USSR: IMPACT OF RESTRICTED US GRAIN EXPORTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP81B00401R000600090010-9
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 38
• Document Creation Date: December 19, 2016
• Document Release Date: November 7, 2006
• Sequence Number: 10
• Publication Date: March 1, 1980
• Content Type: REPORT

A proved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
4sE^~F National Confidential
t r_11! r' Foreign
Center
USSR: Impact of Restricted
US Grain Exports
An Intelligence Assessment
---4j VL 6J4,0--
Confidential
ER 80-10198
March 1980
Copy 2 8 1
 25X1 Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
 Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
National Confidential
Foreign
Assessment
Center
USSR: Impact of Restricted
US Grain Exports
Research for this report was completed
on 1 March 1980.
This report was prepared by the Office of
Economic Research. Appendix C includes
contributions from the Foreign Broadcast
Information Service and the Office of Geographic and
Cartographic Research. Appendix E includes a
contribution from the Foreign Broadcast Information
Service. The report was coordinated with the
Office of Geographic and Cartographic Research and
the Foreign Broadcast Information Service.
Comments and queries are welcome, and may be
directed to Chief, Analytical Studies Branch
USSR/Eastern Europe Division, OER,
Confidential
ER 80-10198
March 1980
 Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
Confidential
USSR: Impact of Restricted
US Grain Export
Executive Summary The decision to limit US grain exports to the Soviet Union will result in
withholding about 19 million tons of grain in calendar year 1980. Even with
unrestricted US grain exports, Moscow would have needed to make some
adjustments in the livestock sector this year. Present US policy will now
make these adjustments larger than anticipated.
The Soviets can only partially offset the loss of US grain by additional grain
purchases elsewhere, or by a combination of other actions-increased
drawdowns of grain stocks that are probably at low levels already, increased
imports of other feedstuffs such as soybean meal, or increased imports of
meat. Additional sales (in this context, diversion) of non-US grain could
amount to 5 to 9 million tons for this calendar year. Recent sales of
Canadian and Argentine grain to the Soviet Union have already brought the
likely diversion to the middle of this range, and further sale a, possible
Past Soviet behavior provides some guidance for estimating the possible net
impact of the US embargo. If we assume average Soviet grain crops in 1980
and 1981 and a net loss in 1980 of 10 million tons due to the US controls
(with diversion of 9 million tons), historical relationships within Soviet
agriculture suggest a considerable impact on Moscow's livestock program.
Reduction in 1980 grain supplies will probably require:
? Reductions in livestock inventories, especially of swine and poultry.
Overall inventories may be down 2 to 3 percent by 1 January 1981, with
about a fourth of the drop due to the shift in US grain export policy.
? A drop in meat output of about 300,000 tons (2 percent) from the 1979
level of 15.5 million tons. This estimate suggests that emergency
slaughtering will offset approximately half of the potential impact of lower
grain supplies on actual meat production.
Events yet to be played out could change the outlook still further. For
example, the Soviets could decide to maintain livestock inventories during
1980, even in the face of reduced feed supplies. More of the impact of the US
restrictions would then fall on current meat output-the decline in meat
output this year would double to some 600,000 tons, or 4 percent. In addition
to seeking foreign alternatives to US grain, Moscow can further mitigate the
impact of the US grain embargo by importing concentrated feeds, especially
soybeans and soybean meal and meat. Additional imports of soybeans and
 Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
soybean meal are not likely to provide much of an offset because of limited
Soviet handling and processing facilities and inexperience with large-scale
use of protein meal feed. World meat supplies are tight now so the Soviets
will have to pay substantially higher prices to secure quantities greater than
last year's meat imports. In any case, Soviet intentions on the imports of
meat, soybeans, and soybean meal are still unclear.
Confidential iv
 Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
Confidential
USSR: Impact of Restricted
US Grain Export
The decision to limit US grain exports to the Soviet Union will result in
withholding about 19 million tons of grain in calendar year 1980.' The
Soviets can only partially offset the loss of US grain by additional grain
purchases elsewhere, or by a combination of other actions-increased
drawdowns of grain stocks that are probably at low levels already,' increased
imports of other feedstuffs such as soybean meal, or increased imports of
meat.
We now see the shift in US policy causing a grain deficit of at least 10
million tons this year, with a consequent reduction in the Soviet livestock
program. Both meat production and livestock herds are likely to decline 2 to
3 percent in 1980. These results will contrast sharply with the leadership's
earlier intention to contain the impact of the poor 1979 grain harvest
through record grain imports.
The present Soviet leadership has had a longstanding and well-publicized
commitment to improve the plight of the Soviet consumer. Much of this
effort has focused on improvements in the diet, and expanded meat
production has been the cornerstone of this program. Despite a substantial
expansion in meat production during the first half of the 1970s, demand has
consistently outstripped supply and shortages are chronic. Paradoxically,
the growing gap between consumer demand for meat and meat supply has
been encouraged by Soviet policies that price meat at artificially low levels,
increase disposable income steadily, and limit the availability of other
consumer goods that could absorb discretionary spending.
Much of the improvement in the livestock program during the last decade
came as a result of a policy decision to expand greatly grain imports in years
of grain shortfall rather than to cut herds. Such imports served to cushion
the impact of domestic harvest failures as well as to raise the general
capacity of the agricultural sector to support increased output of animal
products.
' Unless otherwise indicated, calendar years are used in this report.
2 No figures on grain stocks held have ever been released by the Soviets. Indirect estimates
suggest that stocks cannot sustain a drawdown this year much above that projected before the
US embargo.
 Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
The US decision to restrict grain exports comes at a time when the Soviets
are again particularly dependent upon grain imports to support livestock
feeding, which accounts for about half of all grain used. The 1979 Soviet
grain crop of 179 million tons was the smallest since 1975-48 million tons
below plan and 58 million below the record 1978 crop. Moscow was able to
maintain livestock herds in 1979 only through record grain imports. Even
with unrestricted US grain exports, Soviet port capacity constraints would
not have allowed sufficient imports in 1980 to prevent some adjustments in
the livestock sector. Present US policy will now make these adjustments
larger than anticipated.
In late 1979, we expected Soviet grain imports in calendar 1980 to be 38
million tons, given an average (trendline) grain crop this year. Of the total,
the United States probably would have furnished 25 million tons. Under a
partial US embargo of indefinite duration and continuation of the
US-USSR Long-Term Agreement (LTA) on grain purchases, US exports
to the Soviet Union now would be limited to 8 million tons in each LTA year
(October/September). Because of heavy shipments during the fourth
quarter 1979, we would expect allowable US deliveries during calendar year
1980 to be about 6 million tons; that is, the amount of US grain withheld
would be roughly 19 million tons in 1980.
Moscow has moved to replace some of the denied US grain by increased
imports from other sources. Additional sales (that is, diversion) of non-US
grain could amount to 5 to 9 million tons for this calendar year. We
characterize 9 million tons of diversion as a "high" scenario and 5 million
tons as a "low" scenario. Recent sales of Canadian and Argentine grain to
the Soviet Union have already brought the likely diversion to the middle of
this range, and further sales are possible. Total Soviet grain imports for the
year thus should a roach 28 million tons, or a probable net loss of at least
10 million tons.
The denial of 19 million tons of US grain this year-without offsets-would
lead to a loss of as much as 1.4 million tons in Soviet meat production
capacity, defined as the meat equivalent of the liveweight of existing herds.
This loss equals about 9 percent of meat output. A diversion of 9 million tons
of foreign grain to offset some of the loss of US grain in 1980 reduces this
capacity loss to about 5 percent. Actual meat marketings in 1980 could be
prevented from falling as much as this through increased slaughter of
livestock herds-with a resulting fall in total weight of the livestock
inventory-and by distributing the feed deficit among all animal products,
not just meat. To the extent that Moscow takes such actions, the net impact
of the denied US grain on meat production this year will be less than the loss
in meat production capacity would suggest.
 Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
Confidential
The impact of reduced grain availability on meat production and livestock
herds will depend in part upon Soviet policy decisions yet to be made. Winter
and spring growing conditions and the prospects for both grain and nongrain
feed crops in 1980 undoubtedly will be important factors to be weighed by
the leadership. Uncertainties in 1980 crop prospects, Moscow's flexibility in
determining the 1980 balance between livestock herds and meat production,
and choices to be made on distributing the grain shortfall between meat
production and nonmeat animal products make projections of 1980
performance in the livestock sector very hazardous at this point.
Past Soviet behavior provides some guidance for estimating possible net
impact of the US embargo, although the behavior was of course carried out
under circumstances which differ in important ways from those that now
exist. If we assume average Soviet grain crops in 1980 and 1981 and a net
loss of 10 million tons due to the US controls (with diversion of 9 million
tons), historical relationships within Soviet agriculture suggest a consider-
able impact on Moscow's livestock program (table 1):
? Coming on top of the poor harvest of nongrain feed crops in 1979, the US
actions will cause the supply of grain used for feed in the USSR to decline
about 12 percent, compared with a 4 percent decline if there were no US
controls.
? Since grain accounts for almost a third of total animal feed, the reduction
in 1980 grain supplies will require lower feeding rates and most probably
reductions in livestock inventories, especially of swine and poultry. Overall
inventories may be down 2 to 3 percent by 1 January 1981, with about a
fourth of the drop due to the shift in US grain export policy. Because grain
is the dominant component of their feed rations, swine and poultry would
absorb most of this adjustment and swine inventories could fall up to 10
percent during the year.
? We would have expected meat production to be flat this year, even with
full US exports, as the effects of the poor 1979 grain crop worked their
way through feed supplies. We now expect a drop in meat output of about
300,000 tons (2 percent) from the 1979 level of 15.5 million tons. Both the
pre- and post-US controls estimates assume a normal grain crop (based on
the long-term trend) of 220 million tons in 1980. This estimate suggests
that emergency slaughtering will offset approximately half of the potential
impact on actual meat output from the decline in meat production
capacity due to reduced feed rations.'
'These impact calculations imply that meat output would fall by about 40,000 tons with each
1-million-ton reduction in grain fed to livestock. This figure is less than feeding norms would
indicate because compensating movements in the size of livestock herds provide a partial
offset to the impact of lower feed supplies on meat marketings.
 Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
? On a per capita basis, the slump in meat production between 1978 and
1980 would amount to 4 percent and would return average meat
consumption almost to the levels of the early 1970s. About two-thirds of
this drop would be attributable to restrictions on US exports.
This picture of the impact of the US grain embargo is consistent with both
the general pattern of past Soviet behavior and our present expectations
about this year. Events yet to be played out, however, could change the
outlook substantially. In particular:
? The Soviets could decide to maintain livestock inventories during 1980,
even in the face of reduced feed supplies. More of the impact of the US
restrictions would then fall on current meat output-the decline in meat
output this year would double to some 600,000 tons, or 4 percent. The
remaining impact would be reflected in the lighter average weight of the
livestock herds, which, however, could be regained as normal feed supplies
returned, leading to a recovery of meat output.
? Historically, output of nonmeat products (primarily milk) has not shown
the same sharp fluctuations as that of meat during temporary periods of
grain shortages. Our basic estimates assume that meat production absorbs
the full impact of the embargo. Moscow could instead choose to distribute
the grain shortfall between meat and nonmeat animal products. If the
impact is spread in a proportional way among meat and nonmeat products
and the historical pattern of herd reduction is followed, meat output in
1980 would be around 200,000 tons higher than otherwise-perhaps near
15.4 million tons.
? If the Soviet grain shortfall due to the US restrictions were higher than 10
million tons-say, 14 million tons-because of lower diversion, the decline
in Soviet meat output in 1980 would be proportionately larger-about a
half million tons or 3 percent.
In addition to seeking foreign alternatives to US grain, Moscow can further
mitigate the impact of the US grain embargo by importing concentrated
feeds, especially soybeans and soybean meal, and meat. In the case of
soybeans and soybean meal, the limitations on Soviet handling and
processing facilities and inexperience with large-scale use of such feeds do
not indicate an ability to use large amounts of additional imports. As for the
possibility of increasing meat imports, world supplies are tight so that the
Soviets will have to pay substantially higher prices to secure quantities
greater than last year's meat imports. Larger amounts require bidding
supplies away from traditional importers with the attendant heavy
premiums involved. In any case, Soviet intentions on the imports of meat,
soybeans, and soybean meal are still unclear.
 Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
Confidential
In sum, our analysis suggests that the new US policy on grain exports could
impose substantial penalities in terms of both forced reductions in livestock
inventories and lower meat production this year. How far inventories and
production will actually fall will depend heavily, however, upon (a) the size
of the 1980 Soviet harvests of grain and nongrain feed crops, (b) what
Moscow decides to do about livestock inventories as feed supplies become
tighter, and (c) the success the Soviets have in obtaining substitute
supplies-non-US origin grain, soybeans, or soybean meal-for the
embargoed US grain.
USSR: Impact of Restricted US Grain Exports
on Soviet Meat Production in 1980
Grain Imports Implied Deficit in
Grain Used for Feed,
Calendar Fourth Calendar Year 1980'
Year 1980' LTA Year 2
Projected 1980 Meat Net Impact of Embargo
Output on Meat Output
Full Shared Full Shared
Burden Burden' Burden Burden'
Preembargo
38
36
0
15.6
High diversion
28
27
10
15.2
15.4
-0.4
-0.2
Low diversion
24
23
14
15.1
15.3
-0.5
-0.3
Minimum diversion
20
19
18
14.9
15.1
-0.7
-0.5
Includes 3 million tons imported for client states.
' Excludes imports for client states; the fourth long-term agreement
year under the US-USSR pact runs from 1 October 1979 to
30 September 1980.
'This is the net deficit created by restrictions on US exports and does
not relate to grain feeding deficits that might arise from other
factors. It does include some offsetting increases in deliveries from
non-US sources.
'The full feed deficit created by the US embargo is absorbed in meat
production. This is the condition most consistent with past Soviet
behavior when faced with short-term grain deficits.
'The feed deficit created by the US embargo is assumed to be shared
by meat and nonmeat products in a proportional manner based on
the average pattern of feed use.
 Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
Confidential
Executive Summary
iii
Background
1
Impact of Restricted Grain Imports on the Soviet Livestock Program
4
Other Factors Affecting Grain Embargo Impact in 1980
8
Distributing the Grain Shortfall
9
How Large Could the Grain Embargo Impact Be?
10
Prospects for Grain Embargo Offsets Through Imports of Soybeans,
Soybean Meal, and Meat
10
A. The OER Impact Model of Soviet Agriculture: An Overview
13
B. Estimated Grain Balances for the USSR, 1970/71 to 1979/80
15
D. Tabulations of Historical Data and Impact Projections
23
1 USSR: Impact of Restricted US
Grain Exports on Soviet Meat Output in 1980
2 USSR: Alternative Grain Import Estimates
B1 USSR: Grain Balance, 1970/71 to 1979/80 (1 July-30 June) 16
 Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
Al. OER Impact Model of Soviet Agriculture
E2. USSR: Meat Consumption and Real Disposable Income 29
 Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
Confidential
USSR: Impact of Restricted
US Grain Exports
0
The present Soviet leadership has had a longstanding
and well-publicized commitment to improve the diet of
the Soviet consumer, and expanded meat production
has been the cornerstone of this program (see appendix
E). Impressive gains were made in the first half of the
1970s, when per capita meat production rose about 16
percent. The record since then has been uneven. Much
of the difficulty over the last five years has reflected
instability in domestic harvests of feed crops and
subsequently inability to maintain steady growth of the
livestock sector. In 1978, per capita consumption of
meat in the USSR was only 70 percent of that in
Hungary and Poland, 60 percent of that in Czechoslo-
vakia and around 40 percent of that in the United
States.
Problems in Moscow's meat program go beyond issues
strictly of production. Demand for meat has
consistently outstripped supply and the gap is contin-
ually growing. This phenomenon has deep-seated
causes. One is the traditional Soviet policy of pricing
retail meat products at artificially low levels. Another
is the steady rise in disposable income. A third is the
absence of competitive uses of discretionary income
because of the inadequate supplies and poor quality of
consumer goods in the Soviet Union. Together these
factors encourage a high demand for meat which even
the ambitious Soviet plans would be unable to satisfy.
The progress Moscow has made in this area has come
as a result of massive infusions of investment-capital
goods and fertilizers-into the agricultural sector to
improve both the production of feed and the output of
livestock products. Despite the heavy commitment of
domestic resources, imports of grain have played a
crucial role. Large imports of grain, primarily from the
United States, were critical in limiting the impacts on
the output of livestock products of the poor harvests in
1972 and 1975.
The US decision to restrict grain exports to the Soviet
Union comes at a time when the Soviets are again
particularly dependent upon grain imports. The 1979
Soviet grain crop of 179 million tons was the smallest
since 1975-48 million tons below plan and 58 million
tons below the record 1978 crop. In order to maintain
the momentum of its very important livestock pro-
gram, which now uses about half the grain produced,
Moscow made a major commitment to increase greatly
1979 and 1980 grain imports. The United States
benefited as the primary world grain supplier.
In December, we had expected Moscow to import
about 38 million tons of grain in calendar year 1980
and 39 million tons for the US-USSR Long Term
Agreement (LTA) year ending in September if the
1980 grain crop was on trend at around 220 million
tons.` This was based on estimated 1980 deliveries of
25 million tons from the United States and 13 million
tons from other sources (26 million tons from the
United States and 13 million tons from other exporters
for the LTA year) 25X1
The US export restrictions announced recently limit
total grain shipments to the USSR to 8 million tons
annually (October to September) under the LTA on
grain purchases. Nearly 6 million tons of US-origin
grain were shipped to the USSR during October-
December 1979, 5 million tons of which were pur-
chased under the present LTA year and the remainder
under the previous year. The present restrictions
imply, therefore, that no more than 3 million tons of
' The terms average grain crop and trend grain crop are used
synonymously in this paper to describe harvests reflecting the trend
in all grain yield per hectare of sown area over the last 18 years
(1962-79). A trend is defined, not observed. As such, there is always
a degree of judgment involved in arriving at trend data. We have
defined trend yield based upon all grain production net of waste and
losses (see appendix B). Our trend grain production is computed
from the product of the time trend of all grain yield and sown area, to
which we add an 11-percent adjustment, the average amount of
waste and losses. Other methodologies will yield somewhat different
trend grain output series.
 Approved For Release 2006/11/07: CIA-RDP81 BOO4O1 R00060009001O-9
USSR: Alternative Grain Import Estimates'
1979
4th Qtr
1980
1st Qtr
3rd Qtr
1980
4th Qtr
1980
Total
Post-1980
Annual
Total'
I. Expectations prior to US restrictions
(39 million tons for Fourth LTA year)
US origin
6
20
5
25
NA
Non-US origin
3
10
3
13
NA
Total
9
30
8
38
25-32
II. Availability under restricted US exports
and 9 million ton 1980 diversion (30 million
tons total for Fourth LTA year)'
US origin
Non-US origin
3
18
4
22
20
Total
9
21
7
28
28
'These figures include Soviet imports of grain and flour for client
states-such as Cuba, Vietnam, and North Korea-that total about
3 million tons annually. Because of delays in shipment, quantities
actually imported in a given period do not necessarily agree with
quantities purchased for that period.
'The figures for Alternative I assume grain imports at near the
handling capacity of Soviet ports, because of the high priority of the
Soviet livestock program and the recurrent need to provide for winter
feeding of herds. For Alternative II, the figure of 3 million tons for
grain originating in the US assumes a US policy to spread deliveries
over the LTA year, as permitted in the Agreement. Expected heavy
imports of non-US grain in the first three quarters of 1980 will
reduce availability of such grain in the last quarter. Thus, although
the figure of 4 million tons for the quarter is higher than expected
before the US suspension of grain sales, it is lower than the quarterly
average of our post-1980 estimate.
' For years after 1980, we have assumed average (trendline) Soviet
grain crops. Also, no attempt was made to estimate imports by origin
prior to the US embargo (Alternative I). In any event, non-US grain
crops fluctuate more than US crops, and this makes projections of
non-US grain availability highly speculative beyond 1980. Under
Alternative II, the figure of 20 million tons for non-US imports
assumes average crops and a restructuring of grain trade given
continuation of the US policy to restrict exports.
' The Fourth LTA year, running from October 1, 1979 through
September 30, 1980, covers fourth quarter and first through third
quarter of 1980.
 Approved For Release 2006/11/07: CIA-RDP81 BOO4O1 R00060009001O-9
Confidential
US grain can be shipped to the Soviets during January-
September 1980.5
Moscow has moved to replace some of the denied US
grain by increased imports from other sources. Diver-
sion of grain to the Soviet Union could amount to 5 to 9
million tons this year. Recent sales of Canadian and
Argentine grain to the USSR have already brought the
likely diversion to the middle of this range, and further
sales are possibli I
The structure of estimated Soviet grain imports (a)
before the US restrictions and (b) with US restrictions
and assuming a 9 million ton diversion this year are
compared in table 2. It shows that Moscow will
probably increase imports from other sources this year
to about 22 million tons. Availability after 1980 is now
projected at 28 million tons annually-8 million tons
from the United States and the rest from non-US
sources. Future non-US imports are particularly de-
pendent upon the sizes of grain crops in other exporting
countries, which tend to fluctuate much more than US
crops. The figure of 20 million tons reflects average
crops, but eventual quantities could vary widely
around this number. The increase in non-US origin
Soviet grain imports comes primarily from a
restructuring of trading patterns, including swapping
of contract destinations in the near term. All of this
increase-9 million tons-represents an offset to the
denied US grain.
Alternative import profiles for 1979-83 are compared
with historical trends in figure 1. Case A in figure 1 is a
hypothetical reference situation showing a projection
of Soviet imports if the grain crops in 1979 and
succeeding years were on trend. Case B is the estimate
prior to the shift in US policy of Soviet imports
associated with the actual 1979 crop of 179 million
tons and assuming trend crops thereafter. Case C is the
projection based upon a continued restriction of US
' Even though an additional 3 million tons could be shipped after
4 January under the US embargo, the International Longshoremen's
Association (ILA)-which controls East Coast and Gulf ports-has
announced it will refuse to load grain destined for the USSR. In fact,
under injunction, a small quantity has already moved out through
the Gulf. Since the West Coast longshoremen's union has not yet
agreed to the ILA ban, some of the grain is also moving through
West Coast ports. Our assumption that 3 million tons will be shipped
during the remainder of the current LTA year is the best case from
the Soviet standpoint.
Case A-Reference case with 1979 grain crop on trend
Case B-Poor 1979 grain crop and full US exports
Case C-Restricted US exports in 1980-83
iValues for 1970-78 are historical data; those for 1979-83 are estimates.
All data are given in Appendix D.
imports under the present LTA conditionsb-a maxi-
mum of 8 million tons a year-and assuming maxi-
mum additional imports of non-US grain of 22 million
tons in 1980 and 20 million tons annually during 1981-
83. Postembargo import availability in 1981 looks
close to required levels before the shift in US export
policy. Imports at these rates, however, will be below
'We are now in the fourth year of the LTA ending 30 September
1981. Under Case C we assume a renewal of the LTA beyond its
scheduled five years and a continuation of the 8-million-ton limit on
US exports to the USSR.
 Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
the levels needed to rebuild livestock inventories
rapidly unless the 1980 grain crop is near the record
1978 harvest. In any event, grain imports would be
substantially short of trend requirements by 1983.
Actual grain imports in 1979 (shown in Cases B and
C) were much higher than expected given past Soviet
reactions to a grain crop shortfall. The extra 1979
imports were a reflection of both a strong Soviet
balance-of-payments situation and an unusual leader-
ship commitment to use maximum grain imports to
contain the impact of the poor domestic crop.
In the analysis that follows, we examine the potential
impact of these shifts in grain imports on the Soviet
livestock program. It must be emphasized, however,
that these estimates are subject to considerable uncer-
tainty, both because of severe data limitations and
because of the assumptions which must be made
concerning Soviet policy decisions. We use an
econometric model of the Soviet agricultural sector
(see appendix A) to compute rough estimates of
reduced performance based on lower imports and
assuming a return to average grain harvests after 1979.
Given the inherent uncertainties underlying these
estimates, we also look at possible changes in our 1980
meat output projections associated with shifts in our
assumptions about the extent of diversion, Soviet
management of livestock inventories in the face of feed
shortages, and Moscow's allocation of the grain
shortfall among animal products. A final case is
included to suggest the maximum possible embargo
impact if Soviet grain imports from non-US sources
were limited to preembargo levels. A concluding
section in this report summarizes the possibilities for
embargo offsets from increased imports of soybeans,
soybean meal, and meat. In all cases, the analysis that
follows is based on past Soviet behavior and historical
relationships within Soviet agriculture.
Impact of Restricted Grain Imports
on the Soviet Livestock Program
Impact on Feed and Livestock Inventories
Roughly half of Soviet grain supplies are used to feed
livestock, with grain accounting for about a third of
total animal feed (see appendix B). It is not surprising
then that a shortfall in grain has a major impact on
feed availability and livestock output. Our estimate of
grain used for feed in 1979 is up by roughly 11 million
tons from 1978 as a result of record grain imports and
the bumper 1978 grain crop. In fact, these combined
factors appear to have allowed Soviet use of grain for
feed in 1979 to exceed slightly the trend level expected
with an average 1979 crop. Since the harvest of
nongrain feed crops in 1979 was also down consider-
ably (see appendix C), this suggests the possibility at
least that the Soviets used grain to substitute some-
what for short supplies of nongrain feed in 1979. With
full US exports and a return to average weather, grain
feeding still would have fallen in 1980 to slightly below
the 1979 level as the full impact of the poor 1979 grain
harvest worked its way into feed supplies.' We now
expect a much steeper downturn due to the roughly 10-
million-ton deficit associated with the US restriction of
grain exports. US restrictions would not prevent an
approximate return to trend feed levels in 1981. If
future harvests follow trend, however, continued US
restrictions would create a permanent and growing gap
between trend feed use and available grain for feed in
later years.
Shifts in feed supplies are usually accompanied by
compensating shifts in herd size. Record imports
allowed the Soviets to increase total livestock inven-
tories in 1979, something Moscow was unable to do
following the poor grain crop in 1972 and the
disastrous crop in 1975.$ In fact, preliminary 1 January
1980 figures show that, despite a bad crop, Moscow
raised inventories by an amount roughly equal to our
herd projection based on an average 1979 crop,
confirming an unusual policy commitment in these
areas. With an average grain crop in 1980, even
massive imports would not have prevented some
downward herd adjustments this year, although not on
the scale following the 1975 crop disaster. We estimate
that if past practices are followed the size of overall
herds now would be down somewhat less than 3 percent
' During 1972-73, aggregate livestock inventories were roughly flat,
as small declines in hogs and poultry were offset by increases in
cattle. The 1975-76 drop after the disastrous crop in 1975 was about
4 percent.
' These calculations are based on an average grain crop in 1980 of
around 220 million tons. It is obviously too early to speculate on the
size of the grain harvest this year, but the near record plantings last
fall coupled with below-average winter kill suggest a somewhat more
optimistic outlook for the winter grain crop in 1980 than at this time
last year.
 Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
Confidential
1 1
1970
Case A-Reference case with 1979 grain crop on trend
Case B-Poor 1979 grain crop and full US exports
Case C-Restricted US exports in 1980-83
1Values for 1970-78 are historical data; those for 1979-83 are estimates.
All data are given in Appendix D.
by 1 January 1981, a fourth of this drop associated
with the shift in US grain export policy,' and that
recovery to the preembargo peak would take several
years.
' Since the shift in US grain export policy was announced well into
the winter feeding period, Moscow's policy choices regarding herd
adjustments are now more complicated than usual. Much of the
savings in feed that would have been made possible by distress
slaughter in the fall has been lost. At the same time, a decision to
hold a maximum number of livestock into the spring would expose
Moscow to the possibility of a major agricultural disaster-large-
scale slaughter of lightweight animals-if spring and summer feed
availabilities from pasture, early forage crops, and June-July grain
harvests in the Southern regions are considerably below average.
Our basic projections reflect a normal, conservative approach by the
Case A-Reference case with 1979 grain crop on trend
Case B-Poor 1979 grain crop and full US exports
Case C-Restricted US exports in 1980-83
1 Measured as of 1 January. Values for 1970-78 are historical data; those
for 1979-83 are estimates. All data are given in Appendix D.
21n terms of cow equivalents. Livestock categories and poultry are
aggregated based on relative feeding rates.
The bulk of short-term adjustments in livestock
inventories is typically absorbed in the swine popula-
tion.1e Although breeding sows comprise only 6 percent
of hog inventories and cows 38 percent of cattle, the
Soviets to this dilemma-some increased slaughter now even though
the feed savings and meat gain are limited so as to reduce the
exposure to the consequences of poor grain and nongrain feed
supplies during the first half of the year. This also recognizes that the
worst crop shortfalls last year were in the areas of heaviest
concentration of Soviet livestock-the Baltic Republics, the Western
Russian Soviet Federated Socialist Republic and the Ukraine-
which accentuates the feed distribution problem with an overbur-
dened transport system and makes some herd reductions likely.
10 Over the period 1960-78, the coefficient of variation in pork output
was 11.3 percent while that for beef was only 4.5 percent.
 Approved For Release 2006/11/07: CIA-RDP81 BOO4O1 R00060009001O-9
large sow litters (8 to 10) and much shorter gestation
periods allow more flexibility in management of hog
inventories." Consequently we expect most of the
reduction this year will be in the heavier grain
consuming categories of hogs and also poultry." A
rough calculation suggests that if the full herd
reduction were in terms of hogs-a drop of around 10
percent-it would still be short of the scale of the
wholesale distress slaughter of hogs in the aftermath of
the 1975 crop failure."
Impact on Meat Production
The estimated denial of 19 million tons of US grain
this year would mean a loss of as much as 1.4 million
tons in meat production capacity for Moscow-about
9 percent of 1979 output. A diversion of 9 million tons
this year will reduce this capacity loss to around three-
quarters of a million tons or 5 percent. The impact of
this loss in capacity to produce meat on actual meat
marketings of output in 1980 can be partially offset by
increased slaughter of livestock herds.
Actual meat output must reflect then both herd
management and feed rates. Despite an apparent
record high level of grain feeding, meat output was flat
in 1979. This failure in meat output to rise last year
appeared to reflect (a) a Soviet commitment to
maintain-and even increase-herds and (b) the need
to raise the proportion of grain in overall feed rations.
This above normal use of grain followed from (a) an
unusual shortage of nongrain feeds in the first half of
Figure 4
Million Metric Tons
18
r_
1970
Tenth Five-Year Plan Target
(17.3 Million Tons) X
Case A-Reference case with 1979 grain crop on trend
Case B-Poor 1979 grain crop and full US exports
Case C-Restricted US exports in 1980-83
1Values for 1970-78 are historical data; those for 1979-83 are estimates.
All data are given in Appendix D.
1979 (especially in Belorussia and the Baltic Republics
and contiguous areas in the Russian Republic), and (b
the sharp reduction in May-June pasturage and output
of other fodder crops in European Russia because of
" Shares based on average 1 January inventory of herds.
Z Grain and other concentrates contribute about three-fourths of hog
and nine-tenths of poultry feed rations in the USSR. On the other
hand, only one-third of cattle feed rations comes from concentrates.
" Hog inventories on 1 January 1976 were down 20 percent from the
previous January.
581724 3-80
early season drought 14 (see appendix Q. If the Soviets
had instead reduced herds-as we would have ex-
pected looking at past reactions to a grain shortfall-
" The apparent difficulties with fodder crops in 1979 are supported
by two further pieces of evidence. One is the fall data on
procurement of fodder crops by the socialized sector, which showed
about a 10 percent drop from 1978. The other is the need to adjust
downward the projection of nongrain feeding in 1979 that follows
from our econometric model. This projection is based upon a
historical correlation between grain and nongrain feeding rates. The
statistical relations in our model yielded 1979 feed levels that would
have led to somewhat greater meat production than was reported. A
slight downward adjustment in nongrain feed supplies estimated for
1979-a movement consistent with collateral evidence of the severe
damage to nongrain feed crops in several important livestock
regions-was sufficient to eliminate this inconsistency.
 Approved For Release 2006/11/07: CIA-RDP81 BOO4O1 R00060009001O-9
Confidential
meat output would have been higher than otherwise in
1979. Meat production in 1979 and Soviet behavior on
grain imports paint a picture of a strong commitment
to maintain the thrust of the livestock program in the
face of poor grain and nongrain feed harvests last year.
Based on past Soviet behavior patterns, herds in 1980
would probably have been cut even in the absence of
the US embargo and the increased slaughter would
have led to a one-time increase in meat production.
Consequently, without the embargo meat output would
have been about flat in 1980, despite reduced feed
supplies. The embargo will probably now increase the
rate of distress slaughter and therefore meat available
from this source, as the Soviets are forced to reconcile
demand for feed with a lower supply. This impact,
however, is likely to be more than offset by lower
average slaughter weights caused by reduced feed
rations and increased slaughter of young animals.
If meat production bears the full burden of adjustment
to lower grain supplies and nonmeat products are not
cut back, we estimate that the combined effects of
decreased feed rations and increased slaughter rates
could result in a reduction in actual meat output of
around 300,000 tons this year-all of this drop due to
the embargo. About half of the lost meat production
capacity is likely to show up in reduced meat
marketings in 1980 and the other half implicitly in
lower weight of the livestock inventory." If the 1979
grain crop had been on trend (our reference case), we
would have projected meat output this year at around
16.5 million tons. With the poor crop last year and US
restrictions, we estimate that 1980 meat output will b~
down from earlier expectations for this year by about
1.3 million tons or 8 percent, with the embargo
accounting for about 30 percent of this difference and
the 1979 grain crop failure about 70 percent.
" The change in meat production capacity would be distributed
between the liveweight of the livestock inventory and actual meat
marketed by a policy decision. Our analysis of historical data yields a
rough rule of thumb that says about half of the lost meat production
capacity shows up in lower marketings and half in lower weight of
the livestock inventory. Of course, since this split of the lost meat
production capacity between liveweight inventory and marketings is
a policy choice, Moscow could choose to follow a different pattern in
1980. Thus a sizable uncertainty regarding eventual 1980 meat
production is associated with this factor alone.
Figure 5
USSR: Per Capita Meat Production'
Kilograms
70
u
1970
Case A-Reference case with 1979 grain crop on trend
Case B-Poor 1979 grain crop and full US exports
Case C-Restricted US exports in 1980-83
1 Values for 1970-78 are historical data; those for 1979-83 are estimates.
All data are given in Appendix D.
This means a falloff in meat production per capita
between 1978 and 1980 of around 4 percent, which is
exceeded over the last 10 years only by the precipitous
decline caused by the 1975 crop disaster. The per
capita production we now expect for 1980 is about 13
percent short of the target in the 10th Five-Year Plan.
Moreover, instead of the 10 percent gain over 1975
projected by the plan, we now see a 3 percent fall on a
per capita basis.
 Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
Figure 6
USSR: Livestock Inventory
With No 1980 Herd Reduction'
Million Head of Animal Units2
150
75
80 83
Case B-Poor 1979 grain crop and full US exports
Case C-Restricted US exports in 1980-83
Case E-No 1980 herd reduction and restricted US exports
1 Measured as of 1 January. Values for 1970-78 are historical data; those
for 1979-83 are estimates. All data are given in Appendix D.
tin terms of cow equivalents. Livestock categories and poultry are
aggregated based on relative feeding rates.
Even with continued US restrictions on grain exports,
a return to average weather in 1980 and beyond would
rapidly raise feed supplies in 1981 and afterward. Part
of the increased feed would be used to rebuild the size
and average weight of herds. Meat output too would
rise-perhaps about 7 percent or about a million tons
in 1981. Even with this kind of improvement, per
capita meat production in 1981 would exceed the 1978
level by only 2 percent.
Other Factors Affecting Grain
Embargo Impact in 1980
Our estimates of the impact of a partial US embargo
on grain exports to the Soviet Union are sensitive to
several key assumptions, three of which are examined
below."' They are (a) the size of the grain diversion, (b)
Moscow's decision to adjust livestock inventories in the
face of reduced feed supplies, and (c) the share of the
grain shortfall absorbed in meat production.
Smaller Diversion of Grain
The US export restrictions announced on 4 January
deny the Soviets 17 million tons of US grain during the
present LTA year ending in September. Our assump-
tion is that continued restrictions would push this
figure to about 19 million tons for calendar year 1980.
The preceeding analysis was based on a diversion of
9 million tons this year and therefore a net denial of
10 million tons in 1980. Given uncertainties in the
eventual course of events, diversion of grain in this
calendar year could be closer to the 5-million-ton lower
end of the range we now see likely. This lower diversion
would require exports from Argentina, South Africa,
and Thailand at the low end of the possible range and
less diversion from countries party to the cooperation
agreement on grain exports.
The decreased availability of imports would serve to
hold feed supplies somewhat lower than otherwise and
would lead to somewhat larger reductions in livestock
inventories (see Case D in appendix D). The net result
would be slightly lower meat output in 1980-perhaps
11 A fourth factor which will have a large influence on meat
production this year is the condition of the grain and nongrain feed
harvests in 1980. Strictly speaking, though, the net impact of the US
embargo, which depends upon the degree to which the Soviets can
offset the loss of US grain, is independent of the size of this year's
crops. The level of meat output actually reached this year, however,
will depend greatly on this year's harvest. Our basic analysis assumes
an average grain crop this year and for the next few years as well.
Obviously the vagaries of weather in the USSR make wide
fluctuations in harvest the norm. Although a succession of two crop
shortfalls on the scale of 1979 would be unprecedented over the last
20 years, a below-average crop in 1980 is always a possibility. A
grain crop this year of about 200 million tons-only half the shortfall
from trend that occurred in 1979-would require larger than
anticipated reductions in livestock herds, force meat output in 1980
down another half million tons to around 14.7 million tons, and delay
the return to 1978 per capita meat production levels until 1982 or
later.
 Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
Confidential
Figure 7
USSR: Meat Production
With No 1980 Herd Reduction'
Million Metric Tons
18
the livestock sector and the current output of meat.
Obviously, any increase in slaughter rates will tend to
improve near-term meat production compared with the
level otherwise possible. Our basic meat projection for
1980 assumes a normal-in this case, sizable-
downward adjustment in livestock inventories during
1980 and this tends to keep meat production from
falling as far as the shift in feed availability might
suggest.
PlIc Figure 6 compares this situation with one in which we
assume that Moscow decided not to reduce livestock
B inventories during 1980. This decision would exacer-
bate the meat supply situation in 1980 (figure 7) by
E
reducing the slaughter offset to lower feed rations.
Meat output in this case would fall an additional
several hundred thousand tons in 1980-somewhat
more than a half million tons below production in
tl
1970
1979-although larger herds would permit a more
rapid recovery in 1981. These estimates serve to
highlight some of the intertwined factors undoubtedly
involved in present discussions within the Soviet
leadership aimed at identifying the appropriate bal-
ance between livestock and meat production policies
for 1980.
Case B-Poor 1979 grain crop and full US exports
Case C-Restricted US exports in 1980-83
Case E-No 1980 herd reduction and restricted US exports
1Values for 1970-78 are historical data; those for 1979-83 are estimates.
25X1 All data are given in Appendix D.
by a hundred thousand tons to 15.1 million tons. This
would in turn bring the loss in meat output under the
embargo to around a half million tons or 3 percent.
Reduced Livestock Slaughter in 1980
Changes in livestock inventories in a given year reflect
both feed supplies and slaughter rates. Reduced feed
availability this year means that some adjustment in
livestock herds is unavoidable. Soviet livestock plan-
ners must reduce animal weights and livestock num-
bers to bring inventories back into balance with
available feed supplies. Choices made here will reflect
competing concerns for the long-term performance of
Distributing the Grain Shortfall
Our basic analysis assumes that meat production
absorbs the brunt of the 1980 shortfall in grain for feed
created by the US embargo. This allows us to calculate
the maximum potential impact of the embargo on meat
production and is generally consistent with the greater
stability in production of nonmeat products, primarily
milk." The Soviets could, however, distribute the
shortfall in a different manner. If they were to allocate
the drop in grain supplies for feed in a pattern roughly
proportional to the shares of grain consumed on
average in meat and nonmeat production, our estimate
of 1980 meat production rises a couple hundred
thousand tons to about 15.4 million tons, and the
negative impact of the US embargo in 1980 falls to
around 0.2 million tons (see Case F in appendix D).
" For the period 1960-78, the coefficient of variation for nonmeat
livestock products was 3.1 percent, while that for meat was 5.1
percent.
 Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
How Large Could the
Grain Embargo Impact Be?
The estimates that we have made of the impact of the
US grain embargo assume that Moscow will import a
total of 28 million tons of grain in 1980 and up to 28
million tons annually thereafter, despite restricted
imports directly from the United States. These import
availability estimates reflect the substantial trade
restructuring that is possible-and we think likely-by
this summer and most certainly after the present LTA
year which ends in September 1980.
The diversion obviously serves to dilute the impact of
the embargo by reducing the net import shortfall below
the amount of restricted US exports. The maximum
possible embargo impact would be associated with
restricted US exports, minimum diversion of grain,
and steady non-US origin exports to the USSR at
preembargo levels. These conditions are consistent
with Soviet imports of around 20 million tons in
1980-about 8 million tons below our present
estimates.
Under a maximum embargo of this kind (Case G in
appendix D), meat production would fall another
300,000 tons in 1980 to near 14.9 million tons. In this
case, the embargo would be accounting for about a 0.7-
million-ton drop in meat production. It appears then
that the larger postembargo imports we now anticipate
will offset somewhat less than half of the potential full
embargo impact on meat production in 1980.
Prospects for Grain Embargo Offsets
Through Imports of Soybeans,
Soybean Meal, and Meat
The main thrust of US restrictions on the export of
agricultural products to the Soviet Union is to reduce
prospects for grain available for livestock feed in 1980.
This is especially true for the first half of the year when
most of the denied US shipments would have arrived.
Moscow's initial efforts to limit the impact of lower US
exports on the output of animal products have focused
on replacement of at least some of the denied US
shipments with grain from other sources.
There are in addition two other areas where Soviet
actions could serve to offset further the impact of the
US grain embargo. One is imports of soybeans and
soybean meal to upgrade feed rations; the other is
direct imports of meat. Assessments of the implications
of possible Soviet actions in these areas are highly
uncertain, however, because (a) there is little hard
evidence that the Soviets intend to go further in these
areas now than prior to the shift in US policy and (b)
the effect of additional soybeans and soybean meal on
Soviet meat production is very difficult to gauge.
Imports of Soybeans and Soybean Meal
Unlike the United States and most other Western
livestock producers, the USSR has not heavily inte-
grated the use of soybean meal into its livestock
feeding. Therefore, increased use of high protein meals
has the potential for substantially raising the efficiency
of Soviet feeds. Prior to the US restrictions, which also
embargoed US exports of soybeans and soybean meal
to the USSR, there were indications that Moscow was
prepared to move ahead with a program of increased
use of protein meals. Given the difficulty in fully
replacing denied US grain, Moscow will probably
move quickly to replace the denied US soybeans and
soybean meal and is likely to supplement these
quantities with some additional imports.
The denied 400,000 tons of US soybean meal probably
have already been replaced by purchases in Western
Europe. In fact, sales to the USSR since the embargo
may have exceeded these amounts by several hundred
thousand tons. Additional soybean meal imports on
this scale-even double the preembargo levels-would
mean an offset of perhaps 60,000 tons of meat through
increased domestic meat output.
Soybean meal is processed in Europe, partly by firms
that are associated with US firms which are expected
to cooperate in observing the embargo, but also by
firms which have no ties to the United States. Brazil is
the other major non-US supplier of soybean meal.
Despite stated fears of contamination by African swine
fever, Moscow may be willing to buy soybean meal
from Brazil." The recent visit of a Soviet veterinary
to Brazil to determine if Brazilian soybean meal is free
" The USSR has very strict regulations concerning animal disease
and possible contamination. Contamination by African swine fever
was the reason give for rejection of meal in transit from Brazil in
early 1979.
 Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
Confidential
of contamination suggests at least a serious interest.
Nonetheless, transportation and handling facilities
combined with the limitations of the developing mixed
feed industry preclude imports of soybean meal in
excess of one million tons over the next year.
The denied US exports of soybeans, about 700,000
tons, can easily be replaced with soybeans from Brazil
and/or Argentina, although there is as yet no
confirmation of Soviet moves to do so. Because the
Soviet sunflower seed crop was disappointing last year,
the Soviet Union has both the capacity to process
imported soybeans and the need to replace the denied
US exports. Moscow may, indeed, purchase up to one
million tons this year in order to utilize crushing
capacity (available because of the short sunflower seed
crop) and increase supplies of vegetable oil." The
purchases will have to come from the new crop in the
southern hemisphere so imports will not be available
until April/May of this year. The soybean meal from
an additional 300,000 tons of soybean imports above
replacement of denied US exports would add less than
40,000 tons to meat output in 1980.
Increased soybean meal supplies-from stepped-up
imports and processing of imported soybeans-will, of
course, assist in improving the balance of livestock feed
rations and ultimately in raising meat output. The
basic inefficiencies of the livestock sector combined
with its lack of flexibility in adjusting feeds will,
however, limit the gain.
Possibilities for Meat Imports
Although domestic meat production in calendar year
1979 remained at the 1978 level of 15.5 million tons,
Moscow improved domestic supplies by importing an
estimated 350,000 to 400,000 tons of meat, meat
products, and poultry, about double the 184,000 tons
imported in calendar year 1978. Exports probably
remained at roughly 40,000 tons, the average quantity
exported during 1975-78 (38.6 thousand tons in 1978).
Increased meat imports are an option open to the
Soviets if they want to limit the impact of reduced
domestic meat production on overall meat availability.
Commitments and negotiations now point toward meat
imports in calendar year 1980 at around 400,000 tons
or roughly last year's level. Tight world supplies make
larger imports difficult but, if Moscow is willing to pay
substantial premiums, imports could approach the
previous record of 617,000 tons registered in 1977.20
An embargo offset of around 100,000 tons of meat
seems likely through additional imports.
The Soviets have purchased meat, meat products, and
poultry from Argentina, New Zealand, Australia, and
the EC for delivery in 1980. Moscow's interest in
boosting meat imports is also evident in the exploratory
talks for large additional quantities with Australia and
for smaller amounts with Colombia, a country from
which the Soviets have not previously bought. In both
cases, however, the Soviets appear to have refused the
initial asking price which represented a sharp jump
above earlier levels.
There is also the potential for Eastern Europe to
increase meat exports to the USSR, which have
averaged well over 100,000 tons in recent years. The
East Europeans cannot shift a significant amount of
meat intended for domestic consumption to the USSR
without seriously aggravating their own consumers.
They might be willing to ship some meat intended for
domestic use to the Soviets for hard currency and then
purchase meat for their own use on the world market.
They might also divert some of the 300,000 tons or
more of meat and meat products now going to non-
Communist countries, especially if the Soviets paid in
hard currency at prevailing world market prices.
On the whole, some relief from the impact on meat
supplies of the US grain embargo is possible through
direct imports of additional meat products. If the extra
imports come from the West, they would entail
substantial market premiums. If they come from
Eastern Europe, the political implications become
complex. In neither case, though, have Soviet
intentions become clear.
30 The USSR could handle imports of at least 800,000 tons over the
course of a year, perhaps more if domestic meat production is down,
" With the purchase of an additional one million tons of soybeans,
total deliveries through September 1980 would come to 1.8 million
tons since last fall. This quantity appears consistent with the Soviet
domestic crushing capacity and the availability of oilseeds for
crushing from the 1979 Soviet crop.
 Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
0 Variables which are inputs to the model
Variables which are computed by the model
Grain imports can be either an input or calculated
Flow of calculations to project the impact of a given grain
harvest
Flow of calculations to project the impact of given grain
imports
 Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
Confidential
Appendix A
The OER Impact Model of
Soviet Agriculture:
An Overview
The estimated impacts of restricted US grain exports
on the Soviet livestock sector given in this paper were
derived from the OER impact model of Soviet
agriculture. This model is based upon past Soviet
adjustment behavior in the face of fluctuations in the
availability of grain.
by agricultural performance during this period. They
cannot be used to estimate shifts in Soviet behavior,
although the same analytical framework can be used to
examine the impacts of assumed changes in Soviet
reaction patterns, as some of the analysis in this paper
attempts to do.
The model is shown schematically in figure Al.
Necessary inputs are indicated by circles and informa-
tion computed by rectangles; grain imports can be
either computed or assumed and are separately indi-
cated as a diamond. Given hypothetical or actual
figures for grain production, population and GNP, the
model can generate projections of various indicators of
sector performance, including grain available for feed,
livestock inventories, and meat production.' Two dif-
ferent kinds of impact calculations are possible:
Impact of a Given Harvest (Blue Lines)
In this case we are interested in the potential perfor-
mance with a particular grain crop available. The
grain crop together with livestock inventories deter-
mine the grain used for feed, and grain imports are
computed as the balancing item in the overall grain
balance.
Impact of Given Grain Imports (Brown Lines)
Here we are interested in the impact of restricted grain
availability by specifying both the grain crop and the
quantity of imports. This is the situation under a full or
partial grain embargo. Grain used for feed is now
determined by the grain balance, and livestock inven-
tories adjust to the feed situation.
The model contains statistical equations estimated
over the period 1961-78. Projections based on these
estimates imply average Soviet behavior as suggested
' Grain accounts for about a third of total livestock feed. The
quantity of nongrain feed is estimated from a historical relationship
between nongrain feed, grain used for feed, and a variable reflecting
the relative size of the grain harvest.
There are severe limitations in much of the essential
data describing the Soviet livestock sector and these
limit the consistency and precision of the analysis. In
addition, frequent policy shifts make it difficult to
isolate reliable trends among specific variables. None-
theless, there is enough stability in historical relation-
ships to provide some guidance in impact analysis. This
is illustrated in figure A2 where we have plotted Soviet
meat production. The estimates in this figure are
derived from the following equation (t-statistics are in
parentheses):
Meat = -0.015+0.041 Total Feed
Livestock (2.0) (12.5) Livestock
- 0.095 Net Additions to
Livestock
(5.6) Livestock
+ 0.008 (Actual Grain Crop),
(2.0) (Trend Grain Crop) -,
R = 0.94 DW = 1.70
The equation shows that meat production per unit of
livestock has depended upon three factors: (a) a
positive connection with feed availability per animal;
(b) a negative connection with herd inventory adjust-
ments since increases generally mean less slaughter
and vice versa; and (c) a positive connection with the
 G
I T 1 I I I I I I I I I I I 1 1
1963 65 70 75 78
25X1
Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
previous grain harvest which suggests a combination of
improved feed quality and higher average slaughter
weights following a good grain crop and the reverse
following a poor one.2 Impact analysis in this paper
combines separate projections of livestock, feed, and
the grain crop to estimate meat output through this
relationship.
' This equation indicates that meat marketed will fall 0.4 million
tons (slaughter-weight) with each 10-million-tons drop in total feed
supplies. Soviet feeding norms suggest a loss of 1 million tons of
animal liveweight or about 0.7 million tons of slaughter-weight meat
for each 10 million tons reduction in feed supplies. By implication,
then, normal Soviet practices have distributed gains or losses in meat
production roughly equally between liveweight inventory and actual
marketings. This equation also reflects the average historical
distribution of feed between the production of meat and nonmeat
animal products. If a 10-million-ton change in feed supplies were
concentrated solely on meat production rather than distributed
between meat and nonmeat products based on historical patterns,
the drop in meat output goes from 0.4 million tons to more than
0.5 million tons.
 Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
Confidential
Appendix B
Estimated Grain Balances for
the USSR, 1970/71 to 1979/80
This appendix provides data related to estimated grain
balances for the Soviet Union. Balances through the
1977/78 crop year are based primarily upon official
Soviet data. Balances for 1978/79 and 1979/80 rely
heavily upon projections derived from our model of the
Soviet agricultural sector, since actual figures are now
available for only a few elements in these balances.
Table B1 gives the estimated grain balances; table B2
shows the waste and losses discount factors associated
with weather and crop size; and table B3 gives grain
used for feed in both official and adjusted terms.
 Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
USSR: Grain Balance, 1970/71 to 1979/80 (1 July - 30 June)
Production'
Waste and
Losses 2
Imports' Net
Supply
Total'
1970/71
186.8
28.0
3.8
162.6
165.9
1971/72
181.2
21.4
6.6
166.4
172.1
1972/73
168.2
16.7
25.7
177.3
174.4
1973/74
222.5
36.9
14.2
199.7
180.1
1974/75
195.7
27.4
5.0
173.3
180.8
1975/76
140.1
11.7
27.1
155.5
179.3
1976/77
223.8
31.1
12.8
205.5
190.7
1977/78
195.7
29.3
19.5
186.0
198.6
1978/79
12237.2
31.5
17.4
223.1
212.9
1979/80
12179.0
20.1
34.0
192.9
208.3
'Official production statistics from Narodnoye khozyaystvo SSSR v
1978 g. and earlier years.
2 Percentage waste and loss figures are applied to official production
statistics to derive the waste content of the crop. The total also
includes a 3-percent deduction from grain imports to account for
handling and transportation losses.
' Official statistics on all grain, flour, and rice imported, including
that purchased by the USSR for client states. Flour and rice are
converted to grain equivalent. See CIA/A (ER) 75-68, The Soviet
Grain Balance 1960-73, September 1975, p. 30. The figure for
1979/80 includes roughly 19 million tons purchased July/December
1979 and assumed January/June 1980 purchases of 3 million tons
from the US and about 12 million tons from non-US sources. The
total includes about 3 million tons of grain and flour purchased for
client states.
' Production less waste and losses plus imports. See A (ER) 75-68,
pp. 18-21. Totals calculated from unrounded data.
' Sum of grain used for feed, food, seed, industrial purposes, and
export. Totals calculated from unrounded data.
6 Official feed statistics are adjusted to exclude waste and losses. See
table B3.
' Based on official statistics on flour and groat production converted
to grain equivalent, using official data on extraction rates. See A
(ER) 75-68, pp. 30-31. Extraction rates apply to clean grain, net of
waste.
Feed 6 Food Seed'
(Adjusted)
71.5 58.6 24.6
75.2 59.9 26.0
79.1 60.2 25.4
82.1 59.4 26.7
85.1 57.5 27.7
94.2 59.5 28.0
100.2 61.0 27.7
113.0 62.8 27.5
107.6 63.2 27.5
Implied
Change in
Indus-
trial'
Export10
Stocks "
3.0
8.3
-3.3
3.4
7.6
-5.8
4.0
5.7
2.9
4.5
7.4
19.7
5.0
6.7
-7.5
5.3
3.6
-23.8
5.5
3.5
14.8
5.5
4.2
-12.7
5.6
4.0
10.2
6.0
4.0
-15.4
' Based on official data on area sown to each grain and on seeding
rates by oblast for the RSFSR, Belorussia, and Moldavia. See A
(ER) 75-68, p. 30. Seeding rates refer to clean grain.
' Recent information on quantities of grain used in alcohol
production dictated an upward revision in the industrial use series
since 1971 shown in A (ER) 75-68, p. 24. Otherwise the series (and
methodologies) have not changed. The latest source of data is
Kochubeyeva, M.T., Ekonomika, organizatsiya, i planirovaniya
spirtovogo i likerno-vodochnogo proizvodstva, Moscow, 1977.
Quantities shown in this column are also net of waste.
10 Official data on all grain, flour, and groats exported including that
to client states. Flour and rice are converted to grain equivalent. See
A (ER) 75-68, p. 32. Exports are assumed to be net of waste
although evidence suggests exports of domestically produced grain
are occasionally of low quality.
" Total supply less total utilization. Calculated from unrounded
data. This series runs roughly to zero for the 1960s and 1970s, but
shows a net withdrawal over the last decade.
12 Balances for 1978/79 and 1979/80 include projections based on
our model of the Soviet agricultural sector. The projections reflect
import assumptions in note (3).
 Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
Associated With Associated With
Weather Crop Size'
1971/72
11.0
0.6
1972/73
9.6
-0.3
1973/74
14.4
2.2
1974/75
13.6
0.2
1975/76
9.0
-1.3
1976/77
13.0
0.5
1977/78
15.0
-0.6
1978/79
12.2
0.6
1979/80
11.8
-0.8
'The two-stage discount is an improvement on our most recent
estimates published in CIA ER 79-10057, USSR: Long-Term
Outlook for Grain Imports, January, 1979, p. 15.
'The weather-related allowance for grain waste is based on the
premise that the level of waste varies directly with the amount of
precipitation immediately before and during the harvest. For each
year, the harvests of spring grain and winter grain are categorized as
very wet, wet, normal, dry, or very dry according to the average
number of millimeters of rainfall received as follows:
Spring Wheat
Winter Wheat
Very wet
Over 45.8
Over 76.3
Wet
40.5-45.7
65.3-76.2
Normal
35.3-40.4
53.8-65.2
Dry
29.6-35.2
42.3-53.7
Very dry
Below 29.5
Below 42.2
Each moisture level, in turn, is equated with a percentage grain
discount. A discount of 11 percent is adopted for years of normal
precipitation. (See ER 75-68, pp. 14, 18.) We arbitrarily raise this
figure to 13 percent for wet years and to 15 percent for very wet
years. In the other direction, 11 percent is lowered to 9 percent for
dry years and to 7 percent for very dry conditions. The discounts for
winter grains are weighted together using 30 percent for winter
grains and 70 percent for spring grains. These weights approximate
the distribution of sown area.
' When a large grain crop coincides with rainy weather at harvest
time as in 1976, losses due to the shortage of combines, transporta-
tion, cleaning, drying, and storage facilities are larger than in years
with small harvests and dry weather, such as 1975. On average,
moreover, growth in gross grain output has outstripped growth in
farm capacity to clean and dry the crop immediately after
harvesting. During 1971-75, capacity was adequate for about 75
percent of the harvest; during 1976-78 this share fell to 66 percent.
In addition, Soviet data show a decline in seed quality that we believe
is related to the difficulty in cleaning and drying the very large
harvests of recent years. While 84 percent of spring grain seed from
the 1977 harvest of 195.7 million tons met standards for top quality,
only 71 percent of seed from the record 1978 harvest fell into the top
categories (Planovoye khozyaystvo, no. 3, 1979, pp. 31-40). We thus
apply a crude adjustment to the moisture-based percentage which is
derived from a ratio of the size of the crop to the crop that would
have resulted under average conditions (trend). We arbitrarily
assume the adjustment is 0.5 of the ratio.
1972/73
96.9
79.1
1973/74
106.3
82.1
1974/75
104.4
83.6
1975/76
100.7
85.1
1976/77
115.3
94.2
1977/78
124.4
100.2
1978/79
134.2
113.0
1979/80
126.6
107.6
'Grain used for feed is derived from the official series on
concentrates fed to livestock, with an adjustment for waste. Because
the most recent statistics available are for 1978, the 1978/79 and
1979/80 quantities are derived from projections using our model.
The projections reflect the import assumptions in table B1.
' Nongrain components of concentrate feed (oilseed meal, milling
byproducts, alfalfa meal) are subtracted from the published total to
derive grain fed to livestock. (See A (ER) 75-68, pp. 33-34.) Crop
year quantities of grain fed are derived according to the standard
convention-one-third of grain used for feed in the current year
comes from the current crop, two-thirds comes from the crop of the
previous year.
' Feed must be reduced by waste and losses to be comparable with
other grain uses shown in the grain balance table. We assume that 80
percent of total waste and losses are included in official feed
statistics. This share reflects in particular the higher-than-average
storage losses associated with grain used for feed, and was found to
yield reasonable net feed and implied stock change series. The
remaining 20 percent is implicitly excluded from the other uses, all
of which are given on a standard grain basis. Because grain fed in
any calendar year comes from two crops, the waste and losses
associated with that feed must also depend on two crops. Thus, 80
percent of waste in last year's crop is allocated one-third to last year's
feed and two-thirds to this year's feed. Eighty percent of waste in the
present year's crop is allocated one-third to this year's feed and two-
thirds to next year's feed.
 Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
Confidential
Appendix C
Collateral Information on 1978
and 1979 Feed Production
We believe the impact in 1980 of the grain shortfall
could be even more pronounced than the model
indicates. During 1978/79, the USSR was sharply
affected by two sets of weather conditions that forced
an increase in the share of grain being fed in the ration
and thus a shift in feeding patterns. The first set of
conditions involved the northwest areas of the country
in the fall of 1978, the second struck hardest at the
Volga Valley, the eastern Ukraine, and Belorussia in
the spring of 1979. Our rough incorporation of the
spillover of these factors into 1980 is more likely to
underestimate than to overestimate their effect on feed
availability this year. Consequently, the feed situation
in 1980, especially during the early months, could be
worse than our basic analysis reflects.
In the fall of 1978, the Baltic Republics, Belorussia,
and the northwest and central regions of the RSFSR
were hit with unusually cool weather and excessive
moisture conditions. As a result, production of feed
crops including grain and hay and other forage crops,
was down. Latvia's grain crop was off by 30 percent
from the average of the preceding four years and
Estonia's was down 25 percent. Although these areas
are not major grain producers, accounting for about 10
percent of total grain production, the consequences of
the shortfall on the livestock sector could have been
severe. Under Khrushchev, the region, particularly the
Baltic Republics and Belorussia, was directed to
emphasize the livestock sector. By the late 1960s, this
section of the country was feeding about 20 percent of
all concentrates fed.
The precariousness of the livestock situation was
spelled out graphically in the speeches late last year by
leaders of the Baltic Republics and Belorussia at the
28-30 November USSR Supreme Soviet session and at
mid-December Republic Central Committee plenums.
These speeches make it clear that Moscow had to move
large amounts of grain to this region to save the
livestock herds during the winter of 1978/79. More-
over, weather problems continued into the summer and
fall of 1979 and led to requests for more feed for the
winter of 1979/80.
The speeches by deputies from the Baltic Republics
and Belorussia at the USSR Supreme Soviet session
vividly described the difficulties in saving the livestock
herds during 1978/79. The sensitivity of these descrip-
tions was highlighted by their almost total excision
from the deputies' speeches printed in Izvestiya and
other central papers and their appearance only in the
local press versions.
The Belorussian First Deputy Premier in charge of
agriculture, V. A. Gvozdev, not only described the near
disaster in 1979 but ended by asking for more feed
from Moscow for the 1979/80 winter. According to the
1 December Sovetskaya Belorussiya account, he
stated that "literally the whole people in the republic"
had been mobilized to scour the "forests, swamps and
other nonfarm land" for enough fodder to preserve the
herds. A "huge number of workers" were drawn out of
factories, he related, and the herds had been saved.
"Our task now is to stop the fall in production of
livestock products" and "make up for the shortfall of
milk and meat which occurred during the dry spring-
summer period" and, he added, "here we are hoping
also for the help of union organs in making additional
allocations of concentrates." In the Izvestiya version,
he only acknowledged that the year had been "unusu-
ally complicated" and that "great assistance" from
factory workers and All-Union ministries had been
necessary to overcome "damage caused by the
elements."
In his report to the Belorussian party plenum in
December, Party Secretary P. M. Masherov admitted
the forage crop deficit was not made up although the
 Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
Republic had been able to "preserve the planned
number of ,cattle, " thus implying additional quantities
of grain were fed. In his February election speech,
Masherov went even further, stating that the 1979
drought had threatened to create an "almost full lack
of livestock products for sale to the public."
Lithuanian Agriculture Secretary R. I. Songayla
pressed for reduction of Lithuania's quota for
delivering meat to USSR stocks. According to the
1 December Sovetskaya Litva (and also the 1
December Izvestiya), he stated that because of the
"exceptionally difficult situation" caused by bad
weather in 1978 and 1979, Lithuania will have only 72
percent of its feed needs for the winter, even including
"state resources." This, he said, means it will be
impossible for Lithuania to fulfill 1980 plans for
supplying meat for its own people and for delivering
meat to the All-Union meat fund, and "therefore, we
ask the USSR Council of Ministers to consider once
again our request to tie these plans to the available
resources of feed."
Estonian leaders focused on the severity of the 1979
feed shortage and on their dependence on aid from
Moscow. Estonian First Secretary K. G. Vayno,
according to the 30 November Sovetskaya Estoniya,
stated that "after such a natural disaster" as occurred
in the fall and winter of 1978, it "usually takes two to
three years to restore the productivity of livestock," but
because of the "great help" from Moscow-grain from
"Russia, the Ukraine, and Kazakhstan"-"we man-
aged to preserve the livestock herds." The 30 Novem-
ber Izvestiya only included his statements that live-
stock raisers were working intently to end the drop in
livestock productivity caused by the "difficult fall and
winter" of.1978 and had "managed to preserve the
livestock herds."
Estonian Premier V. I. Klauson, according to the
1 December Sovetskaya Estoniya, stated that Esto-
nia's agriculture in 1978 had "suffered a real natural
disaster ... as a result of which we gathered about half
the normal year's harvest of grain, potatoes, and
fodder." As "the weight, milk yield, and mating of
animals began to drop sharply," he said, "the question
arose of significantly cutting the livestock herds to
avert forced losses from lack of feed." If this had
Confidential
continued, it would have taken "several years to restore
the livestock herds and the output of livestock prod-
ucts," he declared, but because Moscow had rendered
"huge assistance by allocating feed from central
resources, . . . we were able to normalize the livestock
situation." The 2 December Izvestiya only included his
admission that "unfortunately, the present year also
was not successful for the republic's agriculture."
Statements earlier in 1979 had detailed the Estonian
drain on Soviet grain and the cuts in meat deliveries. In
a speech reported in the 22 February 1979 Sovetskaya
Estoniya, First Secretary Vayno described Estonia's
feed harvest in 1978 as so small that Moscow had had
to send 490,000 tons of grain-almost equal to
Estonia's entire normal harvest-to Estonia to get its
livestock herds through the winter of 1978/79.
The number of livestock dropped somewhat during the
winter despite this aid, and Estonians began to blame
continuing local meat shortages on shipments of
Estonian meat to Moscow. Implicitly recognizing this,
a 21 March 1979 Sovetskaya Estoniya article stated
that "some people" wrongly thought that Estonia was
shipping "large quantities of meat to the All-Union
fund" but that in fact Estonia's quota for export of
meat had actually been cut 22 percent in the first
quarter of 1979.
The representative of the third Baltic Republic-
Latvia-made no revealing statements in his Supreme
Soviet speech, but Latvian First Secretary Voss in a
20 November local speech to livestock raisers had
similarly spoken of the "natural disaster" of 1978 and
"difficulties" of mid-1979 and had indicated that
Latvia had received "great aid" in the form of
"concentrated feed" from Moscow.
The second set of conditions in late spring 1979 cut
pasture and forage crop availability dramatically.
From mid-May through early June a stationary high-
pressure system near the Ural Mountains not only
caused below-normal rainfall from Moscow to
Kustanay but produced a classic sukhovey.' Hot, dry
air was drawn from the Kara Kum desert into the
' Sukhovey: sustained, hot, dry wind.
 Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
Confidential
Volga Valley, the northern Caucasus, and the eastern
Ukraine. As the system intensified, temperatures in
some areas reached 34 degrees Celsius (93?F) and
winds reached speeds as high as 24 knots.
Dry weather continued in much of the European
USSR during late June and early July. Areas which
had already been damaged by the sukhovey were again
subjected to hot, dry winds on two occasions-14 to 17
and 21 to 23 June. The area affected by drought
encompassed the central Ukraine, most of the Central
Black Earth region, and most of the Central Region of
the RSFSR as well.
The sukhoveys and drought occurred during the period
when vegetative growth of forage grasses is usually
rapid. Consequently, hay and grasses were stunted and
matured early. Concern with the magnitude of the
feeding problem was evident in the flow of press
articles calling for harvest and preservation of all
available sources of forage. Members of the US
Department of Agriculture Winter Wheat Team saw
farmers making extraordinary efforts to save the straw
and chaff from harvested grain fields. They also saw
grasses along roadways being cut for feed. Short
supplies of forage crops throughout the drought-
affected area undoubtedly also forced the feeding of
larger-than-usual quantities of grain. In average years,
the livestock sector in this area consumes roughly 45
percent of total concentrates. We believe even more
grain than usual was fed during the late spring and
early summer of 1979 to compensate for the shortfall
in forage availabilities. The few productivity indicators
available for this area suggest a profile similar to that
of the areas not affected by drought.
Hypothetical calculations, based on feeding rates
implicit in the model, suggest that if usual concentrate
feed rations were bolstered by, say, 20 percent in the
two areas affected during the periods of stress, the
quantity of grain required would have jumped by
5 million to 6 million tons above the quantity projected
in the model for 1978/79. This could make it difficult
to sustain the rates of withdrawals from grain stocks
we project for 1979/80.
 Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
Confidential
Appendix D
Tabulations of Historical Data
and Impact Projections
Grain imports (million metric tons)
3.0
4.2
15.8
24.0
7.8
16.3
19.7
10.5
21.7
Grain for feed (million metric tons)
69.2
72.6
76.5
80.4
82.9
83.9
85.7
98.5
105.8
Livestock (million units) 3
115.1
123.1
127.2
127.1
131.1
134.9
130.1
132.4
138.1
Meat production (million metric tons)
12.3
13.3
13.6
13.5
14.6
15.0
13.6
14.7
15.5
Meat production per capita
(kilograms)
50.6
54.2
55.1
54.2
58.0
58.8
53.0
56.8
59.3
' Grain used for feed is derived from the official series on
concentrates fed to livestock, with an adjustment for waste. See
appendix B, table B3.
Z Animal herds are measured as of 1 January in terms of cow
equivalents. Animals are aggregated based on relative feeding rates.
Grain imports (million metric tons)
14.3
24.7
26.7
29.2
32.2
Grain for feed (million metric tons)
113.8
114.7
119.3
124.5
130.5
Livestock (million units) 2
141.6
143.5
143.0
143.3
144.9
Meat production (million metric tons)
16.7
16.5
16.6
16.8
17.2
Meat production per capita (kilograms)
63.1
61.9
61.7
62.0
62.8
' Case A-Reference case with 1979 grain crop on plan.
'Animal herds are measured as of 1 January in terms of cow
equivalents. Animals are aggregated based on relative feeding rates.
 Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
Grain imports (million metric tons)
30.3
38.0
25.3
29.5
32.8
Grain for feed (million metric tons)
116.6
111.5
117.8
124.9
131.0
Livestock (million units) 2
141.6
143.4
141.0
142.5
145.1
Meat production (million metric tons)
15.5
15.6
16.3
16.8
17.3
Meat production per capita (kilograms)
58.8
58.7
60.7
61.8
63.0
'Case B-Poor 1979 grain crop and full US exports.
2 Animal herds are measured as of 1 January in terms of cow
equivalents. Animals are aggregated based on relative feeding rates.
Grain imports (million metric tons)
30.3
28.0
24.8
28.0
28.0
Grain for feed (million metric tons)
116.6
103.1
117.4
123.9
127.5
Livestock (million units)'
141.6
143.4
140.2
142.2
145.0
Meat production (million metric tons)
15.5
15.2
16.2
16.7
17.2
Meat production per capita (kilograms)
58.8
57.2
60.3
61.7
62.7
'Case C-Restricted US imports in 1980-83.
2 Animal herds are measured as of 1 January in terms of cow
equivalents. Animals are aggregated based on relative feeding rates.
 Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
Confidential
Case D
Livestock (million units) 2
141.6
143.4
139.9
142.1
145.0
Meat production (million metric tons)
15.5
15.1
16.2
16.7
17.2
Case E
Livestock (million units) 2
141.6
143.4
143.4
143.4
144.7
Meat production (million metric tons)
15.5
14.9
16.6
16.8
17.1
Case F
Livestock (million units) 2
141.6
143.4
140.2
142.2
145.0
Meat production (million metric tons)
15.5
15.4
16.2
16.7
17.2
Case G
Livestock (million units) 2
141.6
143.4
139.6
142.0
145.0
Meat production (million metric tons)
15.5
14.9
16.1
16.7
17.2
'Case D: Low diversion of grain to the USSR in 1980.
Case E: No 1980 herd reduction.
Case F: Feed deficit is shared on a proportional basis between meat
and nonmeat production.
Case G: Minimum diversion of grain to the USSR in 1980.
2 Animal herds are measured as of 1 January in terms of cow
equivalents. Animals are aggregated based on relative feeding rates.
25 Confidential
 Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
Confidential
Appendix E
Importance of the
Livestock Program
The current leadership has a long and well-
documented commitment both to agricultural self-
sufficiency and to an improvement of consumer
welfare. They want in particular to upgrade the diet
through expanded meat production. Although growth
rates in investment and in the flow to agriculture of
industrially produced materials such as fertilizer have
not always reached planned targets, the resouces
allocated to this program have been impressive. The
sector has responded with major increases in produc-
tion of grain, meat, and other commodities. Nonethe-
less, the rate of progress by the farm sector has not kept
up with demand. As a result, the effort to steadily
improve dietary quality has required large imports of
grain and other farm products in recent years.
Meat production, the key to the program, grew steadily
during the first half of the 1970s but dropped sharply
in 1976 as a result of the disastrous 1975 grain crop
shortfall. Both massive grain imports in the next few
years and better crops combined to rebuild meat
production. By 1978 output had exceeded the 1975
record. In 1979, however, production remained at the
1978 level.
For the entire period since 1975 there have been
reports of unusual shortages at retail level in both
urban and rural areas. Moreover, reports of rationing
and of meat being for sale only through places of work
(not retail stores) have been increasing. The rising
level of complaints over meat shortages suggests
growing consumer frustration.
The 1980 election speeches of Soviet leaders revealed a
widespread concern about the food situation. The
sharpest talk about meat shortages came from
Belorussian First Secretary Masherov who said the
Belorussian Central Committee has been receiving
letters "expressing anxiety over shortcomings in sup-
plies of livestock products for the city population."
Uzbek First Secretary Rashidov admitted that
Uzbekistan "continues to have difficulties in supplying
its population with meat and milk products." Party
Secretary Brezhnev, himself, noted "there are still
difficulties with some foodstuffs."
Meat Outlook for 1980
The expected decline in meat production in 1980, a
consequence of the 1979 shortfall in grain production
and restricted US exports, is sure to add to consumer
disappointment. Moscow can partially mitigate the
supply situation by importing meat. Imports of meat in
1979 are estimated at roughly 350 to 400 thousand
tons, and were expected to be about the same level in
1980. Moscow could, however, choose to pay premium
prices and pull meat from traditional trade flows. The
countries of Eastern Europe which do export meat to
the USSR are faced with short supplies this year as
well, and are not likely to be able to add substantial
quantities to the usual level of Moscow's imports unless
they forgo their traditional markets. (We assume the
Kremlin would choose not to pressure these countries
so far as to cause domestic problems for their
respective leaders.)
At best, meat output in 1980 will still be well below the
planned target of 17.3 million tons. Our current
estimate is around 15 million tons; if Moscow shifts
certain policies some further offsets are possible. Even
had Moscow been able to achieve the original goal,
consumer frustration over meat shortages would have
continued because of current policies toward personal
income and retail prices-regular increases in income
and stable prices-that serve to encourage an
evergrowing demand.
The evidence suggests a Soviet income elasticity of
demand for unprocessed meat on the order of 1.0,
considerably above the income elasticity of demand
estimated for other countries with comparable levels of
economic development. Italy and Spain, for example,
have estimated income elasticities of demand of 0.71
and 0.67, respectively. The estimated income elasticity
of demand for meat in Eastern Europe-Poland (0.7),
 Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
Hungary (0.65), and Czechoslovakia (0.47)-is also
below that for the USSR. In the United States, income
elasticity of demand for meat is estimated at 0.24.
The high income elasticity of demand for meat in the
USSR is due to several factors. Per capita meat
consumption is well below levels of consumption for
Eastern Europe, to say nothing of the United States
(see figure E1). The consumer has few alternative
outlets for his rising discretionary income. Quality
consumer goods such as consumer durables, clothing,
and shoes are in short supply, and housing space is
rationed at heavily subsidized prices. An additional
reason for the continuation of the large difference
between supply and demand for meat is the official
policy of maintaining retail prices at relatively low
levels in state retail outlets, through use of state budget
subsidies. During the present five-year p'an (1976-80),
for example, the state budget has allocated 100 billion
rubles to cover the difference between state purchase
prices for meat and milk and the retail prices fixed by
the state. This is roughly equivalent to four times the
total agricultural investment in 1975 or 1.2 times
agriculture's contribution to gross national product in
1978.
Some excess demand finds expression in collective
farm markets (CFMs), where prices are relatively free
to respond to supply and demand. For example, in C
Moscow CFMs, the average, weighted, seasonally L
adjusted meat price, which includes beef, pork, pork
fat, veal, and mutton, has risen by 40 percent in the
past five years. Beef and pork prices in mid-1979 were
2 and a half to 3 times the state retail level. Although
CFMs account for less than 5 percent of all food sold,
they are an important source of perishable foods for
urban residents.
The Growing Gap Between
Supply and Demand
Growth in disposable income has outpaced growth in
meat consumption in recent years.' Assuming an
income elasticity of demand of 1.0 and a continuation
of the current policy of maintaining stable prices in
state retail stores, a hypothetical calculation based on
'Consumption is derived by subtracting slaughter fats from the
official production statistics for meat (which, by Soviet definition
include them) and adjusting for net trade and inventory change.
Figure E-1
Per Capita Meat Consumption'
49
49
Poland
Czechoslovakia
West Germany
United States
planned growth in personal disposable income and on
planned meat production during the tenth five-year
plan period indicates that the gap between supply and
demand for domestically produced meat in 1980 would
be 8 percent greater than that in 1975. If the gap were
zero in 1975 and the planned production for 1980 were
achieved, supplies in 1980 would be roughly 1 and a
half million tons short of demand. Because meat
output will fall far short of plan this year, while income
growth has consistently exceeded the plan despite
serious efforts to restrain it, the gap will be even larger.
In summary, the consequences of the 1979 grain
shortfall compounded by the US denial of grain-
particularly of corn which is needed to upgrade feed
rations-are more serious for the leadership than
smaller meat supplies. The failure to deliver on
 Approved For Release 2006/11/07: CIA-RDP81 B00401 R000600090010-9
Confidential
25X1
Figure E-2
USSR: Meat Consumption and
Real Disposable Income
I I I I I I I I ) )
1970 72 74 76 78
1 Per capita consumption of meat is derived by 1) adjusting meat
production statistics to exclude slaughter fats and trim; 2) adjusting the
resulting quantity for inventory change and net trade; and 3) dividing by
the midyear population. Because the USSR stopped publishing detailed
inventory statistics in 1975, inventory changes are assumed constant
during 1976-79.
2Real disposable income (RDI) is the sum of total personal money income
less deductions for taxes, state loans, trade union dues, party membership
dues, and insurance premiums deflated by a price index that is implicit in
a comparison of indexes of goods sold in the retail trade network in
constant and in current prices. (See Joint Economic Committee, Soviet
Economy in a New Perspective, Washington, D.C., 1976, pp. 631,
652-660.) Per capita RDI is derived by dividing RDI by the midyear
population.
promises of a better diet has potential for dampening
work incentives and thus reducing achievement of
productivity goals. It is largely through productivity
goals that planners hope to achieve economic growth in
the 1980s. Making meat available only through places
of work would provide incentive for those workers, but
failure to keep supplies up in retail outlets would
reflect a decided failure for the leadership.