IS THERE A ROLE FOR THE UNITED STATES IN SOVIET EFFORTS TO EXPAND FOOD PRODUCTION?

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP08S01350R000401400002-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 14
• Document Creation Date: December 27, 2016
• Document Release Date: March 8, 2012
• Sequence Number: 2
• Publication Date: April 1, 1987
• Content Type: MEMO

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Central Intell `rence Agency
DIRECTORATE OF INTELLIGENCE
April 1987
Is There A Role for the United States in Soviet Efforts to
Expand Food Production?
Summary
Prospects for substantial increases in US sales of
agricultural and food processing machinery and equipment (M & E)
and agrochemicals to the USSR are dim. The United States can
offer very little in agricultural and food processing M & E,
technology, or agrochemicals that cannot be purchased from other
Western suppliers, often on more favorable terms. The past
experience of US firms' providing managerial and technical
services to agricultural enterprises in the USSR, although
reportedly satisfactory, has not led to further business. The
USSR's growing insistence on countertrade (that is, we buy from
you, you must buy from us") also reduces possibilities for
increasing US sales to the USSR; few Soviet products can find
markets in the United States. Finally, the recent Soviet moves
to encourage joint ventures are not likely to result in much
trade activity for US or other Western firms in the near term,
because of the conflicting goals of Soviet officials and Western
businessmen.
General Secretary Mikhail Gorbachev inherited an economy
with costly, inefficient agricultural and food processing
sectors. His frequently reiterated comments about the need to
solve the food problem--a common theme in Brezhnev's later
speeches as well--seem to point to a need for substantial
Farrar.INSC. Comments and questions are welcome and can be
directed to Chief, Economic Performance uivislon
SOV-M-87-20034
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increases in imports of Western agricultural and food processing
M & E, technology, and agrochemicals. Nonetheless, evidence from
trade statistics suggests there has been no increase in the
priority accorded such imports over the past decade--nor has
there been a shift away from East European suppliers in favor of
Western suppliers. The United States has accounted `or only a
minor share of the Western sales.
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Background
Since the early 1980s, high-level Soviet officials have been
stressing the need to import Western agricultural and food
processing equipment, technology, and agrochemicals as part of
the effort to reduce the chronic losses that plague Soviet
agriculture and various elements of the food production chain.
In conversations with US Embassy and senior Washington officials,
as well as with US businessmen (notably in forums such as the US-
USSR Trade and Economic Council), Soviet officials continue to
argue their desire to expand imports of both equipment and
technology from the United States for these important areas.
However, actual trade transactions suggest that the relative
priority of these imports has not changed. The share of the
total import bill spent on resources to support farm production--
primarily agricultural machinery and agrochemicals--was roughly
the same during 1981-85 as during 1976-80. The share of food-
processing machinery and equipment increased slightly, from just
under 1 percent of total imports during 1976-80 to just over 1
percent during 1981-85. Moreover, throughout the entire decade
some 90 percent of the agricultural machinery and 80 percent of
the food processing equipment imported by the USSR came from East
European suppliers.
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Clearly, the rapid and substantial increase in sales that Western
businessmen expected has not materialized.
The role of the United States in supplying the USSR with
either agricultural or food processing M & E has been minimal.
Indeed, according to Soviet statistics, during the 1981-85 period
the US share of Soviet food processing M & E imports dropped to
under 1 percent of total imports in that category from nearly 3
percent during 1976-80. The annual Soviet statistical abstract
does not report agricultural M & E in sufficient detail to reveal
the US role, but partner-country statistics indicate that, during
1981-85, the United States supplied on average about 4 percent of
the USSR's agricultural M & E imports from the West.
Moscow ordered an estimated $20 million of agriculture-
related M & E from the United States during 1983-85. All
agriculture-related M & E, however, accounted for only 1.8
percent of total Soviet orders for all types of M & E. The share
of orders going to US firms picked up in 1986; out of a total $37
million placed, $28 million was placed with US firms.
The United States, however, did supply esubstantial share
of the USSR's fertilizer and pesticide imports. Interestingly,
Soviet imports of fertilizer from the United States increased
steadily during the early 1980s. Although total imports of
pesticides more than doubled during those years, imports of US
pesticides (which accounted for over 15 percent of total Soviet
pesticide imports from Western suppliers in 1983) dropped to
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nearly zero in 1985. (The role of US firms is understated
somewhat because sales by US subsidiary companies in countries
such as Belgium appear in Soviet statistics as imports from those
countries.)
Over the past few years US firms, despite many proposals and
lengthy discussions with Soviet officials, have not been able to
conclude agreements for services including US managerial and
technical expertise. This probably reflects, in part, more
general problems affecting Soviet trade with the West: (1)
typical Soviet reluctance to make difficult decisions; (2)
reduced availability of hard currency resulting from lower oil
prices; and (3) the Gosagroprom (State Agro-Industrial Committee)
and Ministry of Foreign Trade reorganizations, which are still
not complete. Another factor hindering agreements with US firms
--not only in this area but across the entire trade spectrum--is
the increasingly strident demand of Soviet officials for
countertrade to reduce the enormous balance-of-trade deficit the
USSR suffers vis-a-vis the United States. This deficit
predisposes Soviet officials to work with other Western countries
which are often more willing to import Soviet goods and to strike
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During the 1970s, a few US firms provided managerial and technical
expertise to Soviet agriculture. Among the projects were two soybean-growing
experimental farms, one tomato-growing and processing set-up, and a few
livestock feed lots. Although Soviet officials claimed to be satisfied with
results of these operations, no company was asked to repeat or expand its
activity.
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The USSR has signed major agreements with several non-US Western
firms in recent years.
-- In 1984 the USSR and the British firm ICI began a three-year
experiment aimed at increasing wheat yields using minimal
cultivation of soil, British pesticides, and Soviet seed and
fertilizer on 2,000 hectares of land in Moscow Oblast. The goal
is to increase yields to 10 tons per hectare, from the 1985
levels of 2.5 tons per hectare. No results have been published
to date.
-- Also in 1984 the USSR signed a cooperation agreement with Shell
International for development of a new pyrethroid insecticide.
The pyrethroid is to be field tested in Azerbaijan, the RSFSR,
and the Ukraine on a number of crops including cotton, fruit,
and vegetables. Again, no results have been published to date.
-- Several Swedish firms are said to be cooperating in an
agricultural project at Tosna, near Leningrad. The project is
aimed at producing, processing, and distributing dairy
products. The creation of Gosagroprom, in late 1985 and the
accompanying disarray, as well as problems with financing,
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reportedly are hindering development of this project.
-- The most recently announced contract was that signed by
Interagra, a French firm, to provide turnkey plants for
processing "grain, corn, and vegetable oil" and for setting up
various other enterprises such as "modern chicken-producing
farms." Interagra claims the contract is worth $985 million.
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Farm Production and Food Industry Output Up
Even without a major increase in the priority for imports of
agricultural M & E or foreign technology, Soviet farm production
appears to have turned around during the first two years of the
Gorbachev regime, reachir;g a new high after a decline in 1984 and
1985. The improved performance is due to continued growth in the
livestock sector, combined with increased production of several major
crops, including grain. General Secretary Gorbachev can claim at
least a partial success for his policies to increase agricultural
production. To improve animal productivity--meat per animal and milk
per cow--Gorbachev has promoted more aggressive implementation of
initiatives developed in the early 1980s to emphasize the use of
roughages and protein-rich feedstruffs in animal diets, provide the
resources--including additional fertilizer--for increased production
of these components, and enhance feed quality by improving facilities
for processing and storing feeds.
Another key initiative has been the "intensive technology"
program in grain production. Intensive technology, as defined by the
Soviets includes many farm practices routinely performed in the West--
using high-yield varieties, planting where possible after fallow,
implementing efficient transportation routes and schedules, and the
more extensive use of agro-chemicals including fertilizers and
pesticides. We estimate that this program--which encompassed about 29
million hectares in 1986 and is scheduled to reach 50 million hectares
in 1990--added at least 5 million tons to last year's grain
production.
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In 1986 the output of the food industry, excluding alcohol,
grew by a healthy 6.5 percent, partly because of improved
agricultural performance. Some expansion of processing capacity
also enabled the industry to make better use of available
supplies. Although the Soviet press is not forthcoming on the
role of imported food processing M & E, such imports were planned
to account for one-fifth of the total investment in the food
industry during 1981-85. Combined with stepped up domestic
production of food processing M & E, these imports undoubtedly
helped improve productivity of this long neglected industry as
they were put into use, half of the
food processing equipment produced in the USSR during the late
1970s was of pre-World-War-II design.
Potential Areas for US Sales
Although the United States has a remarkably productive and
efficient food production, processing, and distribution system,
there is little that is unique but much that is excellent,
particularly agrochemicals. For best results with the expanding
intensive technology effort, Moscow will need to import
additional pesticides. In general, Soviet officials feel it is
more efficient to purchase certain pesticides from the West than
to import the manufacturing facilities and allocate the major
investment needed,for production of intermediate materials which,
in some cases, could only be used to produce a particular
pesticide.
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Attempts by US firms to market farm equipment in the USSR have
been largely unsuccessful in the past and are not likely to be any
more successful over the next few years. The USSR produces large
numbers of most types of needed farm equipment and see, no reason to
use scarce hard currency on these goods. An exception might be
application equipment for fertilizer and pesticides; such equipment is
in short supply in the USSR. Other areas of possible interest include
packaging materials of all sorts, and food processing and quality
control equipment.
The Joint Venture Issue
One area of particular interest to Soviet officials at the moment
is the formation of agriculture-related joint ventures with Western
firms. Indeed, the USSR may see such projects as important means of
expanding trade with the United States at a time of hard currency
shortages. As with countertrade deals, Moscow views joint ventures as
a means of acquiring Western equipment and know-how with minimal hard
currency outlays. Discussions to date with US firms have centered on
agrochemicals--an area that has some potential because of the absence
of US export controls on agrochemical technology. Monsanto has signed
a "letter of intent" to form a joint venture to produce herbicides.
Yet, even in the area of joint ventures, the United States
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faces stiff competition. Moscow is talking with a number of West
European firms abet projects to produce seed, weed killers,
animal feeds, and refrigeration and cold-storage equipment.
Discussions are also underway with the Japanese for joint
ventures in the fishing industry . For the most part, West
European and Japanese firms can offer the Soviets comparable
equipment and technology with the added advantage over US
companies of having access to government-backed insurance and
credits. Moscow might also prefer joint ventures with non-US
firms since they are less vulnerable to government-imposed trade
sanctions.
All Western companies are likely to find progress on
establishment of joint ventures slowgoing, despite Soviet
enthusiasm and optimism. While US and other Western firms are
interested in projects that will be able to sell to the large
Soviet domestic market, Moscow appears more interested in
establishing joint ventures that will expand hard currency
earnings through exports, even in the agricultural sphere.
Western companies are leery of ventures that would compete with
their existing product lines. Moreover, Western businessmen are
already encountering numerous Soviet bureaucratic obstacles.
Although Moscow issued its decree on joint ventures at the
beginning of the year, many details are lacking, particularly in
the areas of taxation, profit repatriation, and marketing. In
addition, Western businessmen are expressing increasing concern
about dealing with Soviets who are inexperienced in Western
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business and banking practices. Soviet officials who touted
agricultural joint ventures at recent trade fairs and seminars
held in Moscow were woefully ignorant of details when pressed,
according to US Embassy reporting. Ultimately, many of the
current joint venture discussions are likely to lead nowhere or
dissolve into traditional sales and cooperation agreements.
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Distribution for "Is There A Role for the United States in Soviet
Efforts to Expand Food Production" (SOV-M-87-20034)
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External
Robert Clark
Deputy Director, Economic Affairs, Office of Soviet Union Affairs
Bureau of European Affairs
Rm 4273
Dept. of State
John Danylyk
Chief, Communist Economic Relations Division
Bureau of Intelligence and Research
Rm 8662
Dept. of State
Robert Baraz
Director, Office of Analysis for the Soviet Union and Eastern
Europe
Bureau of Intelligence and Research
Rm 4758
Dept. of State
Dennis Avery
INR/EC
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Dept. of State
David Epstein
OSD
Net Assessments
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Douglas R. Mulholland
Special Assistant to the Secretary (National Security)
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Main Treasury
Byron L. Jackson
Director, Office of Intelligence Liason
Rcom 6854
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Susanne Lotarski
Director, Office of Eastern Europe and Soviet Affairs
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Main Commerce
Frank Vargo
Deputy Assistant Secretary for International Economic Policy
Rm 3850
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Jack Brougher, Jr.
Chief, USSR Division, Eastern Europe and Soviet Affairs Office
Rm 3415
Main Commerce
Stephen Farrar
Director of International Economic Affairs
365 Old EOB
National Security Council
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