Soviet Union Puts American Technology at the Top of Its Shopping List : Economics: The U. S. may have been the leading Western exporter of agricultural goods to the Soviet Union, but now it’s private industry’s food-processing expertise and equipment the Soviets seek.

“Why,” the Soviet visitor wondered, “do you have four brands of baked beans?” Touring an ordinary Giant Food store in suburban Washington with George Melnykovich, president of the Food Processing Machinery and Supplies Assn., the Soviet was awed by the plentitude of food yet puzzled by its redundancy.

We probably don’t need any more brands of baked beans, but that’s competition. On the other hand, the Soviet Union could use far more than the Bolshoi Maks introduced to Russians recently when McDonald’s opened its first Moscow outlet.

“Food remains one of the number one issues for the Soviets. The stories of lines and shortages are not exaggerated. They are quite real,” say Melnykovich, who also helps direct the Food Industries International Trade Council, a joint effort of Melnykovich’s Washington-based group, the National Food Processors Assn., leading food and food-machinery companies and the Soviet State Agro-Industrial Committee (USSR GOSAGROPROM).

“There just isn’t anything they don’t need,” said Fritz Friday, president of Friday Canning Co., in New Richmond, Wis., and a member of FIITC who led a delegation of American food companies to the Soviet Union two years ago.

Milk gets fed to hogs because it spoils before it can get to people, vegetables rot before they can be processed, packages don’t close properly. Only 19% of Soviet food-processing enterprises are operating at current demand levels, and the rest of the plants will need about 8,000 pieces of equipment to get up to desired production, according to Food Engineering magazine.

So while the United States government has generally been the leading Western exporter of agricultural goods (mostly grain) to the Soviet Union since the mid-1970s, now it’s private industry’s food-processing expertise and equipment the Soviets seek. They need canning machinery (80% of processed food is sold in glass), refrigeration units, storage facilities--the whole infrastructure of a food system, according to Melnykovich.

“They’re not ready yet for aseptic packaging or microwaves. We need to get them into the ‘50s before we can get them to the ‘90s,” he said.

While there are still many obstacles to overcome in doing business with the Soviet Union (it took McDonald’s 14 years to turn its project into reality), American food companies are gearing up, exploring joint ventures and angling to be near the head of the line as perestroika unfolds. The risks of such endeavors are as great as the uncertainty of Soviet reforms. But with a needy population of 287 million, the opportunity is tremendous.

“It’s the potential size of the market that’s attractive. It’s the biggest and most important market in Eastern Europe,” said Karl von der Heyden, chief financial officer for RJR Nabisco. Nabisco is in the midst of bringing Ritz crackers and Triscuits to the Soviet Union; the company is currently involved in building two bakeries near Moscow.

It may be the biggest market in the Eastern bloc, but probably the toughest to enter right now because of the size of the problems. For that reason firms such as the Campbell Soup Co. are eyeing other Eastern European countries where international competition for investment is nonetheless fierce.

Nevertheless, “it obviously behooves any manufacturer to be ready” to do business with the Soviet Union, said Don Lane, an industry manager for Procter & Schwartz, the world’s largest manufacturer of conveyor drying machines.

Some manufacturers are more ready than others. Pepsi-Co. has been bottling its soft drinks in the Soviet Union via franchise arrangements since 1973. With 24 plants already producing more than nine billion bottles of soda a year, Pepsi has “pretty aggressive plans” for further expansion, according to company spokesman Barry Holt. Since the ruble is not convertible and since the Soviets lack Western currency, the Soviets have been trading Stolichnaya vodka in exchange. Pepsi also has exclusive rights to all other Soviet alcoholic beverages.

FMC International, which has an office in Moscow, has helped build several food plants in the Soviet Union, including ones that make baby food, tomato paste and apple-juice concentrate. The company is currently negotiating for a canned and frozen pea plant.

Similar to the arrangement with Pepsi, the products are sold via counter-trade. For example, the processing equipment to make tomato paste is given to the Soviets in exchange for a percentage of the finished product. Those products are then sold in the world market for Western currency, which unfortunately keeps them from being consumed by the Soviets, according to Jurgen Buschek, manager of marketing and sales for FMC International.

FMC International also recently bought processing equipment for making raisins from Commercial Manufacturing and Supply Co. in Fresno, and then sold it to three plants in Uzbekistan, a central republic. According to the California firm’s president, Larry Hagopian, the deal was made a few years ago, after President Mikhail Gorbachev ordered reforms that took a hefty chunk of grapes out of production for alcoholic beverages and put them into foods such as raisins and grape juice. Commercial Manufacturing is also building more equipment for the Soviets through FMC.

Ben & Jerry’s ice cream has plans to open a scoop shop by the end of summer in Petrozavodsk, Karelia, north of Moscow. The Vermont-based ice-cream firm plans to purchase Soviet gift items with rubles from sales of its ice cream, then bring the goods back to this country and sell them in its scoop shops--which they will then plow back into the Soviet Union.

And Edward Cohen, owner of Washington’s Tabard Inn, recently returned from the Soviet Union where negotiations continued on Kartoshka Trust, a joint venture with a Soviet agricultural cooperative that will produce Tabard Farm potato chips there.

Other companies are taking a hard look, although in typical capitalist form, are not eager to talk about it. “Obviously, Macy’s doesn’t tell Gimbels” what it’s doing, said Howard Gochburg, vice president for logistics and custom products at Land O’Lakes, who said the cooperative is in the “exploratory stages” of ventures with the Soviets.

To help facilitate and encourage food business between the two countries, the FIITC was formed last year. Protocol between the two countries has already been signed, and in later, 30 leading Soviet food-industry policy-makers will come to this country for a short course on the American food industry.

After a few days in Washington, the Soviets will be whisked to the University of Nebraska in Lincoln, where they will be acquainted with various processing technologies, such as those used for meat, dairy products and cereals, according to Steve Taylor, director of the food-processing center at the university. After that, the Soviets will visit American food plants to see how it works in practice.

In June, a three-day conference on the future of U.S.-Soviet food industries will be held in Washington, with invitations to 100 Soviet food-industry officials and about 500 American food companies. Then, in September, the Soviets will host a program, which hopefully will match American companies with potential Soviet partners.

The Department of Commerce is also heavily involved in promoting joint food ventures; in fact, FIITC is the government’s private-sector arm for such projects. The Commerce Department has sent letters to 4,000 American food and machinery companies to apprise them of the Soviets’ needs and to encourage them to look into these opportunities. The letter included a “wish list” from the Soviets that listed among other items, production of non-alcoholic beverages and foods for diabetics and babies.

FIITC and the Commerce Department hope to facilitate between 25 and 50 joint ventures by the end of 1990.