Market Focus : Goodby to ‘Red’ Bread as Russians Try Capitalism : No longer subsidized by Communists, the price is rapidly rising. New entrepreneurs confront many obstacles.

Outside, an icy wind funnels down from the Kremlin into one of Moscow’s most popular shopping streets, but inside Bread Store No. 755, the air is warm, damp and pungent.

The homey aroma of fresh-baked Russian black bread mingles with the odor of wet wool overcoats. There is also the unmistakable smell of raw capitalism as people surge toward the counter to buy, buy, buy--even at prices they consider unthinkable.

For Russia’s last mammoth Soviet-era government monopoly--bread--is ever so gradually being wrested from state control and placed into private hands.

It is a politically delicate, even spiritually traumatic process. Cheap, plentiful bread was the very symbol of the Bolshevik Revolution, and Vladimir I. Lenin came to power in 1917 on the slogan “Peace, Land, Bread.” Bread stayed cheap and plentiful even in the poorest days of the Soviet Union, the best-kept covenant between the Communists and the masses.

For three decades, the price of a dense, round loaf of rye bread remained unchanged at 16 kopeks. It was so cheap that peasants fed it to their pigs.

In 1991, as the Soviet Union lay on its deathbed, authorities broke a sacred taboo and raised bread prices. Then, last October, President Boris N. Yeltsin decontrolled prices entirely, and by last week a loaf of rye bread cost 376 rubles--still only 21 cents, but 2,262 times what it cost just three years ago.

Consumption has dropped between 10% and 12%--not because people are eating less but because they are wasting less and have stopped feeding bread to their livestock, said Alexander A. Chistyakov of the Russian Committee for Grain Products.

“Bread should be expensive, not cheap,” declared Chistyakov, a statement that would have been capitalist anathema two years ago. “People are beginning to behave more rationally.”

Today, a new generation of revolutionaries is trying to do the unthinkable: make money from bread. The owner of store No. 755, Natalia D. Pelenitsina, is a former medical textbook editor turned bakery entrepreneur.

In a startling break with tradition, Pelenitsina has managed to train her employees not to be surly to the customers--though it is impossible to train the customers not to be nasty to the workers about the ever-increasing prices.

Pelenitsina has also instructed employees to sell the warm bread first, forsaking the Soviet custom of trying to force customers to buy up every last scrap of old bread before letting them have the fresh stuff.

About three months ago, Pelenitsina at last persuaded the bread factory to bring fresh bread several times a day, especially in the morning, when the customers want it. Previously, the bread typically came at closing time and sat overnight, unwrapped, growing cold and stale.

“Bread was supposed to come four times a day every day, but it never did,” she said. “They always brought it when it was convenient for the factory, not when it was convenient for the store or for the customers.”

Russians are fussy about their bread, and many bakeries offer customers a spoon with which to prod the loaves to test their freshness.

“It’s easier to force bad bananas on the customers than stale bread,” said Vladimir Y. Panichev, director of the Vykhino Confectionery and Bread Baking Factory in southeast Moscow. Russians speak of their daily bread in almost religious terms. “Bread is father, mother and water,” one proverb says.

Bread Store No. 755 has developed a reputation for always having fresh bread on hand. Several customers said they come from other neighborhoods to buy it, as well as imported tea and cookies, fresh cakes, pizzas and steaming pirogi , or buns stuffed with pork, potatoes and cabbage, that the employees make themselves.

Together, these and other innovations have helped Bread Shop No. 755 boost sales from 2,000 loaves a day when Pelenitsina took over three years ago to 5,000 loaves daily now.

She gives much of the credit for the turnaround to the Western-style management advice she received from Arthur Andersen & Co. executives under a program funded by the British government. Pelenitsina raves about the extensive help she received, which included personal business tutorials, a 10-day trip to London and a visit from former British Prime Minister Edward Heath--but not a kopek of financial aid.

Inspired by her success, Pelenitsina has borrowed $40,000 and is building a small bakery of her own in what was the crumbling back of the bread store. It will be staffed mostly by her 40-ish, overeducated, unemployed friends.

“At my cash register is the former head engineer for a defense contractor,” Pelenitsina explained, pointing out a middle-aged woman in a blue apron, one of 25 employees who earn an average of $74 a month. “Of course, it’s a big comedown for her. But since they are not being paid there, she has to do something else.”

Such innovation, born of government decree and economic despair, is beginning to ripple through what was once one of the world’s most inefficient food production chains.

Ever so gradually, the privatization of Roskhlebprodukt, the giant state grain monopoly, has begun. The massive organization consists of 3,000 separate enterprises that once controlled and subsidized every link of the grain chain, from the elevators that bought grain from the collective farms to the millers and bakers and bread distributors.

Under a decree signed by Yeltsin in December, all but 140 of the enterprises were to be sold off by April 1, said Igor V. Kazankin, who is handling the privatization program at the State Property Committee. Despite delays, Kazankin said the turnover will still be accomplished before July 1, when the vouchers that Russian citizens can use to buy shares in privatizing enterprises are due to expire.

The slow unraveling of state control has now begun to touch private farmers, who account for 15% of the grain sold to the flour millers of Moscow. The millers and the giant bakeries now operate without state subsidies. And competition, a concept that remains alien two years after Russia set out to form a free market, is keeping bread prices from rising even faster.

“There is extremely tough competition among bread bakers,” Panichev said. “It is rather dangerous and unprofitable to raise bread prices sharply.”

Political opposition to making money from the staff of life remains high. Although Yeltsin decontrolled the price of bread by decree in October, a law passed by the old Supreme Soviet that banned reaping more than 15% profit from baking or selling bread expired only on Jan. 1.

Worried that price-gouging will create a political backlash, the bread factories still don’t allow the retail stores they supply to add more than a 15% markup to their bread. Some local authorities have also imposed profit restrictions.

Price-fixing among Moscow’s 40 large bread factories does go on, but it is informal and sporadic, Panichev said. The difference is that it is bakers, not central planners, setting prices based on the cost of flour, oil, electricity and other costs. Some factories absorb these costs as long as possible in order to have a jump on their competitors, he said.

To give stores an incentive to sell bread, the city of Moscow does not collect taxes on stores where 65% of the wares are bread or bread products. To increase profits, more and more bread stores also peddle everything from baby food to blue jeans, candy bars and sometimes even alcohol.

“Bread stores would rather sell anything but bread,” Panichev complained. “Vodka does not go stale.”

Despite the regulatory limitations and the deregulatory confusion, reformers believe that the lifting of government controls over bread production will bring Russians more psychological and economic independence from the state that once fed them like children--and demanded childlike obedience.

“With the demise of the bread monopoly, the last vestige of Soviet rule will finally collapse,” said economist and newspaper columnist Mikhail L. Berger. “Giving up land and bread amounts to giving up power and control over the people. . . .

“If bread becomes an item of commerce and ceases to be a super-sacred thing, like bread and wine at church Communion, people will stop worshiping the current leadership,” Berger said.

Russian Bread Prices

1961-91: .18 ruble

March ‘91: .20

Nov. ‘91: .60

Jan. ‘92: 2.6

March ‘92: 4.2

April ‘92: 5.6

June ‘92: 11

Jan. ‘93: 22

Aug. ‘93: 70

Dec. ‘93: 235

March 28, 1994: 362

Note: Prices are for a loaf of white bread, about one pound. Russian black bread is less expensive.

Traditional Russian Black Bread

Ingredients

600 grams rye flour

100 grams vegetable oil

1 glass water or milk (milk preferred)

25 grams yeast cake

2 teaspoons salt

1 teaspoon sugar

1 beaten egg

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Preparation

1. Dissolve the yeast cake in some of the water or milk, add the sugar and let stand 15 minutes.

2. Mix dissolved yeast mixture with the rest of the water or milk, oil, salt and flour. Knead dough until still. Let rise slowly in a warm place. Punch down and let rise again. (Total rising time should be 3 to 4 hours.)

3. Form into a loaf, dust it with a bit of flour, and bake for 30 to 40 minutes at 150 to 160 degrees Celsius (300-320 Fahrenheit).

4. Remove from the oven, smear the top with the beaten egg and bake for another 10 to 25 minutes until done.

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Serving

Essential with borscht. Very good with sweet butter and black caviar.

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Note: Adapted from Russian recipe.