The Soviet Economy in 1973

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00928A000100080001-6
• Release Decision: RIPPUB
• Original Classification: U
• Document Page Count: 32
• Document Creation Date: December 16, 2016
• Document Release Date: March 29, 2005
• Sequence Number: 1
• Publication Date: July 1, 1974
• Content Type: FORM

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Research Aid
The Soviet Economy in 1973.?
Performance, Plans, and Implications
25X1
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PT-17
Soviet Economy in 1973.?
Performance, Plans, and Implications
July 1974
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CONTENTS
Page
Introduction ................................................
1
The Economic Performance in 1973 ............................
3
Agriculture .................................................
4
Industry ....................................................
7
Energy Production .........................................
8
Other Industries ...........................................
11
Persistence of Industrial Growth Problems ....................
12
Capital Investment ..........................................
12
Consumer Welfare ...........................................
13
Foreign Trade ...............................................
14
Plans and Prospects ..........................................
17
Implications for Relations with the West ......................
18
Page
Appendix A-Statistical Tables ............................... 21
USSR: Selected Economic Indicators ....................... 21
US-USSR: Indicators of the Level of Farm Technology ......... 22
Appendix B-Soviet Cooperative Ventures with the West ........ 23
Second Far East Timber Agreement (KS-II Project) ........... 23
Kursk Steel Mill ........................................... 23
Soviet-Montedison Chemical Plant Contract ................... 24
USSR-Occidental Fertilizer Agreement ...................... 24
North Star LNG Project .................................... 24
Yakutsk LNG Project ...................................... 25
Sakhalin Continental Shelf ................................. 25
Siberian Coal for Japan .................................... 26
Tyumen Crude Oil Pipeline Project .......................... 26
USSR Natural Gas Agreements with Western Europe .......... 26
Soviet Aluminum Industry .................................. 27
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Page
1. USSR: Growth of GNP by Sector of Origin .................
3
2. USSR: Production of Selected Crops and Livestock Products .
5
3. USSR: Livestock Inventories ..............................
6
4. USSR: Growth of Industrial Production, Inputs, and Factor
Productivity .................................
..........
7
5. USSR: Growth of Energy Production .............
..........
8
6. USSR: Growth in Selected Industries ............
...........
11
7. USSR: Growth in Capital Investment ............
...........
13
8. USSR: Growth in Per Capita Consumption .......
...........
13
9. USSR: Machinery and Equipment Orders from West
tries, by Type ..............................
ern Coun-
...........
15
10. USSR: Growth of GNP By Sector of Origin ......
...........
17
Page
Figure 1.
US-USSR: GNP ...................................
2
Figure 2.
USSR: Percentage Change of Agricultural Output ...
4
Figure 3.
USSR: Imports and Exports ........................
10
Figure 4.
USSR: Hard Currency Merchandise Trade ...........
16
Figure 5.
Japanese Interested in Siberian Resources .............
19
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THE SOVIET ECONOMY IN 1973: PERFORMANCE, PLANS,
AND IMPLICATIONS
As the USSR moves into the mid-1970s, the economy continues in a state
of flux. While the leadership feels compelled to keep the economy moving ahead,
the traditional approach of achieving growth through massive investment has
become too expensive. The leadership now appears firmly committed to im-
proving consumer welfare, a policy which cannot be satisfied by devoting larger
and larger shares of national output to investment.
Thus, Soviet leaders are shifting to a more balanced approach to economic
growth. Consumption has been placed on a more equal footing with investment
among competing uses for output, and a larger share of investment resources
is being devoted to consumer-related sectors such as agriculture. The more
balanced approach to economic growth has been prompted by several inter-
dependent problem areas, all of long standing:
? Declining growth rates. The economy grew more slowly in the 1960s
than in the 1950s; consequently, the goal of overtaking the United States
economically is as distant as it was a decade ago-the dollar gap between
the national products of the two countries increased in the 1960s (see Fig-
ure 1). In terms of per capita production, the USSR also trails many West
European countries and japan.
? Agricultural backwardness. Agriculture, the least productive sector,
continues to be a major drag on the economy. The system of giant collective
and state farms has proved to be the worst managed and least efficient
organizational form in the country. More than one-fourth of the labor force
is still employed on the farm, and the cost of producing grain and meat
is extremely high. Large increases in farm prices and peasant incomes over
the last decade have slowed the flight of labor from the farm but have also
raised costs because efficiency has not increased apace.
? The productivity and technological gap. The fact that the USSR pro-
duces about half as much as the United States with a labor force 40%
greater suggests the magnitude of the Soviet problem in this area. The
reasons for the relatively low 'productivity in the Soviet Union are partly
organizational and political: inefficient management practices, a cumber-
some planning system, and the overriding priority given to increasing the
quantity of production as quickly as possible to the detriment of efficiency
and quality. Introduction of new technology and the replacement of old
methods of production' have been slow, and as a consequence, the techno-
logical level in many sectors is substantially below Western levels. Product
quality also is a serious problem. Most Soviet manufactured goods, par-
ticularly machinery, cannot compete successfully in Western markets.
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US-USSR: GNP
1,500
Billion 1972 US $
Figure 1
1,250
US
USSR
1950 55 60 62 64 66 68 70 71 72 73
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? Living standards. Although much of the Soviet population has ex-
perienced a substantial rise in living standards since the late 1940s, per
capita consumption in the USSR is still only one-third that in the United
States, substantially less than in Western Europe, and less than in most
East European countries. Soviet consumers are increasingly aware of where
they stand in relation to consumers in other countries, and, while they want
to catch up in all areas, they are particularly interested in improving the
quality of their diet and in acquiring more housing. The leadership has
committed itself to major programs in the consumption area. The most
striking evidence of the new policy is the plan to make more meat and
consumer durables, particularly passenger cars, available to the people.
Efforts to implement this program have been particularly visible in the
recent performance of the economy.
This report assesses Soviet economic performance in 1973 in the light of
these current policy trends, examines Soviet economic plans and prospects for
1974, and discusses the implications of performance and plans for Soviet relations
with the West.
The Soviet economy recovered sharply in 1973 from its exceptionally poor
performance the previous year. According to preliminary estimates, gross na-
tional product (GNP) increased by 7.5% following a 1.7% rise in 1972.1
Although most of the upsurge in GNP was due to the record performance in
farm production, industrial growth also increased (see Table 1).
Average
Annual
Preliminary
1988-70
1971
1972
1973
Gross national product ....................... 5.5
4.2
1.7
7.5
By producing sector
Agriculture .............................
4.1
-0.6
-9.3
16.8
Industry ................................
6.8
6.5
5.6
6.2
Construction ............................
7.0
8.7
6.0
2.2
Transportation and communications ........
6.2
6.5
5.1
7.3
Domestic trade ..........................
8.2
6.8
6.9
5.4
Services ................................
4.4
3.7
3.7
3.7
After the relatively poor showing in 1971 and 1972, the economic recovery
last year gave a boost to consumer programs and bought the leadership some
time to pursue actions aimed at increasing productivity. Soviet consumers bene-
fited from substantial increases in food supplies in 1973, and production of soft
goods also made a comeback. The success in agriculture in 1973 also ensured
more raw materials for the processed foods industry and reduced import re-
quirements for grain in 1974. Meanwhile, the USSR's ability to import technology
and equipment was strengthened by increases in the world prices of many of
its raw material exports.
'A summary of economic indicators is shown in Appendix A, Table Al.
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But in a longer term perspective, Soviet economic performance continued
to lag behind both the aspirations of Soviet leaders and the performance of
some Western countries. The 1972 slump delivered a severe blow to the chances
of fulfilling the Ninth Five-Year Plan (1971-75), and last year's turnaround
made up only part of the difference. The chronic problems of low productivity,
slow assimilation of new technology, and delayed completion of new facilities
persisted in 1973, and shortfalls in meeting production plans were still common.
And, despite some gains last year, the Soviet consumer still complains of the
inferior quality, assortment, and styling of clothes and durables.
Exceptionally good weather during the 1973 growing season, together with
a campaign-driven increase of 2% in the total sown area, resulted in the largest
annual rise in farm output in almost 10 years. A bumper grain harvest, and
record harvests of other major crops, raised total crop output by nearly 28%,
following reductions of 1% in 1971 and 11% in 1972 (see Figure 2). Livestock
USSR: Percentage Change of Agricultural Output
Total Net Farm Output
1971
1972
1973
Net Livestock Production**
1971
1972
1973
Figure 2
I I 11111 I I I I
-12 -8 -4 0 4 8 12 16 20 24 28
"Less grain and potatoes used for seed.
"Gross livestock production less grain, potatoes, vegetables, and
milk fed to livestock and hatching eggs.
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production also rose in 1973, reflecting large gains in the output of dairy prod-
ucts and some increase in livestock herds.
But the grain crop contained an abnormally high percentage of water and
trash. High winds and rains in late July and a severe storm in mid-August
flattened grain and hampered harvesting operations in many parts of the western
USSR. In some instances, farmers had to resort to hand harvesting, and com-
bines fitted with caterpillar-type tracks were used to navigate the water-soaked
fields. The official estimate of the grain harvest, which includes waste, was
222.5 million metric tons. We estimate the crop of usable grain at 170 million
tons (see Table 2)-26% more than in 1972. Since supplies of fodder 2 increased
substantially at the same time, the livestock sector found itself with greatly
augmented feed stocks at the end of 1973.
Annual
Average
Preliminary
1966-70
1971
1972
1973
Crops
Grain 1
134.9
148.0
134.5
170.0
Potatoes ............................
94.8
92.7
78.3
107.7
Vegetables ..........................
19.5
20.8
19.9
24.5
Sugar beets .........................
81.1
72.2
76.4
86.8
Sunflower seeds 1 ....................
5.9
5.2
4.6
6.8
Cotton .............................
6.1
7.1
7.3
7.7
Livestock products
Meat (slaughter weight) ..............
11,583
13,272
13,633
13,475
Milk ...............................
80,553
83,183
83,181
87,234
Wool ..............................
398
429
420
428
Eggs .................................
35.8
45.1
47.9
50.8
1 Estimated usable production. Soviet official statistics have been discounted by 17% to
24% for moisture and waste in grain and by 8% in sunflower seeds.
The harvests of other major crops also reached new highs in 1973. The 38%
rise in potato output meant that more was available for the consumer, for seed,
and for livestock feed-especially in the private sector. Sugar beet production
was the highest since 1968. The domestic crop-which will yield about 9 million
tons of refined sugar-plus expected imports of sugar from Cuba should exceed
domestic requirements by nearly 1 million tons, permitting resumption of normal
exports as well as stock replenishment. Production of sunflower seeds, which
provides about three-fourths of Soviet vegetable oil, was up almost 48% in 1973;
this will allow the USSR to boost exports of sunflower oil in 1974. In addition,
a record cotton crop and an increase in soybean production will further augment
vegetable oil supplies.3
'Including roughages such as hay, silage, pasture, and straw, which usually provide about
three-fifths of the total feed supply. Concentrated feeds (feed grains, milling by-products, and
oil seed meals) supply another third, and the balance comes from roots, tubers, milk, and
miscellaneous feeds.
Cottonseed oil provides about 20% of domestic vegetable oil in the USSR and soybean oil
about 4%.
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The leadership was determined to save the country's livestock after the
1972 drought and it succeeded (see Table 3). State procurements dropped in
early 1973, reducing meat supplies to the population. But the key decisions had
already been made in mid-1972. By buying 28 million tons of grain between
May and October 1972, the Politburo provided the support necessary to main-
tain and even increase livestock inventories while at the same time ensuring
adequate supplies to cover both domestic food requirements and commitments
to client states. More than half of the record grain imports in fiscal year (FY)
1973 consisted of wheat (18 million tons), apparently to replace the low-quality
domestic wheat fed to livestock.
To the leadership, the good news from the farm sector must have seemed
a partial vindication of the large and growing investments that the Brezhnev
programs have allocated to agriculture. Since assuming power in 1965, the Brezh-
nev regime has committed itself increasingly to a policy of raising consumer
welfare, especially through improvements in the Soviet diet. The extent to
which those commitments could be met has depended on the regime's ability
to stimulate farm production. While considerable progress was made in increasing
farm output during 1966-70, the lack of progress in 1971, followed by a decline
in 1972, brought agricultural production back to about the level of 1968.
A major part of the decline was caused by less favorable growing conditions;
the very favorable weather conditions of 1968 and 1970 were replaced by normal
(1971) or worse-than-normal conditions (1972).
Even before the production shortfall of 1972, however, it had become ap-
parent that the rate of progress achieved by the farm sector was not keeping
up with the demands stemming from new consumer programs. Although agri-
cultural production in 1971 remained at the record level achieved in 1970, the
USSR imported a record-high volume of farm products in FY 1972 to maintain
the forward momentum in its program to upgrade the quality of the Soviet diet.
The Brezhnev farm policies have included large injections of industrial
products and massive land reclamation programs. Certainly, these contributed
to the record performance in 1973. Since 1970, deliveries of mineral fertilizer
have increased annually by an average of about 10%, and deliveries of farm
machinery (including tractors and trucks) by 11%. Total investment in agri-
culture last year rose by 8%, bringing the total for 1971-73 to slightly more than
3% above the goal for the 3-year period. These funds have paid for (1) the
addition of almost 5 million hectares of newly irrigated and drained land; (2)
construction of grain elevators, vegetable storage facilities, livestock raising and
poultry farms, and repair bases; and (3) acquisitions of equipment and machinery.
Nevertheless, in terms of the technology employed in agriculture, the USSR
still lags far behind the United States. Productivity of labor is much higher in
the United States, partly because the US farmer uses mineral fertilizers much
Table 3
USSR: Livestock Inventories
1971
1972
1973
1974
Cattle ......................................
99.2
102.4
104.0
106.2
Cows ....................................
41.0
41.2
41.7
42.3
Other ....................................
58.2
61.2
62.3
63.9
Hogs ......................................
67.5
71.4
66.6
69.9
Sheep and goats .............................
143.4
145.3
144.7
148.4
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more intensively, and the ratio of farm equipment to cultivated acreage is far
higher in the United States. Despite the greater labor intensity of Soviet farming,
the US advantage in terms of a higher proportion of land with fertile soil and
adequate moisture-taken together with an advantage in fertilizer application,
varietal development, livestock breeding, and organization-has resulted in a
marked difference in crop and livestock yields. In sum, while US agriculture
is capital intensive, Soviet agriculture remains highly labor intensive.4
INDUSTRY
Industrial output grew by an estimated 6.2% in 1973-a modest recovery
from what in Soviet terms was a slump in 1972 (see Table 4). Several factors
contributed to the recovery of industrial production last year.
? First, hours worked increased substantially, mainly because of fewer
holidays in 1973 and relief from the previous year's above-normal demand
for industrial workers to support agriculture. During the 1972 planting and
harvest periods, thousands more industrial workers than usual were pulled
off their jobs and detailed to support farm operations.
? Second, the industrial supply system recovered somewhat from the
disruptions caused by the massive roundup of trucks and railroad cars in
1972-again to support the harvest. After drought devastated the 1972 grain
crop in the western USSR, nearly every available vehicle was pressed into
service to salvage the grain being harvested in the east.
? Finally, industrial output benefited from the combined effects of a
large carryover of new capacity commissioned late in 1972 and more selec-
tive allocations of capital investment in 1973. New construction starts were
severely restricted last year in favor of concentrating resources on important
projects nearing completion.
Table 4
USSR: Growth of Industrial Production, Inputs, and Factor Productivity
Average
Annual
Preliminary
1966-70
1971
1972
1973
Industrial production .....................
6.8
6.5
5.6
6.2
Inputs
Man-hours and capital .................
5.4
4.9
3.8
4.7
Man-hours ...........................
3.1
2.0
0.8
1.4
Employment .........................
2.9
1.4
1.3
1.3
Capital .............................
8.7
9.2
8.0
9.4
Factor productivity
5
1
Man-hours and capital ................
1.4
1.5
1.8
.
Man-hours ...........................
3.6
4.4
4.8
4.7
Employment .........................
3.8
5.0
4.2
4.8
Capital .............................
-1.7
- 2.5
- 2.2
- 2.9
Although output trends were relatively more favorable in 1973, industry
is faced with a basic longer run problem-to spur the introduction of new tech-
nology. Indeed, the rate of growth of factor productivity in 1973 was slightly
lower than in 1972. The regime hopes that by accelerating the introduction of
Statistical indicators of the levels of farm technology in the United States and the Soviet
Union are shown in Appendix A, Table A2.
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new technology and improving the management of research and development
(R&D), factor productivity can be returned to the higher growth rates attained
in the 1950s. A joint decree of the Party and the Council of Ministers in March
1973 attacked this problem by ordering a reorganization of industry, to be com-
pleted by the end of 1975. The impact of merely redrawing chains of command
probably will be minor. But the decree took a step in the right direction by com-
bining some production and R&D units under unified management. Opposition
to this reform, however, is wide-ranging-covering industrial ministers anxious
to preserve their bureaucratic empires, enterprise managers who stand to lose
their independence, and local Party and government chieftains who fear the loss
of local budget revenue as well as the erosion of their powers. Progress toward
the reform goals, therefore, has been slow.
Energy Production
Energy is very much on the minds of Soviet leaders. Much of the USSR's
capacity to sustain economic growth depends on exploiting huge energy resources,
both for domestic use and to earn hard currency. But production of energy
products in 1973 did not match Soviet expectations.
Although increases in output of fuels and power in 1973 were enough to
assure continued self-sufficiency, the extraction of crude oil and natural gas fell
short of even the reduced goals for 1973. The 6.7% growth in production of
electric power (see Table 5) was less than in either of the two previous years and
below that needed to reach the 1975 production goal.
The Soviet petroleum industry was plagued by a number of serious problems
in 1973 that will persist in 1974 and 1975. The lack of adequate drilling equip-
ment has prevented rapid exploration of oil and gas fields. About half of the
35 billion to 40 billion barrels of proved and probable reserves of oil are located
in permafrost areas, where exploitation is difficult and costly. The inability to
accomplish deep drilling-more than 3,000 meters (9,800 feet)-is a serious bottle-
neck in the exploration and development of new oil and gas regions. Moreover, de-
clining reservoir pressures and the increasing inefficiency of waterflooding opera-
tions in the older regions require the installation of larger numbers of centrifugal
pumps at oil wells and the use of more compressors at gas wells to repressure
gas fields and to increase pressure of gas moved through pipelines. Costs of
production have risen substantially, especially in the gas industry.
Because large, older fields near consumption centers are being depleted
more rapidly than expected, the USSR must accelerate development of oil and
Average
Annual
1966-70
1971
1972
1973
Primary energy' ....................................
5.2
.2
4.9
.0
Coal ...........................................
1.5
2.7
2.2
2.0
Crude oil . ......................................
7.6
6.6
5.9
6.9
Natural gas .....................................
9.1
7.1
4.2
6.6
Electric power ...................................
7.9
8.0
7.1
6.7
'Based on conversion of coal, oil, gas, and hydroelectric power to units of standard fuel.
Production of hydroelectric power in 1.973 remained the same as in 1972.
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gas deposits in West Siberia and Central Asia, far from the major consuming
centers. The need to connect fields and consuming centers with large-diameter
pipelines has pushed the demand for line pipe, pumps, and compressors beyond
the available supply. As a result, pipeline programs are behind schedule, con-
tributing to the shortfalls in deliveries of oil and gas.
Recently, Soviet petroleum officials have complained about the problems
the world energy crisis has given them. They claim that the USSR cannot simul-
taneously meet its own oil requirements, fill the needs of other socialist countries,
and continue to expand deliveries to established markets in capitalist countries.
The USSR exports about one-fourth of total domestic oil production, about 2
million barrels per day. About one-half of these exports go to the West, espe-
cially Western Europe (see Figure 3). The USSR has little, if any, uncommitted
oil from domestic sources with which to expand sales to the West and take
advantage of the present prices.
Coal production reached 668 million tons in 1973, an increase of 2 % over
1972 and above the 1973 goal set by the current 5-year plan. Meanwhile, in-
dustry is pushing a modernization program. An April 1973 resolution called for
greater efforts in carrying out plan directives regarding design, production, and
use of new types of coal mining equipment, particularly for underground mining.
The coal industry does not use Western equipment to any significant extent.
Some interest has been displayed, however, in exchanges of technical information.
In May 1973 a long-term economic-technical agreement was signed with the
West German Ruhrkohle Company, and in January 1974 an agreement was
reached with Kaiser Industries to cooperate in hydraulic coal mining technology.
Production of electric power in 1973 increased 6.7%, slower than in the
previous two years. A shortage of rainfall for the past two years has resulted
in a low water level in the rivers in many regions of the country, causing an
underfulfillment of production at hydroelectric powerplants. About 125 billion
kilowatt hours (kWh) was produced at these plants in 1973, instead of the
planned 130 billion kWh. Thermal powerplants continue to have trouble in
assimilating large new generating units at their full rated capacity because of
design and construction defects in the equipment and because of inexperienced
operating personnel. The supply of fuel to thermal powerplants in the European
region of the USSR became a serious problem in the latter part of 1973, necessitat-
ing curtailed lighting of streets and public buildings in Moscow, as well as a
plea to consumers to economize in the use of electric power. The Soviet Union
has large deposits of fuel in Siberia, but 75% of the electric power is produced
in European areas, and the Soviets are having difficulty in transporting fuel to
western parts of the country in sufficient quantities.
The Soviet nuclear power program, which had lagged behind the US effort,
is now beginning to get off the ground. Soviet nuclear powerplants produced
11.7 billion kWh of electricity in 1973, an increase of more than 50% over the
previous year. Although still representing only 1.3% of the total electricity pro-
duced in the USSR, nuclear power's contribution will grow rapidly as a result
of the construction program now under way.
During 1973, a 440-megawatt (MW) nuclear powerplant went into opera-
tion on the Kola Peninsula, bringing the total capacity of Soviet nuclear power-
plants to 2,400 MW. In 1974, nuclear capacity should double, with the addition
of a second 440-MW unit at the Kola plant and the planned start-up of two
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USSR: Imports and Exports
Oil
0.16
0.09
jd 0.66
0.09
0.04
0.02
0.13
1 2.10
2.12
0.18
:' 0.25
Natural Gas
1955 318 billion cubic feet
~5
0
F14
117
91
160
286
179
1 388
11.4 million barrels per day
711,600
Production
Exports to the west
^ Exports to other communist countries
Imports
210 450 )- Preliminary estimate
2.9
2.22
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1,000-MW units at the Leningrad nuclear powerplant. The Soviet plan for nuclear
electric generating capacity in 1980 is 30,000 MW, at which time 8% of the
electricity produced in the USSR is expected to be of nuclear origin.
Other Industries
Except for some fuels and electric power, most branches of industry grew
faster in 1973 than in 1972. In fact, most did better than they have so far in the
current 5-year plan. But machinery and forest products were the only sectors
to equal or exceed the average rate of growth in 1966-70 (see Table 6).
Average
Annual
Preliminary
1966-70
1971
1972
1973
Ferrous metals
5.5
3.9
3.6
4.0
Nonferrous metals ...............................
8.3
5.1
4.9
7.0
Forest products
3.5
3.7
3.3
4.3
Paper and paperboard products ...................
7.2
5.5
4.5
6.0
Construction materials ............................
6.2
5.7
4.6
5.7
Chemicals ......................................
9.0
8.1
6.9
8.1
.............................
Machinery
9.1
11.5
10.5
10.0
......
Soft goods .... 8.0
4.5
0.6
3.4
Processed foods ................................. 4.7
3.0
3.5
3.1
As for the machinery sector, the output of instruments, agricultural ma-
chirrery, and some consumer durables-notably passenger cars and vacuum
cleaners-increased substantially.5 Passenger car output increased 26% in 1973,
mainly as a result of the continuing expansion of output at the Fiat-built
Tol'yatti plant. The growth rates of producer and consumer durables were about
the same in 1973, as follows:
Average
Annual
Preliminary
1966-70
1971
1972
1973
Producer durables' 7.9
11.3
10.6
10.0
Consumer durables .......................... 15.0
12.4
10.1
10.1
'Producer durables include all machinery except classes of machinery intended solely for
military/space use. Thus, passenger cars and trucks delivered to the armed forces are counted
in the sample of producer durables, but combat vehicles are not.
The producer durables sector was hindered by shortfalls in the manufacture
of equipment for the chemical, metallurgical, and petroleum industries.
Computers continued to be one of the fastest growing branches of machine
building. Despite its problems in manufacturing high-quality advanced electronic
components in sufficient quantities, the USSR is now firmly committed to the
new RYAD family of third-generation computers. Although prototypes of most
' Nonetheless, goals for higher horsepower tractors and new models of grain combines were
not reached. New tractors produced in 1973 had an average of 71 horsepower (compared with
the original plan of 85) because of delays in initiating large-scale production of new 80- to
165-horsepower models in the country's largest tractor plant.
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of the RYAD computer models have been built, only a few of the smaller models
in the series have been produced. The RYAD computers are copies of the IBM
series 360, first introduced in the United States in 1964. Unlike the early models
of the IBM 360, however, the RYADs do not have high quality and reliability
and are poorly equipped with peripheral equipment. As a result, the USSR is
actively seeking Western (mainly US) manufacturing technology.
The chemical industry posted particularly large gains in the output of man-
made fibers, plastics, and fertilizers, mainly because of a large carryover of new
capacity installed late in 1972. Important basic chemicals such as sulfuric acid
and caustic soda did not do as well. Delays in commissioning new capacity and
the inability of Soviet machine builders to keep up with the demands of the
chemical industry continued to hold back chemical production. Orders for West-
ern chemical equipment climbed to an all-time record in 1973 and were con-
centrated in such high-priority areas as fertilizers and synthetic materials. The
facilities ordered, which are large and incorporate very modern Western tech-
nology, should contribute substantially to output after 1975. The ammonia plants
ordered from the West during 1969-71, for example, incorporated Kellogg tech-
nology, which is far more advanced than the technology now used in the USSR.6
By the time they are completed, these plants and others now being negotiated
will provide additional capacity of about 8.7 million tons of ammonia per year.
Operating through the 1980s, these plants would save the USSR between 2 billion
and 3 billion rubles, compared with the cost of building and operating ammonia
plants like those they already have.7
Persistence of Industrial Growth Problems
Despite the upturn in 1973, industry still lags far behind the expectations
of Soviet leaders in terms of the variety and technical sophistication of its products.
Ferrous metallurgy is a case in point. The ferrous metals branch has made
progress in recent years in improving the overall quality of output-such as
the production of lighter and small rolled products-but the quality and variety
of steel products is still inadequate. Thus, the USSR has been increasing purchases
of steel from Western suppliers to help meet growing requirements for speciality
and high-quality grades.
To help boost productivity, the leadership has decided to buy Western tech-
nology on a much larger scale. The effectiveness of this program will be de-
termined in part by Soviet success in overcoming a number of impediments to
the efficient use of foreign technology. For example, Soviet workers are un-
familiar with complex foreign machinery, spare parts for foreign equipment are
often in short supply, and Soviet maintenance programs frequently are inade-
quate. Similarly, the technology acquired outside the trade channel through
direct and indirect contacts must be translated into blueprints and brought
to series production.
CAPITAL INVESTMENT
While enjoying success in agriculture, the Politburo also had reason for satis-
faction in the results of another campaign-the one undertaken in the construc-
tion sector. The growth of investment slowed in 1973 because of the decision
Kellogg is the world's most experienced firm in engineering and erecting large single-train
ammonia plants that use centrifugal compressors and minimize unit energy requirements.
' Such a saving is roughly equivalent to total recent annual investment in the chemical and
petrochemical industries.
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taken at the meeting of the Supreme Soviet in December 1972 to concentrate
on projects nearing completion, especially those involving the expansion and
modernization of already existing assets. This policy succeeded in holding the
growth of unfinished construction to less than 3% after average increases of
nearly 12% per year in 1966-72 (see Table 7). Meanwhile, gross additions of
new fixed capital, representing new projects going on stream, increased by 8%
in 1973-short of the planned goal but well above the bleak 3.4% increase
achieved in 1972.
Average
Annual
Preliminary
1966-70
1971
1972
1973
Total new fixed investment ...................
7.6
7.2
7.1
3.5
Gross additions of new fixed capital ............
8.3
6.3
3.4
8.0
Backlog of unfinished construction .............
12.1
10.3
12.6
2.8
Restrictions on new construction starts also curbed the proliferation of "non-
centralized" investment-local projects funded from enterprise and ministerial
profits and by bank credits. Noncentralized investment, a concept developed
in the 1965 economic reforms, was intended to be used primarily for re-equipping
enterprises, introducing modern technology, and other measures to improve pro-
duction potential at minimum cost. In practice, these funds often have been
used to divert material and manpower resources into projects at variance with
the objectives of the planning authorities.
CONSUMER WELFARE
By 1973 the declared consumer goals of the 1971-75 plan seemed to have
slipped out of reach. A sharp increase in per capita consumption in 1973 largely
reflected a rebound in the growth of food consumption from near stagnation in
1972 (see Table 8). The other major components of consumption-soft goods,
durables, and services-pushed ahead in 1973 at rates substantially below those
of 1966-70.
The slowdown in consumption growth rates reflects in part the transition
from a seller's to a buyer's market. Until recently, levels of living were so low
that consumers would purchase practically anything produced. For their part,
planners stressed quantity and largely ignored quality and assortment. Now
the demand for many basic consumer items has been satisfied, and growing
Average
Annual
Preliminary
1966-70
1971
1972
1973
Total ..........................................
4.9
3.5
1.5
3.3
Food ........................................
3.9
3.2
0.1
3.6
Soft goods ....................................
8.6
3.3
1.3
2.3
Durables .....................................
8.4
4.2
6.0
5.3
Personal services ..............................
6.7
5.8
6.1
3.9
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emphasis is being placed on catering to consumer demand for improved quality
and variety. But Soviet planners are having problems breaking longstanding
production bottlenecks. For example, the 1973 production of leather shoes and
knitwear-items in high demand-was far short of the goals the planners had
set in 1970.
Although sales of furniture, vacuum cleaners, and refrigerators are keeping
pace with production of these items, lags in sales of several other important
durables, particularly television sets and washing machines, has resulted in some
buildup of excess inventories. The increasingly choosy Soviet public is refusing
to purchase durable goods of outmoded design and poor quality, as it did with
soft goods during the early 1960s. At that time, the leadership acted to reduce
inventories of soft goods by selectively reducing prices and transferring inven-
tories from the cities to rural areas, where extra spending money was becoming
available for the first time. Today, changes in the distribution pattern probably
would have little effect on consumption. While some price reductions may be
in the offing, the leadership is stressing improved product quality and variety.
In this connection, the Soviets are looking increasingly to the Western countries
for modern equipment and technology to produce consumer goods.
In response to lower rates of growth in consumption, some features of
Brezhnev's extensive "welfare package" (announced at the 24th Party Congress
in 1971) have been delayed in an apparent effort to keep incomes in line with
available goods and services. For example, the increase" in the minimum wage
from 60 to 70 rubles a month, which had been scheduled for 1971, still has not
been fully implemented.
Those areas in which unsatisfied consumer demand is the greatest-housing
and the supply of quality food--have been among the slowest to improve. The
fulfillment of goals for increases in the supply of quality foods during 1971-75
would permit a substantial decline in the share of daily calories obtained from
the starchy staples-potatoes and grain. Meat consumption, for example, is slated
to rise by 20% and that of dairy products by 12%. Even if the goal for meat
production is met, however, supply will fall short of demand (at prevailing
prices). In 1970 and 1972 there were frequent reports of a complete absence
of meat in state stores in many provincial cities. Per capita consumption of meat
in the USSR is only about half the level of that in West Germany and approxi-
mately 6017o of that in Czechoslovakia.
Although the housing situation has gradually improved, the fulfillment of
the new five-year plan goal would still leave per capita housing space about 1070
short of the minimum standards set for health and decency by Soviet officials
and far short of the conditions enjoyed by other Europeans.8 Soviet housing plans,
moreover, usually have been underfulfilled.
FOREIGN TRADE
Trade with the developed West increased by about 60% following a 25%
increase in 1972, largely because of record imports of grain, valued at about $700
million in 1972 and $1.5 billion in 1973. The United States emerged as the USSR's
second largest trading partner outside of Eastern Europe. US-Soviet trade turn-
over amounted to $1.6 billion, including about $1.2 billion in Soviet imports from
the United States.
'In the late 1960s, for example, West Germans enjoyed about twice as much housing space
per capita as the citizens of the USSR.
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Soviet trade with Eastern Europe grew about 20% in both 1972 and 1973.
Both years brought large Soviet deficits after many years of nearly balanced
trade. Soviet exports went from $7.2 billion in 1971 to $10 billion in 1973 and
imports rose from $7.3 billion to $10.9 billion. Eastern Europe maintained the
same share of Soviet trade in 1972 as it had since the mid-1960s-55%-but in
1973 its share declined to 49%. The deficits resulted primarily from large in-
creases in Soviet purchases of machinery and equipment and consumer goods
from Eastern Europe and a continued reduction in Soviet sales of grain to these
countries. Soviet-Chinese trade grew relatively slowly, by 7% in 1973 to $272
million; it was exactly balanced in exports and imports.
Overall, Soviet imports from the West increased more than exports, so that
hard-currency deficits in 1972 and 1973 set records of $1.4 billion and about
$1.7 billion, respectively (see Figure 4). The USSR financed these deficits by
selling gold worth roughly $300 million in 1972 and as much as $1 billion in 1973.
A variety of Western medium-term and long-term credits-including $500 million
in three-year Commodity Credit Corporation credits from the United States
drawn down during 1972-73--covered the balance. As a result, the USSR's hard-
currency indebtedness grew to about $3.6 billion. Debt service payments of
about $700 million represented 14% of its hard currency exports in 1973, com-
pared with 16% in 1972.
The USSR ordered a record volume of Western machinery and equipment
in 1973, in addition to its massive purchases of agricultural products. Soviet
machinery orders from the West totaled $2.6 billion in 1973-a 53% rise over
1972 (see Table 9). Equipment for the chemical industry-a chronically weak
area of Soviet machine building-accounted for 70% of the increase in orders
in 1973. Orders for metallurgical and consumer goods equipment also rose steeply.
Much of the automotive equipment (second in total value) will be installed in
the giant Kama Truck Plant. Since most equipment orders are connected with
major plans for capital expansion, deliveries will stretch out over several years.
Increases in the world prices of several commodity exports, particularly oil,
provided the Soviets with a substantial. windfall gain in hard currency earnings.
For example, the average price of Soviet oil delivered to the United States in
1973 was $6.95 per barrel, compared with $2.70 per barrel in 1972.
USSR: Machinery and Equipment Orders from Western Countries, by Type
Million US $
1972
1973
Total ...................................................... ....
1,695
2,600
Chemical ......................................................
250
885
Motor vehicle manufacturing .....................................
360
500
Metallurgy and metalworking ................................... .
55
300
Petroleum refining and pipeline ...................................
270
250
Consumer goods manufacturing ...................................
30
200
Timber and wood processing .....................................
120
130
Ships and marine ...............................................
115
100
Electronics ....................................................
50
50
Textiles .......................................................
45
35
Food processing ................................................
15
30
Mining and construction .........................................
115
5
Other .........................................................
270
115
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USSR: Hard Currency Merchandise Trade
Billion Current US $
Figure 4
I I
data estimated
0 I I I I I
1966 67 68 69 70 71 72 73 74*
Exports
Imports
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PLANS AND PROSPECTS
As in 1973, the USSR's economic plan for 1974 scales down the targets
originally set forth in the Ninth Five-Year Plan without disclosing any changes
in priorities. The goals for major sectors imply a growth of 5.9% in GNP (see
Table 10) and:
? Substantial growth in industry and agriculture.
? Continued large allocations of capital and materials to agriculture.
? Renewed emphasis on consumer welfare.
? A focus on completing construction projects already begun.
Farm output in 1974 is slated to increase by 7.3%.11 This is clearly an
ambitious goal because the bumper harvests recorded last year will be difficult
to match, let alone to surpass. In fact the plan calls for a gross grain harvest
of 205.6 million tons in 1974, well below the 222.5 million tons achieved in 1973.
The continued high priority attached to support for agriculture is reflected in the
scheduled rise in deliveries to agriculture of fertilizer (12,70 ) and machinery
(11.5%). Investment in agriculture is to increase 8.1% and constitute almost
27% of total investment in all sectors of the economy. Nearly 20% of the invest-
ment in agriculture will finance land reclamation programs designed to add 1.8
million hectares of irrigated and drained land in 1974.
USSR: Growth of GNP by Sector of Origin
Preliminary
1973
1974 Plan'
GNP .......................................................
7.5
5.9
Industry ..................................................
6.2
6.8
Construction
2.2
3.4
3
7
Agriculture ...............................................
18.8
.
Transportation and communications ..........................
7.3
5.4
Domestic trade ...................................... .....
5.4
6.3
Services ..................................................
3.7
3.7
'Based on Soviet plans for individual sectors.
In contrast to the Khrushchev era, the present leadership's concern for agri-
culture seems not to have waned after an exceptionally good harvest. Indeed,
Brezhnev recently announced plans to spend 35 billion rubles during 1976-80
on the first phase of a 15-year project to improve 50 million hectares of agricultural
land in the northern European area (non-black-soil zone) of the Russian republic,
including 32 million hectares of crop land and 18 million hectares of grazing land.
The crop land, equal to about 15% of present sown acreage, is about the size
of the "new lands" area of Kazakhstan and Western Siberia that was developed
during the 1950s. The new program is aimed at damping the large fluctuations
in farm output-particularly grain-which have plagued Soviet agriculture.
6 Output unadjusted for purchases from non-agricultural sectors.
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The 6.8% increase scheduled for industry in 1974 is within reach, although
continued shortfalls in energy production are expected.10 Production of color
television sets, refrigerators "with two compartments," and automatic washers
is slated to rise considerably. The hefty 31% increase in output of cars planned
for 1974 probably will be achieved because the Tol'yatti automobile plant will
be operating, for the first time, at or near capacity levels for a full 12 months.
Nearly one out of every two cars produced in the USSR in 1974 will come from
this facility. Production of the Soviet "Moskvich," which represents nearly one-
third of all passenger cars in production, is also likely to make large gains in the
newly renovated and expanded Moscow and Izhevsk plants.
If plans for industry and agriculture are met, per capita real income in 1974
will grow by 5% and per capita consumption by about 4%, both somewhat more
than the average rates for the first 3 years of the current 5-year plan. Per capita
food consumption, which increased 3.6% in 1973, is scheduled to grow by 31/a%
in 1974. Despite the slower growth, larger quantities of quality foods, particularly
meat and vegetable oil, will be available. A total of 113.4 million square meters
of housing planned for construction in 1974 is about 5% more than the average
constructed during 1971-73.
The capital investment program in 1974 will attempt to repeat or better
last year's performance in concentrating investment resources on projects nearing
completion. In fact, 70% of all centralized investment will be directed to this
end. Funds will be allocated primarily to agriculture and key industrial branches.
Gross additions of new fixed capital are scheduled to increase 9.3 % over the
1973 level, with major new capacity planned for industries producing fuels and
power, ferrous metals, and mineral fertilizers.
On balance, the economy :should continue on its present tack in 1974, and
probably through 1975, with growth averaging about 5%-6% for the two years.
In the longer term, the USSR a will be hard pressed to sustain a rate of growth
as high as 5% per year. Most of the problems which contributed to the slowdown
in 1971-72 will remain.
IMPLICATIONS FOR RELATIONS WITH THE WEST
The USSR will almost certainly want to trade more with the United States,
especially for high-technology products, but can find most of what it wants in
Western Europe and Japan. The USSR and Japan initialed an agreement earlier
this year that could pave the way for one of the biggest economic deals between
the two countries since the end of the Second World War (see Figure 5).11
The Japanese will provide a credit of $450 million to help finance a coal mining
project in Yakutsk in eastern Siberia. The Japanese will be repaid by deliveries
of coking coal beginning in 1979.
The USSR has also stressed increasing its economic relations with West
Germany. There have been recent discussions on the possible West German
construction of nuclear powerplants in the USSR. An agreement has been signed
for joint development of a $1 billion iron ore and steel plant in Kursk. France
has actively supported Soviet development. Since 1972, French firms have signed
a $150 million contract for the development of a Siberian cellulose plant and a
$100 million contract for the design and equipping of five petrochemical plants.
In addition, there has been some discussion of French participation in the con-
struction of a $1 billion aluminum complex.
'Output unadjusted for purchases from other sectors.
" Details of recent economic agreements with the West are shown in Appendix B.
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Japanese 1 fed In Siberian Resources
Soviet hard currency earnings should rise rapidly in 1974-75 because of
higher prices for oil and raw material exports. If prices remain near $10 per
barrel, oil exports alone may earn about $3 billion in 1974 and approximately
$3.4 billion in 1975. Higher prices for chemicals, wood products, and coal-
together with larger deliveries of natural gas-could increase total Soviet ex-
ports to almost $51/2 billion in 1974 (double the 1972 level). Gold sales are an
additional large source of potential foreign exchange earnings. If the USSR
markets all of its current gold production in Western countries, it would earn (at a
price of $150 an ounce) about $1 billion in 1974 and 1975.
With expenditures for Western grain in 1974 expected to be half or less of
1973 outlays, these potential hard currency earnings could easily support a large
rise in Soviet imports of Western plants, equipment, and other goods. The USSR
could achieve a payments surplus of over $1 billion in 1974. In addition the
Soviets could sell $1 billion in gold out of current production. This would permit
the USSR to pay cash for more of its machinery purchases and to reduce some
of its short-term debt.
19
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APPENDIX A
STATISTICAL TABLES
Gross national product (billion 1972 US 8) ...... 249.1
329.1
436.0
575.3
599.1
614 , 0
661.4 r
Population, mid-year (million persons) ......... 196.2
214.3
230.9
242.8
245.1
247.5
249.8
Per capita gross national product (1972 US 8) . 1 ,270
1 ,540
1 ,890
2,370
2,440
2,480
2,650 1
Industrial production index (1960 = 100) ....... 67.1
100.0
138.5
189.4
200.7
211.2
223.71
Net agricultural production index (1960= 100). , 81.6
100.0
118.9
147.1
147.6
137.1
157.5 1
Ilread grains (million metric tons)2............ 63.7
59.7
62.7
90.5
91.1
76.5
92.0
Feed grains (million metric tons)2 ............. 39.9
33.3
37.3
59.4
56.9
58.0
78.0
Potatoes (million metric tons) ................ 71.8
84.4
88.7
96.8
92.7
78.3
107.7
Meat3 (million metric tons) .................. 5.8
8.7
10.0
12.3
13.3
13.6
13.5
Total labor force (including the armed forces)
(million persons) ........................ 105.2
110.6
117.9
124.2
126.0
128.2
130.2
Non-agricultural (million persons) ........... 55.3
64.0
75.5
86.7
89.2
92.2
95.1
Agricultural (million persons) ............... 49.9
46.6
42.3
37.5
36.8
36.0
35.1
Total investment index (1960 = 100)4.......... 54.5
100.0
135.6
195.3
209.4
224.4
232.3
Per capita consumption index (1960= 100)..... 82.9
100.0
113.1
143.4
148.8
150.6
155.7
Crude oil (million bid) ....................... 1.4
2.9
4.8
7.0
7.4
7.9
8.4
Natural gas (billion cubic feet) ................ 318
1,600
4,520
6,992
7,487
7,805
8,334
Electric power (billion kilowatt-hours) ......... 170
292
507
741
800
857
915
Coal (million metric tons) .................... 390
510
578
624
641
655
668
Primary energy production (million metric tons
of coal equivalent) ......................... 435
663
942
1,214
1 ,277
1 ,340
1 ,394
Crude steel (million metric tons) .............. 45.3
65.3
91.0
115.9
120.7
125.6
131.0
Cement (million metric tons) ................. 22.5
45.5
72.4
95.2
100.3
104.3
109. 5
Copper, refined (thousand metric tons) ........ 377
475
700
1 ,015
1 ,090
1 ,145
I ,200
Chromite (million metric tons) ................ 0.3
0.5
1.2
1.4
1.4
I .5
1.5
Manganese ore (million metric tons) ........... 4.7
5.9
7.6
6.8
7.3
7.8
8.0
Iron ore (million metric tons) ................. 71.9
105.9
153.4
195.5
203.0
208.1
216.0
Phosphate rock 5 (million metric tons) ......... N. A,
5.8
11.5
18.0
19.9
21.1
22.6
Automobiles (thousand units) ................. 107.8
138.8
201.2
344.2
529.0
730.1
916.7
Trucks, including buses (thousand units) ....... 337.5
384.8
415.1
571.9
613.7
648.7
685.4
Electric generators (thousand kilowatts) ....... 4,526
7,915
14,390
10,578
12,600
13,700
16,500
Machine tools, metalcutting (thousand units)... 117.1
155.9
186.1
202.2
207.2
211.3
213.0
Instruments (million rubles, 1967 prices) ....... 258
760
1,277
2,364
2,610
2,956
3,349
Computers, digital (million rubles, 1967 prices). . 10
55
169
710
905
1,213
1 593
Refrigerators (thousand units) ................ 151
529
1,675
4,140
4,557
5,030
5,423
Washing machines (thousand units) ............ 87
895
3,430
5,243
4,052
3,001
2,986
Radios (thousand units) ...................... 3,549
4,165
5,160
7,815
8,794
8,842
8,615
Television sets (thousand units) ............... 495
1 ,726
3,655
6,682
5,817
5,980
6,271
Vacuum cleaners (thousand units) ............. 131
501
800
1,509
1,718
2,168
2,659
Sewing machine (thousand units) .............. 1 ,611
3,096
800
1 ,400
1 ,408
1 ,439
1 ,400
Gold production (thousand troy ounces)....... 2,970
3,500
5,000
6,600
7,100
8,200
8,500
Imports (million US 8) ...................... 3,061
5,628
8,058
11,732
12,480
16,097
20,980
Exports (million US 8) ....................... 3,427
5,564
8,175
12,800
13,806
15,409
21,332
I Preliminary.
2 From 1960, official production is discounted for excess moisture, extraneous materials, and post-harvest losses.
3 Including horsemeat, rabbit, poultry, game, edible offal, and lard.
4 New fixed investment.
5 Estimated.
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USSR as a
United Percent of
States USSR United States
Share of labor force employed in agriculture (percent)2... 5 27 540
Output per farm vorker2 ............................ 8,944 9623 11
Number of persons supported by one farm worker 2... 48 7 15
Sown acreage per tractor (acres) ..... ................ 64 258 403
Grain acreage harvested per combine (acres) ............ 52 473 910
Trucks per 1,000 farm workers ........................ 665 34 5
I ertihzer nutrients applied to Crops 4 (pounds per acre).. 93 45 48
Nitrogen (N) (pounds per acre) ................... 44 22 50
Phosphorous (P203) (pounds per acre) ............. 26 11 42
Potash 1 K2O' (pounds per acre) . ................ 23 12 52
Livestock yields
Average live weight at slaughter:
Cattle (pounds) ................................. 953 6815 71
[fogs (pound:4) .................................. 240 2365 98
I)ggs per hen per year .............................. 218 1665 76
Milk per cow milked per year (pounds) .............. 9,388 4 ,652 5 50
Crop yields
Spring wheat' (bushels per acre) .................... 28 14 50
Winter wheat' (bushels per acre) ................... 33 26 79
Rye6 (bushels per acre) ........................... 26 16 62
Oats' (bushels per acre). .......................... 52 34 65
Corn6 (bushels per acre). . ....... ................. 69 35 51
Barley' (bushels per acre.... ...................... 44 26 59
Potatoes (bushels per acre) ......................... 382 173 45
Sugar beets (metric tons per acre) ................... 16 9 56
Ginned cotton ipounds per acre) .................... 442 784 177
Based on 1970 data, except as noted.
2 Based on 197:3 data.
:1 Calculated from US output using the geometric mean of comparisons of USSR and US output
carried out, alternatively, in dollar and ruble prices.
I Based on 1971 data.
Average for state procured animals.
Three-year average (1969--71i.
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The details of a number of major projects in which the USSR is exchanging
raw materials for Western technology and equipment are presented below.
Several projects have been already signed, such as the natural gas deals with
Western Europe. Other and much larger ventures are being negotiated now.
Direct purchases (equipment for the Kama Truck Plant, for example) are not
included in the listing.
Second Far East Timber Agreement (KS-II Project)
The USSR and K.S. Sangyo Company are in the final stages of concluding a
second development agreement for far east Siberian timber reserves. Negotiations
on the follow-up project have been in progress for more than a year, but final
agreement has been stalled by differences over pricing.
As currently envisioned, the USSR will purchase, under long-term credits
at 6%%, $450 million in timber cutting and hauling equipment and timber
carrying ships. The Soviet purchase of $50 million in Japanese consumer goods
will also be financed by 5-year credits at 71/4%.
In return, the USSR will deliver 590 million cubic feet of sawn logs
and pulpwood to Japan during 1974-78, with prices likely to be tied to world
market levels. At current Soviet export prices, these deliveries will earn the
USSR more than $1 billion. Deliveries under the project would constitute an
estimated 20% of all Japanese timber imports from the USSR during the period
of the contract.
Kursk Steel Mill
Soviet and West German firms on 22 March reached preliminary agreement
for the development of an iron and steel complex near Kursk. The first stage
of the project will take place from 1974 to 1978 and will include a pelletizing
plant with a capacity of approximately 4 million tons per year, an electrical steel
plant producing 2 million tons per year of bar stock, and rolling mills producing
1.5 million tons of rolled steel. Discussions for the second construction stage,
1978-80, will begin in 1976.
Negotiations, in progress for more than a year, had been blocked over the
question of financing. The Soviets had demanded a firm commitment for over
$1 billion in long-term credits at 6.5% to 7%. When informed earlier this year
that West Germany would not provide subsidized credits, the Soviets stated that
they would pay cash for the nearly $1 billion in Western imports required for
the first stage of the project. By paying cash, the USSR will save several hundred
million dollars in interest charges and will avoid paying a high interest rate
at a time when it continues to seek concessionary rates from its other Western
trading partners. The Soviets did state, however, that the second stage of con-
struction will be financed on a barter. basis, with Soviet repayments probably
based on output from the first stage of the project.
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In 1973 the USSR signed an agreement with the Italian firm Montedison
whereby the latter is to provide seven large chemical plants to the USSR during
1974-78. The deal is valued at at least $500 million and will be financed under
an earlier agreement that made available to the USSR a $550 million line of
credit. The USSR will repay the credit with products manufactured in the
plants supplied by Montedison-ammonia (500,000 tons per year for 10 years),
urea, and titanium dioxide.
USSR-Occidental Fertilizer Agreement
In April 1973 the USSR and Occidental Petroleum Corporation signed a
20-year agreement under which Occidental would supply phosphoric acid in
exchange for Soviet ammonia, urea, and potash-an exchange that was to start
in 1978 and expected to total $3.5 billion to $4 billion each way. Occidental
was also to arrange for supply of equipment and technology for 10 fertilizer
plants-8 to produce ammonia and 2 for urea-and for supporting infrastructure
(pipelines from Odessa to Tol'yatti and storage, loading, and port facilities).
The fertilizer equipment and technology together with the pipeline and related
facilities were originally valued at $400 million-$500 million and were to be repaid
with fertilizer. An Export-Import Bank loan of $180 million has recently been
approved, and a private US banking consortium has been formed to provide a
matching amount. The recent approval of the Eximbank loan should lead to
US contracts for the infrastructure and possibly for technology and equipment
for 4 of the 8 ammonia plants that came under the Occidental agreement. Occi-
dental Petroleum apparently will be responsible for the support facilities.
North Star LNG Project
A consortium of three US companies-Tenneco Inc., Texas Eastern Trans-
mission Corporation, and Brown and Root-has been considering a cooperative
venture with the USSR to import 2 billion cubic feet per day of liquefied natural
gas (LNG) over a 25-year period for the US east coast market. All of the gas
would come from the large Urengoy deposit in the permafrost areas of North
Tyumen Oblast in West Siberia.
The USSR would drill about 160 gas wells in the Urengoy field. The US
consortium would participate in construction of gathering lines, a 48-inch-
diameter gas pipeline to an export terminal in the Murmansk area (about 1,500
miles), a large liquefaction plant, and related terminal and port facilities. Initial
deliveries of gas were to start around 1980.
The original proposal envisaged dollar costs of about $6.5 billion (in 1980
dollars), of which $3.7 billion would go for Soviet-based installations. (Additional
ruble costs for construction of these latter facilities were expected to be equivalent
to about $1 billion.) The proposal specified an f.o.b. price of $0.60 per 1,000
cubic feet of gas and a landed price of $1.25 per 1,000 feet in Philadelphia.
Negotiations are continuing. Several major differences over prices and fi-
nancing must be ironed out before the project can go forward. Despite a wide
gap between what the Soviets want and what the US consortium thinks is
reasonable, both sides apparently continue to have hopes of an eventual agree-
ment.
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Yakutsk LNG Project
In mid-1973, Occidental Petroleum Corporation, El Paso Natural Gas Cor-
poration, and Japanese interests concluded agreements of intent with the USSR
to exploit natural gas deposits located in the Yakutsk ASSR in eastern Siberia.
Yakutsk gas would be piped about 2,700 miles to Nakhodka where an LNG plant
and export facilities would be constructed. Japan and the United States would
each receive 1 billion cubic feet of LNG per day via tanker over a 20-year period
beginning in about 1980. From the same project, the USSR also expects to obtain
about 1 billion cubic feet of gas per day for consumption in the Far East.
The cost of the gathering system, pipeline, LNG plant, and export facilities
to be built by US and Japanese firms in the USSR has been estimated at about
$3 billion (in 1980 dollars). Locally incurred ruble costs have been estimated
to be roughly equivalent. All LNG tankers would be owned by US and Japanese
interests.
The USSR requested supplementary credits of $150 million to cover addi-
tional equipment needed for seismic work and exploratory drilling to find and
evaluate gas reserves in the Yakutsk area. At present the USSR claims only about
11 trillion cubic feet of explored reserves. US and Japanese technicians agree
that several years of exploration will be needed to establish the reserves that
would be required to support the project.
An April 1974 umbrella agreement provided $1.05 billion of Japanese credit
at 6.375% interest for three Siberian development projects (gas, coal, and
timber) including $100 million for Yakutsk natural gas exploration. A memo-
randum was also signed on 26 April 1974 between the USSR and the private
Japanese firms involved in the deal.
The USSR and Japan have discussed the exploration and development of
Sakhalin off-shore continental shelf oil reserves for several years. More recently,
the Soviets have also invited US firms to discuss the possible exploration of
these reserves. Several of these firms are interested. Gulf has been most active,
having for some time considered a joint exploration venture with Japan.
Soviet sources estimate the potential off-shore reserves at 30 billion-45 billion
barrels of low-sulfur oil in a 38,600-square-mile area out to water depths of
660 feet. In water depths up to 330 feet, there may be some 20 billion barrels-
an amount equal to the reserves claimed for Alaska's Prudhoe Bay field and 40%
of current estimates of North Sea reserves. Investment for exploration and de-
velopment of one or two major oil fields off-shore could amount to $1 billion
because work will be complicated by severe tides and massive ice flows.
Discussions had long been stalled by differences over production sharing,
the provision of risk capital, and rates of return. A Soviet-Japanese letter of intent
which outlined basic forms of the proposed project was signed in 1973, but no
additional progress was made until earlier this year.
Under the terms of the April 1974 protocol, Japan will provide the USSR
$100 million to cover exploration costs over a 5-year period. Soviet repayment
of the risk capital is tied to the successful development of reserves, with no
repayment required if exploration proves unsuccessful. In return for bearing
this risk, the Japanese firms will hold an option to purchase 50% of all oil
recovered during the repayment period and for 10 years thereafter.
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The Japanese have already arranged for all the risk capital needed. US
technology and know-how are crucial to the project, however, and some form of
US assistance probably will have to be arranged before a final agreement is
signed.
Siberian Coal for Japan
On 30 April 1974 the USSR and Japanese firms signed a preliminary agree-
ment for development of a coking coal deposit near Chulman in the Yakutsk
ASSR. During 1979-98 the USSR will supply Japan with 104 million tons of
coking coal, valued roughly at $8 billion (at projected market prices). Some
$390 million in Soviet purchases of Japanese equipment to be used in developing
the reserves will be financed by long-term credits at 6.375%. In addition, the
Soviets will receive shorter term credits at higher interest rates to purchase $60
million worth of Japanese consumer goods.
If Japan is willing to provide the necessary investment funds, the USSR
could provide much larger quantities of coking coal. The Yakutsk coal basin
contains at least 500 million tons of explored reserves of coking coal and billions
of tons of coal suitable for metallurgical use.
Tyumen Crude Oil Pipeline Project
This project originally called for construction of a 48-inch-diameter 4,200-
mile-long pipeline from the Tyumen oil fields in West Siberia to Nakhodka in
the Far East. This line was to carry 500,000 to 800,000 barrels per day for
export to Japan, and possibly to the United States, over a 20-year period. The
cost of the project was estimated at $3 billion. The Soviets requested Japanese
credits of at least $1 billion to purchase the pipe and equipment needed to build
the 2,600-mile section between Irkutsk and Nakhodka. Some US companies
expressed interest in participating in the project.
Japanese interest was based on the assumption that Japan would receive
800,000 barrels per day. However, in September 1973, Soviet officials told the
Japanese that a maximum of 500,000 barrels per day would be available for
export. No reduction in foreign investment in pipeline construction was sug-
gested. Japanese (and US) interest in ,the project therefore waned.
In April 1974, Soviet government leaders proposed that the Japanese help
finance asecond trans-Siberian rail line instead of a pipeline to transport Tyumen
oil to the Far East. The proposed line would pass north of Lake Baikal to
Komosomolsk, whence the oil could be moved to Nakhodka via pipeline. Under
this new proposal the Soviets would supply Japan with 500,000 barrels per day
of crude oil annually for 20 years following the line's completion. In return, the
USSR wants Japan to supply up to $3 billion in loans for construction, railroad,
and pipeline equipment. Although the proposed rail line would provide access
to important deposits of coal, copper, and iron ore, as well as to Tyumen oil,
the Japanese are reluctant to accept the proposal. They object to the extra time
and cost of construction. Whereas the pipeline would be wholly dedicated to oil
transport, the rail line would have many alternative uses for Moscow.
USSR Natural Gas Agreements with Western Europe
To date the USSR has concluded six separate agreements with West Euro-
pean nations for the delivery of natural gas, and by the end of the decade-
when full-scale deliveries for all projects are in effect-will be committed to
deliver a total of 1.8 billion cubic feet of natural gas daily. Various West Euro-
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pean nations have advanced roughly $1.5 billion in long-term loans to finance
Soviet purchases of large-diameter pipe and equipment for natural gas produc-
tion and transmission. The total value of Soviet deliveries, which depends in part
on future world price levels, could well exceed $10 billion.
In 1968 the USSR and Austria concluded an agreement whereby the Soviets
will provide Austria with natural gas during 1969-90. By 1971, deliveries had
already reached their maximum level of 147 million cubic feet per day. As part
of the agreement Austria provided the Soviets-under long-term credits-with
more than $100 million in large-diameter steel pipe. Austria has recently sought
additional deliveries from the USSR but has met with stiff Soviet resistance over
prices and quantities.
A similar but much larger pact was concluded between the USSR and Italy
in 1969. The Soviets agreed to provide a maximum of 580 million cubic feet per
day over a 20-year period. Deliveries actually began earlier this year following
the completion of a natural gas pipeline transiting Austria and are scheduled
to reach maximum levels within a few years. Under the agreement, the Italians
provided the Soviets with $200 million in long-term credits at favorable rates to
finance Soviet purchases of large-diameter pipe and related equipment.
The USSR has concluded two natural gas agreements with West German
firms-the first in 1970 and a second in 1972. Each of the two agreements pro-
vides for deliveries over a 20-year period, with combined daily deliveries peaking
at 675 million cubic feet by the late 1970s. West German banks have advanced
a total of $900 million in long-term credits to finance Soviet imports of 2.4 million
tons of large-diameter pipe and assorted pipeline equipment.
In 1970, Finland concluded a deal for the construction of a Soviet-Finnish
natural gas pipeline and the subsequent purchase of Soviet natural gas over
a 20-year period beginning in 1974. Finland will receive a maximum of 135 million
cubic feet per day by the late 1970s. As part of the agreement, Finland will
provide the USSR with $36 million in large-diameter pipe.
The French were the last to conclude a natural gas agreement with the
Soviets; a 1972 contract calls for deliveries over 20 years beginning in 1976.
By the end of the decade, daily deliveries will reach 240 million cubic feet,
including the gas actually destined for Italy under a swap agreement concluded
between the Italians and the French. In return, the Soviets were granted roughly
$270 million in long-term government-backed credits to finance purchases of
pipe and equipment related to the production and transmission of natural gas.
Soviet Aluminum Industry
The USSR is currently discussing the construction of alumina, aluminum,
and aluminum rolling mill plants with Western firms. The US Kaiser Corporation
signed a science and technology agreement with the Soviet State Committee
for Science and Technology last January and appears to be in the bidding for
the construction of some of the contemplated plants. France's Pechiney Ugine
Kuhlmann is also discussing construction of aluminum production facilities with
the Soviets, although the Western firms apparently are not in competition with
one another.
Soviet imports from the West in support of planned expansion could run well
over $1 billion. The Soviets probably will insist on counter-purchase agreements
covering part of the aluminum and aluminum products produced from these plants
to pay for the expansion and to ensure a continuing source of hard currency
earnings.
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