efficiency of the dacha food sector could
be substantially increased. Printed extension materials
would be enthusiastically received. Also needed are
marketing cooperatives, small community food preservation
facilities, and (perhaps of greatest importance) frozen
food locker facilities such as those so common in rural
America.

These possibilities warrant aggressive exploration.

* Bring More Farmer Decision Makers To The U.S.

A number of programs bring citizens of the NIS to the
U.S. for training or familiarization. These are good

154

programs which should be continued and probably expanded.

It is not clear, however, that enough emphasis is placed
on bringing those who really shape decisions on
restructuring NIS agriculture.

Today only a small fraction of the important decisions
are being made by national presidents, ministries and
parliaments. As noted earlier, both chaos and policy
have delegated much to the local level.

Young students trained in the U.S. will only influence
events in the distant future. With some notable
exceptions, private farmers are not opinion makers in the
NIS. It is fine to bring such people to the U.S., but
this is not where the action is.

Today, most of the critical structural decisions are
being made or strongly influenced by chairmen and senior
staff of the state and collective farms. Local or
district "ministers" of agriculture are also important.

These are the people who have been told to "privatize"
their agriculture (or soon will be) . They recognize that
change is imperative. They are uncertain as to what that
change should be. They are usually skeptical of the

155

extent to which "Western" principles can be applied.
They know that regardless of the chaos at the national
level they must make decisions. Most important, they
have received few specific instructions and have much
flexibility.

These are the people with whom we should be working. We
should broaden their perspectives on how market
principles might be introduced into their institutions
without destroying the social responsibilities of their
farms.

The point of greatest importance is that these are the
people who have the power to strongly influence whether
the change made in the inevitable restructuring of huge
farms is nominal, significant or revolutionary. These
are the people with the power to bring about "mass
conversion" to the "true (economic) faith".

In my judgment it could be very constructive to bring
perhaps 1,000 such decision makers to the U.S. each year.
They should spend little time in cities or universities.
For them, the relevant institutions are local farmer
cooperatives, local livestock auction markets, local
implement dealers, commodity markets, etc. More than a
drop-by visit is needed. It is desirable for the guests

156

to participate in the day-to-day operation and observe
the decision making structure of these organizations.

Support Emerging Commodity Exchanges

Commodity exchanges play an important role in market
economies. A number of such exchanges have been
attempted in the NIS. Many have failed or are at best
only marginally successful. However, a few are well led,
adequately financed and truly innovative.

Transition to a market economy can be assisted by
providing support to successful exchanges. There are at
least two ways to do this:

One is by providing technical advice and counsel.
This is being done, on request, under the farmer-
to-farmer and other programs.

Another is by utilizing the most efficient of these
markets, at least to some extent, as a channel for
sale within the NIS (monetization) of donated U.S.
commodities. To date, these markets have not been
so utilized.

157

Those responsible for monetizing U.S. commodity aid have
a natural tendency to sell to buyers with whom they have
worked before. This minimizes surprises, simplifies the
process and has been a reasonable policy.

However, it also tends to move product through the same
old bureaucracies that dominated trade under communism.
The channels and networks tend to remain much the same,
even if they have been privatized. This is not all bad,
but it does tend to preserve the old monopolies.

The point of importance is that we should probably begin
to move product, at least on a pilot basis, through some
of these new markets.

Should We Do More On Agricultural Credit?

As outlined early in this report, availability of
agricultural credit is a major problem and an adequate
internal NIS solution is unlikely in the near future.

The U.S. is trying to help by providing technical advice
and counsel to both old and new agricultural lenders.
This effort is both productive and worthwhile.

158

However, the difficulty is similar to that with other
technical assistance. For a real solution, technical
assistance must be linked to capital, in this case
loanable funds. But there is a dramatic difference in
the amount of money needed for credit as opposed to that
required to make an impact as seed capital for other
purposes. The need for credit is at least an order of
magnitude larger than the need for seed capital.

The probability that the U.S. will be willing to donate
and monetize enough agricultural commodities to seriously
address the NIS agricultural credit problem is low.
However, in the unlikely event that this should occur,
the following are several principles that would be
critical in a sound NIS agricultural credit program:

Agricultural loans should be made only when secured
by foreclosable first mortgages on property.

Interest rates must not be fixed, but linked to
actual inflation rates occurring during the life of
loans.

- Because of the steady erosion of real value in ruble
accounts, donated commodities should not be
converted into rubles until the money can be loaned.

159

Availability of funds must be linked to cooperation
with technical advice and counsel on market-oriented
lending principles.

Private Investment Large And Small

Finally, I have been asked to comment on the role of both
large and small investments by U.S. private interests.

Clearly such investments, if carefully made, can
encourage transition to a market economy. However, with
respect to NIS agri-business there are at least three
points of importance:

- The vast bulk of NIS agri-business is controlled by
state monopolies, both national and regional, or by
their privatized successors. To be truly helpful,
U.S. investments should not be in these monopolies
(which is the natural inclination) . U.S. investment
should focus on creating new competition for these
huge, inefficient complexes.

The absence of an appropriate body of commercial law
and supporting court system has discouraged U.S.
private investment. This problem will persist for

160

some time. The problem can, of course, be overcome
by U.S. government guarantees or equity
participation. To the extent that the U.S. provides
such assurances, care must be taken to ensure that
investments do not merely reinforce the old non-
competitive system.

Investment in small or new enterprises will usually
be very positive. This will be particularly likely
if there is equity participation by private farmers
and plot owners, their associations, or by state and
collective farms which have been truly privatized.
Farmer-owned cooperatives structured on the American
pattern are one appropriate approach to assure this
goal.

These then are some of my thoughts on U.S. assistance to
agriculture in the NIS.

Attached is a brief resume, as requested by the committee.

In addition, I am attaching to my testimony a copy of a paper by
Dr. Alexander A. Nikonov titled "Agricultural Transition in Russia
and the Former States of the USSR". This was published in the
American Journal of Agricultural Economics in 1992. Dr. Nikonov
is president of the Agrarian Institute of the Russian Academy of

161

Agricultural Science and was for many years president of the
Academy of Agricultural Sciences of the USSR. In my judgment this
is by far the best and most author itive piece of its kind.

Again, I appreciate the opportunity to testify.
(Attachment follows:)

162

RESUME
COOPER EVANS

Cooper Evans is a farmer who raises corn, soybeans, cattle and some horticultural crops
in Iowa and Missouri.

He is a member of the board of directors of Volunteers in Overseas Cooperative
Assistance (VOCA) and in 1989 and 1990 was on the White House staff as special
assistant to President Bush for agriculture. In both of these assignments he has been
deeply involved in technical assistance to agriculture in Eastern Europe and the former
Soviet Union.

Mr. Evans has traveled widely in the rural areas of that part of the world each year since
1988. He has come to know many of the political leaders, both national and local. He
has spent time on numerous farms from the Baltic to Eastern Siberia.

From 1980 to 1986 Mr. Evans was a Member of Congress and of the Committee on
Agriculture.

Mr. Evans is also a member of the board of directors of Self-Help, Foundation, a non-
profit organization dedicated to introducing appropriate mechanization to small tract
farmers in developing countries.

In 1993, Mr. Evans received the annual Vision Award of the U.S. National Forum on
Agriculture.

163

RUSSIAN PRIVATE AGRICULTURE

Oral testimony before the Foreign Agriculture and Hunger Subcommittee

Committee on Agriculture
U.S. House of Representatives

March 31, 1993

Room 1302 Longworth House Office Building

By Ted Gashler

Associate Dean, Trade & Industry
Agriculture and International Agriculture
Northcentral Technical College
Wausau, Wisconsin

164

RUSSIAN AGRICULTURE

I appreciate the opportunity to talk about my experiences working as a volunteer
with Russian farmers and will share with you my findings on what works and
does not work in U.S. assistance to Russia as it attempts to move to a free
market economy.

My name is Ted Gashler. I am from Abbotsford, Wisconsin, and am the
Associate Dean over the Trade & Industry Division which includes Agriculture
and International Agriculture at Northcentral Technical College in Wausau,
Wisconsin. I am also a sheep farmer with registered Hampshire sheep. In the
past I have owned and operated two dairy farms, one in California and one in
Wisconsin. I have also previously owned a milk processing plant in California.

I am grateful to have served on assignments for Volunteers in Overseas
Cooperative Assistance (VOCA) in countries ranging from Poland to Kazakhstan.
As a VOCA volunteer, I had the opportunity to work on the following projects.

1. The development of the first privately owned meat processing plant in
Poland. The plant will produce sheep and beef for Moslem markets. It will
provide a market for 800 members of the sheepbreeding association of
Southeastern Poland. This 3-year project will be completed in July 1993.

2. I donated the first sheep to go from America to Poland since 1938 (and the
first registered Hampshires ever) . This project provided Polish sheep
farmers a means whereby they can develop a meat type breed to improve
the overall quality, quantity, and profitability of their industry.

3. I donated the first sheep semen from registered Hampshires for artificial
insemination and embryo transplant purposes ever to go to Poland.

4. I have been working with groups from Poland, Belarus, Ukraine, Russia
and the United States to trade Polish wool for Russian tractors, made in
Belarus. This project is in progress and will provide a market for Russian
tractors and PoUsh wool. The tractors will ultimately be sold in the United
States, and will put about 1000 Russians back to work. This is a win-win
situation for all countries involved.

5. Through the help of the Moscow VOCA office and the USDA in Moscow, we
were able to get U.S. cotton into Russia to provide the Textile Mill of
Ivanovo cotton to keep the factory in operation.

6. Presently I am working with Kazakhstan agriculture officials to send
registered Hampshires and semen to Kazakhstan to introduce meat type
sheep in that country, just as I did in Poland.

7. I am working with a state farm in Kazakhstan and Mr. George Dinner of
Global Agri-Tech, to send a complete cheese plant from Wisconsin to
Kazakhstan to provide a place to market milk for private and state farms
and employment for about 30 people.

TG.017, 3/25/93

165

1 have also worked with other organizations that are financed under the AID
program, including the Cochran Fellowship Foundation, Communicating for
Agriculture and ACDI's Reverse Farmer to Farmer program and Georgetown
University.

Last summer under the auspices of VOCA, I had the opportunity to work and
live with the new private farmers in the Ivanovo Oblast Teikovo District of
Russia. Last December and January, VOCA sent me to work in Kazakhstan with
the new private farmers of that country.

The private farmers of Russia are in every sense pioneers. They are some of
the first people in Russia to have perpetual land "use" rights in some 70 years.
Land cannot yet be bought or sold in Russia, but it now can pass from one
generation to the next. Therefore, farmers have no rights to mortgage the land
or borrow on it. So, like the pioneers of America, they are starting out with
very few material goods, no credit, little or no machinery, no homes, no
electricity, and no water except for what they haul from rivers or ponds. Yet
they have something much more valuable, they possess the personal attributes
that ensure success; namely a positive attitude, dedication, desire, hard work,
and they are teachable with a strong desire to learn. They have the "I Can"
attitude .

There are approximately 200,000 private farms in Russia. The RF Agrarian
Institute estimates there are 2.4 workers (farmers) per farm for a total of
480,000 private farmers, with more than 1 million people living on private farms.
Many of the new pioneers came from the state and collective farm system, a lot
of them are specialists in various agricultural areas with management experience
in farming.

During my assignment, I accomplished established goals for this project. They
included numerous farm visits; farm meetings; meetings with local, regional, and
national governmental authorities; credit authorities; and government agencies
both Russian and American. In addition, I met with many other sources that
can and will provide resources to help the private and government farmers.

We discussed business plans, marketing, credit and financing, the importance of
farmer-owned cooperatives, storage methods, processing, small scale business
methods and techniques, profitable livestock production, and the possibility of
training programs for the private farmers and related agribusiness people in
Russia and in the USA.

It was both extremely challenging and humbling to work with the new private
farmers who are literally starting from scratch; building homes, barns, and
corrals while trying to establish crops and care for a few head of livestock. I
found farmers living in discarded truck bodies, wagons, tents, cars, and even
some were living in haystacks .

The typical farm that I worked with was a diversified operation, with 25 to 50
hectares (or 61 to 123 acres). Livestock includes a cow or two, 5 to 25 sheep,

2 to 4 pigs, and some chickens. The crops customarily consist of a vegetable
garden, a few hectares of oats, some wheat, buckwheat, rye, and often about
half em acre of potatoes for home and livestock use. The remainder of the land
is usually pasture and woods. Roads to the farms are nothing more than paths
in the sod that have become deep ruts, difficult to maneuver in the summer and

TG.017, 3/25/93

1^6

impossible in the spring and fall rainy seasons. The inability to obtain
machinery, parts and fuel, often at any price, all make farming a real challenge.

On the other hand, I found the massive state-owned enterprises, even though
run down and inefficient, were still in control of storage, processing, marketing,
and input supply monopolies, and enjoy government credit. Private farmers face
harassment and bureaucratic obstacles from conservative politicians and collective
farm managers.

Victor Chesnikov, president of Akkor in Ivanovo (the association of Private
Farmers), told me the main problem private farmers face is one they have no
control over. It dwarfs all the other problems in scope and magnitude. This is
Russia's monetary system. He said even though he loves President Boris
Yeltsin, on January 1, 1992, he lifted price controls on most goods except basic
food items and fuel. He said this will cause far reaching effects in all segments
of the Russian population. Indeed it has; in 1992 inflation exceeded 2,000
percent. The inflation rate is now at 25% a month, the gross national product is
down 20%, and living standards are off 50%, and I am convinced things will get
worse before they get better.

The government still controls prices on basic staples such as milk, meat, and
bread. These are the principal produce of most private and government owned
farms. To make things even worse for the farmer, there are no price controls
on the goods and services they must purchase. This has caused a
cost-price-squeeze for the farmers that is not only leaving them without a profit;
it is also taking away incentive.

Many farmers, from both private and state farms, told me the FOOD America
sends to Russia is making things WORSE for Russian farmers, and ultimately it
will affect all Russians, as farmers are not receiving prices high enough to
provide a profit. They said as long as Russian leaders know the USA will
furnish cheap food, this situation will continue. Several top Russian agriculture
officials in Moscow told me this policy will eventually hurt everyone in Russia.
Large state farmers are now producing less because there is no profit incentive,
thus there are less rubles to purchase all other consumable goods. Business
and industry will eventually feel the squeeze, and this will mean fewer jobs.
They asked me "how American farmers would Like it if Australia or New Zealand
would ship milk and meat to the USA at a price lower than American farmers can
produce it?" As an American farmer who has watched cheap lamb and dairy
products come in from Australia and New Zealand, I had to admit I did not
appreciate the competition any more than they do.

Yet at any given time, Russian officials are in Washington seeking additional
credit, negotiating for added billions in agriculture loan guarantees to purchase
more greiin, meat, milk products, and other food items. It probably will be
granted. Even though all signs point to the fact, it is just a matter of time
before Russia begins to default on loans now guaranteed by the American
government. Russia's economic distress is well documented, inflation is up . . .
exports are down . . . and the ruble's value is eroding. According to the
March 1, 1993, issue of The Washington Post and the Center for Economic
Reform, Russian Federation, debt payments expected to come due in 1993
(including unpaid bills from 1992) are $40 billion. Expected revenues from
exports are $35 billion.

TG.017, 3/25/93

167

Russia's entire production in 1991 was 89 percent of 1990 and the full production
in 1992 was only 80 percent of the 1991 total. The standard of living, the real
per capita income in January 1993, was 43 percent of the January 1991 average.

But, on the bright side, private farms are becoming more important in
furnishing the Russian food supply. In 1992, it is estimated that private
farmers produced 10 percent of the bread wheat in the country on only 3
percent of the land. Private farmers, gardeners, and "dacha" (summer home)
owners produced over half of all fruits and vegetables in Russia, including 60 to
70 percent of the potatoes. This shows again that production and efficiency
increase with independent farmers. I found that pride of ownership works in
Russia just as it does everywhere in the world.

Another thing that makes agricultural production, processing, and distribution
extremely difficult is the fact that interest rates are now 80% to 160% per year.
In most cases there is no credit available to private farmers or independent
businesses at any rate. I talked to three bankers who all told me agricultural
loans are a poor risk. They said "farmers and small privately owned businesses
cannot pay back loans at such rates of usury."

I requested the use of the city hall in Tekova to hold a meeting with the private
farmers of that region. Of 41 private farmers in the region, 40 came. We
discussed what is working and what is not working with Russian agriculture.
They told me of their fears and frustrations. The greatest fear is the
possibility that the financial reforms will eventually result in hyperinflation and
the restoration of dictatorial rule and centralized control over the economy.
They said virtually all farms in Russia, both private and state, are deeply in
debt. No one expects the state farms to repay their debts but a real threat of
bankruptcy hangs over the private farmers. They said if present conditions
continue, many private farmers in Russia could be forced into bankruptcy.
They said the toted lack of credit along with the high interest rates makes it
impossible to buy equipment, fertilizer, or any of the other production inputs.
They also complained that they only had the rights to "use" the land but cannot
sell or mortgage it. Another big concern was the few options for marketing
their products and the lack of private processing facilities. One big contention
was that the loans from the World Bank and other sources never seem to trickle
down to them, but there is always a generous supply of credit to the inefficient
state-run collective segments of agriculture and industry.

I asked what is working and what can the USA do to help the Russian private
farmers. Eugeny Fadeev, an articulate and dedicated leader and spokesperson
said what seems to be working is their movement towards the formation of
farmer-owned cooperatives based on the American farmer-owned cooperative
model . He said this will be the best way to provide credit, storage facilities,
food processing, marketing, and distribution. He said only with a team effort,
with all farmers working together, will they survive.

The group's first request was that some U.S. aid needs to be earmarked for the
private farmers and businesses in Russia. They also said more training needs to
be provided for management in the privatized businesses and for the owners of
private farms. Mr. Fadeev specifically asked for an expanded effort in exchange
programs for the private sector rural leaders to be sent and trained in the USA.
They also asked for help in developing an Extension Service modeled after the
U.S. extension system. Finally they asked for continued support of VOCA.

TG.017, 3/25/93

168

They said they need these practical specialists to work directly with both the
government and private sector leaders to continue developing a private
agricultural system in Russia.

I am a Wisconsin sheep farmer. I see a lot of similarity between Russia and a
baby lamb born in a January snowstorm in northern Wisconsin. If the shepherd
CHOOSES to go out in the cold to bring the newborn lamb inside, where it is
protected from the storm, dries it off, warms it up, gives it some life giving
colostrum, and then shows the lamb how to find its mother's milk, the lamb will
survive and grow and become a healthy productive member of the flock. If the
shepherd CHOOSES to stay in his warm house rationaUzing that he has other
things to worry about, and leaves the mother and natural consequences to take
care of the situation . . . there is a 90% chance the shepherd will find the lamb
dead in the morning.

As Americans we NOW have a very short window of opportunity. WE have to
make the CHOICE. Are we going to help the newborn Russian farmers survive?
Are WE going to help sustain their new democratic form of government, or are
we going to stay in our warm houses and let nature take its course, and watch
democracy die and witness dictatorial government return to Russia?

Recently President Clinton seiid, "If we are wilUng to spend trilUons of dollars to
ensure communism's defeat in the Cold War, surely we should be willing to invest
a tiny fraction of that to support democracy's success where communism failed."

This Wisconsin shepherd agrees.

We must honestly ask, are we sending grsdn and other agricultural commodities
to Russia to help them or U.S.? I know the far-reaching political impUcations of
this question. I realize the impact this has on American farmers and American
agribusiness. I also know what it is doing to Russian farmers and the total
Russian economy. No, I don't want the Russian people to go hungry. I want
them to become one of the great democratic nations of the world. This can only
happen if we are to provide REAL help.

We need to bring this lamb in out of the cold, and nurture it until it becomes a
productive member of the democratic flock. Just as we have done with Japan,
Germany, England, Korea, Taiwan, France, etc., when they were struggling for
life. We must TEACH THEM TO FISH so they can feed themselves, rather than
giving or selling them commodities until they have lost the ability to produce,
are bankrupt, and are forced once again to become a BEAR instead of a lamb.

America, along with the other democratic members, needs to reaUze that foreign
aid alone won't turn the course of Russian history. But it would be completely
foolish to let this new democratic movement die in the chaos of this era because
of the need of a relatively small amount of cash to keep basic government
services intact. What is relatively small? Compared to the amount the
democratic governments have spent in the past to defend themselves from the
threat of communism and the former Soviet Union, relatively small is in
comparison to what it will cost if we don't make the right choices now.

What kind of help am I referring to? Quit expecting too much too early, and
reward for advances in DEMOCRATIC SELF-GOVERNMENT. Then start

TG.017, 3/25/93

169

earmarking some funds for private farmers and private agribusiness. Expand
training programs for private sector leaders. Invest in privatization. Put the
money where it will do the most good.

WHAT IS WORKING

Production has increased where private farmers have .taken over the land. The
difference between management by committee and ind48tBferT)wnership is
phenomenal. I believe that if the free market economic reforms continue in
Russia, farmer-owned cooperatives will play a major role in transforming
inefficient, state-controlled agricultural monopolies, to privately owned farms and
agribusinesses. Russian farmers are finding there is power in number. It is
becoming very evident that farmer-owned cooperatives will be increasingly
important in solving many of the problems they face today. Together they have
the power to buy in volume, sell in volume, provide transportation and storage,
create markets, establish processing facilities, and develop electrical supplies.
As the cooperative movement grows, it will create jobs for workers providing
services for the cooperatives.

VOCA is doing a commendable job in providing GENUINE aid and assistance while
promoting both the cooperative movement and democratic principles. It is
successful because each full-time employee is a hand-picked professional,
dedicated to the democratic way of life and to helping their fellow men. Each
understands basic human needs and has a good working knowledge of business,
agriculture, education, and government. All have strong backgrounds in
international assistance and education and are well versed in the countries and
peoples they assist.

VOCA has also been very successful in attracting volunteers that are expert in
specialty areas needed in the various countries. Again these are people with a
proven track record dedicated to building up the people and country they are
assigned. VOCA is successful because of the TOTAL DEDICATION of
EVERYONE involved in the organization.

There are several other organizations that are doing a good job of providing
help to Russia and other Eastern European countries. They are the Cochran
Fellowship Foundation, ACDI's reverse Farmer to Farmer program. Communicating
for Agriculture, etc.

It has been my pleasure to work with the Cochran Fellowship Foundation on
projects affecting groups from Latvia, Russia, Poland, Ukraine, Czechoslovakia,
Romania, and Hungary. Following is one example.

Through a joint effort with VOCA I was able to bring 7 people from Poland and
train them in the meat processing industry. These people were trained in the
state of Utah at Brigham Young University food science department, in Illinois
with various equipment manufactures and distributors, and in Wisconsin with
meat plants, to learn the hands-on part of the business.

TG.017, 3/25/93

170

WHAT IS NEEDED

VOCA and Cochran and a few other dedicated groups are doing a great job, but
more is needed. They are finding the best people in each country. They
provide the finest American specialists available to work and train these
outstanding people in current methods and technology, while instilling both
cooperative and democratic principles. They do everything presently possible to
help make these choice individuals a success, but . . . more is needed.

Upon completion of training, these well-disciplined, intelligent people are ready
to hit the road running. They are excited, know how to perform, are willing to
work hard, sacrifice, and become successful. Then reality sets in. They have
all the knowledge and skills and everything needed except one thing . . .
FINANCING.

Interest rates in Russia vary from 80 to 160 percent per year. Further reality
is, NO money is generally aveiilable for farmers or small business because of lack
of collateral.

The "more that is needed" are training programs that bring more of these choice
people, the future leaders in agriculture, business, and industry to the USA to
complete an APPRENTICESHIP type of training program under the strict
supervision of a MENTOR who is presently involved in that particular business.
Upon completion of the program, the student would then go back to Russia,
develop a sound BUSINESS PLAN, find a satisfactory location, and when
approved by his MENTOR, COMMITTEE, and the FOUNDATION, he or she would
then be eligible for a LOAN to get started in the business in which he or she
has become adept. The LOAN would be a long-term loan at present U.S.
interest rates. Periodic scheduled follow-ups by the mentor would be an integral
part of the program to ensure success.

If there is to be a true and lasting democracy established in Russia, we must
bite the bullet and provide REAL help in the; form of LOANS to the dedicated
people who are putting everything they have on the line to learn all they can
about a particular subject and then give all their time, talent, and finances to
make it a reality. Presently, we are training these good people, then turning
them loose in an impossible situation where' they are destined to FAIL.

Rather than dumping all the aid into the pockets of government officials that may
or may not support democratic principles, we should establish a foundation so we
can put some of the dollars into LOANS that will generate interest and can be
used over and over again for the good of many.

We also need to create other credit systems for farmers that will provide both
long- and short-term loans. We need to ensure that any commodities sent to
Russia are NONCOMPETITIVE with Russian supplies.

TG.017, 3/25/93

171

CONCLUSION
RUSSIAN AGRICULTURE HAS THE FOLLOWING NEEDS

1. Continue to support VOCA and Cochran.

2. Continue to support and advance the farmer-owned cooperative movement in
all areas of Russian apiculture.

3. Ensure that any commodities sent to Russia, are NONCOMPETITIVE with
Russian supplies.

4. Establish a replica of the successful U.S. -Poland Joint Commission for
Humanitarian Assistance, whereby the sale of U.S. commodities — if they are
going to be sent to Russia--will fund the financing of small- and
medium-sized food processing plants owned by private farmers and farmer
associations .

5. Help create a Russian- American extension service.

6. Provide aid on EVIDENCE OF DEMOCRATIC SELF-GOVERNMENT, not on the
basis of Russia meeting immediate economic conditions imposed by the West.

7. • Earmark special funds for private farmers and businessmen.

8. Develop a foundation that can provide LOANS at current U.S. rates of
interest to private farmers and small business people that have successfully
completed an APPRENTICESHIP type of training program in the USA under
the direction of a MENTOR.

I know what I am asking for is difficult, but it can be accomplished. The
impossible may take a little longer.

(Actachnents follow:)

TG.017, 3/25/93

172

Ted Gashler

Ted Gashler is the Associate Dean of the Trade and Industry Division at Northcentral Technical
College of Wausau, Wisconsin. In this capacity, Mr. Gashler oversees the college's agriculture
and international program.

In addition, Mr. Gashler is a sheep farmer with registered Hampshire sheep. In the past, he
owned and operated two dairy farms, one in California and one in Wisconsin. He also
previously owned a milk processing plant in California.

Mr. Gashler has served as a volunteer Farmer-to-Fcirmer specialist on assignments in Poland,
Kazakhstan and Russia on behalf of Volunteers in Overseas Cooperative Assistance (VOCA).

As a VOCA volunteer, Mr. Gashler has been instrumental in many "firsts." He was active in
the development of the first privately-owned meat processing plant in Southeastern Poland. He
donated the first sheep, sheep semen to go to Poland since 1938 and the first registerd
Hampshires ever in Poland, and is working with Kazakhstan agricultural officials to send the
first Hampshires there. He has been actively involved in promoting barter trade between East
and Central European countries and the U.S., and is credited with saving hundreds of jobs in
a textile factory in Southern Russia when he arranged for the export of U.S. cotton to the plant.

At Northcentral Technical College, Mr. Gashler operated the college's training program for
future Polish agribusiness leaders. He has worked closely with USDA and USAID programs
to identify current and future grassroots leaders for U.S. training programs.

173

Volunt««n in Overseas
Cooperative As$isUr>ce

Suite 1075

50 F Street, N.W.

Washington, D.C. 20001

Telephone: (202) 383-4961
Telex: 6974812 VOCA
FAX: (202)783-7204

VOCA Helps Rural Communities Solve Their Problems

Volunteers in Overseas Cooperative Assistance (VOCA) has been working with rural enterprises
around the world since 1970. The mission of VOCA's Farmer-to-Farmer and Cooperative
Assistance programs has been to increase the economic opportunities of members of
cooperatives and other small and medium scale agriculturally-based enterprises. Working at the
express request of private farmers associations, rural entrepreneurs and farmer cooperatives in
Eastern Europe, Asia, Latin America and Africa, VOCA volunteer specialists have brought their
know-how and experience to solve problems and create rural economic "success stories."

VOCA was created by America's democratically-controlled cooperatives and credit unions as
its volunteer assistance arm. VOCA projects range from helping the first private farmers in
Russia with the management and operations of their farms, to helping parliaments around the
globe develop credit union and cooperative legislation. VOCA has been particularly active in
recent years in helping rural communities combine the needs of environmental and natural
resource management with agriculture and economic development.

VOCA's method of operations centers on working directly with innovative rural communities
and community leaders to help them solve the problems they identify. VOCA's regionally-
based staff help rural leaders in identifying and articulating development objectives, with local
communities and organizations then making a written request for VOCA's assistance. VOCA's
U.S. -based staff then works to find the "best available qualified specialist" for each request.
This specialist volunteers his or her time, and works directly with the requesting organization
to solve the problem at hand. Most assignments last between three weeks and three months.
VOCA will typically work with requesting organizations over a period of several years,
sending out several specialists over the time period.

VOCA aims to create a "critical mass" of "success stories" in each country and region where
it works. The greater the number of successes at the local level, the greater the chance that
national-level policy decision-makers will take notice and put in place policies and laws that
make sense to rural populations. VOCA prides itself on having achieved a number of macro-
level changes through successful sustainable and replicable micro-level work.

In FY 1992, VOCA completed 453 projects on a budget of seven million dollars. In addition,
VOCA received donated services from requesting organizations and volunteers in the amount
of five million dollars. In FY 1993, VOCA expects to complete 900 projects. VOCA receives
its funding from both public and private sources. VOCA's public funds are provided by
USAID under a series of grants. Since its creation in 1970, VOCA has worked in over 100
countries in Latin America, Asia, Africa and Eastern Europe.

Currently,

Russia

Poland

Lithuania

Ukraine

Armenia

VOCA has offices in

Czech Republic

Estonia

Byelarus

Kazakhstan

Albania

the following

Bulgaria

Latvia

Romania

Hungary

Slovakia

countries:

Uganda

Indonesia

Guatemala

Bolivia

Zimbabwe

174

STATEMENT

MARTHA CASHMAN

VICE PRESIDENT FOR INTERNATIONAL DEVELOPMENT

LAND O' LAKES, INC.

Mr. Chairman and Members of the Committee.

My name is Martha Cashman. I am Vice President for International
Development of Land O'Lakes, Inc. On behalf of our 300,000 farmer
and rancher members, I appreciate the opportunity to reflect on the
future of private agriculture in Russia and the role that we are
playing to provide private farms with technical assistance,
training and moral support.

My testimony covers three subjects: first, some general background
on Land O'Lakes and its international programs; second, our
involvement in supporting private Russian agriculture; and third,
observations and recommendations for U.S. assistance programs to
Russia.

Land O'Lakes is a Fortune 200 company located in 15 upper tier
states stretching from Wisconsin to the Pacific. Begun in 1921 by
a few dairy farmers for producing sweet cream butter, the company
had its best year ever in 1992 with sales of over $2.5 billion in
its four core businesses of feed, seed, agronomy and dairy foods.
Land O'Lakes is a totally integrated agricultural company which
provides a full line of agricultural inputs to over 1,300 local
cooperatives. Land O'Lakes is the number one leader in national
sales of butter and deli cheeses, and provides over 600 other food
products directly for consumers and through food service and-
industrial markets.

In agricultural supplies and support. Land O'Lakes is a major
market force in crop and livestock industries with domestic and
international sales of more than one million tons of animal feeds,
and is a leading supplier of fertilizer, protection chemicals and
petroleum products. Land O'Lakes is the national leader among
cooperatives in research with two extensive state-of-the-art
facilities which concentrate on production at a 535-acre "Answer
Farm", and food research and product development in a laboratory at
our headquarters. Land O'Lakes collects and processes four billion
pounds of milk a year.

Land O'Lakes is the largest and among the few major U.S.
agribusinesses with an international development department. In
our overseas development work since 1981, Land O'Lakes draws on its
6000 front-line employees and vast membership to provide technical
assistance, overseas training and internships on member farms and
in local cooperatives and at national headquarters.

The principal focus of Land O'Lakes international work is
agribusiness management training worldwide and especially in
Central and Eastern Europe. For example in 1992, Land O'Lakes
conducted 114 courses in thirteen subjects in Central and Eastern
Europe and the Baltic Republics. Since 1983, Land O'Lakes has
trained over 500 foreign participants in the U.S. and provided
technical assistance in some 22 developing countries. Land O'Lakes
has implemented 12 long-term contracts with the U.S. Agency for
International Development. The company has been awarded the

175

President's World Without Hunger Award and the Fowler-McCracken
Commission Award for this work.

Why is Land ©'Lakes interested in undertaking these development
assistance efforts? The first motive is to be a good world
citizen. The company has the know-how and human resources which we
want to share with less fortunate people overseas. We also think
we can play a role in reforming our foreign aid programs to operate
on a people-to-people and business-to-business basis.

The second is the desire of our CEO and corporate leadership, board
of directors and members to be the best international agribusiness
company in the world. To achieve this goal, we must be part of the
global economy. Through training and technical assistance, our
staff becomes familiar with international perspectives and markets
and deepens their appreciation for our cooperative roots.

The third is long-term commercial interests to serve our member-
owners better through generating business overseas, especially in
the feed sector where we are already a major international
competitor. Quite frankly, Land O' Lakes can not compete with
European companies for new markets in Central and Eastern Europe
and Russia with our U.S. plants given generally higher
transportation costs. Instead, we need overseas partners and local
production for some of our patented and high quality feeds and.
other products. At Land O' Lakes, we operate our development
programs entirely on a non-profit basis and separate its activities
from these emerging commercial efforts overseas.

In Russia and the Ukraine, Land O' Lakes is carrying out a major
Farmer-to-Farmer project to place 13 0 volunteers to assist in
agricultural restructuring and promotion of private agribusiness.
Beginning in late 1992, this project is focused on five
agricultural regions south of Moscow and the L'vov region in the
Ukraine. The project is intended to increase the availability of
food through introducing competition and enabling private farmers
and agribusinesses to produce, process and market foods.

Volunteer agricultural specialists will assist in the development
of model agribusinesses; institutionally strengthen private farmer
organizations in post-harvest storage, processing and marketing;
and work with reform leaders and progressive managers in the
privatization of collectives and state-owned enterprises. The
program is designed to respond to requests from the field and is
managed by a former Land O' Lakes board member. Rich Hanna.

Land O' Lakes second project in Russia has a longer history. In
October 1989, a senior delegation from the company visited several
areas of the Russian Republic at the invitation of the Agricultural
Ministry of the Russian Republic. The ministry was interested in
developing a Land O'Lakes-type pilot dairy cooperative. In July,
1990, a company representative met with Boris Yeltsin who requested

176

that we prepare a proposal. Siibsequently, an initial study was
carried out by Land O'Lakes and, last year, a feasibility study
undertaken jointly with AKKOR, the Association of Peasant Farms and
Cooperatives of Russia. AKKOR represents and provides services for
the rapidly growing private fanning movement which now numbers over
200,000. These studies were financed privately by Land O' Lakes and
the Ministry.

The joint analyses indicated that it is feasible and financially
viable to form a private dairy cooperative in the Venev District
(160 kms. south of Moscow) which would first provide farm supplies
to members and, then, begin small-scale butter and cheese
processing. In December 1992, the cooperative was formed and has
begun its operations. This effort is being undertaken to
demonstrate an integrated approach to dairy development and to
serve as a model for other regions. At each step. Land O' Lakes and
AKKOR will undertake symposia and prepare how-to publications which
will widely disseminate lessons-learned and promote agribusiness
formation throughout Russia.

To carry out the project. Land O' Lakes successfully sought support
from A.I.D. to provide long-term advisors on site and short-term
technical assistance, training and U.S. management internships over
four years. We are now in the process of placing long-term staff
in the field and intensifying our technical assistance.

The third activity which Land O' Lakes plans to undertake in Russia
involves a butter monetization project. We are proposing to USDA
that Land O'Lakes sell 12,500 metric tons of Section 416(b) surplus
better in Russia over two years. The revenues generated from the
sale of butter will finance the purchase of dairy and animal feed
processing equipment, and technical assistance for the installation
and operation of equipment at the newly formed Venev cooperative.

In addition, the project will introduce the concept of Russian
value-added branded products to consumers. Most branded packaged
products currently sold are imported. Newly privatized food
companies in Russia can increase their market share and financial
returns through the further processing of commodities for retail
sale.

Butter is currently sold in bulk at retail outlets. The project
will introduce Venev-label prepackaged butter of high quality to
consumers and, thereby, create a market for the model cooperative.
After two years, the Venev cooperative will be able to replace the
donated butter with their own product. Thus, U.S. food assistance
has a double impact of providing a needed commodity and as an
engine of private agribusiness development.

Based on these experiences in Russia, I would like to make a few
observations :

177

■ Russia is not like any other country in the world. The
development challenge is different from developing and middle
income countries and those of Central and Eastern Europe. These
differences are profound and rooted in the history of the Russian
people. Vfhile its economy is now in a shambles and dysfunctional,
Russia has high educational levels and immense wealth. Unlike
Eastern Europe, it is not trying to recapture its pre-communist
past, but is overcoming a legacy of 75 years of communist
totalitarianism and 1,000 years of dictatorship.

■ Russia lacks the fundamental underpinning of a democracy and
free market generally referred to as civic society. This
Jeffersonian idea suggests that democratic societies require an
independent or associative sector as an intermediary between
individuals and their government and businesses. It is the basis
of the social safety net where people look to doing things
themselves rather than rely on government for solutions. Civic
society is the breeding place for social movements, such as for the
environment and women's equality, which can totally change cultures
and politics. Within this context, self-help institutions
(including a cooperative movement by smallholder family farmers)
are a critical mechanism to organize many individuals to tackle
social and economic problems including the natural inclination of
capitalism to form monopolies and economic elites.

■ Russia is different because its organizations appear to
function like those in the West, but do not. Basically, communist
institutions carry names such as banks or parliaments, and concepts
such as money or investment, yet they are based on entirely
different premises. The first challenge of anyone working in
Russia is to try to understand how things operate there and avoid
assuming that the underlying assumptions are the same. Our goal
must be to offer different models and ideas and let them choose
those that are appropriate and can be adapted to their situation.

Now, I would like to make five recommendations:

1. We should focus our U.S. assistance efforts in agriculture for
a number of reasons: The food sector can respond to free market
changes more rapidly than industries, if incentives are put in
place. Private farming, small-scale processing, private shops and
food marketing are among the few occupations that individuals can
undertake, compared to more capital intensive activities in other
sectors which will require years to restructure, privatize and
modernize. Food availability and the cost of food are politically
sensitive and improvements would be a major departure from the
communist past and present early evidence that reforms are
succeeding. Finally, Russia represents a major market for U.S.
feed and other food commodities for the foreseeable future. We can
build business partners for mutual economic benefit.

178

2. Our foreign assistance programs must avoid strengthening the
central institutions of the old communist system which are still
largely in control of all productive sectors in Russia. While
supporting broad policy reform, our assistance must go right to the
grassroots and demonstrate the advantages of private enterprise.

We need to focus assistance on helping grassroots leaders who have
made the mental shift toward initiative and self-reliance. They
are under extraordinary pressure, working against the inertia,
passivity and fear inculcated by the old system. Their courage in
exercising initiative is amazing. They are facing mounting
opposition by the old guard.

Technical assistance should help these local leaders reorder their
country's rich human and natural resources in small-scale private
business activities. We should help them imagine, create and
organize transitional and nascent organizations that promote
private initiative and nurture trust. In general, U.S. assistance
providers should take great care in working with large companies
and business partners with access to funds because, in most cases,
these are former communist apparatchiks.

In focusing our assistance, we need to keep in mind two groups of
reformers: urban leaders who often emerged from intellectual and
dissentient groups, and rural "peasant" leaders who are committed.
to individual responsibility for the stewardship of the land. To
reach these peasants, U.S. assistance must go to rural areas where
there is sufficient political tolerance to allow them to succeed.
Local leaders need to be cultivated to support the fledgling family
farmers who, with sufficient time and resources, will be able to
prove the inherent advantages of private agriculture.

3. We should provide surplus U.S. food and feed in ways that
support family farming rather than re-enforce the old state command
structure of agriculture. This can be done in two ways: surplus
food and feeds themselves can be a development tool by requiring
auctions which stimulate private suppliers, truckers and
processors. Second, our surplus food commodities can be monetized
(sold in the marketplace) because that way it will not undercut
local farmers and, quite frankly, with the degree of corruption the
food will end up in the marketplace in any event.

We recommend earmarking a percentage of our surplus food and feed
grains for private agriculture and that it should be distributed
through or in cooperation with the AKKOR national and regional
network which represents and supplies private farmers. We propose
that up to 25 percent should be earmarked as a condition of our
assistance.

4. Feed grains can help stimulate the critical livestock sector
rapidly. But, we need to accompany such grains with long-term
technical assistance and training for strengthening private

179

entities. Yet, our food assistance programs are operated under
USOA, and economic assistance programs under A.I.D. It is very
difficult for a company, such as Land O'Lakes, to get our USDA and
A.I.D. officials to work together so that there is a package of
surplus commodities and development dollars in the same project.
We suggest a requirement that future donations of commodities to
Russia should be accompanied by either foreign assistance dollars
or drawn downs on CCC funds.

5. Finally, we recommend that USDA should encourage the use of
brand names in providing commodity assistance in order to build
U.S. markets for American agribusinesses. For example, most
Russians think that U.S. surplus butter comes from New Zealand. We
suggest a cooperative program with companies, such as Land O'Lakes,
in which U.S. surplus commodities would be provided in consumer
packaged sizes with U.S. brands. Alternatively, we suggest that
labels can promote the sales of U.S. Russian private joint venture
partners such as in our proposed 416 monetization project. In that
way, we could help Russian companies with packaging and labelling
and strengthen lasting business ties.

Thank you very much for the opportunity to participate in these
important hearings.

Professional Background of Martha Cashman

Since September 1, 1987, Martha Cashman has advanced rapidly to
become Vice President for International Development Operations,
Land O'Lakes. In this capacity, she has greatly expanded Land
O'Lakes' development programs throughout Central and Eastern
Europe. In Russia, she has taken particular leadership in
developing strong personal and professional relationships with
senior private agricultural leaders. Through frequent visits to
the field, she has gained a broad hands-on knowledge of the types
and scope of technical assistance and training needs to support
feunily farming in Russia.

Prior to joining Land O'Lakes, Cashman was a P.L. 480 Food for
Peace Coordinator in Jamaica C1985-86) and The Gambia (1983-84)
with specialized knowledge in the use for surplus U.S. food
assistance particularly through its "monetization." She has had a
variety of positions within national and regional cooperative
organizations. She holds a Masters of Agriculture and Bachelors in
Elective Studies in public policy analysis from the University of
Minnesota .

180

Statement

Russian Agriculture

Subcommittee on Foreign Agriculture and Hunger

US House of Represenutives

March 31, 1993

S. R. Johnson'

"Saalkf R. Johmon u C F. CartiM DiirinpM'ihfrf ProftMor Africnkiin and director of di«
Center for Africukunl tad Rural Devdopmem at Iowa Suae UnivefUj, Amaa, Iowa.

181

The 1992 Agribuiiness Centers Project

I am pleased to liave the opportunity to discuss our experience in opemiog Agribusinesf
Centers for Russia and Ukraine during 1992. The concepts that guided the organization of the
Agribusiness Centers were developed from conversations with Russian and Ukrainian farmers,
agricultural officials, and members of the academic and educational institutions serving agriculture
in these countries. During the organizational period for the Centers, we also visited extensively
with U.S. agribusiness firms operating in the former Soviet Union (FSU) and with small- and
medium-sized agribusinesses interested in exploring commercial opportunities made possible by the
transition of the FSU to a market economy.

In our early conversations with the Russians and representatives of othar nations of the FSU,
the ideas put forward were often cast in terms of 'demonstration farms.* At first we misunderstood
their interest, rbinking that our counterparts were recommending the duplication of a typical
midwestem farm in Russia, for example. Instead, our coimterparts were requesting demonstrations
of modern, successful tedmologies and management methods and introductions to market economic
concepts on a very practical basis. From these demonstrations and trainii^ sessions, the farm
operators and agricultural officials could appropriate the techniques and approaches most useful in
their special situations. In short, our counterparts wanted access to information on technology,
managemem methods, and market concepts that they could utilize in addressii^ problems of
adjustment created by the economic transition.

FmuUnff The Agribusiness Centers were initiated utilizing multiple sources of funding and in-kind
resources. Specifically, a $500,000 grant was obtained from the Trade and Development Program
(agency). The Iowa International Development Foundation (IIDF), Iowa State University QSU), tad
private-sector agribusiness firms and farm operators contributed funds, time, and equipment. Also,
in mid 1992, a grant to acquire grain storage, processing, and handling equipment was obtained
from the MIS Task Force of the U.S. Agency for International Development. The funding and/or
resources acquired to support the Center were as follows.

Trade and Developmem Program (agency) $500,000

US. Agency for International Development 500,000

Private agribusinesses 396,673

Iowa &rmers 69,250

Iowa International Development Foimdation 400,000

Iowa State University 50,000

U.S. Department of State 1.000,000

182

Statement, S. R. Johnson P*ee 2

Houte Subcominee on Poreien Agricnhure and Hunger March 31. 1993

Agribusiness Centers support from the U.S. I!)epartmeax of State was provided in the form of a
C5B military aircraft to transport equipment, seeds, and other materials along with Iowa ^rmers
who were to assist in crop production in Russia and Ukraine.

Joint VkiUitres: The Agribusiness Centers in Russia and Ukraine were organized as joint ventures
or cODunercial enterprises. The board members were from the United States and from local farms
and the agricultural establishment in each of the Agribusiness Center regions. Approximately 2,000
acres of com and soybeans were grown using seeds, chemicals, and specialized equipment from U.S.
companies. The Russian or Ukrainian partners provided labor, machinery, and land. The plan was
that the Agribusiness Centers would generate sufficient resources through the U.S. or Ukrainian or
Russian contributions to sustain their operation in future years. In actuality, this was not possible
because commitments of the Russian and Ukrainian local officials to the trading and other costs of
the Agribusiness Centers could not be met due to the deteriorating economic conditions in their
countriea. Nonetheless, the Agribusiness Centers were operated as though they were profit-nuking
toujt ventures, with the proceeds to be reinvested to support further demonstratioa and training
activities consistent with the objectives of the Agribusiness Centers.

The objectives of the Centers were to achieve positive results for both the Russian or
Ukrainian partners and the U.S. agribusinesses (or more generally for the U.S. agricultural and
agribusiness sector). The specific objectives were to provide trade and commercial opponunities for
U.S. agricultural producu and agribusiness and to support the transition to a market economy in
the FSU. Our intention was to achieve these objectives by introducing U.S. agricultural technology,
equipment, and business and market experience to people in the FSU, and by conducting
specialized training.

Sbon Counts: The Agribusiness Centers leveraged the information on technology, management
methods, market economic concepts, and the joint venture concept itself through a series of one-
week trainii^ sessions or short couraet. The participants in the training sessions were extension
economists from ISU, the University of Wisconsin, and other land grant institutions; market
economics specialistt from other economic organizations (eg., the Federal Reserve Bank of Kansas
City); and reprecentacives of agribusiness firms. These one-week training sessions were organized to
focus on a particular ^ricultural activity. InrliuiiH were:

• Crop production and irrigation

• Grain handling, processing, and storage

• Meat processing and livestock production

• Dairy processii^

183

Statement, S. R. Johnioa Pt«e }

Houia Subcomine* on Foraiga Aariculcure >nd Hunger March 31. 1993

• Food procatting and parkaging
Panidpaiu* -were Kcmited from througbout Russia and Ukraine. Five training aassions were held
in each location with approximately 1,100 participants. Evaluations prepared by the participants
in^^i^?tf^ that the training sessions were quite successful and that a major strength was the ability of
the Centers to demonstrate modem technology and management methods.

Tnsdk PpportMmtia: During the training exercises, we also arniimilarfH information from the
participants on their conunercial interests with U.S. firms. In particular, a database was generated
that provided information on the farming operations of the participants, the location and
organization of these activities, and special interests that they had in acquiring U.S. technologies
aad mawagi'nn ynt methods or, more generally, support for the economic reforms. Follow-up on
T}tKf trade and commercial leads was supplied by the Midwest Agribusiness Trade Research and
Information Center (MATRIQ and JB DEMOS. The latter is a joint venture between a nonprofit
corporation in Iowa (Corporation for International Trade), a Russian insurance enterprise, and the
Russian Academy of Agricultural Science. jfB DEMOS operates trade support and commercial
offices in Des Moines and Moscow.

In my view, the Agribusiness Centers represent a viable and productive way to assist with the
M-nnnmir reforms for agriculture in the FSU and to create trade and other commercial
opportunities for U.S. agribusiness firms. Such trade and commercial opportunities are especially
important for small- and medium-sized firms that do not have the resources or capacity to explore
market and other commercial akematives associated with the transition to a market economy in the
FSU.

The following U.S. firms were involved in our Agribusiness Centers project in 1992:

Pioneer Hi-Bred International, Des Moines, Iowa

Stine Seed Company, Adel, Iowa

Broyhill Company, Dakoa City, South Dakota

Monsanto, St. Louis, Missouri

Triple F, Urbandale, Iowa

Shiwers, Inc., Corydon, Iowa

Golden Valley Microwave Foods, Fdina, Minnesou

Fort Dodge Laboratories, Fort Dodge, Iowa

Sloch Supplies, Inc., Kansas Gty, Missouri

Hy Line International, West Des Moines, Iowa

Holstein Association, Brattleboro, Vermont

184

STATEMEKT, S. R. Jokosca ?«€« *

House SnbcomiKcc o" Pnr«»gn Anicnhure ""^ H..ny^ March 31. 1993

Paul Mueller Cotaptny, Springfield, MiMOuri

Babson Brodien, N^>crville, Illinois

Vogel Popcorn, Morral, Ohio

Quaker Oats, Chicago, Illinois

ICI Seeds, Oes Moines, lova

Kinze ManuiKtunng, Williamsburg. Iowa

Nature's Way, Ottawa, Kansas

Oswak Livestock Products, Ottawa, ELaosas

Nature's Bio, Ottawa, Kansas

American S07 Products, Fairfield, Iowa

Sudenga. George, Iowa
Generally these firms participated by providing technicians for the training sessions and/or
iwTAriaU for the Agribusiness Centers. In addition, three Iowa £armers spent a significant period of
time at the Agribusiness Centers ainriffting with the implementation of the U.S. tecbnologiet. Bruce
CampbeO and Wilfred Vittoe worked at the Agribusiness Center in Kakhovka, Ukraine, and Tom
Duim worked at the Center in Stavropol, Russia. Seven of the agribusineMes that participated in
the training and rdated activities associated with the Centers now have developed commercial
initiatives in the FSU, eg., joint ventures, in-country sales representatives, sales of equipment, etc

Recommendatiom

The experience of operating the Agribusiness Centers in 1992 and planning for the 1993 dtfort
has provided a basis for making the following recommendations for agricultural and food asiittinrr
to Russia and the other states of the FSU.

• Agribusineas Centers offer an opportunity for combining practical training with
demonstrations of advanced technologies and managcnvmr methods. Farmers and
agribusiness practitioners in aU nations are similar in that they learn most effectively from
working directly with new r/rhniqu/s. producu, and equipment. Resources for expanding
the number of Agribtisiness Centers and placing them on a on a multi-year funding basis
could effectively support the reform of agriculture in the FSU.

• Agribusineas Centers can complement the development of agricoltural extension and
training in Russia and the other New Independent States. Training at the Centers is most
efiiective when U.S. and FSU agricultural scientists are involved. This was our experience
in 1992. The involvement of FSU scientists encouraged cooperation with farmers and

185

STATEMENT, S. R. Johnson Pige 5

House Subcomittg^ on Foreign Agriculturt Mid Hunger Vfarcli 31. 1993

a^businesset and hAped oxir counterparts develop ideas on how agricultural science and
economic concepu on the functioning of market economics can be put into practice. In
short, the Agribusiness Centers can help to more fully engage the FSU scientific and
educational community in the transition and economic reforms.

• Alternative types of training are necessary to assist in the economic reform. Our
Agribustness Centers used one-week specialized short courses. A broader training program
reaching the agricultural technical schools and including intensive, longer term training of
practitioners would add to the effectiveness of the attisranrr. This could be followed up
with on-the-job forms of training or assistance. Concepts of private enterprise and markets
take time to comprehend and must be adapted to the ideal institutional and cultural
setting.

• The scope of the training at the Agribusiness Centers should be expanded. In 1992, we
concentrated on &rm production. But there are many, perh;^ more complicated,
problems in tiie processing and distribution system. Training and demonstrations in these
areas should be inrh«l<<d in the Agribusiness Centers.

• In the iarm input simply sector and in the food processing and diitribation there are
major problems with monopoly. The anrimonopoly policy that will likely develop for
Russia and the other states of the FSU will likely rely on disdpline firom iniemational
markets and new firms, not on the break up of large existing firms. Credit and loan
guarantee* could encourage entry into these monopoly markeu and at the s»me time give
the U.S. firms an edge in the new markets and commercial opportunities atsnriatcd with
the reforms in the FSU. These credit and loan guarantees should be nude available in such
a way that small- and medium-sized agribusinesses in the U.S. have access to them, not
just the multinational corporadons.

• Assistance with die design of policies for operating market economics and for
privatizadon is badly needed. Many of the problems with the reforms are due to ill-
defined or miigniH/iH policies and to uncertainty about the course of the policy and
institutional rtiangg« that will ah^>e the transition. Hif^-levd, continuous support of
analysis for policy and institutional change should be I'ndndfH in the T<yhnif«1 asai stance
effort. This support should be dosely linked with a program to improve the policy
analysis and educational capacities in the nujor scientific institutes and in agricultunl
univertities. An added benefit of this aspect of the policy aaiff^nre effort would be that it
could help the assodated institutions with their own transiiions and ■«««»«»'« diem as

186

STATSMENT. S. R. Johocon Page 6

Honie Subcomioee «" Pnneigp ^frimitar^ tad Hnnaer March 31. 1993

viable con^onenu of the agricultural aystein thnn^ a period of severe finanrial teres*.

• Many of the instmrnona neoeaaary for the efficient functioning of «"«*l'*«' synems are not
now in place in Rusaia and the other staua of the FSU. Market information tyatemt,
grading and standards, enforceable and futures contracta for maHcet stabalizadon and
consistent supplies of raw marfriah and oonunodities, wholesale marki** credit and
banking service and legal service are ocamples. There is a clear role for government in
fftaKliAing aod maintaining these institutions. Technical awisrance to government
miniscries and agencies and even finanrial s\9pon tor starting these institutions on a pilot
baaisis needed.

• Environmental problems associated with agriculture are critical in Rossia and in the other
states of the FSU. There is a maior opportunity to deal with environmcm and food safety
during the process of the reform. Analysis of environmental policies to accon^>any the
market reforms and atriiranrf with inq>lementation could contribute significantly to the
sustauiability of agriculture in the FSU and to the safety of the food supply.

• Added follow-up should better s«4>poft the commercial eSoits of the U.S. firms
partiriparing in the Agribusiness Centers. Knowlei^ of Russian and Ukrainian kw and
administrative procedures and atiisranff with the rules and oonoq>u uativl in »«r«ki;«ti;Hg
joint ventures are <acamples. Added preparatory work for the training scstions could make
participation by U.S. firms more e£Eective as weO.

• Finally, there appears to be a great deal of bureaucratic turf managemem associated with
U.S. assistance to the FSU. In many cases, this makes it nearly impossible for those
institutions that do not reside near the Bdtway to participate in providing the services for
the reform and in the reform itself, dear definition of technical asastaooe and other
support programs and assignment of ^—^^"'■^ responsibility in the federal boieancracy
could broaden U.S. participation in the reform e£fort and would improve the quality of
the support we provide.

The 1993 Program

Our Agribusiness Centers in Russia and Ukraine will respond to a number of these
leoommendaiions in 1993. Specifically, we wiU

• Coneenxraie more on food processing and distribution than in die initial yoar of
operation.

• Sroaden the training program to include more qrpes of praetitioiier programs, and to

187

Statement, S. R. Johnson Pi^e 7

House SubcomitMe on Foreign Agriculture and Hunger Mjirch 31. 1993

involve the agricultural technical schools.

• Work more dosely with counterparts from scientific and educational institutions in Russia
and Ukraine and in developing the training and demonstrations.

• Provide more follo'w^up for U.S. agribusiness firms that parcidpaie in the Agribusiness
Center^ involving as appropriate Russian and Ukrainian professionals.

• Add training on joint ventures and the legal and regulatory system in the New
Independent States, using our Agribusiness Center joint venture exi>erience as the
demonstration.

• Develop more specialized training courses and services for the new private farmers in
Russia and Ukraine.

We are confident that with the benefit of our experience in 1992 and the good advice we have
received from the agribusiness firms and educators that parddpated in our programs, the 1993
Agribusiiiess Centers can be more efieciive in supporting the reform of agriculture and the food
production and distribution systems in the FSU. In 1993 we also plan to explore the establishment
of an Agribusiness Center in Kazakhstan.

Background

My own background and experience in the FSU dates to 1985. 1 had been in Russia and the
other rqmblics previous to that time but mainly for conferences and other professional activities
not directly related to the economic policy and tochnical assistance. In 1987, Iowa State University
iniriar/H a sdentific and commercial exchange with the All Union Academy of Agricultural
Sciences. I negotiated the agreement and administered it from 1988 to 1992. Under the agreement
we have exchanged as many as eighty scieniists annually and have established productive working
relationships with about thirty research institutes in Russia and other states of the FSU. Several of
these research institutes are with economic institutes and the relationships and agreements with
these institutes are the basis for joint policy research efforts now onderway at the Center for
Agricultural and Rural Development (CARD). The research agreement has now been reaegotiaied
with the sq>arate agricultural ti^Ai^nit^ ia the Baltics and other states of the FSU. Our CARD
reseatdi program inHtidfs projects on food atn'itanrr, technical efficiency of production during the
refonm, trade, regional economic development and environment. CARD also operates a trrhniral
aiw'srance program in the FSU funded by USAID and an agribusiness exchange funded by the U.S.
Information Agency (USIA). The USIA exchange program has involved seventy-nine FSU and
seventy-five American pamcipants since 1991. The program has concentrated on farming and

188

Statement, S. R. Johaaoa Pace t

Hpute Subeamioee on Foreici AtricaJnire «ad Hungg March 31. WW

t. It luf restilud in about 40 pcnent of the paitiopano sorting ptivme bnoM, and
email about 84 pcrcem of the paradpants sumai privau emerpriaes of the lame type. The
USAID Fanner>To-Fanxier program is cooperativ* with ^t^nrock Intemationai and will send about
four hnadrad volunteer Tfrhniriam to the FSU over the next three yean.

189

This Josbph OoMrANTisa. Incorhumatbd
Or MINNKAPOL.IS (J.C.I.)

ORAIN KXCIIANOM ininj>IN(l
MINNKAI<OUi«. MINNRSOI'A MMIB

March 31, 1993

Public Ksarlng 1300 Longvorth House Office Building

Testimony by Burton M. Joseph at the United States Rouse of
Representatives Agricultural Sub-Comnittee on Foreign Agriculture and
Hunger.

The Joseph Companies Inc. of Minneapolis, directly or through
subsidiaries, has been involved in the connercial side of agriculture
within the former Soviet Union since 1963.

Some members of this committee might recall that in November of 1963 a
delegation of American grain executives, which I chaired, was invited to
meet in Canada with EXPORTKLEB (the Soviet grain export/import monopoly) ,
to discuss the lifting of the grain sales embargo ^fron .the United states
"to "the Sovi«t TJnion. My good friend from Minnesota, Secretary of
Agriculture, Orville Freeman, and I met with President Kennedy and the
President decided It was time to open trade between the two super powers.
Unfortunately, Kennedy's death in late November, 1963, delayed a decision
on these sales until the spring of 1964 when President Johnson decided to
go forward.

Since that opening, with the exception of the interruption during the
early part of the Afghanistan criels, the United States has participated
in the shipment of a substantial quantity of wheat, feed grains and
soybean meal to the Soviet Union. These quantities represent about 50%
of the total Soviet imports. On average, the Soviets have imported
between 30-40 million tons of wheat and coarse grains each year during the
last twelve to fifteen years. Their peak year was in 1984 when they
imported close to sixty million tons. (Please note these figures in the
attached schedule.) The Soviet domestic wheat and coarse grain production
during this same period has averaged between 180-200 million tons/year.

It is well )cnown that one of the tragedies of Soviet grain, oilseed and
potato production is that 20-25% of these crops in the field, ready for
harvest, never get to consumption. It's no coincidence that since 20% of
a 200 million tons field production is forty million tons, this crop loss
roughly matches the 30-35 million tons of Soviet grain imports over the
last several years. If we use a modest delivered price (in the trade, we
call this CIF: cost, insurance, freight) of 5100/ton, the Soviet Union,
and now the Former Soviet Union (F.S.U.), Is spending three and one half
to four billion dollars per year to "pay" for grain Imports. I use the
word "pay" in quotations since during the last twenty-four months the
Russians and many of the other Republics of the Former Soviet Union, using
USDA credit programs, have defaulted on their payment schedules, both
interest and principal; the Commodity Credit Corporation as well as the
European Common Mar)cet is now very wary of extending further credit.

190

The heart of the matter 1b not complicated. The Central Planning system
for agriculture and food, headquartered in Moscow, has, over the
generations of the communist era, literally directed each unit of
production in the Soviet food system where to go with the food of each
particular unit of the system, ordering how much tonnage or units to
deliver, what each unit's qpiota of production would be, when to ship and
most Importantly, at what price to sell. The Agriculture and Food Central
Planning Bureau in Moscow, at its peak, employed more than 400,000 people
to direct the food production and distribution system within the Soviet
system.

Is it any wonder, then, that so much of the grain, oilseeds and other
foodstuffs produced never received timely nor revenue meaningful
decisions. Consequently, the grain either rotted in the field or lacking
storage and transportation laid in bags alongside of the fields, and
produced a harvest of the fattest rats in the world, combining with
insects and birds gorging on the unprotected grain and with inclement
weather adding the final piece of loss to the unprotected total.

Current Russian presidential staff and leadership knows this and
desperately wants to privatize Russian farms so that the profit motive
prevails and that decisions will be made by -the cooperatives, ^:he
collectives and -the private farmers themselves to do what must be done to
protect and preserve grain and oilseed supplies.

The goal is simple t find a way to reduce harvest losses to save 30
million tons of lost grain; it then follows, no need to import 30 million
tons of grain and the final sequence, do not spend three billion dollars.
The waste and spoilage problems plaguing the F.S.u. 's existing
agricultural system are partly attributable to the use of large grain
storage facilities that are not well distributed throughout the
countryside and cannot be relocated to reflect changing needs. Moreover,
the collectives and private farms have no option at this time but to sell
and ship their grain to the government and receive in exchange prices that
are approximately 1/5 of the world market price. Economic survival for
the farmer at these disastrous prices is not possible.

How to save 30 million tons of grain and give the Russian farmer a chance
to survive? The answer: private storage at the farm level. Without
farm storage the farmer must ship to the huge distant state enterprise
silos. And, get paid 20% of the world fair price, or don't ship and waste
the 20-25% of the grain.

Let me say this again because this is a critical part of Russian rural
existence. If the Russian farm and farmer have an alternative method to
store its and his grain, the waste is negated, the prices received can
increase dramatically and the private farm under private land ownership
will become the critical, new important feature of the total Russian
economy .

In all of our travels throughout Russia, we've come to one conclusion:
without new and economic farm grain storage the Russian state farmer and
farm will never get a fair price for their product. with a new,
alternative choice for crop storage, the Russian farm and farmer can break

191

the pricing cycl* of grain and ollsaads sold by Cantral Planner* to atata
antarpriaa processing plants and silos.

Recognizing the desperate need for improvement in Russia's grain storage
cap{J»ilities, Congress Included language in the Freedom Support Act to
address this issue. Section 201 directly refers to the "storage" of
agricultural commodities as an activity for which the Preeident is
authorized to provide assisteince to the F.6.U. under the Act.
Furthermore, the conference Report speaks in specific detail to the type
of storage assistance that is appropriate. It states that, since the
development of permanent infrastructure will take many years and involve
significant cost, our government can provide portable storage facilities
until such time as the F.S.U. improves and rationalizes its storage
capabilities.

The goal is to privatize farms so that the burden of rural Russia to the
center is reduced dramatically and the center has a chance to survive. 40%
of Russia is rural. Privatization of rural Russia is a must. As of
December, 1992, only 2% of total farmland has been privatized. Only 6.5
million hectares - 160,000 farms - out of a grand total of 325 million
■Jiec tares have been privatized.

The average farm size today in Russia is 19,000 acres and employs 350
workers. These are average farms.

Private, joint venture storage relationships in rural Russia can be formed
with the help of this American government. We know that American private
enterprise is prepared to combine with Russian rural private enterprise
to kick-start Russian private rural agriculture.

We should not assume that our commitment to provide assistance to the
F.S.U. requires us to supply the latest and most expensive agricultural
technology. The F.S.U. needs simple solutions that allow it to deal
quickly and appropriately with Its most critical problems. In the
agricultural sector, one of the most pressing needs is low cost, versatile
grain storage capacity. If we ignore this simple need by providing or
financing the purchase of rigid, expensive conventional grain silos, we
will be wasting scarce foreign aid during a time when the American people
are especially concerned regarding our traditional aid programs.

The hearing of this Committee and the implementation of your policy
positions by the American federal bureaucracy are the essential elements
to grow private Russia rural agriculture and literally save the Russian
center from the tortures and pressures it is currently suffering from.

This is micro-help with small costs and most promising results. It should
be done.

(Attachment follows:)

192

0)
CO

"(3

c
«

"a
o

'io

<
I

1
tn

o
c

T3 is
0) o
O 3

E s

■a
c

Q.
X
V

§
JO

•s

o.
d

CD
M

e
.2

a
a
o

CO
(O

3 •

&«=

•- .2
"5 ^

10 ^

■5

o
u

(0 u

~ (0

2 5

« (0

9
at
10

w
O
>
10

: n

itt o
is M

M 01

•5 "

(0 0)

o »-

g'S
° e

3 J2
CO

193

Statement of

Dr. Craig L. Infanger

Resident Agricultural Policy Advisor

Russian Federation Ministry of Agriculture

to the Subcommittee on Foreign Agriculture and Hunger

U.S. House of Representatives!

March 31, 1993

Mr. Chairman and members of the Subcommittee, for the last five months 1
have been the Resident Agricultural Policy Advisor to the Russian Federation. I am
there as a direct response of the USDA to a request from the Russian Minister of
Agriculture, Victor N. Khiystun. The USDA Foreign Agricultural Service (FAS) and
Extension Service (ES) are the agencies providing the administrative support. Although
this advisory position is funded by USDA, all of the comments which follow are my
personal observations about the situation in Russia.

While there are dozens of western advisors in Russia, I think I am the only one
with a broadbased concern for market reform in agriculture and food policy. I would
want the Members to know I have been warmly welcomed by the by the Minister and
his immediate staff, treated with the utmost respect, and given every reason to feel
that my presence is beneficial. I am officed in the Ministry of Agriculture very near the
Minister and his top aides. In the past few weeks I have been able to establish a
pragmatic relationship with Minister Khiystun and his top aides. These are reform-
minded leaders dedicated to fundamental agricultural reform.

In large measure, I have discovered the importance and role of free markets
and private property in agriculture are well understood by the Minister and his closest

194

advisors. At the deputy minister and director levels there is, unfortunately, a less

thorough understanding of competitive markets and many times an instinctual
advocacy of government planning and control of production, marketing, and
processing decisions as w^ell as regulation of retail prices.

In working with Ministry and other Russian government officials I have been
both reactive and proactive in responding to questions, requests, and the major policy
issues. A substantial portion of my time is devoted to simply providing information,
comment, and modest analysis. Questions arise nearly every day about different
aspects of American agriculture, government involvement in agriculture, the basic
"mechanisms" of the free market system, and related topics. I try to address these
questions immediately with what resources I have available at the U.S. Embassy or in
my office.

I have been asked to prepare materials on several issues to help the Minister
and his closest advisors better understand the operation of western policy. These
issues have included the dairy marketing program, commodity phce and income
support programs, agricultural credit, and agricultural information systems. The
Russians have a particular interest in how much the U.S. government spends in
support of private farmers. I have also been monitoring the agrarian and land reform
situation, adult farmer education, and the agricultural credit situation.

195

The Ministry have also requested my assistance in their consultations with
foreign organizations. At times the Minister and his staff are overwhelmed by Foreign
delegations. I have been asked to meet with several groups, primarily for information
exchange. However, in the case of the World Bank Team the meetings evolved into
daily negotiations about the focus, conditions, and procedures for a major loan
program. I joined in the formal meetings with the Bank Te^m and assisted the staff in
developing responses to the Bank's proposals and negotiating the final details of the
loan program design which is underway at the moment.

I have considered it an essential part of my position to network with other
agencies and groups involved in agricultural projects in Russia. I've felt it imperative to
maintain an informal liaison with different USDA offices, including the FAS/Moscow,
the Agricultural Marketing Service (AMS), ES, and the farmer-to-farmer programs in
Russia. Immediately after my initial orientation I requested that farmer-to-farmer
volunteers, especially those under the Volunteers in Cooperative Overseas Assistance
(VOCA) and Agricultural Cooperative Development International (ACDI) programs
debrief at the Ministry. One meeting of all the private voluntary organizations (PVO)
and other Agency for International Development (AID) financed programs was held in
February. Since several organizations are just now getting' their offices established
and programs underway, more communication will be necessary in the future,
especially for those programs without strong resident management.

196

4
Mr. Chairman, my overall charge is to assist the Russian Federation with the

transition to a market-oriented agriculture. Timely, if not rapid, economic reform in

agriculture is one of the most challenging policy issues facing Russia. Agricultural

reform is the responsibility of no less than four organizations: The Ministry of

Agriculture, The Federal Center for Agro-Industrial and Land Reform; The State

Committee on Land Resources; and the Supreme Soviet. Unfortunately, these

organizations have widely differing views on the pace and nature of reform. On the

general issue of agrarian reform, there are two comprehensive policies being

implemented. On the one hand. Minister Victor N. Khlysturfi is the most outspoken

advocate of broad-based and rapid reform in agriculture, agribusiness, and land

privatization. However, Vice President Rutskoi also has ordered the implementation of

another, decidedly less market oriented, program of agrarian reform.

I have been concerned by the relatively small number of top government
officials who are supportive of an agriculture with private property, individual
management, and minimum government involvement in food prices and subsidies.
This is one reason why agrarian reform is proceeding in a fragile political environment.

The "farmer movement", as some Russians call it, has broad-based support at the

I
grass roots level. However, the lack of a agrarian policy consensus in Moscow is only

retarding the adjustment process.

197

Although economic reform of Russian agriculture has been underway since
1988, the pace will not appear satisfactory to most western observers. While private
farm numbers now total 214,000 and there are probably over 500,000 private farmers
in the Federation, these new farmers control only about 3% of the arable land. Of the
25,600 state and collective farms, almost 20,000 have re-registered into another
administrative form (partnerships with restricted responsibility, mixed partnerships,
cooperatives, associations of peasant farms, joint stock society, etc.). However, it is
difficult to conclude that these reorganizations are truly effective management reform.

This is not to say dramatic change has not occurred. GOSPLAN and the
mandatory commodity procurement system are history. Prices for most agricultural
commodities have been decontrolled as have prices for important agricultural inputs,
excepting agricultural credit. Some new marketing channels are developing as
privatization begins in agroprocessing.

But we should not always consider economic change to be economic reform
towards a more competitive free market agriculture. There are disconcerting signs that
some of the new enterprises are parastatal and exerting monopolistic controls on
marketing channels. This should be a primary concern when examining the pace and
direction of reform.

198

There are many obstacles to further economic reform in agriculture. In the

interest of brevity, let me mention two: private property rights and agricultural credit. It
seems to me that until you solve these two over-arching issues, the pace of further
reform will be very slow.

With respect to private property rights, Russia's new, farmers now have a
perpetual "use" rights to land but they cannot buy or sell farmland, cannot mortgage
land for long-term credit, and in some cases farmers are being sued for return of land
withdrawn from collective farms. Russia's legal structure of land and property rights
needs clarification if real agricultural productivity is to improve. It seems to me that
more rational property rights hold the key to improved efficiency in land use, post-
harvest commodity handling, and enterprise decisionmaking.

Agricultural credit is another critical element of system-wide reform. A comment
made by an ACDI volunteer is cautionary: "Americans must leave behind their
understanding of a banking system when attempting to comprehend the Russian
banking and command flow of funds." In short, agricultural: credit has been and still is
supplied to Russia's farms and agribusinesses on the basis of state budget
allocations. The government determines the interest rate. One large bank,
Rosagrobank and its 1000 branches, controls 80% of the credit flow. Although other
banks, including independent farmer banks, have been created the basic source of
credit is still government.

199

There has been no history of any credit discipline for state and collective farms

I
as well as agro-industrial enterpnses. The banking system is fragmented and not

adequately developed to properly administer the payment and credit needs of a

changing agriculture. Banking reform in general and agricultural credit reform in

particular could establish credit as a production input with a real price (the interest

rate) which is rationed to borrowers on the basis of price and risk. This type of reform

will be slow but unless it brings hard credit discipline, we should not expect serious

change in the behavior of large farms and agro-industrial enterprises.

Furthermore, if the Russian government and the International Monetary Fund
(IMF) come to an agreement on an economic stabilization JDoiicy which requires tighter
credit policy to dampen inflation, the resulting credit crunch will be felt immediately in
banks serving agriculture. The state and collective farms will feel the burden of tighter
credit policy but the private farmers will see their credit sources disappear since they
are often the least credit-worthy customers.

Reforming Russian agriculture is very different from ^he challenges which I have
encountered in Third World countries like Thailand and Barjigladesh. Among the new
Russian private farmers there are few traditional "peasants'", in any sense similar to that
of the peasant rice farmer of Asia. This is a highly capitalized agriculture with modern
technologies and operating on a very large scale. Within thSs framework, the state and
collective farms represent the social and economic fabric of rural Russia. There is a

200

70-year history of collectivization and state management toi overcome. And in the

current environment, policy signals from Moscow are ambiguous.

Mr. Chairman, we are now at a moment when the Ui.S. must examine its role in
the economic reform of Russian agriculture. From my perspective, if economic reform
of agriculture is a high priority goal, then U.S. assistance will have to be carefully
managed to support the reform-minded institutions and aimed at the critical constraints
on reform. Many of our opportunities to provide appropriate assistance will come with
local organizations, including many of the emerging farmer cooperatives. In any case,
we probably should not expect humanitarian aid to accomplish reform goals. But there
is a collective expertise and experience growing among the PVO groups and
government agencies which are on-the-ground in Russia now which should be tapped
to improve our assistance. One idea which seems feasible to me is a multi-party (i.e.,
U.S. government, PVO, and Russian government) temporary commission which could
help evaluate projects which address critical needs for private farmers.

As U.S. and other aid activity increases, a compelling need is emerging for
some coordination among aid programs in agriculture. For example, there are several
international organization becoming involved in farmer extension education. My
communications with them indicate some of them are not sharing information nor feel
inclined to cooperate in joint efforts. Similarly, I've encountered several different
organizations working on agricultural credit but at different levels and with different

201

9
organizations. A failure to at least talk to one another is a prescription for duplication

and inefficiency.

Mr. Chairman, I am serving in my current capacity at the Russian Ministry of
Agriculture while on leave from my position as Extension Professor of Agricultural
Economics in the College of Agriculture, University of Kentucky. At the university I am
involved in education and research on agricultural policy, natural resource economics,
and environmental quality. Before taking leave I was Vice Chair of the National Public
Policy Education Committee, an organization supported by Farm Foundation of
Chicago and representing policy educators from all 50 states.

In 1979-80 I was on-leave from UK to serve as public policy coordinator in the
Science and Education Administration-Extension Service. USDA. During 1980-81 I
served in the U.S. Senate as legislative aid for agriculture and natural resources to
Senator Wendell Ford.

I have had a long-standing professional interest in iriternational agricultural
development. During the last twenty years I have worked on both a short-term and a
long-term basis in Asia. This included two years on the technical assistance team to
the $7 million Northeast Rainfed Agricultural Development Project in Thailand. I served
as economist and an advisor to the Departments of Economics, Cooperative
Development, and Fisheries in the Thai Ministry of Agriculture. More recently I worked

202

10
as consultant on the AID-funded fertilizer marketing privatization in Bangladesh. I was

Team Leader for the mid-term evaluation and later Team Leader for an import

feasibility study. However, very little of this experience prepared me for the experience

of assisting economic reform of agriculture in a command-style economy the size of

Russia.

Mr. Chairman, this concludes my prepared comments. I would be happy to
answer any of your questions. :

CURRENT AGRICULTURAL SITUATION IN

RUSSIA

THURSDAY, APRIL 1, 1993

House of Representatives,
Subcommittee on Foreign Agriculture and Hunger,

Committee on Agriculture,

Washington, DC.

The subcommittee met, pursuant to recess, at 9:30 a.m., in room
1302, Longworth House Office Building, Hon. Timothy J. Penny
(chairman of the subcommittee) presiding.

Present: Representatives Barlow, McKinney, Baesler, Thurman,
Pomeroy, Allard, and Lewis.

Also present: Representative Pat Roberts, ranking minority
member of the committee.

Staff present: Gary R. Mitchell, minority staff director; William
E. O'Connor, Jr., minority policy coordinator; John E. Hogan, mi-
nority counsel; Glenda L. Temple, clerk; Jane Shey, Anita R.
Brown, James A. Davis, and Lynn Gallagher.

OPENING STATEMENT OF HON. TIMOTHY J. PENNY, A REP-
RESENTATIVE IN CONGRESS FROM THE STATE OF MIN-
NESOTA

Mr. Penny. The committee will come to order.

Today is the third and final day of hearings on the Russian agri-
cultural situation. We've heard extensive testimony over the last 2
days from United States Government agencies who are involved in
some aspect of assistance to Russia and the other Republics. We've
also heard from private groups and voluntary groups that have pro-
grams on the ground in the former Soviet Union.

Today we'll continue our testimony with experts in Russian and
Soviet history. We'll also hear from those who are involved in inter-
national trade issues generally, and we start with the first panel:
Dr. Don Van Atta, research associate, East- West Center, Duke Uni-
versity; and Dr. Stephen Wegren, assistant professor, political
science department, Southern Methodist University. We've asked
them both to come forward and to present their testimony in the
order that they were introduced.

Your written remarks will be included in the committee record.
We would ask that you please summarize your presentation as best
you can. Welcome to the subcommittee.

(203)

204

STATEMENT OF DON VAN ATTA, RESEARCH ASSOCIATE, CEN-
TER ON EAST-WEST TRADE, INVESTMENT AND COMMUNICA-
TIONS, DUKE UNIVERSITY, DURHAM, NC

Mr. Van Atta. My name is Don Van Atta. I am, as you said, a
research associate at Duke University. Let me begin by saying a
little bit about my background, since I think some of the things
that you've done in the last couple of days may make this relevant.

I'm a political scientist who's been studying Soviet and now Rus-
sian agrarian policy for most of the last 20 years. At the moment,
while working at Duke, I also have a grant from the National
Council for Soviet and East European Research to study land and
agrarian reform in Russia. I'm doing that over a 2-year period as
a participant/observer. Because I happen to know the guy that's
the president of the organization, I'm doing it principally at the in-
vitation of the Association of Peasant Farms and Agricultural Co-
operatives of Russia, AKKOR. I'm also working with the Agrarian
Institute and some folks in the Ministry.

In the last 9 months, I've spent about 3 months in Russia, and
I will be spending the entire summer and a good chunk of next
year there as well doing whatever I can to figure out what's going
on on the ground, as it is very useful to have somebody studying
policymaking £ind change as it's happening.

As a political scientist, I have a somewhat, I think, different take
on most of these issues, and the one-line summary of the testimony
I'd like to give you is basically that this is not an issue of econom-
ics, it's £in issue of politics. Indeed, it is "the" issue of Russian poli-
tics. The events of the last couple of weeks are in fact generated
by the question of land ownership and a change in the Russian con-
stitution to allow land ownership, and the reason why everybody
is fighting so hard is because, ultimately, that question is at the
root of the issue of who is going to run Russia, who holds power,
and, of course, who benefits from that power.

So the first thing to know about the issues you are dealing with
is that the collective farm system, Russian agriculture in general,
although it looks like and is, of course, concerned with an economic
activity, is ultimately about political power. The justification for it
is cast in economic terms, but the system was designed and oper-
ated to enforce central political power over the peasantry over the
countryside. Indeed, it was effectively a conquest of the countryside
in the first place.

There are several consequences or conclusions, if you will, that
follow from that basic fact, and in the prepared statement I gave
you, I simply summarized those at the beginning. Let me run
through them quickly now.

First of all, since the system is about power, and since in fact the
collective farm system is the bedrock on which this whole Stalinist
economic system was built, if you're going to change things, if
you're going to create a market economy, you must chainge Russian
agriculture. Agrarian reform means a great deal more than just
doing technical things differently. It means not only changing the
entire environment of agriculture upstream and downstream, it
also means fundamentally changing relationships within the farms.
That has to be done in order for there to be any kind of substantial

205

reform. Land ownership and agrarian reform is the central pohtical
issue because the Russians understand that extraordinarily well.

A second, £ind unfortunate, consequence of that is that there's
relatively little political constituency for reform. The collective and
state farms as they've been organized for the last 50 years are won-
derful welfare institutions. The/re what the sociologist Erving
Goffman once called total institutions. His examples in other con-
texts are prisons and military units — that is to say, places where
you work, play, and your life is determined by somebody else's
schedule. In 50 years many, many people have gotten very used to
that, just as long-serving prisoners or anybody who spends a long
time in any environment gets used to the rules and regulations and
learns how to get around the things they don't like.

That means that a great many people in the countryside — and
I base this on interviews as well as a kind of sense of the system —
have no interest in any kind of agrarian reform. Why should they?
Why should they take risks when the state pays their salary based
on getting a loan from the bank that they know will be written off?
It's perfectly rational for the folks in the countryside to act as they
do, and that means that at the local level there's very little con-
stituency for agrarian reform.

At the same time, at the top level, the system of agricultural
management was not designed to do the sorts of things that USDA
does. It was designed to tell farmers when to plant and when to
reap. Since this entire operation was designed to coerce the peas-
antry and control them, it follows that agricultural management in
Russia is about political control, and, therefore, there is no con-
stituency at the top either for reform, with the exception of Min-
ister Khlystun, who indeed in his own Ministry is isolated, who has
deputy ministers whom he did not appoint and basically cannot get
rid of, and who is now basically a lameduck. At the same time, he's
locked in a confrontation with Vice President Rutskoi, who has a
number of interesting, very wrong-headed notions about how to re-
form things, starting with a monopoly land bank that would have
the right to give all agricultural mortgages, sell all land, lay all
taxes, and issue all titles. Please note that as a child of farm chil-
dren, I don't like monopoly banks.

So there is a major political controversy at the top. The good
news is it probably doesn't matter. The system is broken down to
the extent that what goes on inside Moscow probably doesn't make
any difference for the rest of the country. Things are working on
inertia, and, indeed, the land reform that was begun a couple of
years ago is succeeding and generating much of the pressure that
we have seen in the last couple of weeks.

Thank you very much.

[The prepared statement of Mr. Van Atta appears at the conclu-
sion of the hearing.]

Mr. Penny. Thank you very much.

Dr. Wegren.

206

STATEMENT OF STEPHEN K. WEGREN, ASSISTANT PROFES-
SOR, DEPARTMENT OF POLITICAL SCIENCE, SOUTHERN
METHODIST UNIVERSITY, DALLAS, TX

Mr. Wegren. Thank you. I would like to first thank you for the
opportunity to speak before you. I also am a political scientist, gind
I share much of what Don has to say, but I take a little bit dif-
ferent view as well. I presently am holding a post-doctoral fellow-
ship from the Social Science Research Council, which allows me to
travel to Russia two or three times a year, and I, as opposed to
doing work in Moscow, go out in the Provinces and see what's going
on, talking to people on the farm and also in the land reform com-
mittees there.

I would like to start by saying, first of all, the goals of reform,
as I see them, were twofold. Agrarian reform fundamentally was
designed to create a stratum of strong peasant farmers, peasant
farmers who would differentiate themselves for the first time from
others, peasants who enriched themselves. This is based on private
property, a multiplicity of ownership, and the goal was to get more
food in the stores, better selection, and better quality. That was
goal one.

The second goal was to address the subsidy issue. As late as
1990, agricultural subsidies were taking up to 20 percent of the
yearly budget. So enormous subsidies were being devoted to agri-
culture, and, of course, that means that there's less money for
other things.

So those are the goals of agriculture. What I see when I go out
in the countryside is a basic strain of egalitarianism continuing. In
the paper that I presented to you, I say that there are three main
reasons for this continued egalitarianism. In other words, you're
not getting the differentiation, you're not getting the stratum of
strong peasant farmers that the reform had intended.

Why are you getting this continued egalitarianism? The first rea-
son is a consequence of price liberalization. After Yeltsin liberalized
prices, you had enormous disparity. The terms of trade turned
against agriculture so that inputs — fertilizer and machinery — went
up a factor of maybe 40 times or more, and procurement prices
maybe went up only a factor of 10. So you had an enormous price
disparity.

Yeltsin started off on the right foot, trying at least to initiate dif-
ferentiation in the countryside, but this enormous price disparity
started to impoverish the agricultural sector just like it has the
Russian consumer, and so very early on, literally within 6 months
of his December 1991 decrees, in my view, he abandoned his dif-
ferentiation and started giving blanket subsidies, zonal prices,
making credit available to anyone irrespective of ability to farm,
and so forth.

So the first reason for basic egalitarianism is the consequence of
price liberalization and this urban-rural disparity that arose. The
second is a political reason, and that is you look at the way the in-
stitutions are defined, and you find that the institutions are de-
fined so that egalitarianism will continue. What do I mean by this?
I mean you have norms so that everyone, if they leave the farm,
gets the same amount of land. You can be a pensioner, 65 years
old, or you can be 25 years old and strong as an ox, and you all

207

get the same amount of land. I've interviewed vice presidents of
agrobanks, and they tell me anyone who isn't drunk for their inter-
view can get a loan. In other words, loans are not based on how
productive you will be or what you're going to grow, but rather if
you don't show up drunk for your interview.

Furthermore, I would say that you have in the countryside the
rural Soviets are the ones giving out the land, they have a disposi-
tion to meike sure everyone is basically equal, and so the land sizes
tend to be very small, and you don't get much differentiation ac-
cording to ability once again.

The third reason for egalitarianism is that you have a basic con-
tinued rural conservatism, and here I agree very much with Dr.
Van Atta, that essentially rural people have no interest in
privatizing. They^re opposed to the purchase and sale of land. Why?
Because they know the Soviet system. The Soviet system is based
on connections, it's based on influence. Those who have connections
are going to grab up the best land, they're going to grab the ma-
chinery, they're going to bid up the price of land so that peasants,
the average Ivan Ivanoff, will never be able to buy land, will never
be able to buy machinery, because they don't have the connections.

So, in sum, what is the effect of this egalitarianism? It means
that you're not getting the stratum of strong peasant farmers that
you should. In fact, Rutskoi was quoted in mid- 1992 as saying, "Of
the 150,000 peasant farms in existence, 3,000 are producing above
subsistence levels." So only 3,000 out of 150,000 were producing
more than what they consumed themselves. So you're not getting
the stratum of strong farmers.

What does this mean? It means that Russia, in my view, ^yill
continue to remain an importer of food, because they're not getting
the surpluses of food that would solve the food problem.

Thank you.

[The prepared statement of Mr. Wegren appears at the conclu-
sion of the hearing.]

Mr. Penny. How would you assess Yeltsin's commitment to land
reform, and given the political situation in Russia, does it really
matter what his commitment might be?

Mr. Van Atta. Clearly, Minister Khlystun, whose background is,
first of all, as a person who wrote a dissertation about the Stolj^jin
reforms before the revolution, and then as head of a surveying
school, not a professional agricultural bureaucrat, is in the Min-
istry of Agriculture at the pleasure of the president. Were Yeltsin
not committed to the agrarian reform which began even before the
Soviet Union broke up, there would be no agrarian reform, and at
the point at which Yeltsin goes away. Minister Khlystun will go
away. His successor will almost certainly be a man named
Shcherbak, who is the First Vice Minister of Agriculture.

Mr. Penny. I've met Shcherbak.

Mr. Van Atta. I have not met Shcherbak, but based on what he
says, I doubt he will be very committed to land reform. I'd be inter-
ested to know what you think on that score.

Mr. Penny. He didn't impress me as a creative thinker.

Mr. Van Atta. He's a professional bureaucrat. He was actually
appointed before Khlystun got the ministry, which is an mterestmg
point also. It seems to me that in that sense, Yeltsin is committed,

208

the Minister stays. Rutskoi talks about being committed to land re-
form, and his Federal center is supposed to push land reform, but
the people in it are a very close political alliance with the agrarian
deputies in the Parliament, which is ultimately probably the most
reactionary Parliamentary faction, because their power is based not
on land reform, but on maintaining the existing system.

So you have an interesting political controversy in which Rutskoi
talks a great deal about reform and complains about the existing
reform, yet his notion of reform is to take arms and sell them
abroad and use that money to create ready-market farms. He said
in a meeting in October, which I happened to read a transcript of,
"There has been no reform, because reform should increase produc-
tivity. Productivity hasn't increased; therefore, the land reform has
failed. How do you plan reform? Here is a document by province.
Here are what they can produce given the resources, here are what
they are producing, here are the resources they need. Let us get
them the resources. Let us let the large farms produce."

Mr. Penny. So basically to use the proceeds from foreign arms
sales to provide resources or equipment to those regions that are
now underproducing?

Mr. Van Atta. Right, and to set up individual farms on it, which
he would build according to a standard model and then lease to de-
mobilized military officers who would pay for them over 20 years.
He recently gave a speech to AKKOR in which he said, "We have
to support the collective farms and the state farms, because who
feeds us?" And the private farmers in the audience yelled back,
"The United States." That was not the rhetorical answer he was
looking for, of course. His answer is the kolkhoz and sovkhoz, even
though he knows they're inadequate to feed them; therefore, they
must be supported. He winds up, therefore, on the political line
that was common to Yegor Ligachev and many others that we sim-
ply must give more resources to the big farms.

Mr. Penny. How do you describe the market system in Russia
now in terms of food and the pricing of that food?

Mr. Wegren. Well, on the one hand, starting in 1993, you're sup-
posed to have the abolition of state orders. That is to say, farms
no longer have to turn over a set amount of their produce. They're
going to a contract system. You had a contract system in 1992, but
the problem was that the farms simply didn't fill their contracts.
They simply didn't until very late in the harvest season, when the
state doubled the price of grain, and then suddenly they were quite
anxious to fill them.

But that's at the wholesale level. At the retail level what you're
seeing as of late fall last year, you started to have localities insti-
tuting their own price controls on food so that you had the local
governments telling, first, the procurement agencies what percent-
age they could mark up the price when they sell to the retail
stores, and then you had the local governments telling the retail
stores how much they could mark up the food to the consumers. So
in that sense, even though prices have gone up dramatically, you
don't have a completely free market price simply because the local
governments are trying to continue to protect the consumers.

Mr. Penny. How much of produce is moving outside of

Mr. Wegren. Through the commodity exchanges, for instance?

209

Mr. Penny. Through those.

Mr. Wegren. An extremely small percentage. I don't know ex-
actly. I know it's less than 2 percent and may even be less than
1 percent of the grain last year, but extraordinarily small amounts.
It could be more this year, because last year you still had obliga-
tory deliveries. They were ignored. This year you're not supposed
to have obligatory deliveries, so I would assume maybe up to 5 per-
cent.

But I think Don is exactly right when he talks about you have
to look at the controls that the state and collective farms still have
over the process. The point is they will go to the farmer and say,
"Look, you're free to sell your grain wherever you want to; however,
if you don't sign this contract, maybe we don't have enough fuel for
you. Maybe suddenly there will be a shortage of fertilizer." So there
is still an element of coercion there.

Mr. Penny. How do the independent farmers fit into all of this?
Are they still under some obligation to sell primarily to the state
because they also receive, either through the Peasants' Union or
AKKOR or some other entity, support for inputs?

Mr. Van Atta. First of all, the Peasants' Union is the creature
of the most conservative portion of the kolkhoz and sovkhoz elite,
which is why the former chairman of that organization is a man
named Vasilii Starodubtsev. I think some of you may have visited
his farm, but in any case, he's more famous recently because he
was a member of the coup committee. So the Peasants' Union dis-
tributes resources to the big farms, but won't give the time of day
to the real peasants, even though, given their name, we Americans
think they might.

AKKOR is in charge of distributing the Government subsidy. It
operates as a parastatal organization on the model of the American
Farm Bureau of long ago to represent farmers' interests, and it dis-
tributes the Government subsidies, which, in the absence of a cred-
it system, are the only way a private farmer can get financed or
get resources. The banks are simply clearinghouses for accounting
money, and all they do is move numbers from one account to an-
other. Contrary to what Steve might have implied, they're not real
commercial banks, in our sense. Getting a loan doesn't mean get-
ting a loan. It means getting your share of the state credit.

In any case, the private farmers were intended by those who de-
signed the land reform to provide competition for the big farms. No
serious Russian agriculturalists think that there should be or will
be immediate and complete farmerization, the creation of little
farms out of the big ones. It's not going to happen. The only people
who say it will are people who are opposed to any change at all
in the countryside.

The individual farmers— there are now about 200,000 of them—
are constrained because the design for breaking up the farms relied
both on being voluntary and on giving everybody an equal share
and then allowing them to trade or sell the shares. So when farm-
ers begin, they, of course, do not get market-sized parcels of land
or amounts of equipment. Since a land market is illegal, since you
cannot in fact under the Russian Constitution trade your share, it
turns out that all the individual farmers wind up with little, mini
farms which are, by definition, not profitable. Then the opponents

210

of reform argue that, "Well, see, these guys aren't producing mar-
ket amoiuits of stuff; therefore, this reform has failed."

In fact, probably about 5 percent of grain last year was produced
by individual farmers. Nobody's quite sure. There are several inter-
esting things about the taxes that caused farmers, perhaps even
more than American farmers, to underreport their production. The
numbers are not good, but that's the best guess.

Mr. Penny. Mr. Allard.

Mr. Allard. Thank you, Mr. Chairman.

I'm looking at the second release here that's quoting — yesterday
there was a release, and then today there was a release that was
quoting officials from the Clinton administration on what they
were thinking about for aid for the Soviet Union, and I notice, Mr.
Chairman, that at least in today's release they're beginning to talk
a little bit about modernizing farms and talking about a transpor-
tation and distribution system that gets products from the farm to
the cities, which is some of the discussion we had today.

But one of the things that showed up in both of the releases was
they were going to target some of that money on building housing
for Russian soldiers, and I'm trying to figure out why that need
would be there. Can either one of you shed some light on why that
might need to be there?

Mr. Van Atta. Well, there are two answers to that. First, you
must understand that the Russian housing stock has suffered be-
cause they have undergone urbanization of the sort we underwent
between about 1850 and the present in about 50 years. So there's
enormous pressure on the cities, and their system of distribution,
which gives favor to the cities in everythmg, increases that tend-
ency for everyone possible to move out of the countryside to the
city.

A second reason, of course, is World War II, which destroyed
much of their housing stock. A third reason is they simply build
very slowly and very inefficiently, which has resulted from the sys-
tem of allocating investment, in which the trick is, excuse me, ]ike
an appropriations bill — if you can get the money to begin a project
this year, then next year you can say, "Well, see, I have the foun-
dation, so give me some more." So you wind up with Russian cities
that are surrounded by building sites, but those building sites had
been building for the last 15 or. 20 years.

The reason why the army is particularly important is because
the Russian army has no lifetime noncommissioned officers. All the
functions that are done by NCO's in the American Army are done
by military officers in the Russian army. It's a conscript army of
2-year terms for everyone, and then a huge officer corps. That offi-
cer corps has gotten enormous privilege over the years as the de-
fenders of the homeland, and they all joined because they all as-
sumed that aft;er years of serving in Magadan or somewhere else
unpleasant, they would eventually all become colonels or generals,
they would get privileges, and they would get to live in the center.
Bringing Russian troops home to an overcrowded city when these
guys expect to live in good conditions, therefore, creates more pres-
sure on the housing stock and creates a very disgruntled officer
corps.

211

The officer corps now is to the point where Pavel Grachov, the
Minister of Defense, is condemned by the All-Russian Officers As-
sembly, which is an organization that managed to turn out 20,000
representatives 2 weeks ago, as a traitor to his country. The De-
fense Minister said, "You cannot have this meeting," and they met
an3rway, and they declared him a traitor. This is his own officer
corps. So there is a certain incentive for the United States and for
Mr. Yeltsin in doing something to keep these officers happy.

It is, if I might add, our best guess at one of the real reasons
Mr. Khrushchev was overthrown long ago, that he attempted to cut
his military substantially, and the demobilized officers at that time
became a large part of the political base for the movement to re-
move him. Yeltsin knows that history.

Mr. Allard. Do you believe that we have a chance of getting
some of these military people to think in terms of free enterprise
and going into business for themselves, which is the main focus of
what we're talking about in this committee about getting some help
to some individuals who want to advance the idea of a free market-
place, who begin to train and to work in a free marketplace? Would
the soldiers be individuals that we would have some hope in get-
ting to move into a free marketplace and maintain some apprecia-
tion for what that can do for them?

Mr. Van Atta, You could read this either way, sir. On the one
hand, military officers tend to know how to get things done. Many
of them are very bright and will, in principle, make good entre-
preneurs. Some of the military officers that I know who have be-
come farmers are very good at it. On the other hand, because they
are military officers and because, like all Soviets, they have no no-
tion of what a market is or how it works, you can expect that the
mindset they have is likely to be very unmarketlike. After all, it's
hard to imagine a less market entrepreneurial organization than a
military structure in any country. So you can read it either way.

The real problem is not perhaps the officers, it's the military in-
dustrial complex that stands behind them. Rutskoi and the Federal
center are closely connected to the Russian military industrial com-
plex. They are in a sense attempting to convert defense resources
to agricultural use. Whether that will be more than simply ulti-
mately a way of laundering money back to certain defense industry
interests is not at all clear.

Mr. Allard. Thank you for your frank comments. You know,
we've had a lot of discussion from previous panels on this concept
of private ownership and clear title to land and something to do
with the commercial code. Do you have any suggestions on how we,
as outsiders, may be able to further that concept along in Russia?

Mr. Van Atta. It is not the commercial code. It is the constitu-
tion of the Russian Federation which forbids the resale of agricul-
tural land used for agricultural production. It simply is unconstitu-
tional. There's an "ukaz" of Yeltsin's that allows land sales, but
whether ukazy— Presidential decrees— are higher than the con-
stitution is not at all clear to anybody. They have to decide whether
or not they want to amend their constitution to allow land sales.

The referendum issue began in November when Democratic Rus-
sia, basically the left wing, if you will, the Yeltsin supporter types,
collected a million signatures to put a referendum on the issue be-

212

fore the Russian people. That began the referendum debate, the
outcome of which we have recently seen with plans for both a par-
liamentary referendum and Yeltsin's referendum and perhaps the
fall of Mr. Yeltsin. At that level they have to decide, and probably
until they decide that political issue, we cannot do very much to
affect their choices. It's a central political issue that they have to
hash out themselves.

[Additional information follows:]

213

There are two issues I would like to address in response. First, in answer to the
question |X)sed, peasant farmers in 1992 were obliged to sell a part of their produce to the
state just like state and collective farms. The percentage to be sold to the state was not to
exceed 25 percent of a peasant farmer's output. The terms were to be contracted at
prevailing market prices. The reality was quite different, as prices continued to be dictated
by procurement agencies, and that is exactly why peasant farms joined state and collective
farms in not fulfilling their contracts.

Second, we should note that there is both a system for credits and one for loans that
peasant farmers may obtain. Dr. Van Atta described the process by which AKKOR
guarantees repayment of state credits, in which case a bank is a clearinghouse. The peasant
can easily obtain state credits with this guarantee. The market interest rate was 80 percent,
but a farmer with a guarantee would pay only 8 percent. This system was largely
theoretical, and in fact few such credits found their way to peasant farmers.

The other system was for loans and was the one I was talking about. Here, the farmer
does not have a guarantee from AKKOR, and he simply must apply for a loan at the market
rate from either a commercial or agro-bank. Even in this process the repayment criteria are
rather lax. Precisely because state subsidizied credits did not reach peasant farmers, they
had to turn to non-subsidized loans to obtain livestock, equipment, or other inputs. It was
this problem that forced so many peasant farmers to quit their operations, or to operate
without needed supplies. Regardless of whether a farmer obtained a loan or state credits, it
was to be repaid and was considered debt.

214

Mr, Allard. So even though they talk as though the land is
theirs, in reality it is not and the constitution prohibits that?

Mr. Van Atta. Basically, yes. There are three forms of propri-
etorship allowed: Leasing, heritable tenure, and

Mr. Allard. What was the second one? I missed that one.

Mr. Van Atta. Heritable tenure.

Mr. Allard. Inherited tenure?

Mr. Van Atta. Inheritable tenure is usufruct. You get the right
to the land, but you don't own it, but your heirs can inherit it just
as though it were yours. The third form is full private property.
Full private property is still forbidden.

Mr. Allard. It sounds to me like they were talking about inher-
itable tenure before this committee in a lot of the discussion. Go
ahead. Thank you.

Mr. Wegren. I was going to say I think we need to make a dis-
tinction. There is such a thing as private property. I mean, you can
go through the process, and you can receive a deed that gives you
the right to that land, but what you can't do is you can't turn
around and sell it. You can't sit on it and wait for it to appreciate,
and then turn around and sell it and make a profit. So you can
have private property, but Don's exactly right, there is no land
market per se.

Mr. Van Atta. Even private property, as I read the constitution,
is not clear, and they are giving people documents that say, "This
is your land title," but the constitution still says nobody except the
state can hold title to agricultural land. So who do you believe?

[Additional information follows:]

215

The present constitution is not the most relevant document to consult on the question of
land ownerhship. It was adopted in 1977 under Brezhnev, when the Soviet Union was
communist, so of course it has no provision for private ownership of land. The constitution
since then has had over 300 amendments, leaving it both contradictory and inconsistent.
Neither the Russian Congress nor the President consider the present Constitution
satisfactory. On the other hand, every significant piece of land legislation since late 1990
includes a clause about the legality and desirability of private property. For the past three
years, the official governmental policy has been to favor the existence of private property
and to facilitate the existence of a "multiplicity" of land ownership in the countryside,
including both private and collective ownership.

216

Mr. Allard. Thank you. I think your comments have been en-
hghtening on both subjects.

Mr. PE>rNfY. There's the old sajdng in Russia, **We pretend to
work, and they pretend to pay us." The version in terms of land
policy is "They pretend to give us the land, £ind we pretend to own
it." So nothing has really changed.

Mr. Van Atta. They have been attempting to privatize or to
change incentives ever since the system was founded, and every
time they attempt to change incentives, you get reports back from
the local area that say, "We have 100 percent of the new system
in place," and you go out and look 5 years later and it turns out
nothing has changed. Rutskoi's people are in fact very afraid of
land reform because they argue that what's going on is nothing
more than another case of this, and in 5 years it will just be an-
other com campaign. Everybody will report they were growing com
successfully in the Arctic Circle, but we know they're not. This is
the governmental problem. There's no way to get policy imple-
mented except to tell everybody to do it.

I interviewed a kolkhoz chairman recently who came to Duke,
who said, "We were called together and told Tou have a month to
reorganize your farm. Everybody in the district will do it. Go out
there and do it, guys.'" That's the standard policy implementation
method, and it, of course, leads to very good reports, but very little
real change, and it makes people enormously cynical about what
the state and the authorities that run their lives can or will do for
them.

Mr. Penny. Mr. Pomeroy.

Mr. Pomeroy. This has been the most profoundly depressing
panel I've ever heard. [Laughter.]

Yet very insightful, and I appreciate your testimony this morn-
ing. I am a real novice not just to Congress, but also to the nuances
of Russian agrarian policy.

Dr. Wegren, you mentioned something that intrigued me about
the new commodity exchange effort. Perhaps, it would seem to me,
agrarian reform might be advanced through market structures that
ultimately push back to the land itself more efficient means of pro-
duction. Can you assess whether the commodity exchange initiative
might somehow have that effect?

Mr. Wegren. Essentially, overall in agrarian reform I tend to be
a pessimist, but there is one shining light of perhaps a small ray
of optimism, and that is these commodity exchanges, because, in
my opinion, at least, that's the one area where you have true mar-
ket forces at work. Essentially, you have market prices. A farmer
can sell his produce, whatever it may be, for decent prices. I'm
writing an article now on this issue. I haven't fully completed my
research, but from what I can tell, there's very little state regula-
tion of these commodity exchanges compared to Latin America or
Africa or some of these other areas.

So it seems that we do have true market forces at work and that
this will in fact provide — I agree with you completely that this will
really provide incentives for farmers to grow more, knowing that
they can get a fair price for it without being told what to do, how
to do it, when to do it, and so on and so forth. So I think to the

217

degree that there is a cause for optimism, it is these commodity ex-
changes.

I personally think that we'll see a gradual but steady increase in
the percentage of marketings that are channeled through commod-
ity exchanges, because, once again, you go back to the rational
peasant. You're forced to sign a contract with the state, the prices
have been raised once again, and the/re pretty decent prices, but,
again, if you can get a higher price through the commodity ex-
change, well, why not? Why not? I mean, once again, the center is
weak and the coercion to make you sign a contract is no longer
there. They simply can't go in and take the grain like they did dur-
ing Stalin. So now farmers are given a true choice of what to do
with their produce, and I think they will opt for whatever terms
are most advantageous for them.

Mr. POMEROY. Dr. Van Atta, you have perhaps even been more
pessimistic this morning. Do you have a comment on the commod-
ity exchange as maybe a glimmer of hope?

Mr. Van Atta. I'm pessimistic, sir, because I study politics, and
politics, unfortunately, is like the three laws of thermodynamics:
You can't win, you can't break even, and you can't get out of the
game. But I think the fact is that one should not be pessimistic.
The designers of the Russian agrarian reform are very bright and
know what they're doing. The agrarian reform is working in the
sense that those institutions were changed in 1990, and those
changes are beginning to work in the countryside, which is why
you have the enormous political fights you do. In a sense, if there
weren't a political fight going on, I would be much more pessimis-
tic.

In the short run, I don't think things are going to look bright,
but in the long run, simply because the Russians don't have the re-
sources to continue the old system, something will chsinge, and the
change is going to almost certainly be in the direction of a more
productive, privatized kind of agriculture. The reason why the fight
is so intense right now is because everybody on the other side real-
izes that if things aren't changed very shortly, it will be too late.

The land reform mechanisms are beginning to operate. They
were designed to operate in areas that were not very productive.
The idea was, '*We'll take the land that nobody wants and give it
away, but we'll keep the system and, therefore, improve it around
the edges," just as the Chinese reform was designed to do. And just
as in China, there are beginning to be major demands for reform
not on the unproductive farms, but on the productive ones.

In the Russian Iowa, Krasnodar Province, people are saying, "We
want our land," and the farm managers and the local authorities
are saying, 'Tou can't have it. This is about power, and we're not
giving you any land." In fact, the provincial and district authorities
in Krasnodar are now taking the land back from all the private
farmers who have started operations since the land reform began
in 1990. This is, in the short run, very pessimistic, indeed, a
human tragedy, but in the longer run it's a sign that things are
changing, and I think they will indeed work to the best.

The commodity exchanges have to be supported just as the pri-
vate farmers do, and in the long run they will function. Moscow
streets now are full of kiosks, and state stores are empty. The rea-

218

son is the state stores haven't been privatized. But there is a pri-
vate trade network growing up, and it is cheap and it is diri;y £ind
it is a rip off and it is run by the criminals, but it is also the begin-
nings of a market economy. Unfort;unately, if you study the origins
of a market economy anywhere else, that tends to be where it
comes from. So at that level, at least, I'm quite optimistic.

Mr. POMEROY. I strongly favor a continued United States role in
agricultural exports into Russia. Is there a danger that these ex-
ports ease demand and, therefore, inhibit agrarian reform?

Mr. Van Atta. Yes, sir, there is for two reasons I can think of.
First, the Russians, as a matter of policy about 15 years ago, began
to concentrate on their livestock sector, and it takes more grain to
produce a pound of meat in Russia than it does anjrvvhere else in
the world. My friends from USD A can give you various numbers
about it, but anjrwhere from 5 to an infinite number more pounds
are required. However, they've jiggered the prices so that every-
body produces meat, and that was very profitable, so the herds
went up, there was plenty of meat in the cities — at least, some-
thing that's generic off a cow — and now the market is beginning to
work, and the livestock producers are screaming bloody murder.
They kept those herds alive by importing U.S. grain, £md they fed
them U.S. wheat. This is why when Rutskoi gave his speech, every-
body yelled out, "USA."

Clearly, if the Russians cut back on this incredibly unproductive
and wasteful system, they will need less United States grain. In
fact, some people argue that if they simply could end this waste,
they would effectively take care of the entire amount of grain that
they're importing from the United States. So in that sense, there
is that problem.

If I may, there's one other thing. A very good Russian agricul-
tural economist, Vasilii Uzun, wrote an interesting story a year ago
about what happened to American aid. It seems that somebody
gave an American commodity company money to import grain as
emergency aid. The commodity company, not being stupid, took the
dollars and took some trucks and wandered around Moscow oblast
and made deals with farmers who had plenty of grain — big farms,
kolkhozy — and made deals with kolkhozy managers to buy their
grain for the dollars they had been given, turned that in as Amer-
ican aid, and kept the quite substantial difference between what
they had been paid to ship American grain to Russia and what
they could buy it for locally.

In that sense, if you give farmers incentives, they'll produce, as
you gentlemen know better than I. The problem is to get the incen-
tives in place and then the production, which is, in principle, ade-
quate, if not great anyway, will follow.

Mr. POMEROY. Dr. Wegren, I'd like your answer to the same
question, and I would just observe it seems to me the shortfall is
substantial enough so that there's room for considerable export be-
fore we do begin to impact their market balance.

That's my final question, Mr. Chairman. Thank you.

Mr. Wegren. I also think there are pros and cons. On the pro
side, there's a humanitarian aspect, and that is if you cease to do
that, you could see even a further deterioration in the per capita
consumption. I mean, that's within the realm of possibilities. On

219

the con side, if you think it through, it really aggravates the Rus-
sian financial situation even more, and that is that unless we just
give it to them, they have to pay for it somehow. How do they pay
for it? Through loans and credits, which means that they're adding
to their net debt, which is a problem they have to deal with at
some point. So whereas our intention may be good, over the longer
term we could be doing them more harm than we realize.

There's a second aspect I would point out, and that is that it all
depends what our goal is. If our goal is to help them become inde-
pendent, then it seems to me that continued exports could actually
continue their dependence on us. I mean, that's good for our farm-
ers, it's good for us, but it's not necessarily good for them.

Mr. Penny. Given the fact that Moscow is becoming less of a fac-
tor in the former Soviet Union, which Republics and, within Rus-
sia, which oblasts or regions seem to be embracing agricultural re-
form more enthusiastically?

Mr. Van Atta. There are, I think, two ways to answer that ques-
tion. One is to look at places where reports of creation of peasant
farms and production and farm reorganization is most advanced.
The other is to look at the places where the local leadership is most
favorable. We think those coincide.

I'm ashamed to say that one result of the very long restrictions
on American activity studying Russia and studying the Soviet
Union is that there is no one in the Sovietological community, or
whatever we are now, who can answer that question as well as we
would like or should indeed be able to. However, one could name
the Central Black Earth oblasts, Saratov, Tambov. One could name
Krasnodar until recently, when the oblast administrator was tossed
out because he was indeed supporting land reform too much. One
could name Rostov, and, of course, one could name Nizhnii
Novgorod — province on the Volga, formerly GorTcii — where a very
radical experiment with local economic reform is being undertaken,
and the International Finance Corporation and the World Bank are
involved in privatizing individual farms to serve as models for fur-
ther agrarian reform.

Mr. Wegren. May I add as well?

Mr. Penny. Please.

Mr. Wegren. I agree, it seems clear that early on in the reform,
when the reform was defined in such a way that the farms basi-
cally made available the land they didn't want, then you had a
smaller percentage of peasant farms found in the rich black earth
regions. In December 1991 Yeltsin said that you can leave the
farm, you can take land from the farm, and the farm manager can-
not stop you from leaving. At that point, you had an absolute explo-
sion in the number of peasant farms in the black earth regions. So
it seems to me that this is a positive development in the exact
oblasts that Don has mentioned to you, the areas that have the
best potential for becoming more efficient and more productive.

So what I'm saying is, first of all, yes, you can look at the num-
ber of peasant farms and say these areas are more conducive to re-
form, but there's a second aspect, and this goes back to Don's com-
ment about political struggle as an indicator that reform is going
forward, and that is that one measurement is simply to look at the
number of fines for land violations. For whatever it's worth, how-

220

ever good or bad the data are, the fact of the matter is that
Goskomstat is now collecting data on the number of fines per ob-
last.

So one can say on the one hand, in those areas where there are
a high number of fines, this shows that the struggle is going on.
I mean, you can interpret it both ways. On the one hand, you can
say, yes, farm managers are trying to obstruct land reform. On the
other hand, you can say that someone, whether it be the center, or
the local officials, or someone, is serious about fining those people
who are standing in the way.

Once again, however good or bad the data are, the fact of the
matter is that the highest number of fines as of January — I was
in Moscow in January 1993 and went to various land reform com-
mittees and got data, and the highest number of fines are occurring
precisely in those black earth regions. So, again, whether you want
to put the negative interpretation on it or a positive interpretation,
it is clear that since December 1991 the black earth is the leader
in facilitating land reform.

Mr. Penny. We heard yesterday that evidently in Moldavia
there's a collective farm that has in essence transformed into an
American-style cooperative in which each peasant has been given
ownership over a particular parcel, they share equipment on a co-
operative basis, they receive financing on kind of a portions basis,
and so, in that sense, what had been sort of the local bureaucratic
structure has become a co-op that provides credit, a co-op that pro-
vides equipment, other input needs, and also helps with the mar-
keting. I think the anecdotal evidence is that productivity had im-
proved on that collective farm as a consequence.

Is that happening anywhere else, and is that perhaps a more re-
alistic reform than private ownership, given the constitutional limi-
tation and the difficult prospects of changing political d5mamics
and the constitution in the near term?

Mr. Van Atta. The model you're talking about, sir, is one that
is quite old. It was originally worked out in the 1960's by a man
named Ivan Khudenko, who ultimately was jailed for misappro-
priating funds and died in jail, becoming a martjT, in the 1970's.

Mr. Penny. What's happening there now?

Mr. Van Atta. The idea was picked up by the head of the Rus-
sian Agricultural Academy, Dr. Serova's boss — I believe you spoke
to Dr. Serova on the first day of the hearings — the former head of
the All-Union Academy of Agricultural Sciences, Alexander
Nikonov. He pushed that on Gorbachev, Gorbachev bought it, and
there are now — I think the last number I saw for Russia, and I
don't know the numbers for the rest of the newly independent
states — was about 500 of these things set up. There is some ques-
tion whether or not that is signific£int reform, because, given the
pressure to reorganize all collective farms, the Moscow authorities
made the collective and state farms denationalize the land last
year. A great many of those large farms which set up "associations
of peasant farms" probably did not create true individual farms.
Such reorganization is, in fact, what the Russians would call mere-
ly a change of sign boards.

The kolkhoz chairman I referred to whom I interviewed recently,
whose cash crop is flax — he sells the linseed oil to the military, and

221

he was trying to figure out how to break into the world flax mar-
ket—defines himself as a chairman of such an association, yet not
only does he call what he is a kolkhoz chairman, but it is perfectly
clear fi*om speaking to him that, if anything, his power over his
farmers has increased, not decreased.

It seems likely that very many of the associations of peasant
farms are that kind of organization, and we need to go out and look
in the countryside and try and figure out on each case to what ex-
tent these are real changes. It's a hopeful model. Clearly, the no-
tion that you're going to give everybody 40 acres and a tractor is
not a realistic one for a whole bunch of reasons and probably
should not even be attempted. Whether or not the creation of asso-
ciations of peasant farms fi-om collective and state farms is working
out in practice as its advocates hope it will is not quite so clear.

Mr. Penny. Thank you for your testimony. We appreciate your
being with us this morning.

Our next panel includes Dr. Philip Raup, professor emeritus, de-
partment of agricultural and applied economics. University of Min-
nesota; Ms. Carol Brookins, president of World Perspectives, Inc.;
and Mr. Steve McCoy, president of North American Export Grain
Association.

We would ask them to come forward and request that you pro-
vide testimony in the order you were introduced. That would be
from my right to left;. Bear in mind your written testimony will be
included in the committee record, and we would ask that you sum-
marize as best you can your remarks for the committee.

Dr. Raup.

STATEMENT OF PHILIP M. RAUP, PROFESSOR EMERITUS, DE-
PARTMENT OF AGRICULTURAL AND APPLIED ECONOMICS,
UNIVERSITY OF MINNESOTA, ST. PAUL, MN

Mr. Raup. Thank you for the opportunity to meet here, and I
want to congratulate the subcommittee for having launched these
hearings. They're very timely, and it's encouraging to know that
probing in this depth is going on.

My name is Philip Raup. I'm a professor at the University of
Minnesota. I grew up on a wheat farm in western Kansas, so I still
have a very direct connection with the kind of agriculture that
dominates in the Soviet Union. I'm going to try to make a few very
straightforward points in my comments and hope the discussion
will bring out more detail.

It came out this morning and it's been underlying the rest of the
hearings that the basic cause for the problem in the Soviet Union
is twofold: They have no price on time, and they have no price on
space. The price on time is the interest rate. The price on space is
a market for land. Everything that's been said about havmg ineffi-
cient feeding, holding too many uncompleted construction projects,
is a consequence of not having a price on inventory. With no inter-
est rate, there's no pressure on you to move the product through.
There's no pressure on you to complete the project.

This has had a major impact on agricultural policy and not only
in the former Soviet Union or in Russia, but also in Western Eu-
rope and in the United States. It permitted them to emphasize the
livestock sector very heavily, which they did after 1972, and there

68-443 0-93-8

222

was no cost of holding inventory. The result is that they have too
many cattle, too many hogs, too many poultry, turnover is slow, no
pressure on them to move products through with high levels of
feeding efficiency, and this has made it possible for them to sub-
stitute heavy feeding of grain for efficient feeding of all nutrients.
This has created a market in the Soviet Union for feed grain.

Most of the wheat in the Soviet Union is fed to animals. Wheat
is a feed grain, not only a food grain. This dependence on imported
grain for animal feeds in order to, they hope, provide enough meat
in the shops so there would not be a repetition in the Soviet Union
of the kind of revolt of the workers that occurred next door in Po-
land has dominated our agricultural policies and created the mar-
kets that now are major sources of support for both farm policy in
the United States and farm policy in the European Community.

That won't be corrected until they have a better set of institu-
tions governing and regulating agriculture and trade, and I think
the major contribution we can make is to promote the development
of these institutions. By that, I mean specifically contracts, com-
mercial codes, land registration systems. There's no adequate land
titling system in the former Soviet Union now, and it could not
support a land market, as we understemd the term.

I conclude that one of the most likely outcomes is that the Soviet
Union will be characterized in the near term, the next decade or
two, by a form of sharecropping. I see evidence that this is already
emerging. This happened in the United States after the American
Civil War and for the same reason. Farmers had no capital, and
the institutions to support private farming did not exist. These rea-
sons are even more emphatic today in the former Soviet Union. The
result is that I think we will see a version of contract farming for
which commercial models exist now — contract farming in poultry,
turkeys, eggs, broilers, in cattle feeding, in canning crop produc-
tion.

So I'm convinced that the greatest help we could give them is to
get some of their people in this country for a period of time long
enough to enable them to study these institutions. They won't take
them back, they won't replicate them exactly, but they will learn
something about the possibility of an intermediate stage between
outright family-type farming on privately owned fee-simple land
and the present system. That intermediate stage, I think, will in-
volve some form of sharecropping, a lease system that we would
look upon as sharecropping.

Finally, I think we should recognize that the source of import de-
mand in the Soviet Union, which has been a big market for our
products, is likely to disappear. This is not likely to be a permanent
source of markets for American or for West European grain as it
has been for the last 20 years.

Thank you.

[The prepared statement of Mr. Raup appears at the conclusion
of the hearing.]

Mr. Penny. Thank you.

Ms. Brookins.

223

STATEMENT OF CAROL L. BROOKINS, PRESIDENT, WORLD

PERSPECTIVES, INC.

Ms. Brookins. Mr. Chairman, I want to thank you for allowing
me to testify before your subcommittee. I'm president of World Per-
spectives, Inc., which is a consulting company, and we analyze po-
litical, economic, and trade factors that affect agricultural markets
and the global food system. We work with companies and with gov-
ernments around the world, including clients in Russia and the
former Soviet Union.

I'd like to address the importance of Russia to United States ag-
riculture, and I think we should be very careful not to forget that
there has been a direct correlation between the Soviet Union's de-
mise as a military threat and its inability to provide an adequate
food supply to its population. I began my work in the commodity
field in 1972, when the Russians came in for the first time as a
major sustained buyer of our grains, and that just happened to be
the year that they began to pursue detente with us. The cold war
that we have won was not just a competition between missile silos,
but I believe between grain silos as well.

Now, over the past 20 years, our agricultural trading relationship
has played a vital role in building confidence and mutual benefit.
The Soviet Union has paid us more than $30 billion in cash for
United States farm commodities, and I think we all know how that
converts into United States jobs and economic activity. Russia is a
major long-term commercial market for us. We don't want to dam-
age that relationship, and certainly we don't want to throw the
Russians into the arms of the European Community's farmers.

I would note here, Mr. Chairman, that the EC already has called
for negotiating a free-trade agreement with Russia. This would be
a serious threat to the competitive interest of United States
agriculture.

Well, what do we do today to provide agricultural commodities?
What we do will set the basis for our commercial and trade rela-
tionship with the new Russia and other states of the former Soviet
Union. I'd hke to focus briefly on the issue of appropriate responses
to Russia's needs and to our interests in filling those needs.

Responding to Russia means business for the United States econ-
omy. We can do this in various ways, and one way isn't exclusive.
Commodity credits, possible barter programs, humanitarian and
technical assistance are all efforts that we have to consider and
probably implement in one way or another. Briefly, though, it's in
our interest to build a long-term commercial market in the new
Russia for our commodities, our technologies, our equipment, and
our food products.

I'd like to focus briefly on the issue of commercial or concessional
credits. Certainly until Russia completes a Paris Club official debt
rescheduling, the only possible United States response to move
farm products short term must be concessional assistance, either
grants or loans. Food for progress is obviously very appropriate.
But once a Paris Club is done, or if a Paris Club is done, and once
Russia becomes current in meeting its payments to us under the
GSM program, we have more options to consider based on an as-
sessment of what makes sense in terms of Russia being a commer-
cial or concessional market. If Russia reschedules its debt and is

224

undertaking economic reforms under internationally approved
guidelines, Russia should resume its place as a commercial bor-
rower. This is in everyone's interest, both the Russians and ours.

The objective of our credit programs and our aid programs is to
expand markets for U.S. products by assisting countries to buy
those farm products. Certainly, if we don't sell to those countries,
the cost to the U.S. Treasury for domestic farm programs will in-
crease on the spendihg side. Tax receipts also will decline, because
we will not produce or sell as many farm commodities. So it's a
double loss for the U.S. economy.

Now, how should we use these export programs? Speaking as a
taxpayer, if you'll permit me, Mr. Chairman, I think the fiduciary
responsibility of the U.S. Government in operating this wide range
of programs, from donations to deeply concessional aid to commod-
ity credit guarantees, must be focused on expanding exports at the
lowest cost to the taxpayer. Concessional programs cost more than
credit guarantees due to cargo preference requirements and due to
lower repayment terms. Credit guarantees are far more cost-effec-
tive than concessional aid programs for co\intries as resource-rich
as Russia.

Russia has resources. Russia is earning large amounts of hard
currency even today. The problem for Russia right now is one of
cash-flow, not earning power, and I don't say that that's the same
situation for many other states in the former Soviet Union. But for
Russia, which is the largest grain importer, a GSM-103 intermedi-
ate program might be the appropriate approach if Congress takes
two actions in clarifying the 1990 farm bill: First, in allocating a
total statutory minimum to the credit guarantee programs; and,
second, to clarify its intent in the application of creditworthiness
language of the 1990 law.

Here I would say that the letter sent to the Secretary of Agri-
culture dated May 30, 1991, from Chairman de la Garza and other
House Members provides an excellent and appropriate basis for
clarifying current legislative language.

We don't need a new program to isolate Russia. What we do need
to do is utilize the tremendous wide-ranging authorities we already
have to build the Russian market and to build our own market.

Thank you very much, Mr. Chairman.

[The prepared statement of Ms. Brookins appears at the conclu-
sion of the hearing.]

Mr. Penny. Thank you, Carol.

Steve.

STATEMENT OF STEVEN A. McCOY, PRESIDENT, NORTH
AMERICAN EXPORT GRAIN ASSOCIATION, INC.

Mr. McCoy. Mr. Chairman, I appreciate the opportunity to tes-
tify. I'd like to use my time today to address the situation of Rus-
sian food needs on the microlevel and to emphasize that, at least
in my experience, what we see in Russia today is not an instance
of absolute, but rather of relative need for foodstuffs.

There's no starvation in Russia, as you know. There was that one
instance of the soldiers, but I think that was a glitch. However,
today there is severe deprivation affecting the most exposed ele-
ments of Russian society — that is, the children, the elderly, stu-

225

dents, and those like the common soldiers who are forced to live
on very minimal fixed incomes.

The problem of hyperinflation has had a dramatic impact on Rus-
sian standards of living. The Government has attempted to apply
brakes to some of the rises in food costs; however, along with the
general rise in prices, the price of staple goods has also skyrocketed
for most consumers, bringing with it a widespread fear of basic
food insecurity and a concomitant threat of social and political
unrest.

It is as a hedge against such unrest that Russian authorities
have sought over the years and in the recent year to import grain
from the United States and, this year, to import somewhere be-
tween 16 million and 18 million metric tons of grain worldwide, of
which the United States total would ordinarily be somewhere be-
tween 8 million and 10 million metric tons if the means were avail-
able to sell that grain.

Now, our failure to date to answer to the current Russian re-
quest does not mean that the Russian food system will collapse.
Nevertheless, I think we have to understand very clearly that our
failure to provide additional assistance in exports to Russia will un-
dercut an already fi*agile food supply situation, again, particularly
when viewed from the microperspective, and will result in hardship
for the average Russian family.

Now, it's important to understand that many of the food-related
problems we see in Russia today result from what I would term as
pipeline disruptions. Even in the past under the previous Soviet
system, such disruptions were common. Today, however, more seri-
ous challenges exist, resulting from a partial breakdown in pre-
viously reliable relationships between producer and Government
procurement authorities and entities, between retailers and con-
sumers, and even between food surplus and deficit regions within
individual Republics. The absence of a generally recognized, legally
sanctioned market mechanism has resulted in an inefficient alloca-
tion of scarce resources, such as we all know; therefore, surpluses
exist side by side with deficit conditions.

Now, the central procurement authorities in Russia are currently
attempting to bridge this gulf, but they are limited in what they
can do in terms of maximizing total welfare by constraints on the
subsidies that they can pay to producers, by weather-related fac-
tors, and by availability of credit from overseas to purchase bulk
commodities not otherwise available from domestic stock.

Now, the situation in Russia is probably most severe or shows up
most severely in the livestock sector. There's a critical need for feed
grains and protein feeds for animal production; however, with U.S.
credit suspended, there's little outlet for this demand. As was al-
luded to earlier, as a result, wheat normally destined for human
consumption is being fed to animals, and this, in turn, has lessened
wheat supplies for food. Producer, Government, and consumer alike
have been trapped in a vicious cycle. Now, I should point out that
in my view, they're feeding the Russian wheat and using the Amer-
ican wheat to make bread.

Bottom line, much has beeii said and written about the promise
of Russian agriculture. Some have predicted Russian self-suffi-
ciency in grain in the near term; others forecast a return of Russia

226

to international export marketplace. It is possible, of course, that
such developments may come to pass, but I think it's very unlikely
in the near future.

In the short run, it is difficult to see how the current evolving
Russian system can effectively match needs in production. Too
many constraints currently disrupt production to do so, among
them the weather, input and transportation shortages, lack of for-
eign currency, limits on Government subsidies, the absence or near
absence of markets, barriers on inter-CIS cooperation, environ-
mental constraints, and on and on and on.

I conclude that Russia will continue to rely on imports for a sig-
nificant portion of its total grain supply for the foreseeable future.
It will do so because of limits on its own production and supply,
but also because imports allow a means to manage food supplies
in the face of social discontent. These imports need not come at a
cost to Russian producers in the form of disincentives to produc-
tion, such as has been argued here today. There should be ample
domestic markets for their future production. On the other hand,
such imports, if reliable, can play a significant role in maintaining
basic social welfare at a time of tremendous economic, political tur-
moil, and change.

Thank you very much.

[The prepared statement of Mr. McCoy appears at the conclusion
of the hearing.]

Mr. Penny. Thank you all for your testimony.

Carol, in your written testimony you mentioned barter arrange-
ments. Other countries have begun the process of negotiating bar-
ter agreements with Russia and other Republics. What are the
prospects for the United States in that regard?

Ms. Brookins. I think there already have been with U.S. export-
ers barter or countertrade opportunities. I think we do have poten-
tial in that area, Mr. Chairman, particularly for commodities that
are not generally tradable, like enriched uranium, and I think
there is an effort going on right now to study the possibility where
we were planning on purchasing a certain quantity of enriched ura-
nium.

The problem, from what I can tell, lies within our own adminis-
trative procedures here in terms of where the money would move —
in other words, if we're going to buy enriched uranium from the
Russians rather than possibly transferring those dollars over there,
what it would have to probably be would be an inter-Treasury
transfer from one account, the account of Defense Department or
Energy Department or whoever it is, into the account of the Com-
modity Credit Corporation, I would assume, if the5^re actually com-
modities being sold to Russia.

Barter has an advantage also because if we did barter trans-
actions, it would not require cargo preference, sir.

Mr. Penny. How about GSM-103 for purchases of ag equipment
and processing equipment?

Ms. Brookins. GSM-103 could be used in the original 1985 leg-
islation, which set forth the GSM-103 program. There were all
types of authorities for equipment and other types of farm products
or actually farm infi-astructure that could be permitted under the
program, but it would be basically done — or I think it was antici-

227

pated it would be basically done — through the purchase of commod-
ities. But you could use farm equipment through GSM-103, I be-
lieve.

Mr. Penny. In terms of the Russian perspective, is that an area
where we would find an anxious buyer?

Ms. Brookins. Russia is one of the largest producers of farm
equipment in the world, particularly of tractors and combines. Un-
fortunately, they have no spare parts network or system, so they
retire as many or more pieces of equipment a year as they produce,
and this has really been greatly constrained. I think it could be an
opportunity for some of our farm equipment manufacturers, but I
do believe that it would be in our longer term interest also to help
the Russians build up their own plant capacity within the country.
Certainly, it is a peaceful use of technology, and I think it would
benefit them in terms of even defense conversion.

Mr. Penny. We had two Russian farmers testify that they were
interested in processing equipment, small-scale processing equip-
ment, and I know that we have had Russian delegations travel to
Minnesota and sign contracts for processing equipment. You indi-
cated that Russia builds a lot of basic production equipment, but
evidently they, at both the state level and the individual farm
level, aren't doing such a good job of providing for these processing
facilities. Is that another possibility for GSM-103?

Ms. Brookins. I think it's another possibility for GSM-103 or for
any other of our programs, and certainly possibly even for an enter-
prise fund or an Ex-Im-type of program as well. We do provide sup-
port to exports of U.S. industrial products through the Export/Im-
port Bank program, and I think that we should look to see where
the appropriate fit is in terms of whether we should be seeking to
get more Ex-Im guarantees for that type of transfer of U.S. busi-
ness products and whether we want to use GSM-103 for those
tj^es of products or whether we want to keep it as primarily a
commodity type of program, used also possibly at the other end to
help them build infrastructure.

Mr. Penny. Dr. Raup, what would you recommend as the most
effective approaches by the United States if we want to support ag-
ricultural reform, market development within Russia?

Mr. Raup. As I indicated, the basic problem is not that they don't
have skilled people, not that they don't have a good bit of the mod-
em technology available within agriculture. They do, and some of
it is world-class. They don't have the institutions. Particularly, they
don't have the legal basis, and they don't have the organizational
basis, and they don't have the structural models.

One of the greatest handicaps in the Soviet Union system is
there is no model for organization except the army, and everything
else can be interpreted as organized on these lines. As we've seen
in the last week, they have no tradition of conflict resolution in
their debating agencies, in their parliamentary agencies. They have
only a system of handing down orders from the top, and no feed-
back loop is completed to permit information to flow from below.

So the greatest service we could provide them is to give training
and access to information about alternative institutional struc-
tures, specifically, but not limited to, alternative forms for coopera-
tive work, alternative forms for corporate organization, and the

228

kind of contractual relationships that I referred to briefly in my
oral testimony that now begin to play a dominant role in American
agriculture.

We have accepted the bailee or custodial contract in this country
almost through the backdoor, without anybody having talked much
about it. But as you know so well in your own district, major frac-
tions of agricultural activity are governed by contracts that in ef-
fect make the farmer a sharecropper on his own land. I expect that
type of institutional innovation will, in a Russian version, charac-
terize much of the agricultural organizational structure in the
states of the former Soviet Union.

We could help, I think, by bringing people over here for longer
periods of time and permitting them to work with the practitioners
in the field. You're not going to learn this in the State capitols,
you're not going to learn this in Washington. It has to be done at
the operational level and in a local commimity situation, which is
where they will have to implement it.

So I think bringing people over for longer periods of time and en-
suring that they are focused on the understanding of the operation
of the institutional structure and not just on a technology or a par-
ticular kind of practice would be the greatest service we could
render.

Mr. Penny. Thank you.

Mr. Lewis.

Mr. Lewis. Thank you, Mr. Chairman.

Ms. Brookins, you recommend a longer credit guarantee to be
provided to the former Soviet Union. What's the basis for this rec-
ommendation?

Ms. Brookins. The basis for this recommendation, sir, is the fact
that if Russia — this is only preconditioned by the fact that Russia
does complete the Paris Club rescheduling and is engaged in a
long-term restructuring under an IMFAVorld Bank/G--7-type of
mandate. My recommendation is based on the fact that Russia al-
ready is earning considerable amounts of hard currency. The prob-
lem this year is the fact that it's not repatriating that money be-
cause it's considered flight capital and the fact that the economy
is so unstable internally that the ruble is virtually valueless today
or is moving in that direction.

So there's probably at least 12 biUion dollars' worth of hard cur-
rency even today out of their $24 billion to $28 billion in annual
hard currency earnings recently that is located outside of the coun-
try in Western banks, sitting there because people don't want to
bring it back to be used to service debt. If Russia goes on a Paris
Club rescheduling, it will be probably a 7- to 10-year rescheduling.
I think that we could do a 7- to 10-year GSM-103 program, and
it would complement the type of debt management that Russia is
operating.

If we move to a longer-term concessional food aid program, sir,
we run into the problem of cargo preference, we run into the prob-
lem of much higher costs when I don't believe Russia has to have
that tjrpe of concessional assistance. Many other states in the
former Soviet Union do, but I don't think that Russia does need to
do that, and if we move Russia into a concessional category, it will
be very hard to bring them back up into being a commercial cat-

229

egory again, and the cost to the United States taxpayer will be
much higher.

Mr. Lewis. Dr. Raup, you stated that you've been to the Soviet
Union five times since 1958 to 1991. From your experience with the
Russian people at that time, do you feel that their economy is in
serious jeopardy today with the upheaval of the so-called changes
in their current Government and the threat of an overhaul again
of their current Government system?

Mr. Raup. Well, it certainly is under threat, yes. That needs
some elaboration. They have had a total breakdown in the supply
of production inputs. The old system isn't working. The old system
had its defects, but it did get some product to the producer. The
supply of production inputs now is haphazard. The kind of barter
trading that Ms. Brookins just explained with regard to the final
product also exists for inputs in agriculture. That's the way you get
your fertilizer. That's the way you get your seed.

This system needs total overhaul, and until some more realistic
prices can be used to move the product and to pay for the spare
parts that currently are not available, there is going to be a grad-
ual deterioration, and I think it's going to happen very rapidly.
They have had some surprising good results in the last few years.
For the last 3 years, the average jdeld of wheat in Russia is the
highest in history in two of those 3 years, due, of course, to favor-
able weather. But it must also be due to the fact that they're doing
something right.

I have considerable confidence in their ability to continue to raise
these yields, which they've been doing steadily now for the last 15
years. But the supply of production inputs will quickly become a
bottleneck, especially in terms of replacement of machinery and
equipment, which can eat up your capital. You can live off of your
machinery capital in farming for about 5 to 7 years, and then it's
gone, as we found out in the cycles that have characterized the
farm machinery industry in the tJnited States since the farm crisis
in the early 1980's.

Mr. Lewis. In France the farmers have a tremendous influence
on their Government. Do you feel that the agricultural commu-
nities in the various Russian states have a similar type of influence
on their governments or could have or may never have?

Mr. Raup. Well, the political systems are different, but it's rough-
ly true to say that the overrepresentation of rural areas that char-
acterizes so much of the Western European Community and also
the United States is also visible in the former Soviet Union, and
some of the people that are leading the noisy demonstrations in the
present Parliament come from these rural communities. That's the
background of the opposition that is now being voiced and given
such publicity in the last 2 weeks.

The rural areas are not organized in the sense that the French
farmers are organized, and there is not the sentimental attachment
to the Russian peasant that I believe exists in France. I've spent
quite a bit of time in France and also in Russia. Many Frenchmen
believe that the heart and soul of France is in the countryside.
That belief is not quite so strongly apparent in the former Soviet
Union. So I don't think they're going to have the kind of nostalgic
support base in the cities for support of the rural countryside that

230

has characterized the rural to urban migrants in the West Euro-
pean and North American tradition.

We're Hving off of that tradition today in this country, with a
much stronger representation on behalf of agriculture because of
nostalgia by people who no longer live in the rural countryside, no
longer work in agriculture, but still will support a farm program.
That kind of strength, I believe, is not as apparent in the states
of the former Soviet Union.

Mr. Lewis. Thank you. Dr. Raup.

Thank you, Mr. Chairman.

Mr. Penny. Mr. Baesler.

Mr. Baesler. I noticed in your written comments regarding the
enterprise fund that your point was that we need to do less on edu-
cating themselves and put more money into the actual operation
within Russia. I think your second point was that it might prove
dividends to us if we took, from a Government standpoint, a more
aggressive approach in assisting our folks here who might want to
export whatever they want to export to Russia and let those pri-
vate individuals help us solve the problem, with us supporting
them, and at the same time they would receive benefits that would
be realized for us here. Is that generally what you mean by that?

Ms. Brookins. You said it better than I wrote it, sir. I think that
is true. We have very limited resources in terms of our foreign as-
sistance. I think that's something we're all very aware of, and I
think that President Clinton has also emphasized the importance
of the private-public partnership. Here we are going into the
former Soviet Union, into a country that was a totalitarian,
nonmarket economy, and if everything we try to do is government-
government and sending aid people over there and not really get-
ting our businesses over there, I think we'll be making a serious
mistake.

I think where you have this tjrpe of political and economic uncer-
tainty and insecurity, sometimes it can make the difference be-
tween a business making an investment or doing work in a coun-
try, knowing that it has an OPIC investment guarantee, knowing
that it has Ex-Im credit guarantees, knowing it has GSM program
money or some other t5T)es of money.

An enterprise fund concept specifically for agribusiness I think
could be very useful. Europeans are notorious, the Japanese are no-
torious—all the assistance they ever provide is really to move their
products into a market or give their businesses the opportunity to
get a toehold in that market, and what we've found is if you don't
get in at the ground floor, you lose out forever. Because once you
get in at the ground floor, you build those relationships, you get
your technology in there, you get your commodities in there, and
it builds a long-time multiplier effect into trade and economic bene-
fits to a country. So that is why I'm saying we need to be
leveraging the small amount of money we have and using it more
efficiently.

Mr. Baesler. So would your conclusion be, if you had $100 bil-
lion or million or whatever kind of dollars you want to talk about,
that if that was going to be the amount of money we're out here
talking about to provide assistance to Russia, then the question is
whether or not that $100 billion would be leveraged to more benefit

231

for the United States if it was in an enterprise fund to let our pri-
vate companies carry out water rather than let us just go and
dump the money over there?

Ms. Brookins. I think we have to still continue to do humani-
tarian or technical assistance, but I think the more technical as-
sistance that we can use in leveraging it through some type of en-
terprise fund where the U.S. Government puts up maybe $2 for
every $10 that a private business puts up, with specific projects or
plans in mind, an investment that they're committed to making, I
think it can bring a tremendous multiplier effect to our opportuni-
ties.

Mr. Baesler. Would it also be a Uttle bit more expedient? Be-
cause everything I've read in all your testimonies is the fact that
it's like dripping water. It's going to be a real slow process here to
be able to get things turned around, and it seems to me that the
private sector would speed up that process, because profit motive
has a little way of doing that.

Ms. Brookins. I hope so. It's certainly worked for our economy,
so I hope that it would work in Russia as well.

Mr. Baesler. We presently don't put much in the enterprise
fund, do we?

Ms. Brookins. We don't have an enterprise fund for Russia. We
have enterprise funds in some of the East European countries, but
we don't have any specifically in agribusiness or an agricultural en-
terprise fund, and that's what I'm suggesting we might want to do.

Mr. Baesler. I understand. And that's even in European coun-
tries, you don't have any for agribusiness.

Ms. Brookins. No.

Mr. Baesler. Thank you.

Mr. Penny. Mr. Barlow.

Mr. Barlow. Thank you, Mr. Chairman.

Ms. Brookins, you mentioned that $12 billion roughly is being
held offshore by the Russians. Are there any figures on how much
of that is state corporations versus private individuals?

Ms. Brookins. I would imagine that a great deal of it, sir, is
state corporations in the sense that the Federal authorities have
lost control over the companies that they own in terms of the oil
industry, the gas industry. So there are a lot of deals being done
where it's actual money owed to, let's say, the Russian oil state
business, but it's being kept offshore by people who have sold the
oil out of a well in Siberia or somewhere like that, and there's been
no control — they don't have an effective IRS and Customs Service
and Central Bank structure right now to be able to recapture that
and repatriate it.

Additionally, there's no incentive for anyone to bring the money
back, because they'd have to turn it back into rubles, and rubles
are certainly dropping dramatically in value. I mean, I was in Rus-
sia about a year ago, and the value of the ruble in February then
was about 90 to the dollar. When I went back over there this past
February, it was about 460 to the dollar, and now it's gone down
further. When I go back for the referendum, it will be even lower,
I would imagine.

Mr. Barlow. Well, is there any indication that there's any dis-
cipline being resurrected within the administrative structures in

232

the Soviet Union to, say, use the dollars that may be held offshore
toward the dollar debt for agricultural commodities with the Unit-
ed States or for future agricultural purchases?

Ms. Brookins. I have not seen anything specifically in that re-
gard, but I have seen signs in the press that part of the work that
the IMF wants to be doing with them is trying to help them recap-
ture that money. Now, whether it's going to mean work with our
central banks and with Bank of International Settlement countries
to try to target that money that is illegally really out of the coun-
try, I get a feeling from some of the reports that have been written
there will be efforts in this regard to try to recapture that, but you
cannot bring it back in really until you have confidence in the
ruble.

Mr. Barlow. But it could be brought back in in the form of com-
modity purchases from the West?

Ms. Brookins. It could be if the Government could get control
of that outside the country. But right now it has no control.

Mr. Barlow. Is there any indication that Russian military orga-
nizations are, within the administrative structures in Russia, get-
ting restless and putting pressure on the other administrative and
institutional structures to effect this for the sake of Russia?

Ms. Brookins. I'm not aware of it. I do know, though, that the
Yeltsin government is very concerned, and, in fact, I understand
Yeltsin hired the private investigator in New York who tracked
down Marcos' millions to try to find out where this money is in
order to try to get hold of it again.

Mr. Barlow. Dr. Raup, maybe you can answer on this one. I un-
derstand current state-owned enterprises in agriculture have a big
lock on a significant portion of the Russian budget now. Is that
true?

Mr. Raup. Yes.

Mr. Barlow. And are there pressures within the Soviet structure
to decrease the amount of the budget that goes to these state-
owned enterprises? In other words, might they wither of their own
weight in the budget structure over time?

Mr. Raup. Well, much recent publicity has been given to the fact
that the Central Bank has been printing rubles in order to finance
the continued existence of firms that would otherwise go bankrupt.
I believe when people read that, they have in mind manufacturing
firms or factories. That also holds for the farms. So the printed ru-
bles are keeping in existence a lot of big farms that would other-
wise fail.

Mr. Barlow. And it's this printing process which is the reason
why the ruble is so worthless?

Mr. Raup. Oh, yes. Plus the fact that the breakdown in the pay-
ment system that would permit the flow of funds has been almost
total. You could say they have no payment system today.

Mr. Barlow. So really the Russians are undergoing their own
educational process right now, learning that subsidizing these bu-
reaucracies, the agricultural bureaucracies, is not the way to go.
Perhaps we should just sit back and watch it happen?

Mr. Raup. We may have no alternative.

Mr. Barlow. Thank you.

Mr. Penny. Ms. McKinney, questions?

233

Ms. McKlNNEY. No thanks, Mr. chairman.

Mr. Penny. As I expected, we're coming up on a vote on the
House floor, but I'd Uke to wrap this panel up and wrap up the 3
days of hearings with just a couple of concluding questions. We
didn't get much discussion this morning about value-added sales to
the Soviet Union and whether that is an area where we ought to
apply greater emphasis. I know Mr. McCoy wants to respond to
that, but if either of the others wants to respond as well, it would
be fine.

Mr. McCoy. I think it's entirely appropriate that we use all of
our assistance and finance tools to promote the sale of all of our
products in every market. I think we have to bear in mind that the
customer may have some priorities that need to be followed, but
certainly there's every indication that there is some interest in pur-
chasing pork, for example, or poultry, and there may be some inter-
est in dairy products. I'm not all that aware.

The bottom line is I would imagine that the bulk of our financing
tools would continue to go for grain simply because that's the main-
stay and has been the mainstay of our relationship and has been
indicated to us to be the desire as far as the Russians are con-
cerned.

Ms. Brookins. I agree with what Mr. McCoy says. I would only
add that the Russians have very much stated an interest and a
need for both soybean meal and soybean oil. This is something they
need very badly even right now, and I think it is what is appro-
priate to the Russians. Certainly in terms of some of our humani-
tarian assistance as well, we can provide some of the value-added
food products that could go directly to consumers in specific areas
if that is needed.

Mr. Penny. How do you feel about a monetization approach to
that targeted sort of aid?

Ms. Brookins. The humanitarian aid?

Mr. Penny. Yes.

Ms. Brookins. If it can be then used, the money sold, by the
PVL, right?

Mr. Penny. Yes.

Ms. Brookins. I think monetization has worked in a number of
countries. We have to be careful how we use it, and we have to be
careful that we approve of the right types of uses for it in terms
of the projects that would be implemented from the use of those
funds. But if it does give us an additional ability to leverage our
resources in helping the Russians make this important trans-
formation, I don't have any objection to it.

Mr. Penny. Carol, I think you mentioned in your testimony that
the Europeans are looking at a free-trade arrangement with Russia
and the other Republics. What does that really mean in the case
of Russia, and how would the United States relate to that issue?

Ms. Brookins. I think basically what it means, Mr. Chairman,
is that the European Community sees Russia as a phenomenally
important long-term market. I mean, the European Community is
resource-short; Russia has resources. The European Community
has major surpluses of grains and other commodities. They see
Russia, and particularly the Asian part of Russia, as a source of

234

materials; they see the long-term farm problems as providing a
dumping ground for their commodities.

If you look at it, it's absolutely amazing, because at the same
time they're having problems even dealing with Poland and Hun-
gary, because those countries have surplus agricultural commod-
ities and they have a lot of problems importing those. But I think
it's definitely a strategic economic move on their part to try to pull
Russia under their sphere of influence.

Mr. Penny. But in terms of the relative barriers, tariffs, quotas,
et cetera, what

Ms. Brookins. It would pull them under the European system.
The Europeans have already been out preaching to the East Euro-
peans why they all have to adopt a common agricultural policy like
the Europeans, and they've already hurt us badly in certain prod-
ucts where they've set up preferential tariffs with those countries,
deliberately set to keep our products out.

Mr. Penny. What could we do in response to this? What's the
best approach the United States could take?

Ms. Brookins. I don't think it would be — if they're going to be
looking at a free trade-agreement with Russia, I don't see why we
couldn't be considering similar measures or at least to maintain
Russia as a — in terms of seeing whether there's mutual benefit for
us in creating a free- trade agreement with Russia.

Mr. Penny. And would you apply to the other Republics or to
other Eastern European nations the same philosophy?

Ms. Brookins. I would certainly say that if they're able to re-
spond. I don't think we can let particularly Russia fall under the
grasp of the European Community. East European countries are
somewhat different, some of the Central European countries, be-
cause they're so tied even right now to Germany.

Mr. Penny. Were there any other questions from committee
members before we wrap this up?

[No response.]

Mr. Penny. If not, I want to thank this panel. You've been tre-
mendously helpful.

That concludes our hearing.

[Whereupon, at 11:10 a.m., the subcommittee adjourned, to re-
convene, subject to the call of the Chair.]

[Material submitted for inclusion in the record follows:]

235

Prepared Testimony for the House Subcommittee
on Foreign Agriculture and Hunger
for delivery April 1. 1993

Dr. Don Van Atta

Research Associate

Center on East-West Trade. Investment and Communications

Duke University

Mr. Chairman and members of the subcommittee.

You asked me to address in particular political obstacles to reform in
agriculture. The major point to understand about those obstacles is that the
system of collective and state farms in Russia which has developed since Stalin
initiated forcible collectivization in 1929 is primarily a mechanism for exercising
political power.i This is so even though the farms obviously have an economic
function, and the original justification for collectivization was put in economic
terms. Five principal conclusions flow from this fact.

First, since the collective farm system is the bedrock on which the
Stalinist system was built, agrarian reform is vital if Russia is to have a stable,
democratic future. Agrarian reform, of course, means both the creation of

^ there were once legal differences between a collective farm (kolkhoz)
and a slate farm (sovkhoz). However, those differences were and are mostly
formal and quite unimportant for the argument I wish to make. Therefore I will
refer throughout this presentation to this entire system as the collective-farm or
kolkhoz system. For similar reasons I will refer to state-farm directors and
collective-farm chairmen simply as "farm managers.'

236

Van Atta

competitive market structures upstream and downstream of the farms and
fundamental transformations within the farms themselves.

Second, many collective and state farm leaders and members have little
or no interest in agrarian reform because it threatens the power and position of
the leaders and the secure, if poor, life of the workers.

Third, because the old 'command-administrative* apparatus has been
destroyed but most people have not yet adjusted to the fact, most average
Russians have little concern with what goes on in Moscow. Nor can Moscow
really do a great deal to affect most people 'outside the beltway.' The ties
between central policy, actual policy as it is carried out (or. more often, fails to
be carried out), and what happens in day-to-day life are too obscure and
uncertain. Russia is well on its way towards breaking down into regional
satrapies, what Russians fearfully call 'appanage princedoms.' It is unlikely
there is much we can do to stop that process, even if we think we should (and I
am not sure I do).

Fourth, land and agricultural reform are the most politicized issues in
Russia and the other Soviet successor states today. Attempts to change the
Russian constitutional prohibition on private sales of agricultural land-
essential for any real maricet economy as well as any credit system— led directly
to the constitutional crisis in Russia with wtiich we have all been so concerned
in the past two weeks. So aid to Russian agriculture cannot be treated as a
purely technical problem. Yet understanding that this is a political issue means
that the United States must decide what its own interests in Russian
development, stability, and democracy are. We must also be aware when
attempting to affect those ends through aid and diplomacy that our efforts might
very well fall, leaving the United States identified with the (for the time being)
losing side in a bitter internal political debate in Russia

237

Van Atta 3

Fifth, giving agricultural aid to the Russians is particularly difficult
because to be effective it must not simply be dumped off in fvloscow. Effective
aid can only be local assistance. But we have little real knowledge of conditions
or people outside of Moscow, and simply transfemng procedures developed to
help very different societies to the Russian context will not achieve their purpose
of helping the Russian people. Y et such attempts are certain to cause endless
scandals in the US and Russia and ultimately discredit the whole idea of aid to
the Newly Independent States.

Let me now expand on the considerations which led me to those general
conclusions. I want first to examine the way Russian agriculture has been run
and how that created the conservative parliamentary "Agrarian Union" fraction,
then describe the on-going Russian agrarian reform. I conclude with some
further reflections on the need for agrarian transformation, and aid. "from
below."

About 85% of Russians still lived in the countryside in 1929. Almost all of
them were peasants. As a result, the major share of the national income still
came from agriculture. Control over rural resources— capital, labor, and
especially food— was therefore absolutely essential if rapid industrialization
was to be achieved. Y et the Bolshevik Party had little or no presence in the
countryside. Stalin solved this difficulty by the rapid imposition of standafd
model collective farms throughout the entire country. The costs were enormous,
not only in lives but also because the collective system never generated the
kind of sharp increase in productivity which preceded the industrial revolution in
Westem Europe. The Soviet Union was permanently dependent on an each
year's uncertain harvest in a way no westem capitalist country has been for a

CO /1/10 /~i

238

Van Atta 4

century. But collectivization achieved its immediate goal of subduing the
countryside.

Because they were political devices forcibly imposed, the collective farms
were designed and intended to be run on command from above. To this day
sowing, harvesting and the other operations of farm life are camed out by
directives "sent down" from local, regional, and ultimately national authorities.
Managerial initiative has often been harshly punished. Vasilii Starodubtsev. the
chairman of a model kolkhoz in the Tula oblast' which some of you may have
visited and who is now better remembered for his part in the August 1991 coup,
was very nearly jailed under Brezhnev for corruption because he did what he
had to do to make his farm operate well. Vasilii's brother Dmitrii actually did go
to jail in the 1970s for similar "offenses."

Within the farms, the managers tend to treat their wori<ers the way higher
authorities have treated them: as automatons to be ordered about. Most good
farm managers have an authoritarian management style which would have
been congenial— if pertiaps harsh-seeming— to Henry Ford. Such paternalism,
of course, has advantages for many of the woricers. They do not have to woric
very hard and their needs will be taken care of by the boss. The ties of
dependence on the management— not just for work, but for housing, medical
care, education, stores, transportation, recreation, and for every other daily
necessity— make these farms what the sociologist En/ing Goffman called "total
institutions." akin to military units or prisons in the degree of control they
exercise over their subjects' lives. Like long-term prisoners or career military
personnel, or indeed anyone else with long service in a particular social
context, the farm wori<ers have grown used to these conditions and find it
difficult to imagine how they could live otherwise. Thus they are very often
willing "prisoners" of their managers. Like supporters of any good political

239

Van Atta 5

machine in the US a century ago. they are lilcely to give their political support to
their managers in return for what they perceive as real benefits.

For Russia as a whole this farm organization system has become
increasingly dysfunctional because it does not reward anyone for initiative.
Leonid Brezhnev and his successors tried to fix this defect by throwing
increasing amounts of investment at the farms. Through the 1970s and 1980s
vast sums were pumped into agricultural development, only to be diverted to
other needs, lost to corruption, spent on mis-designed projects like the
enormous concrete cow bams which dot the countryside, or passed to
monopoly suppliers and processors as the prices they charged the farms rose.
By 1989 Yegor Ligachev was promising that food-supply problems could be
fixed by the big farms— if only the government would givaH state investment to
agriculture for the next five years.2 Happily, given the farms' previous track
record, his advice was not followed, but big-farm managers still believe that
their basic problem is one of inadequate state investment. They are perhaps
right, but the record of how past investment has been used suggests that they
will not use investment any more wisely until the basic organization of Russian
agriculture changes.

The entire apparatus of agricultural administration extending from the
Agricultural f^inistry through provincial and district agricultural administrations
served as a transmission belt for central orders. Of course, those local and
regional agencies developed their own institutional interests and sought to
defend "their" farms. But as long as the Communist Party exercised control and
discipline this system was overwhelmingly one in which orders flowed down
and reports of success flowed back up.

2 Speech to the USSR Congress of People's Deputies. December 1989.

240

Van Atta

Party dominance had at least four sources. First was the party's
nomenlclatura power of appointment and removal of personnel throughout the
party and state. Second was party discipline, effected by the district and
provincial party committees' ability to give party punishments to managers. Too
many reprimands certainly stopped career advancement, and could cost a
manager his present job. Third was the party member's immunity from state
prosecution. Party members had to be thrown out of the party before they could
be prosecuted, so crimes (such as the bribery and corruption needed to make
any enterprise woric efficiently under the old command system) could not be
punished unless the manager has his party card taken away. Fourth was the
finely calibrated system of access to privileges and scarce goods. Privilege
depended on one's job. The job depended on the party. So the party's
manipulation of its personnel powers governed who had what privileges, a
powerful lever in a society where distribution of all material benefits and all
paths of upward mobility were controlled by the CPSU apparatus.

When Gorbachev created the USSR Congress of People's Deputies in
1989 this system began to break apart. Careers no longer depended on the
party. The managers of exemplary farms, who were the ovenv helming majority
of rural representatives, used the Congress to shake themselves loose from
party control and act on their own Interests Once free of party control, they
sought first of all a change in their relationship with suppliers and processors,
all of whom had exercised monopoly power over the farms, and secondly they
sought to retain and improve their own control over their own subordinates
within the farms. Thus they were very interested in maricetization— so long as

3 Claiming that all managers felt this way is too broad a generalization, of
course. But the overwhelming majority did. and do. seem to do so.

241

Van Atta 7

state subsidies made ti^em competitive on the market— but not at all interested
in land reform if that land reform meant that their farms would be broken up and
they would lose their own positions.

As these changes were underway, the 1989-1990 debates over the
USSR laws on land and property served to formalize divisions among USSR
deputies, driving most of the rural deputies together into a quasi-party, generally
referred to as the 'agrarian deputies. "*» This organization carried over into the
Russian Congress of People's Deputies, where some 200 agrarian
representatives agreed to act as a bloc even before the first meeting of that
Congress in May 1991. Formally organized as the "Agrarian Union." this group
has continued to act together in each session of the Congress up to the present.
It is probably the most conservative voting bloc in the Congress, since the
agrarians oppose not only the end of state subsidies (a position shared by all
enterprise managers), but any and all privatization, especially of land. The
chairman of the Agrarian Deputies parliamentary fraction, f^ikhail Lapshin. is
also a member of the council of the National Salvation Front, the neo-fascist
"red-brown" political grouping opposed to any reform.

The land reform to which the agrarian deputies are so bitteriy opposed
developed in two main stages. The Second RSFSR Congress of People's
Deputies in November and December 1990 approved the first legislation.
Collective and state famis were to be divided and reorganized by determining
land and property "shares" for all their woricers. Individuals could sell their
shares to the fami and leave the countryside or withdraw their shares to set up

* I have traced this process in more detail in my article "Political
Mobilization in the Russian Countryside: Creating Social Movements From
Above." pp. 43-72 in Judith Sedaitis and Jim Butterfield. eds.Perestroikafrom
Below : Social M ovementsin the Soviet Union (Boulder. Colorado: Westview.
1991).

242

Van Atta 8

family or smaller-group farms. However, free sale and mortgaging of land was
forbidden for ten years. During 1991. unprofitable farms were to be encouraged
to reorganize themselves, but no general reorganization of the countryside was
planned.

A series of presidential and governmental decrees in December 1991
and January 1992 began the second stage of the land reform. Agricultural land
would be denationalized and given to the farms. By fvlarch 1. 1992, each
collective or state farm's "labor collective" was to decide whether the farm's land
would become their property as individuals, as a group, or in some other form.
By January 1. 1993. all farms were also to reorganize themselves and re
register with the state.

Profitable farms could reorganize in three ways: 1) as new-style
collective farms (a hasty congress of collective farmers met in February 1992 to
approve a new. more liberal standard set of farm rules); 2) as farmer-owned
joint-stocic societies (essentially similar to westem Employee Stock Ownership
Plans); or 3) as associations of independent peasant farms in which land and
capital are held privately, but farmers woric together on one another's land for
specified purposes. They could also decide simply to go out of business.
Unprofitable farms were to be broken up. their assets sold to the farmers or
outsiders. If the farm's existing woric force did not wish to organize a new farm,
the State Land Fund would redistribute its land.

Creation of individual farmsteads has been the most publicized part of
the agrarian reform. Only marginal political figures, such as the journalist Y urii
Chemichenko. argue that all the collective and state farms should be quickly
broken up. But many "peasant" family famns are needed, reform supporters say,
to give city dwellers incentive to return to the countryside and repopulate areas

243

Van Atta 9

which are now almost deserted. Competition from private farms will force the
collective and state farms to be more efficient.

As the reform mechanisms have begun to operate, the Ministry of
Agriculture has found itself caught in a kind of self-destroying position. The
fvlinistry was established and organized to run agriculture from the capital.
Although the Minister. Viktor Khiystun. is a convinced reformer, most of his
subordinates, including his deputy and first deputy ministers (who are
appointed by the Russian prime minister, not the Minister himselQ are
professional agricultural administrators who have spent their entire careers in
the old system and oppose change. Moreover. Khiystun had few levers for
change beyond sending orders for change to the localities, where, as one farm
chairman recently told me; 'the district authorities called us together and said
we had a month to reorganize. Do it or else."

As maricet mechanisms begin to operate, however, the Ministry's control
over agriculture has declined. Economic turmoil, problems in getting allocated
funds from the Central Bank and Ministry of Finance, and the general
breakdown of the old state-enforced economic system have made the Ministry's
activity increasingly irrelevant for the people on the land.

Central authority to carry out the agrarian reform, and the definition of the
reforms themselves, were further confused during 1992 by conflict between
President Yeltsin and his Vice President. Afghan war hero AlexandetRutskoi. In
late February 1992. Yeltsin issued a directive giving Rutskoi personal
responsibility for carrying out the agrarian reform as well as converting defense
industry plants and resources to agricultural ends.s Since Y eltsin had eariier

5 "Ukaz Prezidenta Rossiiskoi Federatsii: O porucheniiakh i
polnomochiiakh vitse-prezidenta Rossiiskoi Federatsii •Rossiiskievesti. No. 9
(March 5. 1992). p. 4.

244

VanAtta 10

issued a decree relieving Rutskoi of most of his responsibilities in the Russian
government, giving him the agricultural portfolio may have been intended to get
rid of the increasingly fractious Vice President by assigning him a post which
had doomed many careers in the USSR.s Yeltsin's later decision placing
Rutskoi in charge of the fight againstcrime as well as the agrarian reform also
suggests that the President wanted to rid himself of a political embarrassment,
not really have him do anything/

Although he admittedly knew little about agrarian policy when he
received his new task. Rutskoi refused to be shunted aside, moving quickly to
fulfill his new responsibilities. He learned quickly, managing to produce a four
hundred-page book on the agrarian reform in Russia by the middle of 1992.8

In mid-April, as the Congress of People's Deputies was refusing to
amend the Constitution to permit the free purchase and sale of land, the vice
president published a long article in Sei'skaia zh/'zn'— the old official
agricultural newspaper known for its conservatism— proposing general coupon
based privatization of agricultural land.' Rutskoi proposed free trade in the

6 Alexander Rahr. 'Rutskoi in Opposition. RFE/RLDailv Report f January
2. 1992).

' "Ukaz Prezidenta Rossiiskoi Federatsii: O merakh po zashchite prav
grazhdan. okhrane pravoporiadka i usileniiu bor'by s prestupnost'iu." No. 1189
(Octobers. 19921 VedomostiS"ezda narodnvkh deputatov Rossiiskoi
Federatsii i VerichovnoQoSoveta Rossiiskoi Federatsii No. 42 (October 22.
1992). article 2373, pp. 3156-3158. The fact that one of Rutskoi's bitterest
enemies. State Counselor Gennadi! Burbulis. was also named to the crime
commission increases the impression that it was not really expected to function.

8 A. v.. Rutskoi Agcamaia reforma v Rossii (Moscow : 1992). After 1CXD
copies of formatted proofs were circulated and the book's publication was
announced at a press conference in mid-summer, it was withdrawn for revision.
The type was reportedly broken up. The so-called Russian-American
University, actually a military-industrial complex think tank, issued a 10. COO
copy edition of a shortened version of the book in February 1993.

245

VanAtta 11

coupons— and. therefore, in agricultural land— for anyone with the money to
buy.

Although his ideas seem to be in the spirit of the radical privatization
proposed by the Gaidar government. Rutskoi generally sounds "conservative."
He has called for returning to a "regulated" (slow) transition to a market
economy and says the program to set up individual farms has failed. His
proposal would apparently undo all the land redistribution and privatization so
far accomplished. The individual farmers' interest group AKKOR— Association
of Peasant Farms and Agricultural Cooperatives of Russia— has publicly
wom'ed that all the new peasant farms set up so far could lose their land under
Rutskoi's plan.

The Russian vice president understands agrarian reform as a technical
matter of raising productivity, not as a socio-economic transformation of the
country's basic rural institutions. In a probably-unconscious imitation oStalin's
"Dizzy with Success" speech, which ordered a halt to collectivization so that
spring planting could proceed. Rutskoiordered local officials to suspend farm
reorganization because production came first in a March 16. 1992telegram.9
He has argued that the small farms being established as a result of the division
of the collective and state farms on theshare system are uneconomical and a
waste of resources (which, so long as fanners cannot lease or purchase
additional land and equipment, many of them certainly are). Rutskoi accordingly
took responsibility for establishing a Russian corporation.ROKAP. which would
sell amis abroad and use the proceeds to build "turnkey" fami^.o These ready-

9 The telegram is reproduced without a title irZemliai liudi. No. 13
(March 27. 1992). p. 1.

10 "Ukaz Prezidenta Rossiiskoi Federatsii: O programme Rossiiskoi
korporatsii agropererabotki 'Pole-Magazin." mimeo (March 20. 1992).

246

Van Atta 12

made farmsteads would be leased out for twenty years, preferably to
demobilized military officers, who would pay for them with a part of their
produce.

Rutskoi is locked in a bureaucratic battle with the Ministry of Agriculture
and the State Committee on Land Reform, which were charged with carrying
out the agrarian transformation in the 1990 and 1991 legislation. The Vice
President established his own institutional base, thrf^'ederal Center for L.and
and Agroindustrial Reform, a quasi-private for-profit institution, in mid-1992^^
Former state farm directorVitalii Y ermolenko was appointed to head the
Center. 12 By the end of 1992. the Federal Center seemed to have wrested much
of agricultural policy-making authority from the Ministry of Agriculture and
Goskomzem. The latter agency was stripped of its reform functions, leaving it
only monitoring of land use and sun/eying. by an eariy October 199^
presidential decree reorganizing the govemment. At the same time, the Ministry
of Agriculture's Main Administration for Land Reform was shut down.

On October 30. 1992. Rutskoi issued a vice-presidential directive
ordering that all land taken from collective and state farms foiredistribution be
returned to them until such time as norms for land distribution should be
property worked out.i3 Read literally, this directive seemed to require that land
already deeded to private farmers be given back. Rutskoi's chief agricultural

11 "Ukaz Prezidenta Rossiiskoi Federatsii: Ob organizatsionnykh merakh
po provedeniiu zemel'noi i agropromyshlennoi reformy v Rossiiskoi Federatsii'
(June 27. 1992). Zemlia i liudi. No. 28 (July 10. 1992). p. 1.

12 For an account of a meeting with Y ermolenko. see Jerry F. Hough.
'Agricultural Reorganization." The Politics of Post-Soviet Reform: Agriculture.
No. 2 (November 1. 1992). pp. 1-3.

13 A. Rutskoi. 'Rasporiazhenie vitse-prezidenta Rossiiskoi Federatsii: O
merakh po ispolneniiu Ukaza Prezidenta Rossiiskoi Federatsii ot 2marta 1992
g. No. 213 "O poriadke ustanovleniia normy besplatnoi peredachi zemel'nykh
uchastkov v sobstvennosf Qrazhdan."Sel skaia zhizn' (November 6. 1992). p.
1.

247

Van Atta

policy advisor. Nikolai Radugin. justified this extreme measure because of the
incompetence of the Ministry of Agriculture andGoskomzem. a clear reference
to the struggle for policy authority between those bodies and the Federal
Center. ■'4 However, doubts about Rutskoi's authority to issue such a command,
as well as quick clarifications from Goskomzem. blunted the effect of the order.
In areas of the country where local officials favored land reform, the directive
had little effect. Where they did not favor reform, thelirective simply
strengthened their reasons for resisting.^s

Although Rutskoi's attempts to stop institutional change in the
countryside, like his repeated declarations during 1992 that the agrarian reform
had failed 16. could be justified as purely technical judgments-food supplies
had not been increased by reform, so it was not successful— they effectively
allied him with the most vocal opponents of any agrarian reform at all. the most
intransigent farm managers and local officials.

Perhaps the most hopeful thing that can be said about this confused tale
of central wrangling is that it may not matter very much. The conflict of laws,
regulations, and agencies in post-Soviet agriculture is so severe that much of
the system is running on inertia or newly established direct ties between
producers, suppliers and consumers which avoid all the administrative
agencies and so any systematic accounting.

14 N. Radugin. "O khode zemel'noi reformy.Ssilskaia ZtliZDl (November

15 This analysis is based on the author's conversations in Moscow in

16 For instance. Aleksandr Rutskoi. "Agropromyshlennaia reforma: Kakoi
ei byt'rSeLsllsia zhizn' (April 15. 1992). pp. 1-2 and 'Aleksandr Rutskoi.
Legche poiti v ataku na batareiu vraga chem pobedif korrumpirovannykh
chinovnikov."l2V£stiia (October 8. 1992). p. 3.

248

Van Atta 14

The governmental breakdown in Russia is not surprising or unexpected.
Without party discipline to enforce central orders, and with the increasing
importance of market relationships for individual Russians, the government has
no way to enforce its decisions. Local authorities have taken the opportunity to
establish their own restrictions on commerce, and particulariy on the movement
of foodstuffs. Growing local autonomy and variations in policy are not
surprising, but they further contribute to the disintegration of central government.

It seems unlikely that central authority in Russia can be really re
established until most citizens see a reason to do so. They will have such a
reason only when they have real economic interests which they wish to defend.
So the maricet reforms under way are the only real hope to generate a new.
competent political system. While that chaotic and extremely painful process Is
going on. however, there will continue to be govemmental chaos in the capital
and crises of the sort which has just snared president and pariiament. To be
effective, therefore. American aid has to avoid much of the central political
turmoil, instead concentrating on individuals and voluntary organizations which
can rebuild something from the mess.

Don Van Atta received his Ph.D. In Political Science from UC Berkeley in
1964 for a dissertation examining why attempts to reform labor organization on
Soviet terms had always failed. He has written widely on Russian and Soviet
agriculture. He has also edited a forthcoming collectionltifi 'Farmer Threat':
The Political Economy of Agrarian Reform in Post-Soviet Russia (Boulder:
Westvlew Press. 1993).

Van Atta has done extensive field woric in the Russian Federation, as well
as living In L^via for six months with his family on a grant from the Intemational
Research and Exchanges Board. He is currently conducting a study of 'The

249

Van Atta

New Stolypin Reforms: The Politics of Rural Privatization." funded by the
National Council for Soviet and East European Research. He is an (unpaid)
consultant to the Association of Private Farms and Agricultural Cooperatives of
Russia (AKKOR). the major Russian private farmers' organization

250

Equity Relations and the Future
of Agrarian Reform in Russia'

Stephen K. Wegren

Department of Political Science

Southern Methodist University

Dallas, TX

EXECUTIVE SUMMARY

• The purpose of reform, from the government's point of view, is twofold. First, and
most urgent, is to provide sufficient quantities of food at reasonable prices to consumers.

• The second purpose of reform is to introduce efficiency and cost-efTeciiveness into the
system that heretofore was lacking.

• The consequences of price liberalization resulted in an extreme financial drain from the
rural sector and forced ihe Yel'tsin administration to introduce compensation and further
subsidies to food producers. By mid-1992 the state began to pursue a more egalitarian
policy toward all farms.

• The sources of egalitarianism under Yeltsin are twofold. First, we can see a carryover
from Soviet rural egalitarian policy.

• Second, the effects of market reform led to an abandonment of rural differentiation
anyjng farms. These basic impulses can be seen by reference to a number of aspects in land
reform.

• Obtaining Land

• The "Law on Peasant Farms" stipulated the right of "every able-bodied citizen" who

' Tlje research for this article is basod upon field work in Kosuoma OWasL Three trips by the author were
made within a twelve month period, ihc first in December 1991-Janiiary 1992, the second during June-July
1992, and the third in January 1993.

A reference list of sources obtained in Kostroma used in this paper api)cars at the end. Full citations for
other sources arc given in Uic footnotes.

251

possessed "specialized agricultural knowledge or past specialized training" to organize a
peasant farm. The RSFSR Land Code (chapter 10, article 58) added that any citizen at least
18 years old who has experience in agriculture and the corresponding skills or who had
past specialized training niay receive land. In practice, the way around the stipulation
requiring "experience in agriculture" is to enroll in a course intended for new peasant
farmers.

• In the course of state or collective farm reorganization, if the farm is to be disbanded
altogether, then farm land and property are divided among its workers. All farm workers
receive an equal share of land, irrespective of age or ability.

• If a person requests land from a special land fund, then an application for land is
submitted to the local land reform committee. The raion soviet decides whether the land and
how much of it will be given to the applicant. Each raion has a "norm" for land to be given
free for the creation of a peasant farm. In general, the better the quality of land, the closer
the location to markets, the smaller the land norm. Larger land norms usually are of poorer
quality land.

• Land Sales

• The sale and purchase of land became legal in November 1992, but with significant
restrictions. The purpose of these restrictions was to preclude the creation of large land
estates, which might lead to the acquisition of rival political power.

• Subsidies and Financial Support

• In 1992, all peasant, as well as state and collective farms, were eligible to receive
compensation for fuel, machinery, and fertilizer, irrespective of how efficiently those
resources were used. These blanket subsidies were intended to cover even inefficient
farms.

• The Rise of a New Rural Elite?

• There is suggestive evidence that former members of the nomenklatura and farm
directors have obtained the best lands and have used their connections to get machineiy and

252

fenilizers thai are denied to ordinary farmers.

• But there does not appear to be the formation of a new rural elite.

• There are two sets of factors at work precluding the rise of a rural elite, at least in the
short-term.

• First, there arc institutional restrictions, as seen above. Despite the fact that rural
differentiation is occurring, the government has absolutely no intention of allowing a rural
elite to emerge.

• The second obstacle to the emergence of a riiral elite is rural conservatism, manifest as
a basic aversion to free land sales and a residual anti-kulak attitude in the countryside.
CONCLUSION

• Despite the rhetoric for the peasant to "enrich himself," in fact the state has intervened
in order to uy to enforce an egalitarian policy among rural dwellers in reform .

• The effects of rural egalitarianism on reform outcomes are clear.

• Rural egalitarianism prevents the rise of a stratum of strong, efficient farmers.

• Those who have been successful at some degree of differentiation are few in number
and most likely cannot boost production significantly in the foreseeable future.

• Overall, the peasant farm movement is comprised of small fanns-three persons on
average; there is little machiner>' on farms, less than one tractor per farm; farms have just
few head of livestock; and "farmers" are overwhelmingly former urban residents looking
for reliable food supplies.

• Within the land reform movement, private plots have been the most popular fonn of
land privatization.

• Given that the peasant farm movement is plagued with political and economic
difficulties which constrain their production, it is likely that Russia will remain a food
importer for at least the near-term.

253

Equity Relations and the Future
of Agrarian Reform in Russia'

Stephen K. Wegren

Department of Political Science

Southern Methodist University

Dallas, TX

INTRODUCTION

There is now a recognition that if overall econohiic reform is to succeed, agricultural
reform must lead the way, as it did in China. TTie purpose of reform, firom tlic
government's point of view, is twofold. First, and most urgent. Is to provide sufficient
quantities of food at reasonable prices to consumers. The second purpose of reform is to
introduce efficiency and cost-effectiveness into the system that heretofore was lacking,
which in the long-run will cut dependence on foreign imports.^ A primary means of
acliieving the second goal is through the development of private peasant farms, the focus of
this paper. We will address Russia's propsects for attaining its goals in our conclusion.

EQUALITY AND RURAL-RURAL RELATIONS

Initially under Yel'tsin, a bold attempt was made at increasing rural differentiadon at
tlie farm level in 1991 and eariy 1992. The intent was to create a stratum of strong,
efficient, productive farms. Within six months, that effort faded, and subsequently land
reform has been conducted with the purpose of maintaining relative equality among rural

' The research for this article is based upon fidd work in Kostroma OblasL Three trips by the author were

made within q twelve month period, the first in December 1991 -January 1992, the second during Juno-July

1992, and the third in Januiiry 1993.

A reference list of sources obtained in Kostroma used in Uiis paiw appears at the end. Pull citations for

Other sources ore given in the footnotes.

^ The Soviet Union, and now Russia, have averaged around 30 million tons of grain imports annually since

the mid-1980s.

254

food producers.^ In 1991 and through the first months of 1992, the Ycl'tsin regime
pursued a series of state interventions designed to enforce rural differentiation. What the
regime did not anticipate however, was the effect of market reforms on urban-rural
relations and the significant shift that turned economic temis against the agricultural sector.

For example, during 1992, purchase prices for agricult\iral products rose an average of
10 times, but prices for basic industrial products used by state and collective farms
increased an average of 17-20 times.^ For example, a "MT3" tractor that had cost 6,000
rubles in 1990 was priced at 240,000 rubles at the beginning of 1992; a "Don" combine
rose from 47,000 rubles to 1 .6 million during the same period; and a plow for a tractor
increased from 675 rubles to 9,500.5 Onc should note these arc prices for the beginning of
1992, prior to inflation in the course of that year that has been estimated as high as 2,000
percent More recently, it was noted that a "Belarus" tractor had increased in price from
360,000 rubles to 1 .3 million during 1992.^

The consequences of price liberalization resulted in an extreme financial drain fix>m the
rural sector and forced the Yel'tsin administration to introduce compensation and further
$ubsidie.s to food producers. Despite these measures, as well as a doubling of procurement
prices for grains in August 1992, the indebtedness of the agro-industrial sector increased
from 69.3 billion rubles on January 1 , 1992, to over 733 billion rubles on November 1 ,
1992."' By mid- 1992 the state began to pursue a more egalitarian policy toward all fanns.

The sources of cgalitarianism under Yeltsin are twofold. First, we can see a carryover
from Soviet rural egalitarian policy. This continuation is seen by the way legal institutions
governing land reform arc defined. Second, the effects of market reform led to an

^ For nn nnatysis of Yel'tsin's early rural social policy, sec Stephen K. Wegren. "TVo Steps Forwaid, One

Step Back: the Poliiics of an Emerging New Rural Social Policy in Russia," govjet ai)d Posi-Soviet

Review, vol. 19 nos. 1-3 (1992), pp. M9.

'' Ekonomika i 7hi7n' no. 5 (February 1993). p. 4.

5 V. Miloserdov. "Problcmy agramoy politiki," APK: ekonomika. uprvaleniye. no. 7 (July 1992), p. 15.

^ Arimmenty I fnkty no. 6 (Febniary 1993). p. 2.

^ Sel'skava zhizn'. December 11. 1992. p. 1.

255

abandonment of rural differentiation among farms. These basic impulses can be seen by
reference to a number of aspects in land reform.
Obtaining Land

The "Law on Peasant Farms" stipulated the right of "every able-bodied citizen" who
possessed "specialized agricultural knowledge or past specialized training" to organiie a
peasant farm. In the case of many claims, preference is given to citizens who live in that
locality. The RSFSR Land Code (chapter 10, article 58) added that any citizen at least 18
years old who has experience in agriculture and the corresponding skills or who had past
specialized training may receive land. In practice, the way around the stipuladon requiring
"experience in agriculture" is to enroll in a course intended for new peasant farmers.

Rural egalitarianism can be seen in the way prospective famiers obtain land. There are
two main methods for obtaining land. The first method is to obtain land from a coUecdve or
state farm. As the farm reorganizes, its workers are entitled to leave the farm, and to be
assigned land shares. If the farm is to be disbanded altogether, then fann land and pix^eity
are divided among its woricers. In die latter case, all farm workers receive an equal share of
land, irrespective of age or ability.

If a person requests land from either a farm or then special land fund, then an
application (oc land is submitted to the local land refomj committtc,' After the land
committee processes the {q)plication, it sends the application to the raioa soviet The raion
soviet decides whether the land and how much of it will be given to the ^iplicant Each
raion has a "norm" for land to be given £rce for the creation of a peasant farm.^ In some
areas, the norms are very small, and additional land may be purchased or leased if desired
The size of land norms arc related to Ae quality of the land as well as the number of
claimants. In Kostroma raion. the norm for free land is 3.2 hectares. In outlying regions.

S In Kostroma Oblast, the Committee on Und RoTonn consisted of 27 people, and each rakn had Its own
btanch. The ccnual omcc for Uie oblatt was located in Kosuoma dty am) had a lUff o( S peopki

»ICo«tmmtkcivkr«v. MaiCh 10. 1992, ^ 1.

256

where land quality is worse and the number of people fewer, the norm for free land was 14
hcciares.'" In general, the better the quality of land, the closer the location to markets, the
smaller the land norm. Larger land noiros usually are of poorer quality land.
Land Sales

In November 1992, the Russian Parliament finally legalized the sale of land, but with
conditions attached." These restrictions involved the purpose the land was to be used for,
the price of land, and the size of the land plot. First, the land could be sold only for
purposes of subsidiary agriculture flichnove podsobnove khozvavstvoV plots around
dachas, gardening, and individual housing. If the land being sold was used for these
purposes, then it could be sold without a moratorium, provided that the purpose for the
land use was not to change.'^ In other cases, if the land was sold for puiposes other than
those stated above, and had been received free in ownership, then the land had to be held
for 10 years before it could be sold. If the land had been purchased, then a five-year wait
was required. '3 The purpose of these restrictions was to preclude the creation of large land
estates, which might acquire rival political power, This altitude is best seen by the recent
comment made by the Minister of Agriculture, Viktor Khlysiun, wi)o, when talking about
the new right to buy and sell land, commented

What we are talking about is tlie establishment of a civilized
market in land, regulated by the state, a market in which agricultural
land cannot be sold for other purposes. Tliis must be governed by
strict state regulations. We are talking about a market in which land
cannot be sold for the aeation of latifundia-very large estates. ^^

Subsidies and Financial Support

^^ Of course, a person can buy or lease additional land above the Tree norm. In Kostroma raion during 1992,

additional land could be purchased for 5,000 rubles per hectare.

" Izvestiva. November 20. 1992, pp. 1-2.

'2 Sel'skavfl zhjjn' November 24. 1992. p. 1.

13 Izvegtiva. December 8. 1992, p. 1.

'^ Moscow Television, (ran.<)laied in Foreign Broadcast Information Service, QpmrtA Eurasia. December 29,

1992. p. 26.

257

The egalirarian nature of rural-rural relations is seen by the fact that all peasant farms in
1992 were eligible to receive compensation for fuel, machinery, and feitilizer, iirespective
of how efficiently those resources were used. Thus, blanket subsidies were intended to
cover even inefficient farms. Moreover, the subsidies offered by (he state for animal
husbandry products were differendated by region paying northern regions more per ton
than southern regions for those products that were delivered to the slate. In essence, this
system was a continuation of the old Soviet zonal pndng scheme that paid inefficient farms
more per unit out output in order to cover higher production costs.
The Rvie of a New Rural Elite?

Is a new rural elite emerging? It is very difficult to say with any degree of certainty.
There is only scant statistical data. There is, however, suggestive evidence that former
members of the nomenklatura and farm directors have obtained the best lands and have
used their connections to get machinery and fertilizers that are denied to ordinaiy farmers.^
In Kostroma Oblast, for example, there is evidence of rural differentiation. On average,
there was less than one tractor par farm in the summer of 1992. While the largest farms,
those over 200 hectares, comprised just 3 percent of the number of fanns, they hod 27
percent of the tractors among peasant farms in Kostroma Oblast. Data from Kostroma
Oblast also show thai the number of persons employed on larger farms is higher, almost 17
persons per farm for farms above 200 hectares, and six persons per farm fw farms
between 100-200 hectares, while for the oblast as a whole the average farm has just three
persons.'*

To say there is a new rural elite is quite different than saying there is evidence of
ongoing differentiation among rural groups. There are two sets of factors at work
precluding the rise of a rural dite, at least in the shori-iemi. First, there are institutional

15 See for example, Kenneth Gray "The ProccM of Russian Land Privaliralion in 1991 and 1992.' EOUDfit
U.SSR Apriculnirft and Tmde. Report. RS-92-1 (Washington, DC: USDA. May 1992). p. 17.

16 KrcsL'vaiiskivc kho;^vavstv« Kosiromskov ohln?rti na 1 Ivulva 1992 eoda. pp. 7-8.

258

restrictions, conuolled and managed by the state. Despite the fact that rural dii^erentiation is
occurring, the government has absolutely no intention of allowing a rural elite to emerge.

The second obstacle to the emergence of a rural elite is rural conservatism, manifest as a
basic aversion to free land sales and a residual anti-kulak attitude in the countryside. In
Altai Kray, for example, a recent survey among rural dwellers showed that 95 percent
opposed the free sale of land.'^ That a basic egalitarian culture still exists in the countryside
is further evidenced by press stories of sabotage against successful farms, and in 1992
legislation was passed allowing farmers to own and use weapons to protect their property.
Russian land reform, therefore, differs from that in other countries in that land distribution
is intended not to break the power of an old rural elite, but to prevent the rise of a newly
landed, powerful, rural elite.'®

CONCLUSION

Despite the rhetoric for the peasant to "enrich himself," in fact the state has intervmed
in order to try to enforce an egalitarian policy among rural dwellers in reform . In January
1993, promises were made that further subsidies and financial support would attempt to
differentiate among farmers based on effectiveness, but specifics about how this would be
achieved have not been published.

The effects of rural cgalitarianism on reform outcomes are clear,

1. Rural egalitarianism prevents the rise of a stratum of strong, efficient farmers.

2. Those who have been successful at some degree of differentiation arc few in number

^' Sd'skava /.hi/n'. January 12. 1993, p. 1.

^^ One might nrgue (hnt land disiribution is intended in pan to lessen the power of tho old communist rural
elite in general and of state and collective farms in particular. This argument has a degree of validity, but I
would finst argue that vis-a-vis the urban communist elite, the rural clilc was weak and fairly ineffectual.
Second, it is unlikely tliat any counter-elile, especially a rural one, would have been tolerated in the old
Soviet system. Instead, rural inicrcsls would have bccn co-optod and "TCprcscnua' by (he urban-based
communist elite. We could measure this weakness through representation on elite bodies, lagging wages,
poor rural infrastructure, poor rural health care and medical facilities, lack of rural amcnillos, and any
number of oilKr indices. For more on this subject sec Stephen K. Wcgrcn, "The Social Conuaci
Reconsidered: Peasanl-Slale Relations in the USSR," Soviei Geography, vol. 32 (December 1991), pp.
653-82.

259

and most likely cannot boost production significantly in the foreseeable future.

3. Overall, the peasant farm movement is comprised of small farms— three persons on
average; there is little machinery on farms, less than one u-actor per farm; farms have just
few head of livestock; and "farmers" are ovenvheimingly former urban residents loc^ng
for reliable food supplies. As a result, pnxiucdon results from private farms were rather
meager in 1992. According to published statisitcs, peasant farms produced one-half million
tons of grain (about 2 percent of the total amount purchased by the state), less than one
percent of the potato harvest, less than one percent of the vegetables, less than one percent
of the meat and poultry, and less than one percent of the milk produced in the country. ^^ In
all, about two percent of total agricultural output came from private peasant farms.

4. Within the land reform movement, private plots have been the most popular form of
land privatization. These are on average small (one acre) and have the primary purpose of
augmenting the family's food supply. Their output, measured in temis of total agricultural
output in the nation, is significant, estimated at more than 25 percent of gross output, but
most of diis produce is consumed.

5. Land reform is limited in its ability to solve Russia's food problem. Land reform is
intended primarily lo increase production. We have not discussed here the problem of
losses in production that occur in the harvesting, storage, transportation, and distribution
processes. It is estimated the Russians lose between 30-40 of riieir gross harvest during
those processes, or approximately the amount they import annually. We have not discussed
the problenis associated with antiquated w nonexistent rural infrastructure. We have not
discussed the problems in the food processing sector. Thus, land reform is but one aspect
of the overall equation. A complete resolution of the food problem would require increased
production, more efficient production at lower cost, an overhaul of rural infrastrucnire, and
modernizing food processing.

^ ® "Agromaya reforma: dva goda spusiya," ZBitilva i Iviidi. no. 49 (December 4. 1992). p. 4.

260

6. Therefore, given that the peasant farm movement is plagued with political and
economic difficulties which constrain their production; given that the most popular form of
land reform, private plots, is intended for family consumption; and given that finances are
limited to construct an adequate infrastructrure and modernize food processing, it is likely
that Russia will remain a food importer for at least the near-tenn.

261

A Sanunary Review of the Food and Agriculture Situation
in Russia and The Former Soviet Union

Statement by Philip M. Raup

L Introduction

A lasting impression upon any visitor to the former Soviet Union who comes from the
United Sutes is how very much aHke the two areas are. This similarity exists in several dimensions,
apart from the topographic

One is the similarity in attitudes toward space and time. Unlike western Europe, transport
costs are a mi^or part of total production costs in American and in what was the USSR. Each
European nation lies within a single time zone; it takes four time zones to cross the continental
U.S., six time zones to include Hawaii and most of Alaska, and seven to pick up Alaska's western
tips. It takes eleven time zones to encompass the former Soviet Umon.

■This time-dlstance relationship breeds a consciousness of wide variations in climate, land
use and politics, in both America and the states of the former Soviet Union (FSU). It also yields
a sense of remoteness from centers of power. The attitudes of ranchers in New Mexico or wheat
growers in Montana toward Washington have much in common with views of Moscow held by
sheep herders in Uzbekstan or Kazakh wheat and barley growers. Government is far away.

Consider only the Russian Federation. It Indudes an area well over twice the size of the
continental U.S. Its population of 150 million is 74 percent urban, virtually the same as 75 percent
in Europe and 75 percent in the United States, but the contrasts between urban and niral are
perhaps sharper than in any other industrial country.

Consider one state, Kazakhstan. It is 3.9 times the size of Texas, 6.6 times the size of
California, and includes an area equal to 35 percent of the continental U.S. Its capital city, Alma
Ata, near the Chinese border, is some 1500 miles from its northwestern border, approximately the
distance from Dallas, Texas, to San Frandsco. California. The spatial problems of governance are
awesome.

n. Some Key Economic Variables

The task of restructuring the economy of the former Soviet Union must begin with a
recognition that it was a colonial empire, held together by mllitaty force, and organized along semi-
feudal lines. Its reorganization is triggering three simultaneous revolutions:

1.) The severing of feudal-like relationships between the rulers and those ruled
2.) The severing of colonial ties between the central power and the colonics
3.) A religious reformation

The states emerging from the Soviet Union, in short, are experiendng the trauma that in
Western Europe was associated with the break-up of feudalism, the Reformation, and
decolonization. This is telescoping five centuries of Western European evolution into a few years.

68-443 0-93-10

262

In telescoping these three revolutions, cenain economic variables •will play critical roles. It
will be wrenching to acknowledge that:

1.) Credit is credit, not welfare

2.) Interest is a cost of the use of capital, not a tribute to a sovereign.

3.) Property rights are efficient arrangements for conveying information, and not Just

permits for the exercise of monopoly power.
4.) Profits are essential for the growth of capital.
5.) Prices that fluctuate are integral elements of a market economy.

The majority of the people in the FSU are unfamiliar with uncertainty. They had had the
longest continuous period of stable consumer prices of any large population in modern times. The
transition to a market economy will be espeddly difficult in those sectors in which price distortions
have been greatest, namely: housing, transportation, energy, and land.

The most fundamental distortions arise from the lack of a price on land and natural
resources. This reflects a failure to recognize the fact that a market economy involves markets for
inputs as well as for ontputs-for factors of production as well as for products. The most direct
threat to the ideology guiding a planned economy arises from the prospect of a market for land.
Yet without a market for land, there can be no market-derived basis for choosing among
production alternatives involving space and dme.

This necessity for a price on land is central to an understanding of the complexities of the
privatization issue In Russian agriculture. At the outset, support for continuing privatization
requires patience. The supporting institutional structure will take time to construct. Those who
wish to derail or defeat privatization of asset ownership will seize on this argument as a basis for
delay. This is a danger that must be faced. It must be weighed against the fuel that a too-hasty
privatization can have long-lasting consequences that will be difflcull to remedy in the future.

One of these consequences relates to the faa that there has been no functional market for
agriculture land in the FSU since the fint world war. The zonal pricing system used for
agricultural products was designed to capture economic rent for the state. The highest commodity
prices were typically paid for products produced at locations most distant from markets. The lowest
prices, particularly for grains, were paid for products from the better lands, or those close to
market

It will be impossible to derive realistic prices for land until this inverted product pricing
system is reformed. This is under way, but it will take time. In the transition there will be a
massive reordering of ideas regarding the relative profitability of agriculture at different locations.
This will be reflected in changes in relative land prices that cannot now be predicted.

Any distribution of land based on values calculated firom present land uses will be wildly
distorted. This argues for caution m proceeding with prhratization. In the transition it will almost
surely be wise to rely on variant forms of use permits or leasing. In the existing structtire of
te\&th/c product values, outright sale or purchase of land could lead to give-away pricing or
impossible debt burdens. Privatization can be defeated by unsupportable efforts to achieve too
much too soon.

263

m. A Summaiy of Possible Consequences of the Collapse of Communist Agriculture

In the past, deficient supplies in state food stores made possible the growth of collective
farm or cooperative markets that provided an outlet for the products of small-plot agriculture. Any
fiiture shift to private fanning is Ukely to cause an inaease in the production of the types of
products formerly produced on the old private plots, and consequent declines in prices. If the
supplemental income ^om this source declines it will be more difficult for the big farms to bold
their labor supply. This could lead to rising labor costs, and rural depopulation.

One prospect could be an increase in labor costs on big ianns, forcing recognition of their
inefficiency, and an accompanying fall in income from private plots, leading to widespread
abaadonment This will reveal the faa that the big farms are too big. and the small plots are too
small. We can expect the emergence of farm units carved out of former collective or state farms
that could be large enough to retain their labor supply by providing full-time employment for one
or several families.

This will take time. Only a limited amount of farm equipment suited for farms of this size
is now being produced. A credit system serving farms of this size does not exist. Management
practices and work norms have been tailored to relatively large work groups or brigades, organised
around the principle of job specialization. Farm policy and practices in the FSU produced
^>edalists, not generaiists. A major change in orientation toward farm work will be needed and
this seems imllkely to occur until a new generation takes conmiand.

A second consequence of collapse has been accelerated by the depreciation of the ruble.
This has increased the urgency of the search for security, and is increasing the attractiveness of
owning a tract of land. Land appreciates in value as currencies depreciate.

Privatizing agricultural land when the currency is collapsing will thus insure that no market
process of vahiing land can be used. The result seems likely to be some form of payment for land
based on commodities, coupled with ceilings on land holdings set in terms of hectares. A precedent
for this solution was set by the land reform in Taiwan after 1951, with pigment denominated in
bonds pegged to rice and sweet potato prices.

IV. Land Tenure Adaptations to the Collapse of Communism

The historical record is ftill of cases in which bound peasants, serfs, or slaves have been
converted into shaiecroppers. With some exceptions, this has been an almost universa] stage in
the evohition of land tenure systems. With the collapse of centralized power over land use
decisions, and the chaotic state of the debate over land ownership, it seems likely that the existing
coDective and state farms will be converted into organizations with functions similar to those
exercised by landlords under share-cropping systems.

In the short-nm. there is scarcely any alternative. There is ix> stock of equipment suitable
for family sized famu. Buildings for livestodc and storage and handling equipment for field crops
are centralized and large scale. There is no system of production credit for small-scale producers.
There are many parallels with the situation that prevailed in southern sUtes at the end of the
American Civil War.

264

There are also Important diifereaccs. The institutional structure to support individual risk-
takers is almost totally lacking in the FSU. There is no locally available system for the registration
of title to land. Farm mortgage credit is virtually onknowo. There is no body of contract law
tailored to the needs of individual business enterprises or farms. Transfer of funds by the use of
bank checks or negotiable instruments (warehouse receipts or bills of lading) has never developed.
Insurance for business risk in private-sector agriculture does not exist

These and many other institutional defects make it likely that, whatever managerial forms
evolve from the collapse of communism, the &rm structure that emerges will resemble a share-
cropping system. A contractual basis for this evolution already exists in many western-style market
economies. Poultry and eggs, many types of vegetable aops, and fed livestock are increasingly
being produced in the United States under bailee or custodial contracts that represent highly
commercial variants of share-cropping. The grafting of this form of business organization in
farming to the remnants of the structure of commimist agriculture can be expected.

V. Prospective Trends in Orain In^rts

In 1988/89 and 1989/90 imports by the USSR accounted for over 20 percent of total world
trade in wheat and coarse grains combined, and for over one-fourth of total trade in coarse grains
considered separately. In 1992/93, imports by the states of the former USSR are fbrecast to drop
to only 13.8 percent of total world trade in v^eat and coarse grains, and to only 11.8 percent of
trade in coarse grains.

In vohjme, wheat imports by the USSR in the two years 1988/89 and 1989/90 averaged 1S.9
million metric tons annually, while coarse grain imports averaged 24.9 million tons. In 1992/93
wheat imports are forecast at 153 million tons, only slightly below the average of 1988/89 and
1989/90. In sharp contrast, imports of coarse grains in 1992/93 are forecast to fall to 10.6 milL'on
tons or onty 43 percent of the average level of 1988/89-1989/90 (USDA, FAS, FG 3-93, March
1993).

What are the prospects for a continuation of demand for grain on this scale by the states
of the FSU7 In the short nm, grain imports are likely to remain large, although falling. By the
end of this decade, the situation could reverse dramatically.

Farm managers of the former USSR know how to produce grain. It is perhaps the major
agricultural sector in which productivity increases are similar in trend if not yet in level to those
achieved in the grain belts of North America. The removal of bureaucratic interference in the
grain economy could go far to correct the past history of enormous losses in handh'ng. storage, and
utilization. Losses have exceeded total grain imports in all but a few years in the past tvi^ decades.

Two forces may bring about this transformation. The Qrst is the emergence of realistic
prices for grain, coupled with a reform in procurement methods. In the past almost all loss after
grain left the farm was borne by government or its agencies, and did not reduce incomes for any
of the individuals involved in the distribution chain. This is sure to change.

More realistic grain prices will also lead to improved efficiency In use of feed grains. In the
past, and today, the fnincipal use of wheat in the FSU was as a feed grain. For the past 15 yean

265

the annual food use of wbeat has been virtually flat, varying from 35 to 37 million tons. The use
of wheat as feed over the same period averaged 44 million tons, and exceeded 63 million tons in
1990/91. Anything done to improve efficiency in grain feeding of livestock will have a
dl^oportioaate effect on Import demand for wheat

The second and potentially more powerf\il force that could lead to a reduction in grain
imports is the determination of newly independent states to reduce dependency on others for their
food supply. No symbol of that dependency is as powerful as the need to import grain. Grain has
the status of an icon of independence in the FSU. Its successor states will malce heroic efforts to
cut back or eliminate grain imports. The one sector in which a drive for self-sufficiency could
command the widest public support is grain production. It is unrealistic to expect imports by the
states of the FSU to drive the demand side of world grain trade through the 199%, as Soviet
demand did for the past twenty years.

It is dear that the major current adjustment in grain imports by the FSU is occuning in
coarse grains, used almost entirely for animal feeds. Animal numbers have fallen steadily since
1990/91, and especially in hogs. Prior to the break-up of the Soviet Union, per capita levels of
consumption of meat were approaching the levels of western Europe, were above the levels of
Norway, Sweden, and Finland, and approximately equal to the level in the United Kingdom.

The livestock sector emerges as a major source of shock absorption capacity as consumer
prices begin to reflect true costs of production. The significance for world trade, and especially for
the United States, is that the restructuring now under way in Russian agriculture seems likely to
result in sharply lower import requirements for feed grains, including feed wheat

This cotild also be a shift of great significance for the European Community. In years of
bad weather, much soft wlmer wheat produced in the EC is not of milling quality. The growth of
imports of feed-quality wheat by the FSU in the 1980s bad provided an important market for EC
wheat The growth of this market coincided with the transformation of the EC from a major grain
importer In the 1970s to the world's second largest grain exporter by the end of the 1980s. Any
cut-back in Russian demand for coarse grains and feed-quality wheat will be felt keenly by the EQ
and especially in years in which weather is unkind. The EC ha.^ yet to experience the problem of
finding ejqwn markets for large quantities of unmillable wheat. Demand by the former USSR, and
Russia in particular, pos^ned that experience. That demand is falling and seems likely to
continue to sb""if

In this view, a transformed FSU will erode the base of current grain price support and
production guidance policies in the European community, Canada, and the United States. The
pressure for agricultural policy reform in those three regions will intensify.

VL What Can Hie United States Do To Help?

The most immediate step needed is to find a way to un-block the funds already available
to finance shipments of agricultural and other goods, but not drawn upon because Russia and other
states of the FSU have been unable to satisfy the conditions attadied. Why is this urgent?

, 266

The coming three months, April, May and Jane, mark the period of greatest food shortages,
especially in grains. Even though grain purchased now will not arrive until May or Jimc, at the
earliest, the knowledge that it is under way will enable Russian authorities to draw down stocks to
levels that might otherwise be dangerous.

There is another reason. It must be assumed that grain is being held back by domestic
producers. In Russia and in other states of the FSU, especially Kazakhstan and Ukraine, fai
antidpatJon of higher prices or more favorable barter trades. The prospective arrival of imported
grain could un-block these Internal supplies. Those holding for trading advantages would be likely
to conclude that it was time to sell, before imported grain dampened or reversed domestic price
movements.

Beginning with the advent of Glasnost. and accelerating since 1991, contacU between the
peoples of the United States and the FSU have largely been confined to consciousness raising and
awareness building. Much good has been accomplished, but it is now time for more sustained and
in-depth endiange.

The aTailablli^ of funding and the attractions of tourism have resulted In flows of
people from the Um*ted States faito the FSU and only a trickle In the opposite direction,
lliese flows should be better bialanced, and should involve longer stays.

In a purely technical sense, the FSU is not lacking In resources, skills, or trained and
educated work forces. Its greatest shortcoming Is In the institutions needed in a market econoo^.
Crafting these institutions is not a problem In technology transfer. It can only be successful if basic
organizational structures and legal frameworks are adapted to local and national cultiues. The
people who can achieve this adaptation must be intimately fznnhiai with the cultures concerned.
This argues for an expanded program of support for students, research workers, and practitioners
from the FSU, to enable dien to acquire detailed knowledge of how presently unfamiliar
institutions work In a market economy, in this case, in the United States. Stays of at least a year
seem warranted.

An example can be drawn from the discussion above of the need for adi^nations of various
fbrnis of leasing and contract farming arrangements in the transition to private farming. These
exist in many forms in the United States, ranging for market vegetables In West Coast and Atlantic
seaboard states, poultry in Arkansas and the Southeast, canning crops in the Lake States and
Northwest, beef cattle In the Southern Great Plains, and much more.

Similar exanq)les can be found in the variety of financial institutions Invohmd in the
production and movement of crops to markets. With the breakdown of former procurement
procedures in the P^U, and the decline or dlsapf>earance of central government financing, the
development of new financial institutions in crop and livestock production and marketing is urgent
There is general agreement that Russia, for example. Is not short of food, in the sense of a food
balance sheet It is desperately short of the institutions to fadlitate food storage, processing and
distribution.

Imports of grain and other foods can relieve local or seasonal shortages but they do not
permit investment in the institutions needed to build a market -oriented economy. Investment in

267

the people of Rusisia and tbe FSU who must create and operate these Institutions is the most
promisiag avenue to long-run and durable reform. A massive investment in human capital is
needed, and It is to this end that tbe United States should concentrate its aid.

Biographical Sketch

Philip M. Raup (AB, University of Kansas, 1939; PhD, University of Wisconsin, 1949) Is Professor
Emeritus, Department of Agricultural and Applied Economics, University of Minnesota, St. Paul.
His interest in Russia, the Soviet Union, and Eastern Europe dates from 1945-49 when he served
as Chief Land Officer and later as Acting Chief, Food and Agriculture Branch, Office of Military
Government for Germany (U.S.). in Berlin. His PhD thesis dealt with Soviet agricultural policy
in occupied Germany.

He was Secretary ttf tbe World Land Tenure Conference (University of Wisconsin, 1951) and ct>-
editor of Tjind Tenure (Universi^ of Wisconsin Press, 1 956); co-author of 1h& Oiangine Structure
fif Europe. (University of Minnesota Press, 1970); and contributed chapters on agricultural policy
to six books dealing with the Soviet economy, inchiding Communist Agriculture (KJB. Waedekin,
Ed, Routledge, London, 1990). He made five study tours of the former Soviet Union between
1958 and 1991.

268

Testimony on Russia before the

House Agriculture Subcoonlttee

on Foreign Agriculture and Hunger

Washington, D.C.
1 April 1993

Carol L. Brook Ins
President
World Perspectives, Inc.
Washington, D.C.

Mr. Chairman, Members of the Coomlttee. I want to thank you for the
privilege of appearing before you today to examine agricultural Issues
affecting the U.S. relationship with Russia and other Independent
states of the former Soviet Union (FSU).

I am founder and President of World Perspectives, Incorporated — a
Washington-based analytical and consulting company that focuses on the
political, economic and trade factors affecting agricultural markets
and the global food system. World Perspectives works with private and
public sector enterprises around the world. Including Russia. I have
contributed articles to publications on various aspects of Russia's
role in world markets.

I am not an agricultural economist by training, but an historian. I
entered the commodities field at The Chicago Board of Trade in
1972 — Just a few months before our grain markets were altered
dramatically by the entrance of the Soviet Union as a major cash
buyer .

In fact, the Soviet Union's large and ongoing requirements to import
grain and protein over the past twenty years has shaped world
markets. That was the "old world order". hk)w we are In a "new world
order", where our largest cash buyer has shifted to a credit customer,
where that single buyer has now split into 15 separate nations and
where we must adjust our policies and thinking to benefit from these
vast new opportunities.

As you proceed with your important review and seek to enact
appropriate legislative responses, it is crucial to remember the
history of our relationship with the Soviet Union and the vital role
that agricultural trade has played In building confidence and mutual
benefit. Yes, we were willing to sell grain and other basic foods to
our arch enemy when the Soviets' crops were inadequate to meet their
consumption needs. We had the goods they needed; and they brought
unprecedented market growth to American agriculture. The Soviet
Union has paid us more than $30 billion in cash for U.S. agricultural
exports since 1972.

269

In ay vlaw, thara has baan a vary diract corralatlon batwaan tha
Soviet Union's daalsa as a Bllltary thraat and Its Inability to
provide an adequate food supply to Its population. Detente began In
1072 — the saiM year that the Soviet Union turned to the West to help
feed Its people.

Yes. we won a Bllltary conpetltlon, but we also won an econoalc
battle. This was not Just a conpetltion between wlsslle silos, but
grain si los as wel I.

Now. we are at the beginning of this new world. I heartily agree with
the remarks delivered by Secretary of State Christopher In Chicago on
Uarch 22. Secretary Christopher said that helping the Russian people
build a free society and market economy is the greatest strategic
challenge of our time. As we bring Russia and the other states of the
former Soviet Union (FSU) Into the "family of peaceful nations', we
will serve our highest security, moral and economic interests.

American agriculture has a key role to play In helping Russia and the
FSU to successfully accomplish their three simultaneous revolutions,
defined by Secretary Christopher. These are:

— transforming a totalitarian system Into a democracy;

—transforming a conmand economy Into one based on free markets;

— transforming an empire Into a modern nation-state.

In order to achieve these massive reforms, there has to be popular
support. The food supply Is one of the most visible and direct issues
for the general public. Anyone who has read the history of the
Russian revolution understands that fact very well.

We can help demonstrate to ordinary Russians the tangible and
imnedlate benefits of market economics through Improvements In the
food system;

We can help build "stakeholders" in a democratic market system. If we
support private farms and businesses ail through the food chain and
related industries. These will bring greater quantities of higher
quality products to consumers.

And, we can help officials build agricultural policies that provide
the basis for viable coomerclal relations within the borders of the
FSU and for Russia's entrance In the GATT multilateral trading
system.

Russia's Role In World and U.S. Agricultural Trade

There would not have been a real explosion in global export demand
over the past 20 years If the Soviet Union had not faced consecutive
crop problems starting in 1972 and 1973 and decided to import grain
and protein to make up for the short-fail — rather than simply doing
without as had been the Soviet government's previous practice.

270

Since 1972, the Soviet Union has been consistently the most
significant variable factor, other than weather, determining
agricultural marlcet prices, trade levels and market fundamentals.

There has been a direct correlation between Soviet Imports and the
total volume of wheat and feed grain trade. The significance of
annual Soviet import patterns Is due In part to the historically small
role that world trade plays In total grain consumption. In the case
of wheat, trade has accounted for Just 18 percent of total use
annually, and in feed grains only 11 percent.

Over the past 10 years, the Soviet Union has accounted for as much as
26 percent of world wheat and coarse grain trade annually; In no year
has the Soviet Union— or now FSU — accounted for less than 15 percent
until the current 1992/93 marketing year. This year we are projecting
that the FSU states, dominated by Russian imports, will account for
only 13.4 percent of total world trade. The drop Is not due to
greatly reduced needs, rather the financing to purchase those
commod I t I es .

in brief, our agricultural system's development over the past twenty
years has been ilnlced closely to a trading relationship with the
Soviet Union. In years where Soviet Imports fell, that drop In sales
led to a poor performance In the U.S. farm sector — lower prices and
higher farm program outlays. Conversely, large exports to the Soviets
have consistently led to higher farm prices, and reduced government
outlays and stoclcs. in addition, the U.S. agri-infrastructure — from
upstream Inputs to downstream transportation and exports has been
similarly Impacted, with either a negative or positive effect on U.S.
GDP.

USDA economists estimate that for FY 1993 and FY 1994, domestic farm
income could fall by $1-1.8 billion, CCC outlays for grains could
increase by $0.6-1.4 billion and prices would fall by 10-20
cents/bushel for corn and 20-45 cents/bushel for wheat. If no
additional U.S. grain and oilseed sales are made to the former Soviet
Union during the rest of these fiscal years.

In brief, we have made a big investment in the Russian marlcet over two
decades. We must not throw it away.

Russla/FSU Credit Sales

Since 1991. the U.S. and other major exporters like the European
Community (EC). France. Canada, and Australia have sought to maintain
their sales to the Soviet Union, and then to the successor states of
the FSU through various types of programs.

Food aid — donations or other types of concessional assistance — have
been targeted to specific parts of the population and to states with
no real resources.

However, major export programs to Russia have been In the form of
commercial credits — either guarantees like the U.S. GSM 102 program or
direct credits as have been issued by the EC. Russia, until late

271

1992. naintalned Its debt sorvice on schedule, repaying both the full
obligation of the Soviet Union's outstanding GSU 102 credits and that
of the successor Commonwealth of Independent States (CIS), as well as
the debt Issued exclusively to the Russian Government.

I will be referring specifically to Russia In this testimony with
regard to commercial credits, because the states of the Former Soviet
Union (FSU) will each require a different type of program — ranging
from conmerclai credits to concessional aid.

Russia has been involved since last fail In negotiations with the
Paris Club of official creditors to reschedule the debt of the Soviet
Union. During Paris Club rescheduling negotiations, it Is standard
practice condoned by the Club for debtors to build arrearages.
Unfortunately. Russia's rescheduling has dragged out far longer than
anticipated due both to disagreement among the creditors over the
amount of repayment required In 1993. and to the controversial
negotiations between Russia and Ulcralne over debt obligations..

It Is within this context that Russia has fallen behind In meeting Its
GSU 102 repayment obligations; arrearages now amount to $600 million;
and some of the banlcs have gone to the CCC with their claims.

Clearly, as long as Russian arrearages remain, it Is not eligible to
exercise purchases under a GSU 102 program. Once a Paris Club
rescheduling is completed, and Russia brings current the remaining
outstanding arrearages. It technically would be eligible. However,
there are questions about whether Russia Is "credit worthy" under
statutory requirements of the Food. Agriculture. Conservation and
Trade Act of 1990 (1990 Farm Bill).

Is Russia A Comreercial Or Concessional Uarket?

I would like to deal with the Issue of "credit worthiness' under the
1090 Farm Bill, because it impacts greatly on what we will do with our
Russian market over the next 3-5 years.

When Uembers of Congress wrote the 1990 Farm Bill, they included two
specific statutory restrictions on the Export Credit Guarantee
Program.

In addition to the restriction against using the program for foreign
policy or debt rescheduling purposes, a second restriction puts
"credit worthiness" or debt servicing conditions in place:

"The (kMimodity Credit Corporation shall not make credit guarantees
available in connection with sales of agricultural commodities to any
country that the Secretary determines cannot adequately service the
debt associated with such sale."

Even before the 1990 law. I would note, credit risk Judgments were
operational in the Export Credit programs. The CCC Charter has
permanent underlying principles to protect the assets of the

272

Corporation. USDA has always provided regulatory procedures Involving
credit risk assessments to protect the sanctity of the credit
guarantee and direct credit programs that were operational.

What changed In 1990 was that tight statutory requirements on both .^
credit risk and foreign policy restrictions substantially reduced
USOA's flexibility In Interpreting and Implementing Its program
mandates .

What seems to have occurred under the 1990 law Is that specific
accountability Issues were viewed as more critical to U.S. agriculture
than the overriding objective of expanding U.S. farm exports In this
case to countries that do not require long-term, deeply concessional
food aid, but still require back-up support In securing financing for
Imports on competitive conanerclal terms.

We must consider the effect of the 1990 language on the
competitiveness and responsiveness of our programs to market
development and market maintenance objectives?

First and foremost, the very reason for export credit guarantee
authority Is to expand markets for U.S. farm products by assisting
countries which are higher risk borrowers to buy our products on
commercial terms.

Second, credit wforthiness and credit risk management must be a
cornerstone of our policy. The risks inherent In this business must,
however, be evaluated both in the context of the potential costs to
the U.S. Treasury versus the benefits of moving our products to
market, and in the context of meeting the competition. Certainly, the
assets of the CCC will deteriorate significantly if we do not move
exports and end up with mounting commodity program outlays and
stocks.

Third, speaking as a taxpayer, the fiduciary responsibility of the
U.S. Government In operating a wide range of programs to move U.S.
farm exports — from deeply concessional aid or outright grant programs
to commercial credit guarantees — must be focused on expanding exports
at the lowest cost to the taxpayer. Credit guarantees are far onre
cost-effective than concessional aid programs.

This Issue of "credit worthiness" clearly presents a real dilemma at
present as USDA seeks to address the problem of an export program for
Russia and for other FSU states.

Until Russia becomes current In Its GSM 102 account. It remains
Ineligible to receive further credit guarantees. If It does bring Its
arrears current, what program or programs are then appropriate? Do we
need a new program?

I believe that we have the full authority within our wide-spanning mix
of programs already mandated to handle Russia's needs and our own
Interest.

273

Prior to Russian roschedullng, USDA has focused on Food for
Progress — a very flexible program umbrella designed to provide
concessional food assistance to countries transitioning to democratic
market systems. This would mean« In the case of Russia, a likely
15-year concessional loan. Including 3 percent annual fnterest rates,
and a 3-year grace period on principal repayment. Funding can cone
out of the CCC authorities. However, legislation will have to be
enacted to raise the freight "cap" over the $30 million annual limit
for CCC unless monies can be found in other non-agricultural accounts
to cover the costs of U.S. flag vessels under cargo preference
requirements.

if FFP is to be only a stop-gap or interim program until Russia can
operate as a commercial buyer again, how long will that Interim period
be? What kind of coamerclal program does Russia need?

It is generally assumed by Administration officials that FFP will be
needed through the remainder of FY 1993. However, when a rescheduling
is completed and Russia is committed to an economic restructuring
based on G 7 programs and IMF guidelines, the GSU 103 program or a
direct intermediate credit program would best fit Russia's needs and
U.S. objectives over the next several years.

When a business or a country is engaged In a restructuring. It Is
hardly sensible to load the borrower up with short-term debt
maturities. Yet, longer-term financing on commercial terms can be a
viable option. In the case of Russia — a country tremendously
resource-rich — this would appear most suitable.

Russia already is earning more than $20 bill Ion annually In hard
currency for sales of its minerals and energy resources. Due to
political turmoil, economic Instability and the breakdown in central
authority, much of its hard currency earnings are not being recovered
back to the government and Central Bank to service debt. Estimates
are that $12 billion or more in Russian export earnings moved last
year Into accounts in western banks — both legally and illegally.
Bankers have defined Russia's current debt service problem more as one
of "cash flow" rather than "balance sheet".

if this is the case, and an intermediate credit program Is the most
logical and financially relevant solution, do we have a program that
would work?

Now. some argue that Russia needs a special credit program In order
that the regular GSU programs — 102 or 103 — not be tainted by the
financing risks to Russia, based on the credit worthiness language of
the 1990 law. This would mean new legislation.

I don't believe that we need to Isolate Russia under new legislation,
i would recommend that. If cooraerciai credits are appropriate. Russia
and other eligible FSU states be maintained under the existing GSU 103
program structure — ^wlth modifications I am proposing.

I have Included a background description of the program with my
written testimony.

274

One arguflient for utilizing our existing authorities Is that they are
operational and that they contain specifically mandated restrictions
against cargo preference requirements. New legislation would
undoubtedly lead to demands to expand cargo preference Into these
comnerciai programs. It would add a huge cost to either the U.S.
Treasury or to Russia — and In the latter case would oiean a loss in the
U.S. competitive advantage In maintaining that vast market.

We also must be aware of whether the programs we adopt put us at a
competitive advantage or disadvantage. I hardly need remind you that
the European Community (EC) has very large stocks of grain, a direct
credit program that is operational out of Brussels specifically
targeted to Russia, and recently-announced plans to bring Russia and
the other Independent states of the FSU under a free trade agreement.
The EC objective is to bring all of East Europe under the restrictive
trade regime of the Community. In the case of agriculture, this would
close off U.S. farmers from the dynamic growth opportunities In the
FSU, and I am sure that is one of the objectives of the EC.

A Proposal to Clarify GSM Credit Worthiness

To utilize QSU 103 for Russia would be assisted by either clarifying
amendments or Congressional resolutions to current law:

First, the statutory minimum annual level for GSM 103 Is $500 million
while GSM 102 Is $5 billion. I would recommend that a total minimum
amount be allocated to the two programs, giving USDA the flexibility
to determine what share should be In 102 or 103. Clearly, the GSM 102
program will remain the dominant commercial credit vehicle, but
without programs like Russia, the amount utilized during the fiscal
year will be only around half the authorized minimum that oiust be
offered or available.

Second, Congress needs to clarify Its intent in the application of
credit worthiness requirements. At this Juncture It is placing a
straight Jacket on the administration of the Export Credit Guarantee
programs. Some Congressional staff argue that the language was
sufficiently vague to allow the Secretary of Agriculture great
discretion in determining whether to issue a credit or not.

However, this is hardly the case in practice. I believe that there
needs to be clarification and some differentiation between what Is
considered the criteria for assessing credit worthiness under short vs
intermediate-term programs.

Certainly, It could be useful to recognize that different economic
conditions in the short and long term represent a different credit
worthiness test, if a country is involved In an

internationally-supported economic restructuring and an official debt
rescheduling, an argument could actually be made that the
creditworthiness risk Is lower on a longer-term loan than a short-tern
program.

275

This differentiation would not make Intermediate programs less
"comnercial'. If they are operated on coaanerclal ly acceptable market
terms. Here. I would note that 7-10 year commercial loans are
currently granted, with grace periods on principal, or balloon
payments of principal In out-years. Moreover, even If there Is a
grace on principal. Russia would still need to maintain annual and
semi-annual Interest payments at commercial rates and on commercial
terms. These terms would not damage the commercial viability of the
program, nor would it subject these credit guarantees to cargo
preference.

A Cost; Benefit View of Export Credit Guarantees

The record Is clear: Export credit guarantees, where applicable to
assist farm exports, provide the lowest cost and highest return to the
U.S. economy.

Where Russia Is concerned, or any other buyer, the overall approach of
Congress to responsible operation of the GSU Export Credit Guarantee
Programs Is the issue at stake. USDA has operated the program very
responsibly since its inception. The proof is In the results.

The USDA. between 1979 and 30 September 1992. authorized guarantees
for $43 billion in U.S. farm commodities under the GSM programs. Of
the $43 billion in export sales. $35.5 billion of those credits had
come due by September. 1992. of which USOA had to pay claims on $4.2
billion in principal, or 12.5 percent of the total. Close to 30
percent of that $4.2 billion In claims paid by the U.S.. or $1.2
billion were paid on Iraq GSM. We would note here that Iraq's failure
to repay was not a credit problem, but a state of war; Iraq was
current on its GSM payments until the Gulf War.

Given the fact that the U.S. Government has only had to pay claims out
12 percent on a total $43 billion of exported coomod I t I es doesn't
appear to us to be a bad record, particularly since the GSM programs
are directed to countries that have high credit risk. Even when
claims are paid, those monies should eventually be recovered by the
U.S. Government.

So, I would argue that this has not been undue cost or risk to be
borne by the U.S. taxpayer, in fact. It could be one of the biggest
bargains taxpayers have received for their tax dollars, because every
$1 billion in agricultural exports creates around 20,000 Jobs and
every $1 in farm exports adds $1.40 In additional economic activity.
Looking at the cost:beneflt ratio in another way. every dollar in
exports not only creates Jobs, but saves in government farm program
spending. Those exports would not have occurred without the program
guarantees, or without a far more costly concessional food aid program
which would have required direct appropriations and resulted in lower
repayment rates.

276

A Congressional Approach to Clarifying Credit Worthiness

In seeking to address the Intent of credit worthiness requirements, I
would like to point to language In a letter dated May 30. 1991 from
Chairman De La Garza and 9 other House Members to the Secretary of
Agriculture, seeking to clarify the Intent of the 1990 legislation.

The letter's content Is worthy of your study, because I believe It
captures the essence of the problem we are confronting In the case of
Russia. It concluded with the following:

"Finally, the overall national Interest of the United States should be
the predominant factor In the Secretary's determinations regarding
whether or not to extend export credit guarantees to requesting

countries We encourage you to Interpret section 202(f) so as not to

prevent appropriate sales or establish such stringent standards for a
country's 'ability to service the debt' associated with export credit
guarantee sales that market access and development and the broader
national interest are harmed by the application of this provision.
Credit guarantees are expected to be repaid under criteria established
by the Department of Agriculture and the programs are Intended to -
facilitate exports to comparatively higher credit risk countries.
Balancing all the factors mentioned above will undoubtedly require
difficult Judgments. However, we understand the economic risks
Inherent In a program of this nature, and we will support you when. In
your best Judgment, export credit guarantees are extended in the final
analysis to benefit the national Interest."

I would also call your attention to Senate Resolution 117, passed In
May 1991, which also covers the issue of credit guarantees to the then
Soviet Union. The Resolution calls for the Administration In
evaluating requests for agricultural credit guarantees to consider not
only current financial and debt service criteria, but also "(3)
National assets which demonstrate an ability to repay.' and "(4)
Market-retention, Including an assessment of whether the absence of
United States credit guarantees would Jeopardize Important foreign
markets."

This work already done by you and your colleagues in Congress has set
an excellent and appropriate basis for junending current legislative
I anguage .

The Barter Option

Apart from Intermediate credits, we should also more fully explore
possibilities in the mandated Barter provisions, is there funding to
purchase Russian oil or minerals for our Strategic Petroleum Reserve
(SPR) or other strategic stockpiles? Should we consider seeking to
use enriched uranium purchases from Russia authorized under existing
programs In a way to securltlze a GSM credit program or for a direct
barter? How can we work with other key agencies like the Department
of Defense In Its defense conversion programs to possibly deal with
implementing sales of our farm commodities?

277

Ass I stance in Rebulldlnfl Russia's Food and Agriculture Systew

We have been engaged now In several years 's effort to use AflMrlcan
noney and know-liow to help the transformation of Russia's agricultural
systen. I think that we can be proud of our early comltawnt to this
Important ob^Jective and we can learn from our experience thus far when
structuring new or additional efforts.

in addition to continuing to provide direct humanitarian food aid
targeted to specific segments of the population where necessary, and
maintaining sales of our farm products, we need to be involved
directly and personally with the Russian people and particularly the
entrepreneurs who will be operating businesses all through the food
chain in a matter of years.

Here, I have three specific Ideas to put forward:

1) A Farmer-To-Farmer Program Team Concept

2) Building Viable Farm-Jo-Consumer Markets

3) Agri -Enter prise Funds

1. Farmer to Farmer Progran-This Is an excellent way of bringing real
practical know-how from our farmers and farm-related businesses to
real Russians at the farm level. However, most of the efforts thus far
appear to have been centered on short-term visits to Russia. It is
difficult to build confidence with our Russian counterparts and

to understand the intricacies and challenges at the farm level In a
matter of days. What Is needed is a longer-term comnltment from our
farmers and managers to spend 3-6 months at minimum in one place. In
this context, i would particularly recommend that we try to put teams
together to work at the rayon/county level, consisting of farmers with
different crop and livestock experience as well as individuals with
storage, handling and marketing know how. They could work as a team
and individually with the farms in a specific region (rayon) or
county 'si zed area.

2. Building Viable Uarkets-We need to bring the principles of
operating a competitive marketing system to the farm and local levels,
as well as throughout the food chain. Privatization is an Important
principle of any economic reform. However, even if Russia chooses to
maintain some private or state-controlled monopolies in agriculture,
as Is the case with Canada's Wheat Board. Australia's Wheat Board and
Japan's Food Agency, for example, we should encourage officials to
develop those as market-oriented businesses.

At the farm-gate level and moving up through the marketing system for
fruits and vegetables, the Dutch auction system could be one of the
most effective ways of building understanding and experience of the
way markets function. it incorporates directly the issues of real
time marketing, quality, competition, and the responsibility of buyer
and seller. We might seek to do a Joint pilot project with the
Government of the Netherlands, or possibly even under the Farmer to
Farmer program, or with Cooperatives and their counterparts In the
Netherlands.

278

In the case of grains and livestock, we need to help Russia establish
cash market structures, which would be necessarily operative before
major viable futures markets can function.

Extension Service operations, providing price Information and
assisting with the transportation and distribution Infrastructure also
need to be a top priority.

3. Enterprise Funds-We must stop spending money for people who Just
want to travel to study the Russian system and then who come back to
Washington and tell everyone what's wrong with It. We need to put
more of our money that we appropriate to work IN RUSSIA, supporting
Russian business and Russian workers and Russian reform.

We must leverage public funds with private funds. I would like to see
as little as possible In our assistance to Russia — apart from
humanitarian assistance — administered by AID and as much as possible
put into an Enterprise Fund specifically directed to food system
development. The Fund could operate as a public/private partnership,
providing financing for private businesses in Russia that have
American partners, on a percentage basis. It could be set up as a
long-term revolving fund.

We need to make sure that American agribusiness know-how is
transferred to Russia, and that the American food system has a real
foot hold In this tremendously large and important developing market.

If we want to build a long-term commercial market In the new Russia
for our comnod 1 1 1 es , our technologies, our equipment and our food
products, we have to provide the support to our business community
that the Europeans and Japanese provide. If we spend all our money
and efforts Just educating Russians in the benefits and operations of
a market system, we will find our businesses losing out to our
competitors who will be able to reap the long-term financial rewards
of our cont r I but I on .

279

Conclusion

No one understands better the profound Importance of the Russian
market than U.S. farmers. We have benefited substantially for twenty
years from this commercial relationship. Now our major trading
partner Is going through some difficult times, but the turmoil In the
political, economic and social structure of the FSU can lead to a
future filled with great rewards for American agriculture and for the
entire world.

it is true that If we help build and reform Russian and FSU
agriculture, they will become more efficient producers. After all.
imperial Russia was the largest grain exporter on the Continent until
the Russian Revolution.

But. we cannot, nor should we. shy away from providing real financial
assistance to abet Russia's new revolution because we fear that a
marlcet may shrlnic for one or another of our commodity exports. Why?
Because whether we act or not, Russia will change and will Improve.
And those Improvements will give America's farmers opportunities to
sell more production either to processors here or there, because
Russians will be buying more diversified food products.

We must remember that we operate in a world marlcet. We are benefiting
throughout the world marlcet due to the collapse of Communism. Because
of the Soviet Union's collapse and the defeat of state socialism,
countries ail over the world — in East Europe. Asia. Latin America, the
Middle East, and Africa — are converting their economies. With
democratic governments In place, the populations will demand a better
food supply. As they seek to build marlcet systems to feed their
populations better, we wl 1 1 be bringing them Into the trading system
as full partners. So, while we are helping Russia make this very
important Improvement, we need to be recognizing that we must open
other markets simultaneously. And we must be very certain that we do
not allow Russia to fall under the control of a closed farm system
like the EC's Common Agricultural Policy (CAP).

The future for U.S. agriculture is in building a world where less
money needs to be spent on weapons, where more money can be spent on
Improving economic opportunities, where consumer income Is growing and
where we can compete In an open trading system. Supporting Russia's
future will determine our future success.

Thank you.

(Attachments follow:)

280

us AGRICULTURAL EXPORTS TO THE USSR
Quantity and Valua - 1972 to 1992

Calendar

Soybeans &

Total Ag

Year

Total

Grains

Products

Exports

(bin dirs gnt)

(bin dIrs ont)

(bin dIrs)

1972

.393

7.291

.054

.400

.459

1973

.917

14.331

.087

.550

1.017

1974

.301

3.378

.000

.002

.324

1975

1.140

7.619

.003

.015

1.170

1976

1.462

11.605

.126

.579

1.605

1977

.853

6.860

.154

.565

1.053

1978

1.471

13.448

.222

.832

1.765

1979

2.394

18.870

.517

1.887

3.000

1980

1.029

6.662

.045

.173

1.138

1981

1.574

9.652

.008

.034

1.685

1982

1.637

11.422

.171

.649

1.871

1983

1.205

7.868

.159

.569

1.473

1984

2.621

18.262

.014

.046

2.878

1985

1.719

14.233

.027

.040

1.924

1986

.291

2.671

.313

1.519

.658

1987

.786

10.167

.100

.492

.938

1988

1.731

16.684

.410

1.900

2.246

1989

3.057

24.762

.465

1.714

3.597

1990

1.645

13.121

.399

1.844

2.262

1991

1.660

16.270

.719

3.132

2.495

1992

1.664

14.016

.447

1.824

2.346

Total 1972-92

29.548

249.192

4.443

18.764

35.904

Annex 1

Source: USDA/ERS "US-USSR Bilateral Trade (6/91)"
Includes transhipments through Canada. Belglun, the
Netherlands and W. Germany. After 1978, only transhipments
through Canada are Included.

Darrel Cheat 3/22/93
USSR I MP. 32293. FW2

WORLD PERSPECTIVES INC.

68 -4-;^. 4139

281

Annex 2 .

FORMER SOVIET UNION
PERCENTAGE OF WORLD/U^. WHEAT AND COARSE GRAIN TRADE

(MilUoa Metric Tons)

Year

World

VS.

USSR

U.S.EXP

USSR

Trade

Exports

Imports

to the

IS%

as%

(omit)

irssR

(mmt)

of world
trade

of US
trade

1980/81

?«r7 4

117,0

34D

8.7

16JJ%

73%

1981/82

199J

108.1

46--;

143

23J%

13.4%

1982^3

188.7

9tS

333

17.6%

6.7%

1983/84

195.4

95J0

32J)

UL8

16.4%

U.4%

1984/85

207.4

942

55JD

211

26J%

23J%

1985/86

1687.

29.4

7i)

17J%

11.5%

1986/87

174.4

75.9

26-S

15.4%

63%

1987/88

1875

96.9

31.9

17a

17D%

17jS%

1988/89

19L4

98.9

XS)

2oa

195%

203%

1989/90

196.7

10Z6

20.2

19a%

19.7%

1990/91

178-1

80(1

29 J.

£U

161%

14.0%

1991/92f

20L.7

84.6

39 J.

1&4

193%

19.4%

199:/93f

192.8

88J

25.3

lOS*

13.4%

123%

f Forecast; USDA

• WPI forecast

Source; USDA, WPI (WPI Brooldns, Kohlmeyer, Cioat 03 22 93).

282

Annex 3 .

WORLD

PERSPECTIVES,

INC

900 1 7th Street, N.W., Suite 508 Tel: (202) 785-3345 Tlx: 89490 WPI NEWS

Washington. DC. 20006 Fax: (202) 659-689 1

AN APPROACH TO SOVIET AGRICULTURAL ASSISTANCE

By Carol L. Brook Ins. President

World Perspectives. Inc.

Washington. D.C.

INTERMEDIATE CREDIT ASSISTANCE

Intermediate credits were authorized under the 1985 Food Security
Act to serve as a transitional program for countries that had
graduated from long-term food aid to coamerclal credits, but
could utilize a longer repayment period than 3 years.

The 1985 law stated that Intermediate term credit financing or
guarantees may be available for the following uses:

— *to establish reserve stocks consistent with International
coanodlty agreements or other stock building plans acceptable to
the United States;

— the export sale of breeding animals (Including, but not limited
to. cattle, swine, sheep and poultry) Including the cost of
freight from the United States to designated points of entry In
other nations:

— where determined feasible, for the establishment of facilities
In the Importing nation to Improve handling, marketing,
processing, storage, or distribution of Imported agricultural
comnodltles (through the use of local currency generated from the
Import and sale of United States agricultural coomod I t I es to
finance all or part of such facilities);

— to meet canpetitlon for agricultural export sales;

— to finance importation of agricultural commodities by
developing nations for use in meeting their food and fiber needs;
and

^-otherwise to promote the export sales of agricultural
■ties.'

The 1990 law does not include this detailed language, but those
who wrote the provisions only Intended to simplify the program
requirements; they did not Intend their less specific terminology
to exclude the above program uses.

283

THE SOVIET IffTERMEDIATE CREDIT PROGRAM

In structuring an assistance program for the Soviets that
includes sales of U.S. agricultural ccnnodltles, we believe
several factors must be considered.

First, analysts believe that restructuring the Soviet economy
will be a 5-10 year process.

Second, current Soviet liquidity problems do not mean that the
Soviets' long-term balance sheet is a problem if reforms are
being put In place under international guidance.

Third, coomerciaj banking practices provide longer term loans to
companies going through restructuring; this avoids debt
rescheduling that may be necessary with short-term maturities.

The GSU 103 and/or Intermediate term direct credits could provide
a viable mechanism to:

— Sell U.S. agricultural comnodities to the Soviets during this •
major economic transition period;

— Assist the development of a private sector infrastructure In
the food and agricultural sector;

— Provide technical assistance from U.S. agribusiness and build
future markets through developing these private relationships.

The current GSU 103 program is not used for the most part because
it Is not attractive to recipients. Despite the 3-10 year
payback provisions, there is no longer that a one-year grace
period before payments must begin (In equal Installments). Uost
countries believe that makes the program far too costly if they
are purchasing coanodltles consumed Inned lately.

GSU 103 regulations could be revised to provide for either:

— a longer than 1 year grace period on principle and interest; or

— a 10 percent payment of the total principle paid during a 3
year grace period.

The second option compiles with coanerclai bank practices which
favor repayment plans that require countries to "recognize the
debt" in every year by showing a capacity to pay; however, this
approach of token payments does not put an undue strain on the
borrower's balance of payments. This would remain a coanerclai
program. We note that the EC under its 3-year credit guarantee
provides a 20 month grace period to the Soviets; and Coface, 18
months.

May 30. 1991

284

Annex 4,

How the

Fruit and Vegetable

Auctions worlt

285

1 The 'timeless clock'

The auction system has now existed for a
1 "I T 4-m.g-i^-i I r*i-i /"hTt hundred yeare, and that's certainly a reason for

LI i nirOClUCllO n celebration, for this system operates nowhere

/^ ". \ else in the world. The auction, where supply

:." and demand meet face to face, is one of the

\: The scene is the town of Broek op reasons why the Netherlands has won itself an

— jdLangendijk, in 1887. A cauliflower important international position in marketing

grower sailing his small open barge full of v^tables, fruit and flowers. Much has changed

cauliflowers to the market place finds a crowd in the auction field during the last century,

of eager customeis. In order to avoid time- primarily due to technological progress, but

consimiing negotiation and still get agood price also because of a better understanding of

for his cauliflowers, he calls out a hig^ price trade, marketing systems and, for instance, the

and gradually brin^ it down. The first buyer minimum price system. Apart fi^m this, the

to accept purchases the batch of cauliflowers, number of measures implemented in relation

little knowing that he is laving the foundation to the produce and its presentation lias grown

of a unique sales system: the auction of fruit considerably over the years. The quality classi-

and vegetables in the Netherlands. fication, grading, standardisation, packaging.

Without being aware of it, this cauliflower conditioning and expansion of the range all
grower from the north of Holland created a spring to mind-
unique method of selling, which was later to The auction system is still changing in
grow into a sophisticated marketing system for order to achieve even greater effectiveness and
vegetables and fruit Instead of the grower cal- efficiency. There is even more cooperation,
ling out his prices a 'clock' w^ used, with a hand there are more mergers, and the use of compu-
that was calibrated to swing from the highest teis and modem communication systems has
to the lowest price. Wherever the dock was become commonplace.At virtually all auctions,
stopped fixed the price - the highest possible the traditional manual clocks have given way to
price - for that of course W3S most important computer driven clocks, making tele-auction-
to the grower. While this is obviously the pri- ing with other auctions possible.
maryaimoftheauction,theclockhidesamulti- This new edition of 'How the auction
tude of other measures. For if the grower is to works' provides an insight into the lOO-year-
achieve the best possible price, more is needed old, but still flourishing auction system,
than just a group of buyers on the auction
benches, the produce and the clock system used
to establish that price.

The clock is the tip of an iceberg, consist-
ing of a package of measures which together
form marketing policy. The organisation is
based on a cooperative principle: the auctions
and their umbrella organisation, the Central
Bureau of Eiiit and Vegetable Auctions in the
Netherlands, belongs to and e.xist for the
growers. It is the growers who put 100 percent
effort into producing top quality produce,
whilst their oipmisation is primarily involved
in organising and promoting sales.

286

12 The purpose of
the system

The definition of auctioning is:
To sell - in public

- in free competition

- under identical condi-
tions

- to the person who bids
the most

The purpose of the clock and auction
system is to achieve the best possible price
for the grower through a direct confrontation
between supply and demand, in public The
system exists thanks to two groups, who actual-
ly have the same interests: to buv and sell fresh
fruit and vegetables. Without growers the
auction cannot exist, for there would be no
produce; without buyers the auction would not
function, because there would be no opportuni-
ty to sell. But the auction, in which everything
centres on the clock, is more than just a balance
between supply and demand. If the buyer is to
become interested, then he must be offered
produce which is reliable, that will keep and
that can be offered on the international market
In other words: quality produce, which can hold
its own and more against international compe-
tition. IXitch produce is circumscribed by mea-
sures such as quality control bv the auction and
the government, conditioning and standardisa-
tion. This creates customer confidence. Ensu-
ring that the buyer can rely on standardised pro-
duce in the best possible condition enables
him to Tjuy blind', which for him represents a
time-saving factor. In this way he can concen-
trate on other matters and does not need to
worry about the quality of the produce. The
block system, in which products of a particular
quality, grade and colour produced by differ-
ent growers are combined into one large con-
signment, also makes a major contribution
towards this. The block system represents an
advantage to the grower too. Any grower
whose organisation is relatively small-scale is
able to offer his produce, via large- scale sales.

share of the price.

Through the auction system and the co-
operative principle on which it is based, all
the specialised family firms combined repres-
ent an impressive quantity of produce which
is circumscribed by careful treatment and
measures. No buyer would be able to collect
and monitor all the necessarv quantities of
produce from the individual growers; no
grower is in a position to export his relativelv
small batches of produce to, for instance, the
United States.

L3 The cooperative
principle

\ \

Without a cooperative attitude on
the part of its affihated growers, it
would be impossible to maintain the auction
and the system behind it The measures taken
in relation to the produce are imposed by the
growers themselves. As long as a 'with each
other and for each other' situation exists, the
system will work. The growers o%vn the auction.
The auction belongs to them and works for
them. It has members (growers) who jointiv
appoint the management The executive, a
chairman and a secretary, are responsible for
carrying out the members' decisions. A director
is appointed for the day-to-day management
The auctions are autonomous. In order to
standardise sales and national measures, the
Central Bureau of Fruit and Vegetable Auctions
in the Netherlands (CBT) was formed in 1917.
The CBT belongs to the auctions and acts for
them, and thus also belongs to and works for
the growers. The executive of the CBT, togeth-
er with the provincial auction oiganisations
(PVOs), act as the auctions' intermediary. In
addition, there are committees for almost all
Dutch products, which advise the CBT on the
(market) measures to be taken. .Auction manag-
ers, supported by CBT experts, hold seats on
these broadly-based committees.

287

STATKMBMT OF
8TBVBV A. MOCOY

North American Export Grain
Association Incorporated

Introduction

Mr. Chairman, thank you for the opportunity to appear before
the Subcommittee today. I am Steve McCoy, President of the North
American Export Grain Association (NAEGA) , the national association
of U.S. grain and oilseeds exporting companies and cooperatives.

I have been invited to present some general observations on
the current grain situation in Russia and the CIS Republics, not as
a representative of NAEGA, but as an individual who has travelled
extensively in the former USSR (FSU) in recent years; and had
occasion to reflect on this important aspect of the overall U.S,
and U.S. -FSU trade picture. I am happy to do so. I will be
brief.

Russian Heeds

Let me begin by addressing the overall Russian food situation
on the micro-level, with an emphasis on nearby Russian grain needs.
There has been some dispute on that point.

What we see today in Russia is not a case of absolute, but of
relative need for foodstuffs. There is no starvation in the
country. There is, however, severe deprivation affecting the most
exposed elements of Russian society: children, the elderly,
students, and those, like common soldiers, forced to live on very
minimal fixed incomes.

Hyperinflation has had a dramatic impact on Russian standards
of living. Brakes have been applied by the government to some
rises in food costs. However, along with the general rise in
prices, the price of staple goods has also skyrocketed for most
consumers, bringing with it a widespread fear of basic food
insecurity; and concomitant threat of social and political unrest.

It is as a hedge against such potential unrest that Russian
authorities have sought to import between 16 million metric tons
(mmt) and 18 mmt of grain in 1993. U.S. imports would, ordinarily,
comprise between 8 mmt and 10 mmt of this total.

Failure on the part of the United States to provide the means
to import such quantities of grain would not, of itself, constitute
collapse of the Russian food system. Nevertheless, it would
undercut an already fragile food supply situation (particularly
viewed from the micro perspective) . It would result in hardship
for the average Russian family.

Availability of low-cost foodstuffs in state shops in major
Russian cities is poor by American standards. More abundant,
better quality food can be purchased at commercial stores and
markets, but not at prices that all persons can reasonably afford;

288

or consider fair. The majority of Russian families have been
forced to significantly tighten their belts, even on purchases of
staples, such as bread, milk, and meat. But there is no safety net
in Russia, as in the United States, for enhancing purchasing power
by lowest income families.

The relative absence of foodstuffs — or of the ability of the
common consumer to purchase basic foodstuffs at reasonable prices
— has created a tinder box of social discontent. Access to
imports provides an important means to manage the current Russian
food supply problem. Such access is dependent on the willingness
of exporting countries to provide credit or assistance for the
purpose of purchasing agricultural commodities. That decision, of
course, rests entirely in the hands of exporting countries.

Pipeline Disruptions

Many of the food-related problems we see in Russia today
result from what I would term "pipeline disruptions".

Even in the past — under a completely centralized system —
such disruptions were common. Today, however, more serious
challenges exist, resulting from a partial breakdown in previously
reliable relationships between producer and government procurement
authorities and entities; retailers and consvuners; and food-surplus
and deficit Republics (and even between food-surplus and deficit
regions within individual Republics) .

The absence of a generally recognized, legally sanctioned
market mechanism has resulted in an inefficient allocation of
scarce resources. Surpluses exist side-by-side with deficit
conditions.

Central procurement authorities currently attempt to bridge
the gulf. But they are limited in what they can do by constraints
on subsidies to producers, weather-related factors, and
availability of credit overseas to purchase bulk commodities not
otherwise available from domestic stocks.

Problems in the Livestock Sector

Problems of grain availability are generally severe, but they
are most severe in the livestock sector. In that sector, back-to-
back poor harvests — and farmer reticence to sell grain at low
prices in the face on inflationary pressures — has resulted in a
serious downturn in livestock numbers.

There is a critical need for feed grains and protein feeds for
animal production; however (with U.S. credits suspended), there is
little outlet for this demand. As a result, wheat normally
destined for human consumption is being fed to animals. This, in
turn, has lessened wheat supplies for food. Producer, government

289

and consvimer alike have been trapped in a vicious cycle. On the
upside (for the United States) , such conditions favor imports of
wheat.

Production possibilitias

Much has been said and written about the promise of Russian
agriculture (shorn of Soviet controls) , free to produce for a
future Russian marketplace. Some have predicted Russian self-
sufficiency in grain in the near term; others forecast a return of
Russia to the international export market place.

It is possible, of course, that such developments may come to
pass: possible, but unlikely in the near future.

In the short term, it is difficult to see how the current,
evolving Russian system can effectively match needs and production.
Too many constraints currently disrupt production to do so, among
them: the weather, input and transportation shortages, lack of
foreign currency to purchase imported inputs, limits on government
subsidies to farmers, the absence or near absence of markets,
barriers to inter-CIS cooperation and trade, lack of local and
national marketing know-how, and environmental constraints (such as
exist in Central Asia) , which place limits on future growth in
agricultural production.

Rola of Imports

I conclude that Russia will continue to rely on imports for a
significant portion of its total grain supply for the foreseeable
future. It will do so because of limits on its own production and
supply; and because imports allow a means to manage food supplies,
in the face of social discontent.

These imports need not come at a cost to Russian producers in
the form of disincentives to production (such as has been argued) ;
there should be eunple domestic maricets for their future production.
On the other hand, such imports — if reliable — could play a
significant role in maintaining basic social welfare at a time of
tremendous economic and political turmoil and change. This is a
point that should not be lost on U.S. policy -makers. It is a
point, I believe, the President well understands.

Policy

What, then, of U.S. policy? What role should U.S. policy play
in advancing these objectives?

It is, by now, well known to you that the Russians prefer to
maintain trade relations with the United States on a commercial
(GSM) basis. They favor trade, not aid.

BOSTON PUBLIC LIBRARY

290

3 9999 05018 434 8

Some regard the Russian preference as presumptive, given
current arrearages on past GSM repayments. Yet, there are
important reasons why the Russian position on this issue makes
sense, both from their perspective, and our own.

0.8. -Russian Comnercial Relationship

Commercial credit guaranteed by the U.S. government (GSM)
provides an important lifeline to the emerging commercial sector of
the Russian economy. Under current circumstances, such credit
would not be extended by private institutions absent U.S.
guarantees. Consequently, our objective in advancing the
development of Russian commercial structures would be set back, not
advanced, by a decisions to forego commercial (GSM) terms, in favor
of food aid as a long term U.S. policy.

Cash Flow

It is important to understand that current debt repayment
difficulties facing the Russian Federation result not from a basic
unwillingness to repay past debt, nor from an absolute inability to
do so. The problem today is a simple question of cash flow.

The immediate answer to Russia's current cash-flow problems
rests with the Paris Club negotiations. Russia is rich in natural
resources. Such resources can and will be brought on line to
service past debt, provided Western creditors have the confidence
and patience to weather today's uncertainties. In the meantime,
U.S. policymakers should move affirmatively to re-position current
U.S. policy dictates to allow continued credit to Russia on terms
it can afford.

Food Aid

We all expect that nearby future U.S. assistance to Russia
will be in the form of food aid (Food for Progress) rather than new
GSM credits. The Administration deserves important credit for
finding the means available to maintain trade with Russia, given
current restrictions on credit lending programs. Nevertheless, it
is also important to recognize that food aid is not the preferred
long-term solution to the cxirrent U.S. -Russia grain trade impasse.

Problems with food aid are legion. Cargo preference
requirements inflate both U.S. and Russian costs in trade,
undercutting the effectiveness of the assistance offered by the
United States. Furthermore, there is not sufficient U.S. food aid
resources to adequately manage future Russian demand.

Futura D.8. Policy

Future U.S. policy should continue to maintain a mix of
commercial, food aid and technical assistance programs. Commercial

291

(GSM) programs should offer longer-term repayment, either under
GSM-103 or a new program, subject to Congressional approval. Food
aid resources should be targeted on areas of greatest humanitarian
need. Technical assistance should emphasize improvement in the
Russian food production and marketing system. All such programs
should be better integrated than in the past to avoid overlap and
ensure greater complementarity.

We need to avoid becoming prisoners of our own programs and
maintain focus on our central objective in providing assistance to
Russia. I have made my recommendations for action clear and in
more detailed form to this Committee in the last few weeks. I will
not repeat them here. Z close simply by urging your abiding
attention to this issue; and your attention, in addition, to the
need to maintain a flexible and reflexive U.S. policy approach, as
political and economic conditions in Russia continue to change.

ISBN 0-16-041045-2

9 780160"41

0451

90000

Internet Archive Audio

Featured

Top

Images

Featured

Top

Software

Featured

Top

Books

Featured

Top

Video

Featured

Top

Mobile Apps

Browser Extensions

Archive-It Subscription

Save Page Now

Full text of "Current agricultural situation in Russia : hearings before the Subcommittee on Foreign Agriculture and Hunger of the Committee on Agriculture, House of Representatives, One Hundred Third Congress, first session, March 30, 31, and April 1, 1993"

See other formats