Russian Agriculture: The Story No One is Telling

Drought will cut Russia’s grain harvest by one quarter. Vladimir Putin, in a burst of populism, bans the export of grain. Grain futures rise in world markets. These headlines obscure a much larger story that no one is telling: Russia, twenty years after the collapse of the Soviet Union, is feeding itself with grain left over to export. Prerevolutionary Russia’s black-earth zone was the breadbasket of Europe. Contemporary Russia is on the path to reclaiming this title.

After Stalin defeated his last opponent in 1929 – Nikolai Bukharin, the proponent of private agriculture -- Russian agriculture collapsed. Russian and Ukrainian peasants were forced into collective and state farms, where they had no incentive to produce. The Soviet Union was forced to admit its agriculture was broken in July of 1972, when it began massive purchases of U.S. wheat, driving up agricultural prices worldwide. Russia had to purchase grain abroad despite the fact that it was spending more than four percent of its GDP on agricultural subsidies.

What has caused this spectacular turnaround that no one has noticed? Is it shining new tractors and combines? Is it new agricultural technologies? No. The answer is that market forces are again directing Russian agriculture. Farmers have turned their backs on collective and state farms. There are again incentives to produce. Food is again being distributed by markets and not the state. Instead of standing in line for food products that are priced ridiculously low, Russian consumers pay market prices and weigh carefully what they buy. Food is no longer a “free good” that no one can get.

Consider the effect of the return to market agriculture on the Russian people. The great Soviet famine of 1932-33 saw a loss of grain output of around twenty percent – a similar figure to the predicted decline of this year. The immediate result was the loss of six million or more lives. Russian-Ukrainian relations still suffer from the aftermath of the great holodomor. In 2010, the worst that the Russian people face is higher food prices. Russia is part of the world economic community. In the worst case, it can import grain this year and resume exports when weather conditions return to normal.