SOVIET BASIC INDUSTRY AND TRANSPORTATION IN 1986: A WINDFALL YEAR?

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90T00114R000700940001-8
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• Original Classification: S
• Document Page Count: 39
• Document Creation Date: December 27, 2016
• Document Release Date: May 24, 2012
• Sequence Number: 1
• Publication Date: April 1, 1987
• Content Type: MEMO

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DATE Z/ -2 2 V
DOC NO SO / /f1' g'7-ZGo l / X
OIR 3
P $ PD
April 1987
Soviet Basic Industry and Transportation in 1986:
A Windfall Year?
Summary
In 1986 Soviet basic industrial branches posted their
fastest rate of growth in nearly a decade. Improved performance
was buoyed by a rebound from 1985's middling results, but also
reflected good weather, better transportation support, and
continued benefits from the "human factors" campaign. Despite
the favorable numbers, most industrial branches still heard a
steady drumbeat of criticism. The litany of complaints centered
on below-plan additions of new capacity, shortcomings in quality,
and poor product mix, all of which illustrate weaknesses in
implementation of the Soviet leader's plan to revitalize the
economy.
Prospects for 1987 appear less favorable. Industrial
production sputtered in late 1986 and record cold and heavy snows
early this year will undoubtedly hamper efforts to maintain last
year's momentum. Recent Soviet experience with bad winters
suggests basic industry and transportation could recover quickly,
but current disruptions may be more severe than in the past
because Soviet managers probably cut corners in winter
preparations in order to concentrate on meeting Gorbachev's
ambitious modernization goals. Moreover, the application of a
new quality-control system at a large number of enterprises has
held down output of machinery necessary to renovate much of
civilian industry. Expansion of contract fulfillment indicators
could help offset the year's slow start, but gains will
undoubtedly fall short of Moscow's expectations.
1 Excluding energy and machine building.
This memorandum was prepared by the Industrial Analysis Branch,
National Issues Group, Office of Soviet Analysis. Comments and
questions are welcome and can be directed to Chief, Economic
SOV M-87-20011X
25X1 25X1
Washinpm D. C 20505
DIRECTORATE OF INTELLIGENCE
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Introduction
Soviet economic health rests fundamentally on the
performance of the basic industrial branches and
transportation. Materials such as steel, cement, and chemicals
are critical to construction, machine building, and
agriculture. Output of soft goods and processed foods is a major
determinant of living standards. Freight transportation provides
the essential means for keeping the flow of raw materials and
finished products moving. This memorandum looks at 1986
performance of the ferrous and nonferrous metals, chemicals,
construction materials, wood products, soft goods, and processed
foods industries and transportation, giving special attention to
the reasons behind last year's generally good showing and the
outlook for 1987. The energy and machine-building branches of
industry are not included.
Overview
Overall, basic materials and transportation posted their
fastest rate of growth in a decade (see table 1). With the
exception of soft goods, production growth equaled or bettered
1985 across the board, and plan targets for many key commodities
were met or exceeded. Construction materials, wood products, and
processed foods (excluding alcoholic beverages) led the surge,
more than doubling their previous year's growth. The improved
performance was buoyed by a rebound from middling 1985 results,
but reflected real expansion as well.
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USSR: Growth of Output of Selected Industrial
Branches and Transportationa
(average annual rate
of growth,
percent)
1971-75
1976-80
1981-85
1985
1986b
Ferrous metals
4.2
0.8
1.2
2.8
2.8
Nonferrous metals
5.7
1.5
2.0
3.0
3.0
Chemicals
8.3
3.0
3.8
4. 3
4.4
Construction
materials
5.1
1.4
1.5
1.5
3.2
Wood products
2.5
-0.6
2.1
2.1
5.4
Soft goods
2.6
2.4
1. 6
2.4
1.5
Processed foodsc
4.1
1.4
1.8
-1.6
0.7
Freigh t
transportationd
6.6
4.3
2.9
1.7
4.8
a Official Soviet measures of aggregate growth are believed to contain an
upward bias because of increased double counting over time and disguised
inflation. Although we accept official Soviet data for physical output of
various commodities, the aggregate measures shown for each industrial branch
were derived synthetically. The growth rates are formed by combining the
value of a sample of products for each branch, with interbranch purchases
excluded, using 1982 value-added weights.
b Preliminary.
c Including alcoholic beverages. Growth of the food-processing industry in
1985 and 1986 excluding alcohol was 2.0 percent and 6.5 percent, respectively.
d Growth rates calculated from ton-kilometer data.
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Improved flows of raw materials--sparked mainly by smoother
transportation deliveries--contributed much to last year's good
results. Milder-than-normal winter weather helped prevent
serious bottlenecks on the rail lines and eased demand for
energy--constraints that have hamstrung industrial production and
distribution in the past. Benefits from Gorbachev's "human
factors" drive added a diminishing--yet important--impetus to
growth. Soviet sources report reduced absenteeism, less
drunkenness on the job, and fewer industrial accidents in 1986.
More effective management--a likely result of personnel changes
and modest administrative tinkering--appears to have sparked
further gains. Under the gun to raise production volumes and
improve quality, new ministers in several branches of industry
apparently managed to tap hidden caches of labor, raw materials,
and equipment.
Despite the favorable growth rates, most industrial branches
still heard a steady drumbeat of criticism. Singled out for
harsh words were ferrous metals, chemicals, wood products, and
light industry (see figure). The litany of complaints centered
on unevenness of production, shortcomings in quality, and
contract delivery shortfalls, suggesting Gorbachev's
restructuring campaign has not been as successful as last year's
performance data indicate. Indeed, by some measures last year's
results fall far short of the "acceleration" needed to meet the
Soviet leader's ambitious goals for industrial modernization.
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Figure
USSR: Incidence of Criticism of Selected
Basic Industrial Ministries in 1986a
January
February
March April
May June July August September
October 4ove' ~ber Deco-ber
Chemical Industry
/
/
/
/
/
/
/
/
/
/
w
/
Ferrous Metallurgy
/
/
/
/
/
/
/
/
/
Timber, Pulp, Paper
Wood Processing Industry
/
/
/
/
/
/
/
/
/
/
Light Industry
/
/
/
/
/
/
/
/
/
/
Construction Materiels Industry
/
/
Source: USSR Central Statistical Administration (CSA)
monthly plan fulfillment reports.
a In the CSA monthly writeups--usually published in Ekonomicheskaya gazeta,
the weekly organ of the Central Committee of the Soviet Communist party--the
criticisms take the form of phrases such as "contractual obligations not met,"
"nonfulfillment of plan targets," "arrears in production," "contract
discipline breaches," and "output delivery shortfalls."
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The growth of commissionings of new capital, for example, in
nearly all the areas examined was well below planned levels.
Without new and better machinery, industry will have a hard time
meeting targets for new and improved products.2
Prospects for 1987 appear less favorable. Industrial
production sputtered in the latter months of 1986 and record cold
and heavy snows early in the year have prevented a good start
this year. Recent Soviet experience with bad winters suggests
industry could recover quickly. After the hard winter of
1984/85, for example, industrial activity returned to normal
levels by the second quarter, although lingering effects held
down growth for the year. Disruptions in 1987, however, could be
more severe than in the past because Soviet managers probably cut
corners in winter preparations in order to concentrate on meeting
Gorbachev's ambitious modernization goals. For example, the
usual practices of winterizing machinery with anti-freeze and
special lubricants and building up stockpiles of fuel and raw
materials may have been glossed over and were insufficient to
deal with the winter's unexpected severity.
Although it is too early to draw definitive conclusions, the
application of a rigorous new quality-control system at 1,500
2 Indeed, the machine-building sectors were heavily criticized during 1986
for failing to provide needed increments of more modern capital equipment.
Moreover, growth of output of advanced machinery--industrial robots,
numerically controlled machine tools, and computers, for example--was not
significantly higher last year than in previous years.
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enterprises in 28 ministries is also apt to affect industrial
production in 1987. Under this system, products that do not meet
state standards are not counted in output statistics.
Preliminary results indicate that stiff rejection rates are
disrupting production and spawning resistance in a number of key
industries--including the machine-building sectors that basic
industry is counting on for renovation. Although rejected
products that later come up to standards can be counted toward
enterprise output, the impact on overall performance could be
severe.
A few industries could see a limited payoff this year--in
the form of improved supplies of raw materials and finished
products with the expansion of contract fulfillment as a success
indicator to all of basic industry, although current problems
suggest any gains will fall short of Moscow's expectations.
Increased investment and assimilation of new machinery--the key
to real modernization and growth in these branches--is not likely
in the short run because of increasing competition for resources
from higher priority areas such as agriculture and energy, and
the cumbersome and ineffective Soviet planning and management
system is still largely intact.
Ferrous Metals
Output of the ferrous metals industry grew 2.8 percent in
1986, rebounding from the severe winter of 1984/85. Crude steel
production reached a record 161 million tons, and rolled steel
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output increased to 112 million tons (see table 2). Output gains
were similar to those made in 1983 after another severe winter.
Good weather and Gorbachev's "human factors" policies combined to
help the industry meet its 1986 production goals for crude steel,
rolled steel, pipe, and iron ore.
The industry was also aided by some progress in
modernization. Pravda reported that during the first six months
of 1986, 21 percent more of state capital investments in ferrous
metals were used for retooling and reconstruction of existing
enterprises than in the previous year. Gross additions of new
fixed capital increased by 7 percent in 1986, but still missed
the industry's goal of 30 percent. Capacity was added at the
minimill at Rybnitsa, where a line for production of wire was
completed, and the first stage of a plant to produce electrical
sheet went into operation at Novolipetsk. A new rolling mill at
Zhdanov--which produces steel plate for use in large-diameter
pipe--reached rated capacity.
The ferrous metals industry did not perform as well in
providing specific steel products needed in key sectors of the
economy. The industry was criticized throughout the year for
failing to fulfill production targets for such high-quality steel
products as high-strength drill pipes, cold-rolled steel sheets,
and electrical steel. A mid-year Izvestiya article claimed that
enterprises had not fulfilled plan targets for almost one-third
of the steel products needed to increase the efficiency of metal
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1981
1990
1981
1982
1983
1984
1985
-85a
1986b
Plana
Crude steel
(million tons)
148.4
147.2
152.5
154.2
155
-
161
NA
(annual growth, percent)
0.3
-0.9
3.6
1.1
0.2
0.9
3.9
Rolled steel products
(million tons)
103.0
102.3
106.4
107.3
108.3
-
112
116-119
(annual growth, percent)
0.1
-0.6
4.0
0.8
0.9
1.0
3.4
1.4-1.9
Steel pipe
(million tons)
18.3
17.9
18.7
18.9
19.4
-
19.8
NA
(annual growth, percent)
0.5
-1.8
4.4
0.8
2.6
1.3
2.1
Iron ore
.(million tons)
242.4
244.4.
245.2
247.1
248
-
250
NA
(annual growth, percent)
-0.9
0.8
0.3
0.8
0.2
0.3
0.9
Manganese
(million
ore
tons)
9.15
9.82
9.88
10.09
9.9
-
NA
NA
(annual
growth, percent)
-6.2
7.3
0.6
2.2
-1.9
0.2
a Growth rates shown are annual averages for 1981-85 and 1986-90.
b The apparent discrepancy between volume and growth indicators for 1986 is a result
of Soviet reporting practices. Production volumes shown are those reported by the
Central Statistical Administration. Because the reported volumes and growth rates
embody different degrees of rounding by the Soviets, however, the rate of growth shown
here may be based on either volume or reported growth, whichever yields the most precise
measure of the actual percentage increase achieved in 1986.
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use in the economy. The industry was also criticized for not
meeting targets for the production of continuously cast
products.
Although many of the results of the current steel
modernization program will not be seen until the late 1980s,
several problems reported during 1986 indicate that progress will
probably be slower than the Soviets expect. The machine-building
industry was soundly criticized for failing to meet supply and
quality requirements for a variety of metallurgical equipment.
During the year the Soviet press reported production shortfalls
for blast furnaces, steelmaking furnaces, and rolling
equipment. Soviet metallurgical equipment continued to lag
Western counterparts in metal consumption, reliability, level of
mechanization and automation, consumption of lubricants and spare
parts, and output per worker. Moreover, renovation work is not
proceeding as quickly as hoped. A Pravda editorial indicated
that construction workers still remain reluctant to tackle
renovation projects.
As expected, only small production gains were realized in
the iron ore sector. The current five-year plan calls for output
of pig iron to remain steady--despite planned increases in rolled
steel production--through greater use of resource-saving
steelmaking techniques and scrap. Unless these measures are
successful, Moscow will find it difficult to stabilize the share
of investment allocated for production of raw materials. During
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provide more high-quality steel products to the economy.
Nonferrous Metals
Rolled steel production is slated to increase to 112.8
million tons in 1987--an increase of less than 1 percent over
1986 output. During 1987 we expect rolled steel capacity to be
added at the second stage of the minimill at Zhlobin and at the
Staryy Oskol iron and steel complex. As new capacity and
renovation projects are completed during the year, the steel
industry should be able to meet its modest 1987 target and to
heavy opposition in Brazil.
1986 the Soviets investigated an alternative for replacing low-
grade domestic manganese ore in the production of
ferromanganese. Brazil and the USSR have tentatively agreed to
construct a ferromanganese plant in Brazil. The manganese ore
supply would come from Brazilian mines. Moscow would receive,
for at least 12 years, one-half of the plant's projected annual
output of 150,000 tons of ferromanganese, roughly 5 to 10 percent
of estimated Soviet consumption. The plan, however, is meeting
Output of nonferrous metals increased 3 percent in 1986 for
the fourth consecutive year. A detailed performance assessment
is difficult because nonferrous metal output figures remain a
state secret and, for 1986-90, planned percentage increases in
production for individual metals have been withheld for the first
time. the open press suggest that
output growth in 1986 was mainly the result of additions of new
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The industry's accomplishments during 1986 reflect Moscow's
plan for 1986-90 to: (1) modernize aging production facilities
with "world-class" technology, (2) expand the raw materials base,
(3) use energy more efficiently, (4) increase the quantity and
number of metals extracted from ores, (5) increase scrap and
waste recycling, (6) increase the output and variety of
semifinished metal products (angles, rods, bars, for example) to
meet rapidly increasing demand from the machine-building sector,
and (7) reduce the amount of metal used in finished products.
fraudulent accounting practices and waste.
capacity and modernization of several aluminum, copper, and
nickel plants. The industry reportedly managed a 14-percent
increase in gross commissionings of fixed capital over the 1985
level but was criticized for fulfilling only 84 percent of its
planned target. In the gold sector, delays in commissioning new
capacity and declining gold content of mined ores held output
growth to about 1 percent during 1986. Part of last year's gains
in nonferrous metals probably stemmed from Gorbachev's campaign
to increase worker discipline, improve management, and reduce
waste. The Soviet press, for example, reported that several
nonferrous metals plant managers were severely disciplined for
Specifically, the Soviet press
indicate:
o Outdated electrolysis pots were replaced at the Bratsk
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aluminum plant by ones that produce higher quality
aluminum and consume much less electricity.
o The first stage of the Sayansk aluminum plant--which uses
advanced West German automated equipment--started
production.
o An agreement was signed with an Italian firm to build an
advanced, computer-controlled, 200,000-ton-per-year zinc
plant at Chelyabinsk. Although this did not affect last
year's production, the new plant will eventually replace
a 150,000-ton-per-year plant built in 1935.
o Production began of very thin aluminum alloys for food
containers at the Lenin metallurgical plant in Kuybyshev,
which will reportedly save large quantities of tin, a
metal that the USSR currently imports.
o Installation of highly automated equipment was completed
at the Pavlodar alumina plant in Kazakhstan that will
increase the recovery of alumina and other minerals from
bauxite ores.
Although plans were fulfilled for the production of new
types of products and for the introduction of advanced equipment
according to the Soviets, they recognize that continued progress
in these areas depends on additional imports of foreign equipment
and some raw materials. Accordingly, Moscow is looking for ways
to acquire Western equipment while minimizing its up-front hard
currency outlays.
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Despite a number of accomplishments in the nonferrous metals
industry, the year was not without setbacks. A general disregard
for operating safety appears to have caused recently installed,
advanced furnaces--used in producing copper--to explode at two
Soviet metallurgical facilities. These mishaps contributed to
delays in bringing production up to capacity at both
facilities. The Soviet press reported that outdated rolling
mills were replaced by automated mills at the Lenin Metallurgical
plant in Kuybyshev but that older equipment still in operation
cannot produce enough rolled metal to fully supply the new
equipment.
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Chemicals
Output of the chemical industry rose 4.4 percent last year,
roughly the same increase registered in 1985. A decline in
pesticide production and a slowdown in the rate of growth of
fertilizer output held back overall performance (see table 3).
Increased growth in output of plastics, chemical fibers,
sulfuric acid, and caustic soda resulted in part from an improved
supply situation, better discipline, and the rebound from
depressed 1985 levels when the severe winter disrupted
transportation and caused serious supply bottlenecks.
Nevertheless, some production associations and enterprises of the
Ministries of Mineral Fertilizer Production and.the Chemical
Industry failed to fulfill contract commitments, and plans for
the production of fertilizers, plastics, caustic soda, and soda
ash were not met. Although the Soviets were favored with milder
weather in 1986, transportation disruptions, material shortages,
construction delays, and power cuts continued to cause problems
for the industry.
Despite the addition of more than 3 million tons of new
gross capacity in 1985-86, major problems in the fertilizer
industry contributed to the failure to meet the plan. Serious
flooding early in the year halted production at a major potash
mine at Berezniki, which accounts for about 15 percent of potash
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1981
1990
1981.
1982
1983
1984
1985
-85a
1986b
Plana
Mineral fertilizers
(million tons 1007 nutrient
equivalent)
26.00
26.74
29.73
30.81
33.19
-
34.7
41-43
(annual growth, percent)
5.0
2.8
11.2
3.6
7.7
6.0
4.5
4.3-5.3
Pesticides
(thousand tons 100% active
ingredient)
299
316
332
343
348
-
332
440-480
(annual growth, percent)
4.9
5.7
5.1
3.3
1.5
4.1
-4
4.8-6.6
Caustic soda
(million tons)
2.76
2.78
2.85
2.97
3.06
-
3.2
NA
(annual growth, percent)
0.1
0.9
2.5
4.2
2.8
2.1
6
Sulf uric acid
(million tons)
24.10
23.80
24.71
25.34
26.04
-
27.9
NA
(annual growth, percent)
4.6
-1.2
3.8
2.5
2.8
2.5
7.2
Synthetic resins and plastics
(million tons)
4.09
4.06
4.42
4.82
5.02
-
5.3
6.8-7.1
(annual growth, percent)
12.4
-0.8
8.9
9.1
4.2
6.7
5.6
6.3-7.2
Chemical fibers
(million tons)
1.21
1.24
1.35
1.40
1.39
-
1.5
1.85
(annual growth, percent)
3.1
1.8
9.6
3.5
-0.5
3.5
6
5.9
Motor vehicle tires
(million units)
60.5
61.7
62.0
63.7
65.2
-
66.0
NA
(annual growth, percent)
0.7
2.0
0.5
2.7
2.4
1.6
1.2
Synthetic detergents
(million tons)
1.08
1.08
1.11
1.10
1.15
-
1.2
NA
(annual growth, percent)
6.3
0
2.9
-1.0
4.9
2.6
4.3
a Growth rates shown are annual averages for 1981-85 and 1986-90.
b The apparent discrepancy between volume and growth indicators for 1986 is a result
of Soviet reporting practices. Production volumes shown are those reported by the
Central Statistical Administration. Because the reported volumes and growth rates embody
different degrees of rounding by the Soviets, however, the rate of growth shown here may be
based on either volume or reported growth, whichever yields the most precise measure of the
actual percentage increase achieved in 1986.
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output. Inefficient mining and beneficiation processes at
another potash facility caused serious production shortfalls, and
large power cuts in early 1986 at a third potash complex reduced
output. Phosphate fertilizer output was affected by shortfalls
in the output of Kola apatite, the major raw material. The poor
quality of phosphate rock reaching fertilizer plants also held
down production. Ammonia production difficulties early in the
year and the delay in start-up of an ammonia plant caused by
design defects also probably hampered nitrogen fertilizer
output.
The 4-percent drop in pesticide output is surprising in view
of the priority attached to this sector as a vital input in
raising?crop yields. The Soviets claim that the 1986 production
plan was met--a paradox we cannot fully explain. Average annual
growth rates of 4.8-6.6 percent are required to meet the 1990
goals of the 12th Five-Year Plan. Moscow may have recently
decided to satisfy more of its needs from imports of modern,
more-effective pesticides, particularly herbicides, which are
crucial to Gorbachev's "intensive technology" program for grain
cultivation. In 1985 imports of pesticides were up 30 percent
over the previous year, including a 58-percent increase in
herbicide imports. Shortages of principal raw materials are
probably the dominant factor delaying development of domestic
pesticide production.
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In the synthetic materials sector, growth in the production
of plastics and chemical fibers showed a decided improvement over
1985. The start-up of several new plants for producing plastics
and fibers in 1985 and early 1986 helped boost output.
Nevertheless, shortfalls of refinery feedstocks idled a petro-
chemical plant for one-third of the year. Lack of feeds tocks
also forced a resin plant to halt production, which in turn
caused the shut-down of pipe-coating equipment at a pipe plant.
Serious problems with low-density polyethylene production reduced
exports and deliveries to domestic customers.
Sulfuric acid and caustic soda output moved out of the
doldrums in 1986. Increased growth in sulfuric acid output
reflected the introduction of 1.6 million tons of gross new
capacity in 1985. Also, sulfur raw material supplies were
boosted in 1986 by increased imports of Canadian sulfur and the
start-up of two sulfur-recovery units and a new sulfur production
facility.
Production of construction materials grew by 3.2 percent in
1986, compared with 1.5 percent in 1985. Cement production
increased by 3.1 percent to 135 million tons, and output of
precast ferroconcrete rose by 4 percent to 141 million tons (see
table 4). Despite improved production performance, only 45
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1981
1990
1981
1982
1983
1984
1985 -85a
1986b
Plana
Cement
(million tons)
127.17
123.68
128.16
129.87
131 -
135
140-142
(annual growth, percent)
1.7
-2.7
3.6
1.3
0.7 0.9
3.1
1.3-1.6
Precast fer5oconcrete
(million m )
124.48
123.57
128.28
132.42
137 -
141
NA
(annual growth, percent)
1.8
-0.8
3.9
3.2
3.5 2.3
4
Wall materials
(billion conventional
bricks)
58.26
58.09
59.55
59.21
59.1 -
NA
NA
(annual growth, percent)
0.4
-0.3
2.5
-0.6
-0.2 0.4
Roofing materials
(billion m )c
1.71
1.70
1.84
1.88
1.93 -
NA
NA
(annual growth, percent)
-0.8
-0.4
7.9
2.4
2.3 2.3
Window glasI
(million m )
245
243
247
247
243 -
NA
NA
(annual growth, percent)
0
-0.8
1.6
0
-1.6 -0.2
a Growth rates shown are annual averages for 1981-85 and 1986-90.
b The apparent discrepancy between volume and growth indicators for 1986 is a result
of Soviet reporting practices. Production volumes shown are those reported by the
Central Statistical Administration. Because the reported volumes and growth rates embody
different degrees of rounding by the Soviets, however, the rate of growth shown here may be
based on either volume or reported growth, whichever yields the most precise measure of the
actual percentage increase achieved in 1986.
C Including pliable roofing materials and waterproofing.
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percent of the target for sales of materials was fulfilled.
Renewed attention to housing needs--partly in response to the
Chernobyl' disaster--and plans to finish up old construct-ion
projects place a heavy burden on this industry, and timely
delivery of materials to construction sites remains a serious
problem.
Criticism directed at the industry in early 1986 focused on
poor product quality and outdated production methods. In
response, the State Planning Committee and the State Committee
for Material and Technical Supply formulated new procedures for
improving the processing of cement and non-ore materials,
particularly stone and sand. Several developments during the
year focused on improving other materials and processes, as well
as developing new brick and ceramic materials through cooperation
with Western firms. Increased use of the "dry method" of cement
production is planned as part of increased Soviet study of
Western methods of manufacturing. The Soviets are considering
awarding a contract to a US firm to design and build equipment
and production lines to enable switching two large cement plants
to the more efficient dry method, but these projects are still in
the negotiating stage.
A reorganization of the construction sector announced in
August expanded the responsibilities of the State Construction
Committee to include more direct contact with and responsibility
for individual ministries. Whether this results in improved
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performance remains to be seen. Further gains in the
construction materials industry will be needed to meet many of
the goals of Moscow's industrial modernization plan. Moreover,
Gorbachev's program to improve consumer welfare is heavily
dependent on the ability of the construction materials industry
to provide more and better housing materials. Competition for
building materials for renovating existing civilian and defense
plants will put even more strain on the industry--already
troubled by labor shortages and irregular deliveries of raw
materials.
Wood Products (Timber, Pulp,-and Paper, and Wood Processing)
Output of wood products rose by 5.4 percent in 1986,
compared with 2.1 percent in 1985. Improved performance figures
reflect, in part, a rebound from relatively poor performance in
1985 (see table 5). Although increased use of the Baikal-Amur
Mainline railroad made virgin Siberian forests more accessible
and greatly improved timber transport in some areas, the industry
undersupplied the national economy as a whole. Problems
delivering raw materials to downstream operations continued to
plague the industry, sparking official criticism that forest-
based industries have achieved only modest results in updating
and improving their operations. Overall performance within the
wood-products industry, particularly in the plywood sector, was
sharply criticized throughout the year. In mid-1986, a number of
industry leaders were fired or severely reprimanded.
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1981
1990
-8 5a
1986b
Plana
Commercial timbered
(million trimmed m3)
274
270
271
280
277
-
296
NA
(annual growth, percent)
-0.3
-2.0
1.0
3.0
-0.8
0.3
6.9
Pape r
(million tons)
5.40
5.44
5.67
5.86
5.99
-
6.2
7.0-7.2
(annual growth, percent)
2.1
0.7
4.2
3.4
2.1
2.5
3
3.2-3.7
Newsprint
(billion m2)
30.1
30.7
31.6
32.1
33.3
-
34.5-
NA
(annual growth, percent)
0.3
2.0
2.9
1.6
3.7
2.1
3.6
Pulp
(million tons)
7.32
7.44
7.91
8.15
8.37
-
NA
10.0-10.2
(annual growth, percent)
2.8
1.7
6.3
3.0
2.7
3.3
3.5-4.1
Cardboard
(million tons)
3.56
3.54
3.89
3.96
4.03
-
NA
5.2
(annual growth, percent)
3.2
-0.5
9.9
2.0
1.7
3.2
5.4
Furniturec
(billion 1982 rubles)
6.4
6.7
7.1
7.5
7.9
-
8.3
10.5-10.7
(annual growth, percent)
5.0
5.0
6.0
5.0
6.0
5.3
5.1
5.9-6.2
Growth rates shown are annual averages for 1981-85 and 1986-90.
b The apparent discrepancy between volume and
growth indicators for 1986 is a result of
Soviet reporting practices. Production volumes shown are those reported by the Central
Statistical Administration. Because the reported volumes and growth rates embody different
degrees of rounding by the Soviets, however, the rate of growth shown here may be based on either
volume or reported growth, whichever yields the most precise measure of the actual percentage
increase achieved in 1986.
c These data are contained in the annual plan fulfillment reports; they do not agree with
those published in the annual statistical handbook, Narodnoye khozyaystvo SSSR.
d Excluding procurement by collective farms.
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The chronic need for radical retooling in the industry was
underscored in 1986 by high levels of downtime for logging
equipment and breakdowns of already obsolete timber transport
machinery. Funds earmarked for modernizing plant and equipment
in the industry during 1986-90 are nearly double those spent in
the last five-year plan. The renovation program outlined for the
plywood branch is particularly extensive; solidly entrenched
among the poorest performers of the industry, this sector has had
a difficult time introducing automated equipment.
Commercial timber production rebounded 7 percent in 1986
from the absolute decline posted in 1985, but slow assimilation
of new equipment may slow performance for the remainder of the
1986-90 Five-Year Plan., Moreover, the industry's prime supply
point--the logging sector--still suffers from severe
transportation snarls. Delays due to severe weather in early
1987 will likely result in poor output during the first quarter
of this year--the period during which a hefty proportion of
annual output is normally produced. Combined with labor
shortages in the Far East and a rising average age of workers in
Soviet forestry overall, we do not expect much more than a
moderate climb in output for 1987.
Paper production was up 3 percent in 1986, largely due to
successful rebuilding and equipment replacement. Fewer work
stoppages, partly due to better weather conditions compared with
the previous winter and improved assimilation of imported paper
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technology, prompted industry officials to assure Moscow that
they will be able to meet domestic demand for paper and cellulose
products in the near future.
The Soviets are emphasizing the use of more timber wastes
and the development of new products for 1987. Several steps were
taken in 1986 to improve the use of waste products, including the
production of fiberboard from the wastes produced in furniture-
making. For the most part, however, existing capacities limit
the ability of most enterprises to process wastes from storage
sites and lumber mills. The historical inability of forest-based
industries to absorb even the limited investment they receive
suggests only a moderate improvement in the use of timber wastes
in 1987.
Soft Goods
Output of light industry increased only 1.5 percent in 1986,
a decline from the respectable growth rates achieved in 1984 and
1985. Sewn goods was the big loser, with growth dropping from
3.6 percent in 1985 to only 0.1 percent last year (see table
6). Sewn goods output is measured in rubles, however, and
earlier growth may reflect price increases resulting from the
introduction of an experiment in industrial management in several
republics in 1984. No new republic ministries of light industry
were brought under the new management system in 1986, and further
opportunities for easy growth may have been lost. In addition,
there has been intense administrative pressure to increase the
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1981
1990
1981
1982
1983
1984
1985
-85a
1986b
Plana
Textiles
(billion m2)
10.95
11.08
11.36
11.76
12.05
-
12.3
14-15
(annual growth, percent)
1.9
1.2
2.5
3.6
2.5
2.3
2.1
3.0-4.5
Kni twe ar
(billion
articles)
1.65
1.61
1.64
1.68
1.73
-
1.8
2.2-2.3
(annual
growth, percent)
1.5
-2.1
2.0
2.2
3.0
1.3
3
4.9-5.9
Sewn goods
(billion 1982 rubles)
24.3
24.2
24.2
25.1
26.0
-
26.1
NA
(annual growth, percent)
3.4
-0.4
0
3.7
3.6
2.0
0.1
Leather footwear
(billion pairs)
738
734
745
764
788
-
801
900
(annual growth, percent)
-0.7
-6.5
1.5
2.6
3.1
1.2
1.6
2.7
a Growth rates shown are annual averages for 1981-85 and 1986-90.
b The apparent discrepancy between volume and growth indicators for 1986 is a result
of Soviet reporting practices. Production volumes shown are those reported by the
Central Statistical Administration. Because the reported volumes and growth rates embody
different degrees of rounding by the Soviets, however, the rate of growth shown here may be
based on either volume or reported growth, whichever yields the most precise measure of the
actual percentage increase achieved in 1986.
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output of children's sewn goods, which are in high demand and
priced below the cost of production. Although the plan for
output of children's goods was not met in 1986, production
increased substantially, according to Izvestiya. As a result,
growth was further depressed.
Increases in textile and knitwear production were no better
than the modest pace achieved in recent years. Shortfalls in
some footwear production probably resulted from continuing
problems of improper handling and hide preservation in the
leather industry.
In 1987 the new conditions of management make contract
fulfillment the main indicator of enterprise performance.
Although the Belorussian Ministry of Light Industry performed
well under an experiment of this system in 1984, it was receiving
preferential treatment, and its enterprises have experienced
difficulties in meeting contracts since they lost their supply
advantage. In August of last year, some 42 percent of Soviet
light industrial enterprises were behind on contract
deliveries.
The Consumer Goods and Services Program calls for major
improvements in the quality of soft goods in order to improve
consumer welfare and to reduce the waste that results when many
goods go unsold.3 The measures taken thus far, however, have not
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resulted in substantial improvements in quality. The industry
was criticized throughout the year for its low-quality products,
and unless it can succeed in making some progress, the
unsatisfactory quality of Soviet soft goods likely will continue
to foster cynicism and social malaise, which Gorbachev is trying
to alleviate.
Processed Foods
Output of the food-processing industry rose only 0.7 percent
last year, largely because of the huge decline in the production
of alcoholic beverages.` If we exclude alcohol, growth was a
healthy 6.5 percent.
The food-processing industry has benefitted from generally
improved agricultural performance over the last several years.
Greater attention to improving feed supplies for livestock helped
boost production of processed animal products. Expansion of
processing capacity also enabled the industry to make better use
of available supplies. The output of processed meat, sausage,
dairy products, and animal fats and oils all demonstrated strong
growth in 1986 (see table 7).
The good 1986 harvest is likely to
provide for continued improvements in 1987.
Vegetable oil and margarine production made a good recovery
from poor performance in 1984-85. Earlier problems were caused
4
Last year, for the first time in decades, the Soviets provided production
data for the full range of alcoholic beverages in their annual statistical
handbook, Narodnoye khozyaystvo SSSR, presumably to demonstrate the success of
Gorbachev's anti-alcohol campaign. Complete data for 1986 are not yet
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1981
1990
1981
1982
1983
1984
1985
-85a
1986b
Plana
Meatc
(million tons)
9.28
9.27
10.11
10.66
10.81
-
11.5
11.7-12.2
(annual growth, percent)
1.6
-0.2
9.0
5.4
1.4
3.4
7
1.6-2.4
Sausage
(million tons)
3.06
3.08
3.19
3.30
3.41
-
3.5
NA
(annual growth, percent)
-0.6
0.7
3.7
3.3
3.5
2.1
4
Fishd
(billion 1982 rubles)
6.1
6.4
6.7
7.0
7.3
-
7.4
NA
(annual growth, percent)
1.7
4.9
4.7
4.5
4.3
4.0
1
Animal fats/oilse
(million tons)
1.21
1.29
1.46
1.50
1.52
-
1.6
1.5-1.7
(annual growth, percent)
-5.3
6.6
12.8
2.9
1.3
3.5
5.5
0-2.3
Whole milk products
(million tons)
25.7
26.4
27.8
28.6
29.8
-
31
31-32
(annual growth, percent)
0.8
2.7
5.3
2.9
4.2
3.2
5
0.8-1.4
Margarine
(million
tons)
1.36
1.43
1.48
1.43
1.41
-
1.5
NA
(annual
growth, percent)
7.8
5.2
3.6
-3:4
-1.1
2.2
3
Vegetable
(million
oil
tons)
2.61
2.63
2.78
2.68
2.54
-
2.9
3.7-4.0
(annual
growth, percent)
-1.7
0.9
5.8
-3.8
-4.9
-0.8
13.9
7.8-9.5
Granulated sugar
(million tons)
9.5
12.1
12.4
12.5
11.8
-
12.7
NA
(annual growth, percent)
-5.9
27.4
2.5
0.8
-5.6
3.2
7.6
Confectionary goodsf
(million tons)
3.95
4.02
4.10
4.15
4.28
-
4.4
NA
(annual growth, percent)
2.3
1.7
1.9
1.4
3.2
2.1
4
Canned goods
(billion standard cans) 15.86
16.60
17.10
17.16
17.99
-
19.7
NA
(annual growth, percent) 3.9
4.7
3.0
0.3
4.9
3.3
9.5
Nonalcoholic drinks
(million dekaliters)
375
348
357
357
383
-
497
NA
(annual growth, percent)
6.8
-7.2
2.6
0
7.3
1.8
29.8
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Table 7 (continued)
1981 1990
1981 1982 1983 1984 1985 -85a 1986b Plana
Mineral water
(million dekaliters) 113 116 126 131 131 - 148 NA
(annual growth, percent) 1.8 2.7 8.6 4.0 0 3.4 14
Vodka products
(million dekaliters) 292 277 277 281 238 - NA NA
(annual growth, percent) -1.0 -5.1 0 1.4 -15.3 -4.2
Wines
(million dekaliters) 479 473 474 453 335 - NA NA
(annual growth, percent) 1.5 -1.3 0.2 -4.4 -26.0 -6.6
"Cognac"
(million dekaliters) 8.1 7.6 10.5 9.9 7.0 - NA NA
(annual growth, percent) -13.8 -6.2 38.2 -5.7 -29.3 -5.7
"Champagne"
(million bottles) 204 216 233 254 248 - NA NA
(annual growth, percent) 14.6 5.9 7.9 9.0 -2.4 6.9
Beer
(million dekaliters) 630 647 661 654 657 - NA NA
(annual growth, percent) 2.8 2.7 2.2 -1.1 0.5 1.4
a Growth rates shown are annual averages for 1981-85 and 1986-90.
b The apparent discrepancy between volume and growth indicators for 1986 is a result of Soviet
reporting practices. Production volumes shown are those reported by the Central Statistical
Administration. Because the reported volumes and growth rates embody different degrees of
rounding by the Soviets, however, the rate of growth shown here may be based on either volume or
reported growth, whichever yields the most precise measure of the actual percentage increase
achieved in 1986.
C Industrially processed meat. The 1990 target reflects meat from state resources only,
roughly 90 percent of all industrially processed meat. The remainder is meat from private
sources that is custom processed at food-processing enterprises.
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Table 7 (continued)
d Including canned fish. Beginning in 1986, the Soviets began reporting edible fish output in
tons, rather than in value terms they had given up to 1985. Data for 1986 are estimated based
on a reported 1-percent increase in the production of edible fish (5.6 million tons). The gross
fish catch has been running 10-11 million tons per year.
Excluding production from private sources.
Excluding production in public catering facilities.
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by declines in the harvests of sunflowers and cotton, the major
source of oilseeds. In 1985 the sunflower harvest was up 16
percent over 1984, and a large share of this crop was processed
in 1986. Cotton seed processing may also have benefited from the
reorganization of the cotton ginning sector, responsibility for
which was transferred from the Ministry of Light Industry to the
new State Committee for the Agro-Industrial Complex.
The sugar industry regained lost ground last year after
experiencing a 5.6-percent decline in production in 1985, but,
compared with 1984, its gain was small. Because imports of raw
sugar held fairly constant and the 1986 sugar beet harvest was
down, most of the gain came through increasing the extraction
rate: the 1986 harvest was better organized, resulting in fewer
losses, and retooling and expansion of processing capacities
enabled the Soviets to make better use of the harvested beets.
The Soviets have had success in carrying out the objectives
of the anti-alcohol campaign. The output of nonalcoholic drinks
increased 30 percent in 1986, although production was below
plan. Output of mineral water increased 14 percent, and canned
fruit juice production rose 47 percent. The high output of fruit
juices is partially responsible for the strong performance of
canned goods output, which grew 9.5 percent. The Soviets were
able to achieve these dramatic increases in beverage production
through the conversion of wine and spirits factories to
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nonalcoholic beverage production. Industrial production of
vodka, wine, and other high-alcohol drinks declined 35 percent in
1986, according to the Central Statistical Administration,
although reports indicate that production of home brew has
increased.
The healthy performance of the food-processing industry in
1986 after earlier problems demonstrates that measures of the
Food Program are gradually beginning to pay off in the form of
improved food supplies for the consumer, and further improvements
are likely. The rapid conversion of alcohol factories to
production of nonalcoholic beverages was a major success. The
major obstacle lay not in technology=-conversion was relatively
easy--but in planning. The very high priority accorded by the
leadership to the antialcohol program obliged planners to modify
targets for the beverage sector, and industry was able to respond
quickly.
Transportation
Transport carriers posted strong performance in 1986 with
freight traffic rising by 4.8 percent--compared with only 1.7
percent in 1985--well ahead of the planned rate of 3.5 percent.
High growth rates for the freight carriers in 1986 resulted from
improved weather, which spurred the recovery of industrial
customers from depressed output and shipment growth rates in
1985; the good fortune of Soviet agriculture, which increased the
growth of shipments on rail and highway carriers; and an increase
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Railroads--Performance Peaking?
The railroads--still the main barometer for general
transport performance in the USSR--reportedly squeezed 2.8
percent more tonnage onto the heavily used system in 1986. The
rail leadership pushed the same formula it has counted on to
increase rail tonnages since 1982--increasing train weights and
accelerating turnaround times for freight cars. Improvements in
these areas control congestion on rail lines and the incidence of
freight car shortages--two factors that seriously limited growth
of freight traffic in the late 1970s and early 1980s and created
pipeline shipments (see table 8).
a drag on overall industrial production. In addition, as part of
their overall campaign to increase efficiency and combat rising
costs, rail managers began trimming excess labor during 1986--the
start of a sizable force reduction planned for 1986-90. As a
result, labor productivity soared by 7.5 percent last year.
Although 1986 was a good year for the railroads, we believe
the strong recovery we have observed since 1982 may have come to
an end. According to our analysis of quarterly rail performance,
following the strong comeback in the first quarter of 1986, the
railroads achieved little real growth in freight traffic during
the remainder of the year. Also, the increase in average train
weight of 60-70 tons, although enough to boost shipments in 1986,
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25X1
USSR: Freight Transportation Shipmentsa
(million tons)
1
981
1982
1983
1984
1985 1986
1990
Plan
Rail 3,
Maritime
River
Highwayb 6,
Air
Oil pipelines
Gas pipelines
762
223
594
651
3
634
345
3,725
224
605
6,739
3
641
373
3,851
238
607
6,612
3
649
400
3,910
235
619
6,357
3
648
440
3,951 4,061
240 249
633 649
6,320 6,648
3 NA
631 653
482 NA
4,267-4,346
NA
690-703
7,458-7,521
NA
NA
NA
(annual growth, percent)
1981 1990
1981
1982
1983
1984
1985
-85c 1986 Planc
Rail
0.9
-1.0
3.4
1.5
1.0
1.2 2.8 1.6-1.9
Maritime
-2.2
0.4
6.2
-1.3
2.1
1.0 3.8 NA
River
4.6
1.9
0.3
2.0
2.3
2.2 2.5 1.7-2.1
Highway
3.0
1.3
-1.9
-3.9
-0.6
-0.4 5.2 3.4-3.5
Air
3.3
0
0
0
3.2
1.3 NA NA
Oil pipelines
1.1
1.1
1.2
-0.2
-2.6
0.1 3.3 NA
Gas pipelines
6.8
8.1
7.2
10.0
9.5
8.3 NA NA
a Because of multiple counting (shipments moved on more than one carrier), no total is shown.
b Excluding the non-common carrier highway fleet.
c Growth rates shown are annual averages for 1981-85 and 1986-90.
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was far short of the 100-ton-per-year increases planned for
reaching overall 1986-90 shipment targets. This probably
indicates that the easier opportunities for putting more tonnage
on the mainlines have been exhausted. Finally, the criticism of
railroad management and performance, which became more frequent
in the Soviet press after about mid-year, tends to confirm our
suspicions that the sector's overall performance may be
deteriorating. Criticism even reached rail minister Nikolay
Konarev--an Andropov appointee--who until last fall had been
viewed as an unusually successful administrator.
If rail performance is reaching a plateau, it is probably
because Soviet planners are not moving rapidly enough to field
the new capital--rolling stock and automated equipment--necessary
to continue to expand the capacity of the rail system. For
example, in order to increase train weight further--still
considered by the Soviets as a key for increasing the capacity of
existing rail lines--the railroads must introduce many more new
"super-large" locomotives, increase the length of station and
bypass tracks to accomodate longer trains, and push automated
control to manage the increasing volumes of traffic passing
through major rail hubs. Konarev plans to concentrate additions
to capital on electrifying track, upgrading rolling stock, and
automating freight and passenger service--all areas that will
increase tonnages. But his plans cannot succeed if upstream
suppliers in industry--particularly in machine building--fail to
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meet their contract deliveries. We can expect Konarev to become
more vocal about contract shortfalls in industrial sectors this
year if performance in his sector weakens.
Highway Shipping--Greater Centralization
Shipments on the centrally directed highway carriers
rebounded by 5.2 percent last year after three years of declining
volumes, but total shipments were still short of the 1982 peak.
The magnitude of last year's increase probably reflects, in part,
a policy of shifting a greater share of trucking from
departmental carriers--those managed by the industrial
ministries--to the centralized fleet.
The Soviets hope that greater centralization of highway
shipping will improve the notorious inefficiency of overall
trucking with respect to labor, capital, and fuel usage.
Centralized trucking can more easily fill the gap posed by an
underdeveloped inter-city trucking network and, during 1985,
centrally directed shippers took over responsibility for more
shipments involving longer truck hauls. This trend will benefit
overall transport efficiency--hauls of 200 to 300 kilometers are
efficient for trucks, but are inefficient short hauls for the
overburdened railroads that carry them now. On the other hand,
the centralization of most other shipments is a more difficult
task. The non-transport ministries, which control the lion's
share of trucks and are responsible for three-fourths of all
highway shipments, will resist any attempt to centralize control
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of their trucks, drivers, or shipments, particularly established
intra-city connections with suppliers. Nevertheless, the
magnitude of growth for the centralized shippers in 1986 suggests
that they are making inroads on the departmental carriers'
shipments as well. Indeed, we suspect that when the final data
are in for 1986, the departmental carriers will show little--if
any--shipment growth.
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 ILLEGIB
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External
46 - Col. Tyrus W. Cobb, Director, East-West Section,
European and Soviet Affairs, National Security
Council (373 EOB)
47 - Paula J. Dobriansky, European and Soviet Affairs,
National Security Council (368 EOB)
48 -I CIA Representative/NMIC,
Department of Defense (2D901A Pentagon)
49 -I Dean, Defense Intelligence
College, DIAC (C3-124 Bolling AFB)
50 - Dr. Donald Goldstein, Principal Director,
International Economics, Trade, and Security
Policy, Department of Defense (4C76 Pentagon)
51 - National Security Agency
52 - Chief, Resources Division
(DIA/DB-4), DIAC (Bolling AFB)
53 - Robert H. Baraz, Director, Office of Analysis for
the Soviet Union and Eastern Europe, Bureau of
Intelligence and Research, Department of State (4758 State)
54 - John Danylyk, Chief, Communist Economic Relations
Division, Bureau of Intelligence and Research,
Department of State (8662 State)
55 - Robert W. Clark, Deputy Director (Economic Affairs),
Office of Soviet Union Affairs, Bureau of European
and Canadian Affairs, Department of State (4223 State)
56 - Ralph Lindstrom, Director, Office of Economic
Analysis, Bureau of Intelligence and Research,
Department of State (8722 State)
57 - Robert F. Ober, Economic Counselor, US Embassy,
Moscow, USSR, Department of State
58 - Kenneth Yalowitz, Economic Counselor, US Mission
to NATO, Brussels, Belgium, Department of State
59 - Jack Brougher, Jr., Chief, USSR Division, Office
of Eastern Europe and Soviet Affairs, Department of
Commerce (6854 Main Commerce)
60 - Susanne Lotarski, Director, Office of Eastern Europe and
Soviet Affairs, Department of Commerce (3410 Main Commerce)
61 - Byron L. Jackson, Director, Office of Intelligence
Liaison, Department of Commerce (6854 Main Commerce)
62 - Ralph Thompson, Director, Iron and Steel Divison,
Department of Commerce (4045 Main Commerce)
63 - Douglas R. Mulholland, Special Assistant to the
Secretary (National Security), Department of the
Treasury (4324 Main Treasury)
64 - Rich Levine, Europe and USSR Branch, Division of Foreign
Data, US Bureau of Mines, Department of the Interior
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