EAST EUROPEAN GRAIN PRODUCTION: GAINS IN THE NORTH, STAGNATION IN THE SOUTH

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• Case Number: F-2017-01874
• Publication Date: August 1, 1986

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East European Grain Production:
Gains in the North,
Stagnation in the South
A Research Paper
Scent
GI 86-10054
EUR 86-10021
August 1986
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East European Grain Production:
Gains in the North,
Stagnation in the South
A Research Paper
This paper was prepared by
Office of Global Issues, and Office of
European Analysis. Comments and queries are
welcome and may be directed to the Chief, Strategic
Resources Division, OGI
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Summary
Information available
as of 25 June 1986
was used in this report.
East European Grain Production:
Gains in the North,
Stagnation in the South
The East European grain outlook, while good for the region as a whole,
masks wide variation among countries. Reflecting sharp rises in yields�
well above those of the Soviet Union�grain production has increased
steadily during the 1980s. Hungary, East Germany, and Czechoslovakia
have achieved the highest yields, as a result of better agrotechnology,
improved management, and generally favorable weather. In contrast,
Poland, Bulgaria, Yugoslavia, and Romania have not fared as well and
face constraints in supplying inputs and in adopting the methods and
technologies of the more advanced East European countries. Some degree
of progress is expected, however, and, with additional gains in the leading
countries, grain self-sufficiency, or balanced trade, should be within reach
for the region by 1990. This development would enhance economic growth
and political stability for the region as a whole, but would limit prospects
for US agricultural exports.
The above-average 1985 grain crop�estimated at 101 million metric
tons�continued a trend that began in 1982. After a poor showing in 1981,
East European grain production has risen significantly. Output has
exceeded 100 million tons each year, compared with about 94 million tons
averaged during the period 1976-80, and reached a high of 109 million tons
in 1984. The area sown to grain has remained fairly stable, but yields have
increased because of favorable weather, improved agricultural inputs, and
better policies.
Sharp differences exist within the region, however. Hungary, East Germa-
ny, and Czechoslovakia have attained the highest grain yields through
policies that foster efficient use of already high levels of agrotechnology
and offer worker and manager incentives. Hungary's decentralized market-
oriented farm system, introduced in the 1960s, has achieved impressive
yield increases, fulfilling domestic needs, and becoming Eastern Europe's
leading net grain exporter. The centrally planned agricultural sectors of
East Germany and Czechoslovakia have recently made progress in elimi-
nating delays and wasteful practices in farm operations
In contrast, yields have been lower in Poland, Romania, Yugoslavia, and
Bulgaria. While large areas give most of these countries potential to
increase grain output sharply, regimes will have to take steps to overcome
chronic problems:
� Excessive grain losses during harvest, processing, and storage detract
from bumper crops.
111
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EUR 86-10021
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Secret
� High costs, shortages, and poor quality of agricultural inputs, such as
fertilizer or machinery, delay farm operations and reduce yields.
� Procurement prices often are not set high enough above rising input costs
to stimulate grain production, especially of particular grain types.
� The small, private farms that predominate in Poland and Yugoslavia
suffer from low-technology levels resulting from regime emphasis on
socialized agriculture.
Progress will not be easy, however. In Poland, ideological reasons will
probably keep officials from providing private farmers with necessary
inputs and investments. In Romania, where mismanagement and bad
weather have resulted in the lowest grain yields of the region, much
depends on the longevity of Ceausescu and whether his successors will put
sensible agricultural policies into operation.
By 1990, regional self-sufficiency, or balanced trade, in grain could be the
norm. Although East Germany and Poland are likely to remain dependent
to some degree on grain and feed imports, increased exports of other grain
types could help balance such purchases. Development of new hybrids and
more efficient use of domestic farm output will also lessen the need for im-
ports. Most East European regimes will seek to boost agricultural exports
to earn foreign exchange. The degree of success, however, will depend
largely on the level of resources devoted to agriculture, favorable weather,
and efficient farm management.
As agricultural performance in Eastern Europe improves, we expect that
standards of living will rise, contributing to the region's political stability.
Increased output of grain and other agricultural products will improve the
region's trade and financial health. Good harvests will also bolster food
supplies and help defuse a source of consumer discontent. Regime leaders,
however, could be faced with larger food subsidies if higher procurement
prices needed to encourage farm output are not matched by higher
consumer prices
We see two implications for US economic interests. Prospects for increased
US grain exports to Eastern Europe are likely to dim as the threat of
serious crop shortfalls recedes. On the other hand, greater US trade tied to
improving agrotechnology, food processing, and farm management services
may be possible, especially under attractive financial arrangements.
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Contents
Page
Summary
111
Introduction
1
Trends in Grain Production in the 1980s 1
The 1985 Harvest: Bumper in the North, Down in the South 7
Grain Trade Prospects
7
Outlook for Food Supplies
15
The Likelihood of Consumer Unrest
16
A Look Ahead to 1990
17
Implications and Opportunities for the United States
18
Figures
1.
East European Average Annual GNP Growth, 1982-84
vi
2. Eastern Europe: Wheat and Corn Yields, 1971-85
5
6. Eastern Europe: Grain Production, 1981-85
11
7. Northern Countries: Dependence on Grain Imports, 1971-84 14
Tables
1. Eastern Europe: Grain Production
3
2. Eastern Europe: Fertilizer Consumption
3
3. Eastern Europe: Tractors
4
4. Eastern Europe: Wheat and Corn Yields
6
5. Eastern Europe: Grain Imports
12
6. Eastern Europe: Grain Exports
12
S'ccret
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(b)(3)
Figure 1
East European Average Annual GNP
Growth, 1982_84a
Percent
Legend o Total
o Agriculture
o Industry
o Other
Bulgaria Czechoslovakia
6
5
4
3
2
1
6
5
4
3
2
East Germany Hungary
6 6
5 5
4 4
3
2
0
�1
3
2
0
�1
Poland Yugoslavia
6
5 5
4
3
2
1
0
4
3
2
1
0
a CIA estimates. Romania is not included because of the
unreliability of its economic statistics
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East European Grain Production:
Gains in the North,
Stagnation in the South (c NF)
Introduction
Since 1981 Eastern Europe has faced a very difficult
economic situation. Large hard currency debt service
requirements for some countries, concern over in-
creasing indebtedness to the West, and restraints on
new Western lending have limited investment and
curtailed imports of intermediate goods and raw
materials, according to numerous reliable sources.
Shortfalls in domestic energy supplies and severe
winter weather in 1984/85 have compounded eco-
nomic difficulties. Industrial growth, which under-
pinned the high rates of economic growth in the
region during most of the 1970s, has fallen sharply.
(C NF)
In contrast, agricultural successes in the past four
years have helped to relieve considerable pressure
from the nonagricultural sectors of most East Europe-
an economies (see figure 1). We estimate that East
European GNP was more than $66 billion, or about 3
percent, higher during the 1982-84 period than if
regional agricultural production had followed its
1975-81 trend. The record crops, through increased
domestic supplies and export earnings, also contribut-
ed to a modest rise in food consumption in most
countries.
Despite such progress, we believe that most consumers
in Eastern Europe will in the short term continue to
face price increases, shortages of many imported
luxury foods, and limited meat supplies, although the
nature of the problems will vary widely among indi-
vidual countries. Problems will continue to be most
severe in Romania where recent crop shortfalls and
pressure to maintain agricultural exports will proba-
bly result in further deterioration of already seriously
strained food supplies. While the recent nuclear acci-
dent in Chernobyl' has caused some disruption in
marketing food products in Eastern Europe, we do not
expect the problem to have a major impact on food
supplies (see inset "The Impact of the Chernobyl'
Nuclear Accident" on page 2).
1
Trends in Grain Production in the 1980s
The successes of the agricultural sector are clearly
seen in the gains of the East European countries in
boosting grain output (see inset "Problems With
Official Grain Production Data" on page 2). Average
grain production during 1981-85 increased as com-
pared with the 1976-80 period in all the countries
except Romania (see table 1). Indeed, we estimate
that Romania's grain output in the first half of the
decade averaged over 5 percent less per year than in
the preceding five-year period. Despite disappointing
harvests in 1981, bumper grain output during the next
four years allowed all countries except Romania and
Bulgaria to virtually fulfill their plans for total grain
production during the period 1981-85. Output in-
creased more rapidly, however, in all of the northern
countries ' than in the southern, with the exception of
Hungary. Since the area sown to grain did not expand
during the period except in Poland, the additional
production stemmed primarily from higher yields.
Yields increased because of a combination of favor-
able weather, improved and increased agricultural
inputs, and better management and agricultural poli-
cies. Comments from agricultural attaches and the
East European press cite favorable, even near-ideal,
weather at critical times during the crop season as a
primary reason for the record yields achieved in
recent years. Agrotechnology, however, has come to
play an increasingly important role in Eastern Eu-
rope. Steady advances were made during the 1970s,
as countries emphasized land improvements such as
drainage projects and irrigation, and increased inputs
such as fertilizers, chemicals, hybrids, and high-
quality seeds. The role of better inputs was especially
' We discuss the northern countries (Poland, East Germany, and
Czechoslovakia) and the southern countries (Romania, Bulgaria,
Hungary, and Yugoslavia) separately because of their different
climates, crops, and degree of self-sufficiency in grain production.
(u)
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The Impact of the Chernobyl' Nuclear Accident
We expect that agricultural production in Eastern
Europe will be little affected by the Chernobyl'
accident, but actual losses are difficult to quantify on
the basis of available data. Grain production should
not suffer; but vegetables, potatoes, and sugar beets,
which absorb radioactivity from fallout dust on
leaves and stems, are clearly susceptible to contami-
nation. Since most particulate matter normally
would be expected to settle out of the atmosphere
within tens of kilometers of Chernobyl', the damage
to these crops should be localized within the Soviet
Union. Furthermore, most of these crops would not
have grown enough to be above ground level, particu-
larly in the northern East European countries.
Gaseous radioactive iodine released at Chernobyl' is
of greater concern because it travels longer distances,
chemically reacts with the environment, and contami-
nates foodstuffs. The major health hazard stems
from dairy cattle that ingest contaminated feed,
concentrating the radioactive iodine in their milk.
This iodine, in turn, concentrates in human thyroids,
particularly in infants. While the carcinogenic effect
of radioactive iodine is well documented, it has a
half-life of only about eight days. This means that,
for practical purposes, only food or milk produced
between the time of the accident and mid-July will be
a danger.
For Eastern Europe, the most serious effect of the
Chernobyl' accident has been the EC ban on the
import of a wide variety of their foodstuffs. All of the
countries of Eastern Europe were included in the ban
except East Germany. The GDR was excluded as a
result of a West German pledge to ensure that all
GDR food products coming into the EC through West
Germany meet FRG standards. Collectively, the ban,
which expired at the end of May, has already cost
Yugoslavia, Poland, and Hungary more than $100
million, according to officials. Lingering worries over
the safety of food exports, however, could increase
this figure further. Annually, Eastern Europe de-
pends on agricultural products for about a tenth�
roughly $2.5 billion in 1984�of total exports to the
developed West. For Poland, Hungary, and Bulgaria
the share is much higher
crucial in countries with less capital-intensive agricul-
tural sectors, like Poland and Yugoslavia (see tables 2
and 3). Most East European regimes also strength-
ened incentives to use inputs more economically and
boosted procurement prices to stimulate production
and raise the quality of output
Progress in applying such policies and in improving
agrotechnology was uneven, however, and nature was
not equally generous throughout the region. On the
basis of an analysis of weather data, attache and press
reporting, and country statistics, the greatest yield
increases in the 1980s occurred where better technol-
ogy and policies were reinforced by adequate or better
precipitation�more often than not in Hungary, East
Germany, and Czechoslovakia. These three countries,
already relatively successful grain producers through
the 1970s, have maintained a leading position in the
1980s and greatly exceed Soviet performance (see
figure 2 and table 4). For example, wheat yields in
these three countries topped 5.0 tons per hectare in
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Table 1
Eastern Europe: Grain Production a
Million metric tons
1976-80
Average
1981-85 b
Average
1981
1982
1983
1984
1985b
1985 Plan
Eastern Europe
94.2
101.2
92.3
102.9
100.4
108.9
101.3
118.5-119.3
Southern countries
55.6
57.7
54.3
61.4
57.2
61.2
54.3
74.6
Romania
19.4
18.3
17.6 c
19.8 c
18.4 c
19.0 c
16.6
29.6
Bulgaria
8.1
8.3
8.6
9.3 c
7.7 c
8.9 c
7.0
11.0
Yugoslavia
15.6
16.7
15.2
17.4
17.3
18.0
15,8
18.5
Hungary
12.5
14.3
12.9
14.9
13.8
15.3
14.9
15.5
Northern countries
38.6
43.5
38.0
41.5
43.2
47.7
47.0
43.9-44.7
Poland
19.5
22.2
19.7
21.2
22.1
24.4
23.7
22.2-23.0
East Germany
9.0
10.4
8.9
10.0
10.1
11.3
11.6 d
10.7
Czechoslovakia
10.1
10.9
9.4
10.3
11.0
12.0
11.7 d
11.0
a Grains include wheat, rye, barley, oats, corn, and mixed grains; in
the southern countries rice is also included, and in Bulgaria,
legumes. Poland and Romania report grain production by combine
bunker weight, which includes foreign matter and excess moisture.
The other countries have varying standards of cleaning and drying
grain.
b CIA estimate.
This table iE
c Official figures and announcements concerning grain production
in Romania and Bulgaria in recent years have been much higher
than crop conditions during those years seemed to indicate. CIA
estimates for these two countries are revised as new data for past
years become available.
d Official announcement by the country.
Table 2
Eastern Europe: Fertilizer Consumption a
Thousand metric tons
1971-75
Average
1976-80
Average
1981
1982
1983
Southern countries
Romania
762
1,296
1,618
1,675
1,665
Bulgaria
621
740
1,044
1,038
1,009
Yugoslavia b
691
816
1,010
940
920
Hungary
1,127
1,485
1,485
1,528
1,586
Northern countries
Poland b
3,185
3,599
3,346
3,163
3,424
East Germany
1,704
1,696
1,726
1,408
1,451
Czechoslovakia
1,436
1,697
1,720
1,742
1,776
a Data are from Foreign Agriculture Organization (FAO), UN
fertilizer yearbook.
b In Poland and Yugoslavia the socialized farm sector uses much
more fertilizer than the larger private sector.
This table is Unclassified.
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Table 3
Eastern Europe: Tractors a
Thousands
1973-75
Average
1976-80
Average
1981
1982
1983
Southern countries
Romania
11.2
13.1
14.8
16.0
15.9
Bulgaria
17.0
15.2
14.6
14.5
14.0
Yugoslavia
23.6
43.1
58.3
62.7
66.9
Hungary
11.2
10.8
10.3
10.3
10.6
Northern countries
Poland
24.0
34.9
45.0
47.9
51.2
East Germany
28.9
27.7
29.3
29.9
30.5
Czechoslovakia
26.9
26.7
25.9
25.5
25.9
a Number of tractors per thousand hectares of arable land and
permanent crops. Data are from FAO production yearbook and
exclude garden tractors.
This table is Unclassified.
1984, about 30 percent above wheat yields in Bulgar-
ia, the next closest ranking country. Moreover, Hun-
garian corn yields have consistently ranked above
those of the other southern countries.
Hungary recognized the importance of its farm sector
as early as the 1960s when it introduced a decentral-
ized, market-oriented system that would produce for
export as well as for domestic needs. Farm managers
are relatively free to make their own decisions to boost
profits, with the government using prices to stimulate
farm output. According to a press article last fall, the
Hungarian intensive grain production program-be-
gun in 1981-has been successful in offsetting much
of the effects of recent droughts by using good
management, suitable hybrids, and adequate fertiliz-
er. During 1976-80, Hungarian average wheat yields
rose 21 percent, and average corn yields rose 17
percent as compared with the previous five years.
During the period 1981-85, average wheat yields
increased an additional 18 percent and those for corn
22 percent. No other country in Eastern Europe has
sustained such high growth rates over both periods.
East Germany and Czechoslovakia recently have tak-
en steps to improve the efficiency of their centrally
planned farm sectors, which were already adequately
supplied with fertilizer and machinery. East Germany
has broken up wasteful large farms where livestock
and crop production were not mutually supportive.
East Berlin has also boosted procurement prices
sharply and improved farm management, emphasiz-
ing machinery maintenance and the timely perfor-
mance of farm operations. Increased use of fungicides
has helped grain yields, and the East German Agri-
culture Minister said that improved grain varieties,
which came into use between 1982 and 1985, occu-
pied one-third of the grain area by 1985. Czechoslova-
kia, while emphasizing worker incentives and better
grain hybrids, apparently has improved its mecha-
nized farm operations, particularly the cutting of
harvest losses that had run to 700,000 tons of grain
per year.2 Prague announced more major agricultural
'While Czechoslovakia's 1984 grain output jumped to 12.0 million
tons, after a record 1983 crop of 11.0 million tons,
the 12.0 figure included a higher
than usual moisture content due to wet harvest conditions, and that
grain quality was lowredJwsnrniitit1g and spoilage, leading to
heavy storage losses.
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Figure 2
Eastern Europe: Wheat and Corn Yields, 1971-85a
Metric tons per hectare
Legend
El Wheat yields
El Corn yields
Soviet Yields b Bulgaria Czechoslovakia East Germany
6
5
4
0
Hungary
6
5
6
0
Poland
6
5
4
1971-75 76-80 81-85 1971-75 76-80 81-85
a Yield data are from country statistical yearbooks, except for some years
during the 1981-85 period for Romania and Bulgaria and 1985 for all
countries, which are CIA estimates.
b Yield data through 1980 are from statistical yearbooks; 1981-85 data are
CIA estimates.
6 6
5
4
3
2
1
0
Romania
6
5
4
3
2
1
0
Yugoslavia
6
5 5
1971-75 76-80 81-85
1971-75 76-80 81-85
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Table 4
Eastern Europe: Wheat and Corn Yields
1971-75
Average
1976-80
Average
Percent
Change
1981-85
Average
Percent
Change
Southern countries
Wheat yields (metric tons per hectare)
Romania
2.2
2.7
23
2.5 a
-7
Bulgaria
3.4
3.7
9
39a
5
Yugoslavia
2.9
3.3
14
3.5
6
Hungary
3.3
4.0
21
4.7
18
Northern countries
Poland
2.8
2.9
4
3.3
14
East Germany
4.1
4.2
2
4.8
14
Czechoslovakia
3.6
4.0
11
4.7
18
Southern countries
Corn yields (metric tons per hectare)
Romania
2.7
3.4
26
3.5
3
Bulgaria
3.9
4.0
3
4.8a
20
Yugoslavia
3.5
4.1
17
4.6
12
Hungary
4.2
4.9
17
6.0
22
a 1981-85 average yields for Romania and Bulgaria include disas-
trous years when grain yields for harvested crops were inflated by
excluding percentages of the sown area completely destroyed or
used for forage, leaving only the better part of the crop.
This table is
policy changes last fall, including reduction of admin-
istrative interference in the details of farm operations,
use of contracts between farms and food processing
organizations, and linkage of farm worker wages to
productivity
In contrast to such successful efforts, Romanian
agriculture remains in a class by itself, with grain
yields lagging those of its East European neighbors.
Poor management-featuring unrealistic plans, tight
central control, and meager incentives-has been a
big factor behind stagnating output. In addition, the
effects of bad weather have been worsened by severe
shortages of agricultural inputs stemming from the
country's general economic downslide. Nevertheless,
the regime's official grain statistics and announce-
ments portray record harvests, when other evidence
points toward mediocre results. Many of the problems
Seerct
last year and in earlier years can be traced ultimately
to mismanagement and failed economic policies. Nu-
merous examples are easy to cite:
� During the extreme drought conditions of the sum-
mer of 1985, a Romanian agricultural official ad-
mitted that a weekly irrigation plan was only 57
percent fulfilled as a result of electricity and fuel
shortages and poor organization of farm labor.
� In September 1984 President Ceausescu praised
certain counties for achieving high wheat and barley
yields, but the US agricultural attache commented
that weed products were probably counted in the
harvest totals, as he estimated that many wheat and
barley fields in these counties contained almost
50-percent weeds.
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shortages in 1984 forced farms to harvest almost all
the corn by hand.
� Although short of fertilizer, in 1983 and 1984
Romania exported about 60 percent of the fertilizer
it produced to help reduce the country's debt,
The 1985 Harvest: Bumper in
the North, Down in the South
The 1985 grain harvest continued Eastern Europe's
overall successful pattern of recent years with a total
output estimated at about 101 million tons (see figures
3 to 6 and table 1). Although down from the 1984
record of 109 million tons, last year's output was the
region's fourth consecutive good harvest. The 1985
grain production plans of the individual East Europe-
an countries totaled 119 million tons, but it was
primarily Romania's unrealistic gopl that accounts for
most of the shortfall in production
The southern countries, with the exception of Hunga-
ry, harvested below-average grain crops in 1985,
largely as a result of drought. In Romania and
Bulgaria, output fell to disastrous levels as both
winter and spring grains suffered heavy losses from
severe weather exacerbated by energy shortfalls that
interfered with irrigation and the use of farm machin-
ery. Farm management was criticized in the press of
both countries for not taking decisive actions to save
the crops (see figure 4). Yugoslav wheat output de-
clined because of a smaller planted area, and the corn
crop was reduced by the summer drought (see figure
5). In contrast, Hungary experienced more favorable
weather and harvested an above-average grain crop,
despite a decrease in corn area.
The northern countries again benefited from good soil
moisture over the growing season in 1985 and gath-
ered above-average crops that exceeded plan (see
figure 6). East Germany announced its fourth consec-
utive record grain output, and Czechoslovakia har-
vested its second-largest crop, including record corn
' "Av " ' calculated for the years 1980 through
1984.
7
production. Although Poland experienced problems
with fertilizer shortages and harvest machinery re-
pairs, its grain harvest was still the second largest
ever.
Grain Trade Prospects
(b)(1)
In marketing year (MY) 1985/86 Eastern Europe wil(b)(3)
return, at least temporarily, to its traditional status as
a net importer of grain following last year's net
exports. We estimate that imports will rise by more
than 45 percent to roughly 9.0 million tons while
exports will decline nearly 20 percent to about 5.4
million tons (see tables 5 and 6). The shift primarily
reflects deteriorating balances of trade in the southern
region, normally a large net exporter of grain. Our
estimates for each country are based largely on
USDA estimates adjusted on the basis of available
evidence from press
(b)(1)
(b)(3)
Compared with the 1976-80 period, however, the (b)(3)
trade picture is still likely to be considerably more
favorable to Eastern Europe, with imports down and
exports up for the region as a whole. The East
European countries import most of their grain from
Canada, the EC, East European neighbors, Argenti-
na, and the United States, while exporting grain
primarily to the Soviet Union and East European
neighbors (b)(3)
In the southern countries, sharp declines in grain
output will reduce hard currency export earnings
while increasing demand for Western grain and feed-
stuffs. We expect imports to show a fourfold in-
crease�about 3.3 million tons over last ear�while
exports drop by nearly 15 percent. (b)(3)
(b)(3)
Romania's grain imports are expected to nearly triple
in MY 1985/86 to 900,000 tons while exports fall by
25 percent. Bucharest has said agricultural trade will
be conducted on a cash or barter basis only, and has
informed US Embassy officials that it has no interest
in trying to obtain Commodity Credit Corporation
(b)(3)
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V V
(b)(
(b)(
1)
3)
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Figure 6
Eastern Europe: Grain Production, 1981-85 a
Million metric tons
30
25
20
1981-84 annual
15
10
5
average
production
1985 production
1985 Plan
Romania Yugoslavia Hungary
Southern countries
Bulgaria
a Grains include wheat, rye, barley, oats, corn, and mixed grains; in the
southern countries rice is also included, and in Bulgaria legumes. Poland
and Romania report grain production by combine bunker weight, which
includes foreign matter and excess moisture. The other countries have
varying standards of cleaning and drying grain. Data are CIA estimates,
country announcements, and official statistics.
Poland East Germany Czechoslovakia
Northern countries
3W552 /.6b
(CCC) credits from the United States, having turned
down similar offers of credit from other Western
sources. Trade sources report Romania has completed
a barter arrangement with a Swiss firm calling for the
exchange of 500,000 tons of Romanian corn for
400,000 tons of barley, 64,000 to 70,000 tons of
soybean meal, and 30,000 tons of sunflower meal.
Delivery was scheduled for late 1985 and early 1986.
Corn imports are expected to rise sharply, via in-
creased cash purchases from the United States and
possible barter deals with Yugoslavia. Higher imports
of wheat, a portion of which may be covered under a
bilateral trade 7reement with India, are also likely.
We expect Bulgaria's imports of grain to jump nearly
sixfold in MY 1985/86 to a record 3.0 million tons,
three times the previous high of MY 1981/82. Bul-
garian purchases for delivery in MY 1985/86 report-
edly began early in 1985 as the extent of drought
11
damage to the wheat crop became evident. Wheat
imports from Argentina and rice imports from China
were reported. Press reports indicate Bulgaria signed
an agreement with Argentina in October to purchase
500,000 tons of corn and 100,000 tons of wheat for
January 1986 delivery and annual purchases of
250,000 tons of soybean pellets over the next five
years. Bulgar-
ian officials expect MY 1985/86 corn purchases to
total 900,000 tons, mostly of US origin. Press reports
indicate Sofia also planned to swap 250,000 tons of
urea for 100,000 tons of Indian soybean meal in the
first half of 1986. Barley imports, largely from the EC
and other West European sources, are expected to
total approximately 1.5 million tons. Because of the
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Table 5
Eastern Europe: Grain Imports a
Million metric tons
1976-80
Average
1981/82
1982/83
1983/84
1984/85
1985/86b
Eastern Europe
15.59
13.71
8.63
7.75
6.15
9.00
Southern countries
3.50
3.82
0.99
1.21
0.82
4.15
Romania
1.74
1.18
0.32
0.50
0.34
0.90
Bulgaria
0.69
1.01
0.33
0.40
0.45
3.00
Yugoslavia
0.82
1.45
0.22
0.23
0.03
0.25
Hungary
0.25
0.18
0.12
0.08
o
o
Northern countries
12.09
9.89
7.64
6.54
5.33
4.85
Poland
7.05
5.22
4.20
2.82
2.27
2.50
East Germany
3.67
3.20
2.44
3.00
2.61
2.00
Czechoslovakia
1.37
1.47
1.00
0.72
0.45
0.35
a Mixed marketing years. Import data for all marketing years,
except 1985/86, are from the Foreign Agricultural Service, USDA.
b CIA's estimate is based largely on USDA estimates, adjusted on
the basis of additional intelligence information and our estimate of
the countries' needs and ability to finance grain purchases.
This table is
Table 6
Eastern Europe: Grain Exports a
Million metric tons
1976-80
Average
1981/82
1982/83
1983/84
1984/85
1985/86b
Eastern Europe
3.66
4.42
5.78
5.36
6.59
5.35
Southern countries
3.26
4.02
5.37
4.35
5.14
4.40
Romania
1.67
1.60
1.85
1.20
1.20
0.90
Bulgaria
0.41
0.69
1.10
0.05
0.70
0.20
Yugoslavia
0.28
0.28
1.10
1.44
0.70
0.80
Hungary
0.90
1.45
1.32
1.66
2.54
2.50
Northern countries
0.40
0.40
0.41
1.01
1.45
0.95
Poland
0.02
o
0.01
0.30
0.70
0.30
East Germany
0.35
0.35
0.35
0.36
0.35
0.40
Czechoslovakia
0.03
0.05
0.05
0.35
0.40
0.25
a Mixed marketing years. Export data for all marketing years,
except 1985/86, are from the Foreign Agricultural Service, USDA.
b CIA's estimate is based largely on USDA estimates adjusted on
the basis of additional intelligence information.
This table i
Secret 12
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reduced output and poor quality of last year's harvest,
we estimate that imports of wheat will jump from
negligible levels last year to about 800,000 tons in
MY 1985/86. France and Canada are expected to be
the major suppliers. At the same time, hard currency
earnings will drop sharply as Bul aria's rain exports
decline by more than 70 percent
Yugoslavia's grain imports, almost entirely wheat,
will rise from virtually nothing last year to between
200,000 and 300,000 tons in MY 1985/86. The sharp
rise reflects reduced output and below-plan state
procurements. The US agricultural attache reports
that, with wheat prices low relative to corn prices,
farmers have chosen to feed wheat to livestock rather
than sell it to state agencies. Despite restrictions on
exports last year, corn sales in MY 1985/86 are
expected to total about 800,000 tons, roughly half
that forecast before the drought but 300,000 tons
above last year's level. A large corn carryover, esti-
mated at 2 to 3 million tons, and a reduction in
domestic feed usage, should ensure exports at this
level despite the downturn in corn output. Wheat
exports, an important source of hard currency earn-
ings last year, are expected to fall from last year's
200,000-ton level to nothing in MY 1985/86
Hungary will be the only southern country to main-
tain its traditional status as a major net grain export-
er. Despite lower-than-planned wheat output, we ex-
pect exports of wheat and corn to increase modestly in
MY 1985/86 as Budapest tries to boost hard currency
earnings. Lower world prices for grain, meat, and
vegetable oils, however, depressed export earnings last
year. The volume of hard currency agricultural ex-
ports was down 3 percent in 1985; export earnings,
however, fell by 12 percent or some $170 million.
In the northern countries, the fourth consecutive year
of above-average grain harvests, good forage crops,
and larger carryover stocks will allow imports to
decline for the fifth year in a row. We estimate that
imports will fall below 5 million tons, down more than
8 million tons, or 60 percent, from the peak levels of
the late 1970s. The reduction reflects not only a
continuance of generally favorable growing conditions
but also effective policy decisions in each country to
13
achieve greater self-sufficiency in agriculture, partic-
ularly in grain usage. Dependence on costly imports of
grain has declined markedly in the past five years (see
figure 7).
East Germany's grain imports are expected to plum-
met by 600,000 tons to a level of roughly 2 million
tons or less, down from the peak of nearly 5 million
tons in MY 1976/77. A large portion of these im-
ports, primarily feed-quality wheat and barley, will be
met through long-term trade agreements with Canada
and Austria.
Czechoslovakia's imports of grain in MY 1985/86 are
expected to fall to a level of 350,000 tons or less, down
at least 20 percent from last year and roughly one-
fourth of the 1976-80 average. A record corn harvest,
good fodder crops, large carryover stocks, and lower
feed requirements due to reduced livestock numbers
should permit a reduction in corn imports. Financing
should be no problem. Prague's credit is good, and an
expected increase of 100,000 tons in wheat exports
together with sales of malt and bakery products
should generate needed cash.
Poland's grain imports are expected to rise for the
first time in five years by more than 200,000 tons to
about 2.5 million tons. The increase primarily reflects
increased corn imports to support growing domestic
feed usage together with imports of bread-quality
wheat. Financing will remain a major constraint.
Warsaw reportedly hopes to swap some 500,000 to
600,000 tons of rye, normally in surplus, for corn and
wheat. West Germany, Austria, and Czechoslovakia
are said to be major participants in such arrange-
ments.
Hungary will provide 400,000 to 500,000 tons of
grain, primarily wheat, annually in the period 1986-
90 in exchange for Polish metals. Press reports have
also rumored corn imports from China. Exports of
rapeseed and rapeoil should generate hard currency
for grain purchases or allow for additional barter
deals.
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Figure 7
Northern Countries: Dependence on Grain Imports, 1971-84a
Percent
Czechoslovakia
1976-80 -
1981-84
6.2
East Germany
Poland
Total
a Net imports as a share of total grain consumption. Includes grain for feed,
seed, food, and industrial use plus dockage.
Unclassified
309553 7.86
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Outlook for for Food Supplies
Last year's guod harvest of grain and most nongrain
crops in the northern countries should permit the
three-year trend of modest improvements in food
supplies to continue in 1986. In contrast, food supplies
in the southern countries will be below the level of
recent years. With the exception of Romania, and to a
lesser extent Bulgaria, supplies of most basic foods
should be adequate, but spot shortages and higher
prices are likely to lead to increased consumer grum-
bling. Nuclear contamination from this spring's acci-
dent in the Soviet Union has resulted in some disrup-
in suonlies of milk and fruits and vegetables.
In Romania, we believe consumers will probably face
a worsening of already poor food supplies. With crop
output down sharply, there are few prospects for any
improvement in livestock output in 1986. Following
the below-average harvest in 1984, feed supplies were
reportedly tight in 1985.
Romanian trade officials have ac-
knowledged that a severe shortage of high protein
feeds existed last year when imports of soybeans and
meal were reduced because of financial problems. A
team from risited several
Romanian farms and reported pigl� on the verge of
starvation due to protein shortages.
Any improvement in the current food situation would
require a major commitment to consumers on Buchar-
est's part, a shift in policy we do not foresee. Although
increased imports of grain and feedstuffs are forecast
for MY 1985/86, we believe most will probably go to
serve the livestock export sector to boost meat sales
for hard currency or to meet export commitments to
the Soviet Union.
under a Romanian-soviet barter ar-
rangement for 1985, 60 to 80 percent of Romania's
compensation for Soviet oil consisted of foodstuffs,
primarily meat. The trade protocol for 1986 stipulates
increased Romanian deliveries of machinery, equip-
ment, and foodstuffs. The latter reportedly includes
300,000 tons of corn and 80,000 tons of frozen meat.
With the current agricultural import policy of either
paying cash or using hard goods in barter�both in
short supply�increased imports of consumer food-
stuffs are unlikely.
15
Bulgarian consumers, normally one of the better
supplied in Eastern Europe, will face tighter food
supplies and higher prices in the first half of 1986.
Last fall Sofia announced higher food prices, both at
the consumer and the producer levels, in an effort to
slow demand and stimulate production. Prices of
many luxury foods�coffee, chocolate, certain
cheeses, canned vegetables and meats, sausages, and
imported beer�were raised 20 to 40 percent. The
government, however, was quick to emphasize that
prices of most basic foods�bread, flour, vegetable
oils, eggs, beef, poultry, and potatoes�would remain
unchanged. Bulgarian press am report-
ing last winter noted general shortages of vegetables,
fruits, milk, and chocolate products. Additional price
hikes in 1986 for selected items are a good possibility.
Supplies of livestock products will tighten in 1986.
Although output of milk, beef, and poultry was
reportedly down only slightly last year, the outlook for
early 1986 was poor. Press reports indicate an unusu-
ally high number of young animal deaths occurred
last year, the result of the severe 1984/85 winter and
feed and energy shortages. According to official data,
imports of live animals rose 25 percent in 1985 as the
government sought to replenish breeding and milking
animals. Livestock officials were publicly criticized
over their failure to assure sufficient feed supplies this
past winter and for permitting large-scale black-
market transactions in cattle feed. In an effort to
stimulate output, Sofia has taken steps to encourage
private farmers to expand production by providing
feed and higher prices for animals raised under
contract to the state. Severe water, power, and feed
shortages, however, have hampered such efforts.
(b)(1)
(b)(3)
(b)(3)
(b)(3)
(b)(3)
(b)(3)
(b)(3)
(b)(3)
(b)(1)
Polish consumers should see a modest improvement ir(b)(3)
food supplies this year but will again pay more.
Increases of 5 to 11 percent for many basic foods were
announced in March. Demand for most foods will be
met; shortages of meat, quality fruits and vegetables,
oils, margarine, citrus, and coffee, however, will con-
tinue. Meat and chocolate will remain the only princi-
pal foods still rationed in 1986. Prospects for a good
�Secgat�
(b)(3)
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sugar beet harvest last fall enabled Warsaw to end
sugar rationing in November after nine years. Retail
prices, however, rose 20 percent. In March of last
year, rationing of butter and some grain products was
ended, also accompanied by large price increases.
Last fall Warsaw promised to consider lifting meat
rationing in 1986. Several factors, however, apparent-
ly led officials to rule out such a proposal:
� Despite an approximate 10-percent increase in hog
numbers last year, inventories remain nearly 20
percent, or 4 million head, below 1975 levels.
� Meat imports in 1986 are expected to remain near
last year's level�roughly half that of 1984�while
exports remain constant.
� Officials are concerned over the discontent that
would follow the "explosion" in prices that would
probably accompany an end to rationing, according
to press reports
Nonetheless, Warsaw decided to allow farmers to sell
meat at private markets in three test areas beginning
in February 1986 in an experiment to determine
whether higher market prices could stimulate greater
output and reduce black-market sales
The outlook for food supplies in the rest of Eastern
Europe is as follows:
� Consumers in East Germany will benefit from last
year's record grain harvest, the fourth in a row, and
an excellent harvest of potatoes and sugar beets.
Supplies of meat, milk, and eggs are expected to
continue to improve in 1986. Larger consumer
subsidies will hold down prices of most basic foods.
Prices of other�mainly luxury�foods, however,
will continue to rise sharply as supplies are increas-
ingly made available only in higher priced specialty
stores.
� In Czechoslovakia a slight improvement in total
agricultural output and the country's second-best
grain harvest should permit a limited improvement
in market supplies in 1986. Last year supplies of
some meats, poultry, eggs, and milk declined slight-
ly as livestock numbers fell; this was in line with
party policy to become more self-sufficient in grain
usage.
� Consumers in Hungary should again realize a rela-
tively balanced supply of food this year but may
experience higher prices and some tightening of
livestock products. Low world market prices and
poor profitability resulted in reduced livestock num-
bers and output last year.
� In Yugoslavia, market supplies are expected to be
generally adequate despite an 8-percent drop in
total agricultural output and continuing difficulties
in the livestock sector. Spot shortages of many
luxury foods and poor supplies of fruits and vegeta-
bles, however, are likely. If inflation continues near
last year's rate of 80 percent, the level of a consu-
mer's purchasing power will be the primary deter-
minant of consumption. Higher priced meats have
resulted in a 40-percent reduction in total consump-
tion in the last few years. Livestock output is
estimated to have fallen by 10 percent in 1985, and,
unless a sharp reversal in profitability occurs soon,
the downward trend in production is likely to contin-
ue in 1986.
The Likelihood of Consumer Unrest
Although complaints will continue, we see little poten-
tial for political fallout from food supply problems
except in Romania. Consumer dissatisfaction over the
food situation will be focused largely on higher prices
and continuing shortages of many imported luxury
foods�coffee, citrus, and chocolate. Consumers will
probably face additional price hikes as most regimes
seek to dampen or redirect demand and reduce budget
outlays for food. While the planned growth in market
supplies for most countries represents a retrenchment
from regime promises made in the 1970s, the avail-
ability and variety of most foodstuffs have improved,
if only modestly, since the early 1980s when financial
constraints forced a sudden cutback in imports and
domestic harvests were poor. Consumers' perception
of these gains will not stop the grumbling but should
forestall any serious unrest
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In Bulgaria, we believe the level of consumer dissatis-
faction will be based largely on how adequately the
shelves in food stores are stocked, and if there are
lines to reach those shelves. The regime appears to
have shown some sensitivity to the food problem. The
reports that during the New Year's
holiday the government supplemented market supplies
in Sofia with imports of grapes, citrus fruits, and
bananas. Imports of unprocessed foods�corn, oil-
meal, and rice�in 1985 reportedly rose by about 75
percent. Consumers may be more vocal in registering
their complaints, but we do not expect any serious
unrest
The situation in Romania remains more uncertain.
Unconfirmed press reports last December described a
series of violent clashes between farmers and the
Army and security forces. Farmers reportedly resisted
the forcible seizure of food by state agencies and
raided grain storage sites. The Army reportedly was
used to restore order.
While we do not believe reports of such actions are
indicative of a larger groundswell of protest and civil
unrest in the population at large, the reports, if
accurate, indicate that the mood of the populace is
worsening. Since a rash of food problems inspired
unrest in 1981-82, the population has generally react-
ed quite passively to increasing hardships. With last
year's sharp downturn in crop output and Bucharest's
apparent insistence on meeting or exceeding its export
commitments consumers will be squeezed even hard-
er in 1986.
A Look Ahead to 1990
In an effort to raise living standards, lessen expendi-
tures for grain imports, and earn foreign exchange
from agricultural exports, East European regimes will
continue measures to increase production of grain and
other crops. Although it will not be easy, we believe
that Eastern Europe by 1990 could be in a position
where grain self-sufficiency, or balanced trade, would
be a normal expectation, especially if the recent
measures to boost yields remain in place and are
strengthened. The region already became a net grain
exporter in MY 1985/86, and production increases in
17
a few countries could increase grain exports and
decrease grain imports. Investment constraints, prob-
lems of profitability given prevailing prices, and the
possibility of less favorable weather, however, will
tend to limit production gains. Moreover, the region's
grain requirements will tend to rise, though more
slowly than the pace of the late 1970s, as livestock
herds expand from the depressed levels of the early
1980s, and this will pose an even greater challenge to
achievement of balanced trade in grain.
In our view, the northern countries are likely to
remain dependent to some degree on imports to
maintain a proper mix of food and feed grains, but
increased agricultural exports could help offset much
of the needed imports by the end of the decade.
Czechoslovakia is already virtually self-sufficient.
East Germany and Poland still have to import at least
2 million tons of grain annually, while exporting less
than a quarter of that amount. As a result of unfavor-
able climatic and soil conditions, the northern coun-
tries have been unable to grow sufficient quantities of
corn, high-protein feeds, and hard, baking-quality
wheat. Moreover, past agricultural policy, which
pushed for grain quantity over quality, resulted in the
production of grain types that do not fully meet the
needs of these countries. For example, much of the
wheat is composed of Soviet varieties that can be used
only for feed. Increasing use of new hybrids, however,
could reduce such deficits. Continuation of present
efforts to use grain and livestock feed more efficiently,
including the emphasis on beef production over feed-
intensive pork, will stretch grain supplies further.
A number of other factors that now limit East
European grain production represent potential sources
of improvement that could be exploited by the end of
the decade:
� Despite record crops, large grain losses still occur
during harvesting, processing, and storage. Czechos-
lovakia's 1984 grain crop was marred by an exces-
sively high moisture content, and Yugoslavia had
problems that year with grain spoilage under poor
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storage conditions. Significant reductions in such
losses could be achieved with relatively modest
investments and improved farm practices based on
worker incentives.
� Regimes often have not raised procurement prices
high enough to stimulate planned production of
desired grains. In 1984 and 1985, Yugoslav farmers
failed to meet the wheat-sowing target, and in 1985
Hungarian farmers left the corn-planting target
unfulfilled because procurement prices for wheat
and corn in their respective countries were too low.
A recent Hungarian broadcast disclosed that, while
farm profits per ton of wheat had risen 100 percent
from 1981 to 1984, profits per ton of corn actually
had declined 17 percent. Obviously, further ratio-
nalization of pricing policy, especially crucial in
keeping pace with rising input costs, will improve
East European production of the right mix of grain
types and will improve grain quality levels. The
regimes, however, will have to reconcile higher
procurement prices for farm output with consumer
reaction to higher food prices.
� Agricultural productivity in Poland and Yugoslavia
is held back, in part, by the low technology levels of
small private farms. These farms, many only several
hectares in size, receive disproportionately low
shares of investment funds and agricultural inputs,
chiefly because the regimes distrust private agricul-
ture and desire to promote large socialized farms.
Private farms in Poland occupy 75 percent of the
agricultural land, yet receive less than 20 percent of
agricultural investment funds. Private farms in
Yugoslavia cover over 80 percent of the land but
account for only half of agricultural investment.
Nevertheless, such farms produce 75 to 80 percent
of the grain crop in both countries. A more efficient
allocation of certain agricultural inputs like fertiliz-
ers and chemicals could raise grain output of these
farms with little additional commitment of overall
resources
On balance, we believe that some East European
countries will have a more difficult time than others
in overcoming such obstacles to higher grain yields
over the next few years. In Romania, much depends
on the longevity of Ceausescu and how quickly his
Secret
successors might put sensible agricultural policies into
operation. In Poland, officials for ideological reasons
will be unlikely to provide private farmers with signif-
icant increases in inputs and investments. Poland's
Agriculture Minister stated last year that shortages of
protective chemicals resulted in a 20-percent reduc-
tion in crop yields, and indicated that key decisions to
import such chemicals had to be made if higher grain
yields are to be achieved. Moreover, even though the
southern countries probably will maintain or expand
grain and agricultural exports, consumers in Romania
will continue to face shortages.
Implications and Opportunities
for the United States
Successful East European efforts to increase output of
grain and other crops would contribute to overall
economic and political stability. Increased farm pro-
ductivity and improved food quality and variety
through processing would contribute to the region's
economic growth. Scarce hard currency now expend-
ed on agricultural imports could be used for other
trade needs. The sharp declines in grain purchases
have brought some relief to the severe debt problems
that struck these countries during the 1980s. In-
creased farm output also would offer these countries
an opportunity to earn foreign exchange. However,
regimes will have to address problems of high costs of
production, low commodity prices, and limited mar-
kets
In addition to strengthening East European econo-
mies, farm performance also will play a role in the
region's internal and external political situation. Good
harvests will help defuse a source of consumer discon-
tent by keeping food supplies up. The trend to higher
food prices, however, will lead to more dissatisfaction
among pensioners and other social groups less able to
afford them. Such grumblings could be used by some
party leaders to block economic reforms. Political
choices on levels of food subsidies also will have to be
made because of the need to offer higher procurement
prices to farmers. Furthermore, leaders will have to
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address cost-effective ways to persuade young, edu-
cated people to stay in farming even though East
European rural areas lack physical amenities and
cultural attractions.
The success of East European agricultural programs
will also affect relations with the Soviet Union. We
judge that there is increased likelihood for friction
with Moscow because of Soviet demands for more and
higher quality agricultural products. The EC cutoff of
agricultural imports from Eastern Europe after the
Soviet nuclear accident at Chernobyl' added to frus-
trations.
We believe, however, that prospects will remain dim
for increasing, or even maintaining, US grain sales to
Eastern Europe. The drive for grain self-sufficiency
will cut import needs, while competing grain
exporters�Canada and the EC�will attempt to dis-
pose of large surpluses. The United States will proba-
bly have difficulty in exporting an average of even 1
million tons of grain per year to the region over the
next two or three years, as the regimes seek more
attractive credit or countertrade terms. Warsaw's lack
of hard currency and the US denial of CCC credits
since martial law will continue to limit exports to
Poland, traditionally Eastern Europe's largest market
for US grains. Moreover, US sales of protein meals to
Eastern Europe are likely to decrease as countries
such as Brazil push their exports more aggressively
and as Eastern Europe increases its domesticproduc-
tion of soybeans, rapeseed, and sunflowers
Beyond offering more attractive credit, the United
States could have an opportunity to promote exports
related to East European efforts to boost agricultural
output and exports. We believe that US agrotechno-
logy, food-processing equipment and technology, and
managerial expertise could offer hope for new sales.
East European countries are trying to improve irriga-
tion, soil quality, crop storage and processing, and
lessen pollution. They have expressed interest in im-
ports that help them modernize to make their own
products more competitive in world markets. The high
technical level of US firms would offer such possibili-
ties. The region's limited availability of hard curren-
cy, however, will constrain US sales unless more
attractive credit terms are offered. Moreover, West
European competition in these fields will be formida-
ble.
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