THE BREZHNEV FOOD PROGRAM
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CIA-RDP83T00853R000100140002-9
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C
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Document Creation Date:
December 21, 2016
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September 2, 2008
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Publication Date:
September 1, 1982
Content Type:
REPORT
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Directorate of
Intelligence
1
Confidential
The Brezhnev Food Program
State Dept. review
completed
DEPT. OF AGRICULTURE
DECLASSIFICATION AND
RELEASE INSTRUCTIONS ON FILE
Confidential
SOV 82-10130
September 1982
487
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Brezhnev Food Program, SOV 82-10130, September 1982,
Notice to recipients of CIA Intelligence Assessment The
The final sentence of the second paragraph on page 7
should read:
This new investment strategy addresses many
of the complaints long made by critics of the
"agricultural lobby" and therefore probably
commands stronger support within the leadership
than the previous investment policy.
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Directorate of Confidential
Intelligence
The Brezhnev Food Program
Division, SOVA
may be directed to the Chief. Soviet Economy
Policy Analysis Division, Office of Soviet
oviet Economy Divisio
Confidential
SOV 82-10130
September 1982
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We think the production goals of the Food Program are untenable both be-
cause of the political and bureaucratic conflicts inherent in the program
and because of its failure to come to grips with more fundamental 25X1
problems. These include linking rewards to performance, giving farms
more freedom to make production decisions, and instituting a price system
that would elicit the right mix and volume of farm output and inputs.
The Brezhnev Food Program
Key Judgments President Brezhnev has unveiled an agriculture-related program for the
Information available 1980s that (1) reorganizes the management of food production from the soil
as oil August 1982 to the seller's counter, (2) redirects investment resources between the farm
was used in this report.
sector and its supporting industries, (3) revises incentives for farm workers
and managers, and (4) lists new targets for output of key agricultural
commodities and for allocations of inputs. The program reflects the
leadership's concern over lagging farm output and represents a renewed
political commitment to improve the Soviet diet. A key goal of the program
is to reduce dependence on imported farm products. 25X1
Except for its organizational aspects, the program is essentially a continua-
tion of past policies. Soviet leaders are relying on:
? A reorganization whose effectiveness is likely to be undermined by
bureaucratic confusion and conflict.
? An investment program that will require large allocations of resources
and substantial leadtime.
? An increase in monetary incentives and price support subsidies that will
raise the cost of, and demand for, food products but will do little or
nothing to stimulate production.
? Large increases in factor productivity to meet output targets for agricul-
LOA!
The most promising aspect of the Food Program, as currently designed, is
the increased investment in transportation and storage facilities, which
could reduce losses substantially. However, this is a long-term feature that
cannot bear results until the late 1980s, and then only if the political
commitment to the program is sustained-a doubtful prospect. Already
there are signs of controversy in the Soviet press over the organizational as-
pect of the Food Program, and its implementation appears to be encounter-
ing difficulties. The marked difference in the way Soviet leaders, including
leading succession candidates, have treated organizational matters since
iii Confidential
SOV 82-10130
September 1982
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the Program's unveiling suggests that support for the reorganization is thin
and that it may become both a vehicle for, and a victim of, succession ma-
neuvering.
We believe that Soviet economic growth will continue to decline and that
the Food Program will fail to provide material relief from shortages. The
regime probably will be forced to continue to import food-how much
depends on the size of food production shortfalls, the degree to which waste
and losses of farm products can be reduced, the availability of hard
currency, port and transportation capacity, and the magnitude of per
capita consumption gains the regime feels obligated to support.
Failure of the Food Program could also heighten Soviet interest in buying
Western agricultural equipment and technology. Recent statements by
Soviet diplomats indicating interest in Western agricultural technology
suggest that at least some Soviet policymakers are anticipating very slow
improvements in agricultural technology from domestic sources. Despite
any benefits that may accrue from the Food Program, we expect that
supporting the nation's need for farm products will continue to be an
extremely high cost operation, absorbing very large shares of the country's
labor force, investment resources, and foreign exchange.
Confidential iv
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Reorganizing the "Agro-Industrial Complex" 2
Will the Food Program Work? 8
Implications for the 1980s 13
1. USSR: Organizational Structure of the "Agro-Industrial Complex" 4
as Outlined in the Food Program
2. Administration of the Talsinskiy RAPO in Latvia
3. USSR: State Outlays for Procurement and Processing of 13
Selected Livestock Products
1. Annual Average Production of Selected Agricultural Commodities 3
2. Output, Inputs, and Combined Factor Productivity in Agriculture 10
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Because food constitutes nearly half of the outlays of Soviet households on
consumer goods and services, the quality of the diet has always been a cri-
terion by which the Soviet population judges its well-being. Accordingly,
upgrading the Soviet diet has been a centerpiece of Brezhnev's consumer
welfare policy. And, indeed, much progress was made in the 1960s and
early 1970s. Since the late 1970s, however, little improvement has
occurred, and even this small gain has depended on massive imports of
farm products costing $26 billion in hard currency in the period 1979-81.
Despite these outlays, the per capita availability of meat has stagnated and
that of dairy products has declined.
To stave off a possible rising tide of discontent and falling productivity
among the work force, Moscow has launched a major new program for the
1980s to improve the production, processing, and marketing of food
products. In past campaigns to boost food availability, the focus has been
on production at the farm level. The inclusion of stages in the food chain
beyond the "farm gate" reflects official concern over the prodigious losses
of perishable foods as well as the low quality of much of the food that final-
ly reaches the consumer. The new campaign to upgrade the entire food
production and distribution process is referred to in the Soviet press as the
Food Program. This intelligence assessment details the key elements of
that program and assesses its viability and political and economic implica-
tions in the coming decade.
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The Brezhnev Food Program
President Brezhnev's longstanding commitment to
improving the Soviet diet received new impetus with
the inauguration of a major agricultural program for
the 1980s at the Central Committee plenum on
24 May 1982. First announced by Brezhnev in Octo-
ber 1980, the new Food Program seeks to improve the
integration of the entire chain of food production-
from farm, through factory, to distribution. Brezhnev
emphasized that the entire "agro-industrial complex
must be planned, financed, and managed as a single
whole."
Although controversy over this program abounds, as
indicated by the year and a half of bureaucratic
wrangling over its preparation, its appearance at this
time reflects the growing pressure on Moscow to do
something in the face of three consecutive years of
harvest shortfalls, worsening food shortages, disgrun-
tled consumers, and rising food import bills. Accord-
ingly, the stated purpose of the Food Program is to
reduce the USSR's dependence on imports of farm
products and to close the growing gap between domes-
tic supply and demand for food.'
Debate over the organizational form of the program
and general foot-dragging by the ministries involved
prevented its unveiling in March 1981 when-the 11th
Five-Year Plan (1981-85) was presented. At that time
Brezhnev acknowledged that work had only just
begun. The program drafters reportedly missed sever-
al completion deadlines in the summer and fall of
1981 because of continued unresolved differences.
Even in the final weeks before the Central Committee
was due to consider the program in late May, Soviet
officials were saying privately that the organizational
aspects of the program were still being debated. The
repeated delays in launching the program could only
' The contribution of imports to the supply of farm products has
more than doubled since 1978-rising from 5 percent to over 12
percent in 1981. Purchases during this period have included over
100 million tons of grain and about 2.5 million tons of meat and
have cost the USSR about $26 billion in hard currency alone.F_
have been a source of growing political embarrass-
ment for Brezhnev, and in the end he may have
pushed to have the program unveiled even though
many unresolved questions remain.
Key Features of the Food Program
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The Brezhnev Food Program includes three key meas-
ures aimed at improving food production and
distribution:
? A reorganization of the administrative structure to
promote "unified management" of farms, food-
processing enterprises, transport organizations, and
the trade network.
? An investment program to improve the system for
handling, storing, and processing food and to im-
prove housing and living conditions in the
countryside.
? An increase in financial incentives in the form of
higher wages, bonuses, and farm incomes to foster
higher output and retention of younger better edu-
cated workers on farms. 25X1
These three elements are designed to combat what
Brezhnev listed as the major problems with Soviet
food supplies:
? Although the population receives enough calories,
the Soviet diet is inferior to that of other industrial-
ized societies, including Eastern Europe, in terms of
quality, variety, and nutritional balance.
? Growth in the population's disposable money in-
come together with the official policy of maintain-
ing stable retail prices has caused demand for food
to run well ahead of supply. Expansion of the urban
population and increasing reliance of the rural
population on state-provided food have put further
pressure on the socialized farm sector.
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? Very large losses of farm produce between the field
and the retail outlet reflect the lack of incentives
and poor coordination among the various organiza-
tions involved in food production. According to
Soviet press reports, crop waste and losses during
and after harvest amount to 20 percent of total
output annually.
? Low rural living standards make it difficult to
attract and keep young workers on farms. Increas-
ingly, the Soviet agricultural labor force is made up
of older, less productive workers as young, better
educated adults migrate to the cities.
In addition to endorsing the measures outlined above,
the Central Committee plenum in May approved a
series of ambitious production targets for the Food
Program in the 1981-90 period. The production goals
imply that average annual growth in farm output
during the 1980s would have to return to the long-
term rate achieved during 1951-70-about 4 percent
per year. Growth in the 1970s averaged less than
1 percent per year.'
The largest planned increases in output during the
1980s are those for fruits, vegetables, meat, and
eggs-most of which were cited by Brezhnev as being
especially needed to improve the quality of the con-
sumer diet. The grain goal is also relatively ambitious,
as it must support large increases planned in livestock
inventories and products. Table 1 summarizes the
goals for the two five-year plan periods in the 1980s as
presented in various Food Program documents.' C
Although growth in output during the 1980s is slated
to return to the levels of the 1951-70 period, annual
increases in plant and equipment and growth in labor
2 Average annual rates of growth were derived by incorporating
Soviet plan data for agricultural commodities into the CIA index of
Soviet agricultural production. Growth rates planned for the 1980s
are high by world standards. According to US Department of
Agriculture statistics, net farm output in the United States in-
creased by 1 percent per year during the 1960s and by 1.9 percent
per year during the 1970s. Indexes prepared by the Food and
Agriculture Organization of the United Nations show that world
net farm output grew at an average annual rate of 14 percent in
' Documents published thus far explaining the Food, Program
include Brezhnev's report to the 24 May plenum, a "Summary" of
the Food Program as approved by the plenum, and six party-
and material inputs will be well below earlier rates.
Our estimates indicate that growth in combined in-
puts will average less than 1 percent per year during
the 1980s. Although this represents some improve-
ment over recent very low rates of growth, it is well
below growth posted in the 1970s as a whole. The
output targets, therefore, imply a substantial growth
in productivity.
Reorganizing the "Agro-Industrial Complex"
Traditionally in Soviet usage, the "agro-industrial
complex" consists of the Ministry of Agriculture;
ministries providing goods and services to agriculture
such as fertilizer, pesticides, machinery, mixed feed,
repair services, roads, storage, and transportation
facilities; the Ministry of Procurement; and ministries
managing the food-processing industries. For purposes
of the reorganization, however, Soviet officials have
defined the "agro-industrial complex" more narrowly
to exclude ministries producing fertilizer and machin-
ery for farms, food-processing enterprises, and mixed 25X1
feed plants.'
As the centerpiece of the Food Program, the plenum
approved the creation of agricultural-industrial coor-
dinating bodies at the national and regional levels (see
figure 1). Although severely watered down from earli-
er proposals, the decision reflects a move in the
direction of interbranch program management long
urged by leading Soviet economists and by Brezhnev.
The reorganization brings some components of the
"agro-industrial complex" together under a single
administrative hierarchy that is responsible for coor- 25X1
dinating the entire food production process from farm
to retail outlet. 25X1
Soviet ministries producing machinery for food production and the
USSR Ministry of. Production of Mineral Fertilizers are not
represented on the new commission even though proponents of the
"agro-industrial complex" concept had urged that they be repre-
sented. According to the first deputy chairman of Gosplan, indus-
tries producing machinery and equipment for agriculture and food
processing are included in the Administration for the Complex
Planning of Machine Building. Producers of chemical inputs to
agriculture are in the Administration for the Complex Planning of
the Raw Materials Branches of Industry and Construction Materi-
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Table 1
Annual Average Production of Selected Agricultural Commodities
Vegetables
23.0
Fruits, berries, and grapes
12.4
Cotton
7.7
Meat
14.0
Milk
87.4
Eggs (billion)
51.4
Net farm output b
(average annual rate of growth in percent)
-0.4
a Midpoints of ranges given in plan documents.
b In calculating growth rates, midpoints of given ranges were used.
Net domestic farm output is the sum of net output of crops and
livestock valued in 1970 average realized prices.
Million metric tons
(except where noted)
96.5 88.7 101.5 102.5
7.6 5.3 6.7 7.4
15.3
14.8
17.2
20.2
95.0
92.7
98.0
105.0
59.5
63.1
72.0
78.5
3.4
1.2
5
3
At the national level, the Presidium of the USSR
Council of Ministers will have a Commission for
Questions of the Agro-Industrial Complex made up of
the heads of the various organizations included.
Z. N. Nuriyev, the deputy chairman of the USSR
Council of Ministers who has supervised the agro-
industrial sector for years with little distinction, will
head the commission. This group does not seem to be
a supraministerial organization that the ministries
need fear. It appears to have no management func-
tions, nor will it encroach on Gosplan's planning
functions. Nuriyev, for example, will have no control
over the budgets of the ministries involved in the Food
Program. The commission will "coordinate" the activ-
ity of the organizations; "monitor" plan fulfillment
for state purchases of farm products, deliveries of
industrially produced inputs, and the output of proc-
essed food; and conduct "preliminary examinations"
of plans prepared by Gosplan. The power to carry out
even these functions is still undefined. The ultimate
power of the commission will depend on the extent to
which its decisions are binding on the ministries and
whether it is able to mediate disputes between them-
powers that have made a similar interbranch coordi-
nating body, the Military-Industrial Commission, tru-
ly effective.
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Union republics will have corresponding commissions.
The failure of the plenum to specify the powers of
these commissions indicates that their functions have
yet to be agreed upon. 25X1
At the oblast, kray, and autonomous republic level,
there will be councils of agro-industrial associations.
They will monitor plan fulfillment and have the
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Figure 1
Organizational Structure of the "Agro-Industrial Complex"
as Outlined in the Food Program
All-Union Level Commission Presidium of the USSR
Council of Ministers
Commission for Questions
of the Agro-Industrial Complex
Union Republic Level Presidiums of Union Republic
(15 Commissions) Councils of Ministers
Union Republic Commissions Union republic counterparts of all-union ministries and
for Questions of the committees
Agro-Industrial Complex
Oblast, Kray, Autonomous Oblast, Kray, Autonomous Local organizations belonging to the ministries and state
Republic Level Republic Councils of committees, included in the "agro-industrial complex"
(157 Councils)a Agro-Industrial Associations
Rayon Level Rayon Agro-Industrial
(3,118 RAPOs) Associations .
USSR Minister of Agriculture
USSR Minister of Fruit and Vegetable Farming
USSR Minister of Procurement
USSR Minister of the Meat and Dairy Industry
USSR Minister of the Food Industry
USSR Minister of Land Reclamation and Water Resources
USSR Minister of Rural Construction
Chairman, USSR State Committee for the Supply of Production
Equipment for Agriculture
Chairman, USSR State Committee for Forestry
Chief, USSR Council of Ministers Main Administration of the
Microbiological Industry
First deputy chairman, USSR State Committee for
Material-Technical Supply
First deputy chairman, State Planning Committee
Farms
Agricultural research organizations
Food-processing plants
Storage and transportation facilities
Mixed feed plants
Construction organizations
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authority to pool resources and redistribute them
among members of the agro-industrial complex, as
long as union republic ministries and departments
agree. Councils at this level can also create interfarm
enterprises to produce mixed feed, construction mate-
rials, production equipment, and consumer goods. F_
The Special Position of the RAPO. The reorganiza-
tion carried out at the district (rayon) level is the most
significant and controversial aspect of the structural
changes. The "rayon agro-industrial association"
(RAPO)-an innovative form of administration that
has been operating for a number of years on an
experimental basis in Estonia, Latvia, and Georgia-
is now to be adopted nationwide.' RAPOs are self-
financing associations that include as members all
farms, agricultural service agencies, and processing
enterprises in a given district. As such, they cut across
ministerial lines, concentrating authority at the local
level (figure 2).6
The most striking characteristic of the RAPOs is that
they are organized on a local territorial basis and
theoretically have authority to distribute and redis-
tribute resources within their regions-potentially
modifying decisions made at higher levels. According
to press reports, the experimental RAPOs in Estonia,
' The first experimental rayon agro-industrial association was
formed in Vilyandiy Rayon in Estonia in late 1975. The reorganiza-
tion converted the existing rayon agricultural administration (the
local branch of the Ministry of Agriculture), into a self-financing
association with management authority over the entire food produc-
tion activity in the district. The Vilyandiy Rayon association
includes all 12 sovkhozes and 16 kolkhozes in the district, with a
total of 357,600 hectares, as well as the district branch of the state
committee for the supply of equipment to agriculture, the kolkhoz
construction association, a dairy combine, a meat-packing combine,
and a grain milling enterprise. A similar association with a broader
membership was launched in the Talsinskiy Rayon in Latvia the
following year and in the Georgian Abashskiy Rayon in 1977.
Fourteen more rayons in Georgia were converted to the new system
in early 1981. By the end of the year most of the districts in all
three republics had gone over to the system and their leaders had
begun to press hard for approval from Moscow for the next stage-
the establishment of comparable republic-level coordinating bodies.
Georgia was given the go-ahead in January. Also in early 1982 a
few RAPOs were beginning to operate in some regions of the
6 The governing body of the RAPO, known as the Rayon Associa-
tion Council, is made up of a chairman (who also is the first deputy
chairman of the rayon executive committee) and, as members, the
local collective farm chairmen, state farm directors, representatives
of the local party organizations, and leaders of other enterprises in
the RAPO as determined by the rayon Soviet of Peoples Deputies,
Latvia, and Georgia have been successful in allocating
and organizing existing resources in the rayon and in
resolving local-level conflicts and problems. Judging
by the plenum resolutions, the RAPOs to be estab-
lished nationwide are to function much as the experi-
mental ones have. RAPOs will be able to allocate
credit, investment, and other inputs among farms;
work out plans for farm output based on "specified
control figures"; establish intra-association prices for
services and intermediate products; develop long-term
plans for specialization and distribution of agricultur-
al output and processing; and create centralized funds
for a broad spectrum of purposes.
Such a wide-ranging mandate, in our view, will 25X1
inevitably produce conflict between the RAPOs and
ministries to whom the individual farms and enter-
prises within the RAPO will also be subordinate. We
believe that this dual subordination will prove to be
the most serious obstacle facing the RAPOs and is the
lever that factions opposed to the reorganization-
notably the Council of Ministers-could use to scuttle
the whole program.
Political Underpinnings. Approval of the RAPO
concept seems primarily due to the lobbying efforts of
Georgian party boss Eduard Shevardnadze and to the
backing of key party officials in Moscow-agriculture
Secretary Mikhail Gorbachev, party Secretary Kon-
stantin Chernenko, and Brezhnev himself. I11 the
summer of 1980, Shevardnadze publicly thanked Gor-
bachev for his interest in the RAPO experiment.
Chernenko, however, has taken the most active public
role in promoting the reorganization. He probably
seized on the issue as a way of increasing his support
among regional party officials, who generally favor
any move toward decentralization of authority. In a
combative speech at a party gathering in Siberia
following the plenum, Chernenko lauded the reorgani-
zation as a way of overcoming ministerial departmen-
President Brezhnev appears to have pushed for the
RAPO concept rather late in the game. His speech to
the Central Committee plenum in November 1981
contained the first intimation that he viewed the
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Figure 2
Administration of the Talsinskiy RAPO in Latvia
Rayon Agro-Industrial
Association
organizations
a Some farms specialize in producing seed.
b These are organized for a variety of purposes, such as production of
building materials, construction-installation work, processing of agricultural
output, breeding livestock, and operating rest homes and sanatoriums.
clncludes seed breeding, experimental farms, and so forth.
RAPO as the bottom layer of a tiered organizational
package-the local counterpart of a national-level
interagency body. The RAPO was given a big boost in
March 1982 when the Presidium of the Supreme
Soviet heard a report from the heads of two experi-
mental RAPOs in Georgia and Latvia and endorsed
their experiments as a promising form of local man-
agement. This approval by Brezhnev's legislative ap-
paratus had the effect of preempting any critical
review by the USSR Council of Ministers-where
opposition to the RAPOs was greatest-and strongly
indicated that the RAPOs would be part of the Food
Program when it finally appeared.
Redirecting Investment Resources
As in 1970 and 1978, Brezhnev has succeeded in
gaining Central Committee approval of agriculture's
share of total investments well in advance of the next
plan period, leaving other civilian claimants to fight
over the remaining pieces of the investment pie. The
1981-85 Plan allocates 33 to 35 percent of new fixed
investment to the "agro-industrial complex," and the
Brezhnev Food Program claims the same share of
investment for 1986-90. For purposes of allocating
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investment resources, Soviet planners have adopted
the broad definition of the "agro-industrial complex."
Investment totals appear to include allocations for
those industries excluded from the definition used for
the reorganization.
The policy over the past 15 years of pouring money
into agriculture has been a controversial one. It has
depended on Brezhnev's strong political backing and
thus may be one of the first policies to come under
review after his departure. During the 1980s, howev-
er, investment resources are to be distributed some-
what differently than in the past to build up what
Moscow considers the weak links in the food produc-
tion chain. This new investment strategy addresses
many of the complaints long made by the "agricultur-
al lobby" and therefore probably commands stronger
support within the leadership than the previous invest-
ment policy.
Industries Producing Inputs for Food-Related
Acitivities. According to party Secretary Gorbachev,
investment in sectors producing machinery and equip-
ment for agriculture and food processing will have
high priority.' While capital investment in the entire
"agro-industrial complex" will increase by 30 percent
during the 1980s, investment in facilities to produce
tractors, animal husbandry equipment, and other
agricultural machinery will more than double. Invest-
ment in industries producing machinery for food
processing will triple. In addition, expanded invest-
ments in the chemical industry are targeted to im-
prove the quality of fertilizer delivered to agriculture.
Agriculture. Average annual investment in farm
equipment, buildings, and land reclamation projects
in 1981-85 will increase by only 5 percent over
1976-80. This small boost appears inconsistent with
the goal of doubling investments in production facili-
ties. Apparently, this reflects the lag between con-
struction of new plant and equipment for production
of farm-related machinery and actual expansion of
shipments of new machinery from these new facilities.
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Outlays on social overhead projects such as housing
and roads for farm communities, however, will rise by
5X
L
I
A larger proportion of "productive" investment than
in the past is to be devoted to on-farm food-processing
and storage facilities to reduce losses of perishable
products. Other top-priority investments include out-
lays for machinery for providing livestock feed and
labor-saving machinery. Many of the planned projects
appear to have little potential for raising crop yields.
25X1
The heavy emphasis on investment in rural infrastruc-
ture reflects Moscow's desire to improve farm-to-
market transportation and stem the flow of younger
workers to urban areas. Accordingly, 176 million
square meters of rural housing are scheduled to be
built in 1981-85 and 205 million in 1986-90 compared
with 149 million actually built in 1976-80. This large
increase comes at the expense of urban housing, as
total housing construction is not slated to increase. As
in the past, large increases are planned in the provi-
sion of consumer services and in health care facilities.
25X1
In our judgment, the chief benefit from enhanced
rural investment will come from expanding the rural
road system, which is essential to reducing very large
losses in transportation. Although performance in 25X1
fulfilling plans for roadbuilding is poor, Moscow
intends in 1981-85 to commission 54,000 kilometers
of general purpose roads linking farm centers with
rayon centers and 57,000 kilometers of hard-surfaced
on-farm roads.' The 1986-90 targets are to be 40 to 60
percent higher. 25X1
Funds for other farm-sector investments are to remain
at current levels or be reduced to support investment
in priority areas. Soviet plan documents indicate that
new starts in land reclamation projects (irrigation and
drainage) will be fewer in number in the 1980s. They
'A total of 57,000 kilometers of new on-farm roads is an average of
only 1.2 kilometers for each of the 47,000 state and collective
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will, however, continue to claim about one quarter of
total investment as the campaign continues to bring
on stream the large, expensive projects started in the
1970s.
According to a Soviet periodical, capital investment in
new facilities for raising livestock and poultry in
1981-85 will be only 80 percent of the 1976-80 level.
To save money, outlays for reequipping and recon-
structing existing enterprises are being increased.C
Food-Processing and Transportation Facilities. A
major investment goal of the Food Program is to
upgrade capital stock in food processing, long a low-
priority claimant on resources. According to Gorba-
chev, the number of processing enterprises, including
well-equipped storage facilities, will be increased and
located near farms to minimize transportation costs.
To reduce shipping losses, supplies of refrigerator
trucks, milk tankers, cattle trailers, and other special-
ized transportation equipment are to be increased.C
Increasing Financial Incentives
In addition to larger investment in rural housing and
other facilities, the Food Program contains other
measures to keep the agricultural labor force in place
and to attract well-trained technicians to farm jobs.
To this end, the program calls for a further reduction
in urban-rural income differences. Farm wages will
continue to increase faster than those of other work-
ers.' Managers, professionals, semiprofessionals, and
livestock workers are to receive additional pay raises
and bonuses.
The Food Program stipulates that agricultural work-
ers will receive a larger share of their wages in
products, primarily grain, fruit, and vegetables. We
believe that Moscow is reemphasizing payments in
According to our estimates, average agricultural incomes (includ-
ing income in kind) in 1950 were roughly half of average nonagri-
cultural incomes. By 1977 this share had risen to over 80 percent.
This implied closing of the "income gap" to a point comparable to
the rural-urban differential existing in developed societies in the
West is somewhat misleading. Compared with urban centers, rural
areas have poor transportation and housing; inadequate health,
education, and entertainment facilities; and a skimpy supply of
consumer goods. Therefore, a "quality of life" index that reflected
both household incomes and the availability of goods and services
would show a spread of much more than 20 percent between farm
and nonfarm residents. In addition, this difference would be much
larger than those that exist in the developed West.
kind in order to encourage livestock raising by private
producers and to reduce demand in state retail food
stores. Moscow apparently recognizes that payments
in the form of scarce or expensive food products often
provide greater incentives than money payments that
cannot be spent on the goods and services that the
population wants.
New graduates in the fields of agronomy and animal
husbandry will receive three years of free housing
upon accepting a farm job. In addition, 50 percent of
the passenger cars and 30 percent of the motorcycles
designated for sale in rural areas are to be earmarked
for priority sale to young professionals with agricul-
tural training.
To raise farm income and production, higher procure-
ment prices for cattle, hogs, milk, grain, sugar beets,
potatoes, vegetables, and "other products" will go into
effect on 1 January 1983. At the same time, prices
paid by farms for equipment, fertilizer, and fuel will 25X1
be lowered. The financial position of farms will also
be improved by grants from the state budget to
finance investment projects and by writeoffs and
deferments of farm debt. In July, V. Garbuzov, the
Minister of Finance, wrote that approximately 10
percent of the 112 billion rubles of farm debt will be
written off and another 10 percent will be deferred.1?
Some additional cash grants will be earmarked for
bailing out farms now operating at a loss.
Will the Food Program Work?
Although Soviet officials have said that Moscow
expects positive results from the Food Program within
two or three years, we judge this expectation as highly
unrealistic. Too much planning remains to be done
before the program gets off the ground, let alone
shows results. The detailed instructions and regula-
tions needed to reorganize the agro-industrial complex
have not yet been formulated. Moreover, the structure
and authority of key organizational bodies at the
regional and republic level have not been clarified.
? Finansy, No. 7, 1982, p. 11. A debt of 112 billion rubles is over 25X1
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There is continuing disagreement over what their
functions should be. The investment program will
take time to implement-especially because the origi-
nal plans for 1981-85 have already been set in
motion-and even more time to add substantially to
the stock of plant and equipment. Financial incentives
will have little impact without a concomitant increase
in consumer goods and services, which, in turn, will be
slow to materialize. In short, the Food Program is a
long-term bet-one for the late 1980s and early
1990s-rather than a quick fix for the next few years.
Even in the long run, however, the Food Program
stands small chance of achieving its central goals:
(a) to reduce the USSR's dependence on imports of
foodstuffs and (b) to close the widening gap between
domestic supply and demand for food. First of all, the
reorganization is likely to be plagued by political and
bureaucratic conflict that will inhibit its effectiveness.
Second, the goals for output of farm products are
inconsistent with the targets for resource inputs,
implying inordinately heavy reliance on gains in pro-
ductivity. Finally, the program fails to come to grips
with one of the major shortcomings of the economic
system-administratively set prices that bear no re-
semblance to resource costs-a shortcoming that will
tend to erode the potential gains from higher wages,
bonuses, or investment resources.
Potential for Jurisdictional Conflict
Competition between the central ministries and the
territorial organizations for authority over food pro-
duction may lead in many places to a reorganization
in name only and will almost certainly weaken the
effectiveness of RAPOs in operation. They will not
work equally well everywhere. Success depends heavi-
ly on the ability of management at the local level. We
think that the experimental RAPOs have succeeded
largely because of the enthusiastic backing of republic
officials, talented management, and favorable eco-
nomic conditions-characteristics that are not wide-
spread in the USSR.
The ministries have strongly opposed the territorial
approach to agro-industrial integration. Since Brezh-
nev scrapped the regional economic councils (sovnark-
hozy) in 1964 and restored the central ministries, the
latter have jealously guarded their rights to plan and
administer capital investment and to distribute mate-
rial supplies against the claims of regional authorities.
The influence of the ministries is reflected in the
diluted nature of the authority of the RAPOs as
described in the plenum resolutions. For example,
while RAPOs were given full authority over plans for
farms, they can only "examine" the plans of other
member enterprises and organizations that play a
crucial role in providing the RAPO with inputs and
services. RAPOs have wide discretion in allocating
inputs among farms, but can reallocate only 10 to 15
percent of the resources of other member enterprises
and then only with the latter's consent. We believe
that these restrictions will limit the effectiveness of
the RAPOs in coordinating all phases of the food
production process. RAPOs will have particular diffi-
culty in extracting emergency supplies from, or reme-
dying late deliveries by, ministerial-level organiza-
tions. Because of dual subordination (to the ministries
and to the RAPOs), individual farms and enterprises
within the RAPO will have to carry out directions
from their parent ministries that may well conflict
with RAPO plans. Restraints on RAPO authority are
shown below:
To determine plans for output ... on the basis of specified
control figures.
To redistribute 10 to 15 percent ... with their consent.
of material resources between
RAPO enterprises
To establish prices ... on the basis of standard
norms.
To redistribute capital invest- ... by agreement with higher
ment within the RAPO departmental organs.
To create centralized funds ... ... on the basis of the relevant
and determine their use normative documents.
We expect the implementation of the RAPO concept
to be delayed considerably, and the concept may be
further watered down if not scrapped altogether. A
special commission which was established to draft
legislation further defining the powers of the regional
agro-industrial bodies as well as the coordinating
commission at the national level has completed its
work, according to a longtime Yugoslav correspond-
ent in Moscow. But the various ministries affected are
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reportedly irate over the results and are arguing that
the proposed legislation gives regional organs exces-
sive powers at their expense. The draft legislation is to
be approved by the USSR Supreme Soviet, and
continued debate on the question may account for the
failure to hold the usual summer session of the
Supreme Soviet this year.
Many Soviet economists who originally supported the
RAPO experiment as a mechanism for introducing
economic reforms into Soviet agriculture are also
beginning to have second thoughts. Although they
once believed the RAPOs would force a relaxation in
centrally set prices and planned procurements, in
recent newspaper and journal articles they have begun
to warn that unless the RAPOs and republic-level
bodies are given wide discretion in making investment
decisions, they will become just additional bureau-
cratic layers. Already, Embassy conversations with
local officials indicate that the scheme is being met
with bewilderment, apathy, or outright hostility in
some places. In communities where there is little
commitment to making the system work, local offi-
cials, when faced with conflicts or problems, almost
certainly will revert to old ways of administration.
Production Goals Will Not Be Met
Our estimates, shown in table 2, indicate that output
targets are overly ambitious, given planned growth of
inputs and past trends in productivity growth. To
achieve production goals for the 1980s would require
productivity gains well above those posted in the
1950s."
The productivity gains implied by the Food Program
goals will not materialize, in our judgment, in part
because the actual benefits from key measures in the
program will fall far short of potential. For example,
the RAPOs theoretically could reduce losses through
a more rational distribution of machinery, fertilizer,
seed, and the like among farms. By trying to appease
territorial interest groups without offending central
ministerial organizations, however, the organizational
Table 2
Output, Inputs, and Combined Factor
Productivity in Agriculture
(average annual rates of growth)
Net Farm
Output a
Combined
Inputs b
Factor
Productivity b
1951-60
4.6
2.6
2.0
1961-70
3.0
2.0
1.0
1971-75
1.6
2.1
-0.5
1976-80
0.2
0.6
-0.4
1981-85 plan
4.7
0.9
3.8 c
1986-90 plan
3.1
0.7
2.4
a In order to dampen the effect of wide cyclical swings in year-to-
year output, average annual rates of growth were computed by
relating the three-year average for the terminal year to the three-
year average for the initial year, except for the plan periods. Data are
from the CIA index of net agricultural production.
b Includes labor, fixed capital (buildings, structures, and machinery
and equipment), land, materials purchased from outside agriculture
(fuels and lubricants, electric power, fertilizer, some processed feeds,
and current repair of machinery and buildings), and livestock herds.
The several inputs are aggregated into a geometric production
function of the Cobb-Douglas type in which each input is weighted
by its relative contribution to total output (as estimated by its share
of the value of agricultural output).
c Growth of factor productivity r'quired to meet output goals, given
planned allocations of inputs.
features of the food program are likely to result in
much bureaucratic infighting with few gains for 25X1
agriculture.
In addition, incentives to boost worker productivity
are simply too little and too late. More money chasing
the same quantity (and quality) of goods and services
is no incentive for better performance. Although some
of the wage and bonus increases are to be in the form
of farm products, the amounts involved are relatively
small and dependent on overfulfillment of ambitious
plans. If the past is any guide, routine boosting of
wages will not provide the incentives necessary to
achieve the called-for productivity gains. Despite a
50-percent increase in the income of farm workers
between 1970 and 1981, for example, rates of growth
of labor productivity continued to decline. The key to
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meaningful wage increases is to link them to perform-
ance, but, according to the Food Program, relatively
few agricultural workers will be covered by wage
systems of this kind.
Finally, the investment program for the agro-industri-
al complex may not be funded fully, compounding the
problem of too few inputs to meet output goals.
Annual increments to the country's total investment
resources are declining at the same time that needs
for new investment are rising throughout the econo-
my. Thus, the Food Program's claim on investment
may be whittled down later in the decade when
problems in other sectors of the economy become
more pressing. At a minimum, squabbles among the
whole range of economic ministries (as well as the
conflicts we expect between the branch ministries and
the territorial agro-industrial organs) are likely to
result in lengthy delays and fragmentation of invest-
ment projects.
We believe that industries supporting agriculture with
machinery and equipment probably stand the best
chance of receiving their planned investment alloca-
tions because they are part of the heavy industrial
sector. Less certain are the investment plans for
development of the rural areas. Past initiatives to
increase investment in rural infrastructure have tend-
ed to peter out when planners have had to turn to
more immediate problems caused by production
shortfalls. Rural-urban disparities in living conditions,
therefore, are unlikely to narrow quickly, suggesting
that the outmigration of younger, more able rural
workers will continue."
Nonetheless, the state of Soviet rural communities is
so backward that almost any increased investment in
this area will have some positive long-run impact. For
example, urban housing generally comes equipped
with electricity, indoor plumbing, hot water, and
central heat, while in rural areas the typical privately
owned one-story wooden home has electricity but
lacks indoor plumbing and central heat. According to
Soviet statistics, in the Russian Republic in 1980, for
" Between 1970 and 1980, the rural population declined by 7.4
million. Soviet census data show, moreover, that young adults
example, only 22 percent of the rural state housing
was connected with sewer lines, and only 26 percent
had central heat. In addition, the very poor system of
rural roads makes timely marketing of farm produce
both difficult and expensive. Less than 20 percent of
farms have hard-surfaced roads." Most rural roads,
furthermore, are impassable for much of the year. F_
In addition to the uncertainties in the Food Program's
specific measures, we believe that planned production
increments will not be forthcoming in part because
improvements in farm-related technology are occur-
ring too slowly. Improvement in on-farm technology is
needed not only to raise yields but also to soften the
impact of weather fluctuations-a primary factor
determining year-to-year crop sizes in the USSR. But
the Soviets lag behind the West across the board in
the use of modern crop varieties, in the effectiveness
of pest control, and in the application of efficient 25X1
tillage, irrigation, and harvesting techniques. The
Food Program explicitly calls for a 12- to 15-percent
increase in crop output per unit of "chemical input."
In the case of grain, for example, each ton of fertilizer
yields 1 to 1.2 tons of grain. With present technology,
this response rate will drop as additional fertilizer is
used. To meet plans for raising response rates, dimin-
ishing returns to additional fertilizer use must be
more than offset by technical improvements such as
better quality fertilizer and more sophisticated fertil-
izer application equipment and techniques. We esti-
mate that past rates of technological improvement are
likely to continue, with the result that Soviet farmers
will find it difficult even to maintain response rates at
present levels. In addition, targets set by the Food
Program for increasing returns to livestock feed are
not likely to be met.
25X1
Indeed, adverse weather conditions have already jeop-
ardized the farm output targets for 1981-85. Because
of the poor crop year in 1981, growth in net farm
output would have to average over 6 percent per year
in 1982-85 to meet plan goals. The Soviet agricultural
sector has not been able to sustain a growth rate this
high since the late 1950s when growth in output was
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spurred by a 20-percent increase in sown area. Anoth-
er poor year in 1982, as now seems likely, would push
the growth rate required to meet 1985 targets even
higher.
Price System Inhibits Success
Perhaps the greatest impediment to success of the
Food Program is the Soviet price system, which
encourages the wrong mix and volume of both farm
output and inputs. Prices paid for agricultural inputs
and farm output do not reflect relative resource costs
and therefore cannot provide adequate signals and
incentives for efficient use of the resources committed
to agriculture and the sectors supporting it." The
Food Program does not come to grips with this
problem. Although some decentralization (such as the
RAPO concept) is needed to relate rewards to per-
formance, giving greater decisionmaking autonomy to
the farms (or the RAPOs) will be ineffective until the
USSR finds a way of establishing (and changing)
prices that will reflect relative resource costs and elicit
the production responses that satisfy the goals of the
Soviet leadership.
Procurement Prices. Average production costs and the
procurement prices based on them do not include
returns to land or to capital. Farms find crop produc-
tion, which uses more land than does livestock produc-
tion, to be. relatively more profitable than production
of meat, milk, and eggs. Although Soviet planners are
trying to raise the share of livestock products in the
consumer diet, pricing policy throughout the 1970s
has conflicted with this goal. Grain procurement
prices between 1970 and 1980, for example, increased
more than twice as fast as procurement prices for
meat, while the cost of producing meat rose about 20
percent faster than the cost of producing grain.
The system of cost-plus pricing with its regional
differentiation also pays the highest prices to produc-
ers whose costs are highest. As a result, regional .
specialization along least-cost lines is not carried out
to the degree it would be if prices were set differently.
" See, for example, D. Gale Johnson, "Agricultural Organization
and Management in the Soviet Union: Change and Constancy,"
The Soviet Economy to the Year 2000. National Council for Soviet
Meanwhile, price bonuses paid for procurements
above specified levels increase the instability of farm
income. In a good crop year, farm income benefits 25X1
from larger quantities sold and from procurement
price bonuses. In bad years, income falls sharply
because of smaller quantities sold and the absence of
price bonuses.
Reducing income inequality through differentiated
procurement prices; subsidies, and debt forgiveness (as
stipulated in the Food Program) also leads to ineffi-
cient use of inputs. High-cost producers in poorer
areas who receive higher procurement prices tend to
be allocated more inputs, such as fertilizer, even
though crop response to fertilizer would be higher
elsewhere.
As a result of inappropriate output and input prices
and the lack of appropriate success indicators, the
regime must maintain central control of agriculture
and hand down procurement plans in order to achieve
the desired product mix. Growth in livestock produc-
tion during the 1970s, for example, has been chiefly 25X1
the result of output plans passed down to farms along
with incentives to fulfill them. If farms made produc-
tion decisions according to existing prices, output of
some important commodity, such as potatoes, might
decline drastically or inputs such as agricultural
chemicals would be used mainly close to factories
producing them to minimize transportation costs. E::
Retail Prices. One of the hallmarks of the Soviet
system has been stability in retail prices for food. A
loaf of bread, for example, costs the same today as it
did in the mid-1950s. Continued stability of retail
prices in the face of increased prices paid to farms,
however, means that more budget revenue must be
raised to cover the difference (figure 3). Under the
Brezhnev regime, state subsidies for agricultural com-
modities have been growing rapidly. The original
1981-85 plan called for a 30-percent increase in
subsidies, and the new Food Program piles additional
increases of 10 to 15 percent on top of that. Beginning
in 1983, 16 billion rubles will be added to the
originally planned subsidy bill because of increased
procurement prices and additional price differentials
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Figure 3
USSR: State Outlays for Procurement
and Processing of Selected Livestock Products
1980a 83 80 83 80 83 80 83
Beef Mutton Pork Butter
Subsidy
Retail price
markets, high levels of waste, and consumer dissatis-
faction. Low retail prices also allow the population to
accumulate funds that are saved or used to support
the "second economy," thus reducing regime control
over resources. Moreover, the longer retail prices for
food remain relatively low, the harder it will be to
raise them without negative popular reaction. Soviet
planners are thus caught between their unwillingness
to raise retail prices and the impact of rising procure-
ment prices and subsidies.
Because of the conflicts and inconsistencies inherent
in the Food Program as currently outlined, we judge
that it will have little positive impact on the economic
well-being of the population in the near term and will
provide only marginal returns in the late 1980s, if it
survives that long. Of more immediate concern may
be its impact on the political rivalries that are emerg-
ing in Moscow's succession sweepstakes.
Political Impact 25X1
The marked difference in the way Soviet leaders have
treated the organizational aspects of the Food Pro-
gram in their speeches since the plenum suggests that
battle lines are forming over its implementation. Of
the handful of leading officials who have spoken out
on the issue so far, only those who are closely
associated with the reorganization-such as Cher- 25X1
nenko, Georgian Party boss Shevardnadze, and the
new agro-industrial commission head, Nuriyev-have
dealt with it in strongly positive terms. Even the party
secretary for agriculture, Gorbachev, who evidently
supported the Georgian RAPO experiment early on
and presumably had a major hand in drafting the
program, only mentioned the reorganization briefly in
his recent article and stressed the less controversial
? Retail prices covered less than half of state ruble outlays per kilogram for procurement,
marketing, and processing of beef and mutton in 1980.
Source: Finansy SSSR, Number 7, 1982, page 10. (Figures for 1983 are official Soviet
projections.)
for farms operating at a loss. We estimate that by
1985 agricultural subsidies will be almost 60 billion
rubles compared with 33 billion rubles in 1981.
Revenues could be raised to cover price differences by
increasing taxes, for example, or by reducing funds
for nonagricultural activities. Whatever means are
chosen, there is likely to be some impact on nonagri-
cultural sectors of the economy.
Retail prices set so that it is cheaper to feed bread to
livestock than to feed grain, for example, tend to
distort decisionmaking and create disequilibrium in
many consumer goods markets, causing lines, black
aspects of the Food Program.15
The debate over the Food Program appears, more-
over, to involve more than the proper organizational
structure for agriculture. The emergence of the 25X1
RAPO concept-which holds out the potential for a
significant decentralization of management authority
Gorbachev, op. cit.
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to the local level-seems to have revived the old
debate over Khrushchev's regional economic councils.
For instance, in an article on the eve of the May
plenum, Shevardnadze hinted strongly that the "terri-
torial principle" of economic organization should be
expanded beyond agriculture to embrace other sectors
of the economy. Regional party officials (many of
whom are on the Central Committee) were the most
enthusiastic supporters of the sovnarkhozy and have
been critical of the expansion of powers of the central
state apparatus during the Brezhnev era. Although
Chernenko's endorsement of the RAPO experiment
may have worked to his advantage in gaining the
support of some regional leaders, it places him in the
center of a potentially burgeoning controversy and
could prove a liability if growth in farm output fails to
accelerate and if the implementation process proves as
disruptive as now seems likely.
The entrance of Politburo member Yuriy Andropov
into the succession race may further politicize the
debate. Andropov avoided any mention of Brezhnev's
Food Program in a speech earlier this spring, and
there is some tentative evidence that Andropov sup-
ports an alternative approach that combines strong
central planning and direction of the economy and
greater managerial autonomy at the enterprise level.
Andropov's one-time aide Fedor Burlatskiy set out
this view in a March 1982 Novy Mir article. In an
analysis ostensibly directed at China but relevant to
the current Soviet scene, Burlatskiy, a longtime advo-
cate of political and economic reform, criticized those
who would give the provinces greater freedom of
action. "They do not realize," he argued, "that this
would leave the bureaucratic nature of the system
unchanged." The remark appeared to be a direct
criticism of supporters of the RAPO and an indication
that the two leading contenders to succeed Brezhnev
may be on opposite sides of this issue. Thus, the Food
Program may become both a vehicle for, and a victim
of, succession maneuvering.
Economic Impact
We believe that the Food Program will do little to
raise agricultural output and to reduce waste. Because
the Food Program contains no provisions that are
likely to increase the rate of on-farm technical prog-
ress or to improve the price system, agricultural
output in the 1980s will depend heavily on weather
conditions, which may be no better than the long-term
climatic norm.16 Some production gains are likely, but
we consider output goals of the Food Program to be
out of reach.
In our judgment, storage and transportation of food
products will improve somewhat as the result of the
investment program and provide small gains in reduc-
ing waste. Major reductions in waste will not occur
because organizational aspects of the Food Program
will not be implemented sufficiently to provide enough
incentive throughout the food production chain to
upgrade product quality. The Food Program, more-
over, will have no impact on the waste that very low
retail food prices encourage.
The secondary effects of a Food Program that fails to
provide more food may be highly significant during a
decade of increasing shortages and rising tensions. As
Soviet economic growth continues to decline and the
Food Program fails to provide material relief from
shortages, the regime will find it more difficult to
cope with rising expectations, especially among the
younger and more restive elements of the population.
Today more than 60 percent of the Soviet population
is under 40 years of age, and these citizens, having
grown accustomed to the steady increases in living
standards that prevailed for nearly three decades
following World War II, are less stoic and more vocal
than their forebears about the system's shortcom-
ings."
Man-in-the-street interviews conducted by US Em-
bassy officers in Moscow suggest that Soviet citizens
are worried about higher food prices, doubt Moscow's
ability to increase productivity in agriculture, and
share the opinion that RAPOs are simply another
layer of bureaucracy that would not raise output.
'6 A review of climate trends since 1960 suggests that a major 25X1
impetus to growth in farm output between the early 1960s and the
mid-1970s was the result of unusually favorable weather. A return
during the 1980s to more "normal" conditions, which are taken to
reflect average weather over a 30-year period, would mean weather
less favorable than that of the earlier period, but somewhat better
than the poor years of 1979-82.
" See, for example, Gail Lapidus, Soviet Society in t e 1980s,
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supplies.
Embassy officers concluded that the skepticism with
which Soviet citizens traditionally greet party-
government decrees seemed particularly strong in this
case, reflecting public sensitivity over dismal food
With the Solidarity episode fresh in their minds, we
believe present Soviet leaders will be even more
inclined to appease the beleaguered consumer. The
quality of the diet remains the key element in this
approach, and, if the Food Program founders, the
regime will be forced to pursue more familiar strate-
gies to keep domestic food shortages manageable.
For example, sizable food imports probably will con-
tinue in the 1980s. The exact size of Soviet food
imports, however, and the share of per capita con-
sumption gains coming from imports will depend on
the magnitude of food production, the degree to which
domestic farm waste and losses can be reduced, and
the magnitude of per capita consumption gains the
regime feels obligated to support. Shortages of hard
currency will be a continuing constraint, forcing the
leadership to choose between keeping consumer grum-
bling in a tolerable range and maintaining nonagricul-
tural imports.
Failure of the Food Program to produce the results
promised could also heighten Soviet interest in pur-
chases of Western agricultural equipment and tech-
nology. Such purchases have been a very small share
of hard currency trade in technology, reflecting agri-
culture's low priority as a claimant on hard currency
imports of machinery. Recent signs of interest in
Western agricultural technology suggest that at least
some Soviet policymakers are anticipating only slow
improvements in agricultural technology from domes-
As presently outlined, the Food Program guarantees
that Soviet agriculture will continue to be an extreme-
ly high cost operation, absorbing very large shares of
the country's labor force and investment resources.
Other developed nations support and subsidize expen-
sive agricultural sectors but not nearly to the extent
that the USSR does. Soviet leaders, moreover, face
the constraints of rising costs on every side-in energy
and industry as well as in agriculture. Unlike other
countries, the Soviet Union has not been able to bring
about the technical progress that would offset the
diminishing returns encountered in its capital-
intensive kind of development.
Approved For Release 2008/09/02 : CIA-RDP83T00853R000100140002-9
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