Cost of Food, Not Lack of It, Hurts Soviets

Will the Russians and Ukrainians, Uzbeks and Armenians and all the other peoples of the Union of formerly Soviet, formerly Socialist, Republics go hungry this winter? No, probably not.

But that’s the fear among Western governments. President Bush in June authorized $1.5 billion in emergency loan guarantees so the Soviets could buy U.S. grain and food supplies.

About $600 million of those guarantees have been taken up by European banks financing Soviet purchases of U.S. corn and soybeans to feed livestock and of $35 million in frozen chickens. The guarantees mean that if the Soviets don’t pay the banks, U.S. taxpayers will.

But before more U.S. taxpayer money is involved, we should understand just what the Soviet food problem is, what can and should be done to solve it and what will probably be done in the coming winter.

The problem is inflation, not lack of food. There’s quite a lot of food around, say grain traders and agricultural experts, but farmers and consumers are hoarding supplies. “In the government stores, there is little fresh milk and hardly any meat,” says Hubertus Spierings, president of Cargill International, the Geneva-based arm of the big Minneapolis grain firm. But food is being bought and sold in private transactions.

It’s the culmination of a trend. The old Communist system of fixed low food prices in government stores, backed by fixed low prices paid to state and collective farms, has been breaking down for years. Farmers sold the best produce from private plots, and people bought or bartered for better vegetables and cuts of meat in an unofficial free market.

But where the central Soviet authorities used to make sure that most food got shipped to the cities, now central authority is breaking down. The newly independent republics are holding back produce, hoping to sell it for real value, not worthless rubles.

Inflation is running at 500% to 1,000% as private markets, not state stores, set prices for food.

But that doesn’t mean people will go hungry. “The Soviet people have known shortages before,” says Spierings, “but I have never seen them without bread, potatoes, some cucumbers (a breakfast delicacy).”

So the problem is not so much to ship food as to stabilize prices and reduce hoarding, says Dwayne Andreas, chairman of Archer Daniels Midland--the world’s leading processor of soybeans and feed grains--who has done business with the Soviet Union for more than 20 years. “They need food to put in store windows, milk, eggs, butter, sugar, frozen chickens,” says Andreas. “And they need it in the largest cities because that’s where the danger of shortages lies.” The idea is that availability of food in the stores will persuade people that hoarding is unnecessary.

Andreas has a point. When Poland was freeing up its economy two years ago, there were similar food shortages in the cities. And so foodstuffs were shipped in from the United States. But the real solution to Poland’s problem was freeing up food prices.

Farmers immediately saw that they could sell their crops for real value, and although food prices soared in the towns, the inflation soon subsided. “The Poles bit the bullet,” says Robert Paarlberg, author of “Food Trade and Foreign Policy.” And now Poland exports food to world markets.

The Soviet Union used to be a major food exporter. With all the talk of shortages, it should be remembered that the country is capable of tremendous food production. Even now the Soviet Union produces more wheat than the United States--and feeds half its wheat to livestock.

Historically, the Russian czars deprived their own people to export food to pay for palaces and artworks and secret police.

Then Stalin deprived the Soviet people and exported food to pay for the Communist state machine, dachas for party favorites and secret police.

But after Stalin things changed. The Soviet diet improved; meat was added to the potatoes. The Soviets no longer exported food, but they ate better--and became prime customers for U.S. corn and soybeans to feed their growing livestock herds.

The challenge of the moment is for the separating Soviet republics to maintain the livestock herds and improved diet as they free prices and reorganize farm production.

That’s a less urgent challenge than hunger--although hunger could arise. “It could be that in two months, as the real winter descends, there will be people in the streets for bread,” says one Soviet expert. At that point, food would be shipped in fast--by emergency airlift if necessary. “The world won’t let them starve,” says George Dahlman, agriculture analyst at Minneapolis brokers Piper Jaffray & Hopwood.

Either way, helping the Soviets is a good idea for U.S. agriculture--and taxpayers. The food expenditure can be seen as an investment in a good customer, especially if it cements contacts with the newly independent republics.

And that’s not to mention food aid as insurance against political instability--food riots leading to regional and religious civil wars--in a country that still possesses 30,000 nuclear bombs. Anger is a bigger threat than hunger.