Disintegration of Russian Grain Markets in Transition: Political and Economic Dimensions

Abstract

Between 1990 and 1996 the share of interregionally traded grain in the total amount of grain domestically available in the Russian Federation was reduced significantly. Much evidence indicates that the decline of the domestic grain trade has mainly been the result of strict control by regional authorities following their own agricultural market policy, of a lack of market institutions, and of uncertain macroeconomic conditions, thus creating a favourable environment only for increasing barter trade. In addition to the weakness of the federal government, which has not been able to enforce the basic rules necessary for the development of a functioning domestic market, the outcome of privatisation of state grain marketing organisations has accelerated the emergence of fragmented Russian grain markets. Regional authorities have managed to gain control over the newly privatised enterprises. This has facilitated the creation of regional monopolies and the isolation of local markets. In addition, increasing transaction costs in interregional trade due to the rise of barter trade have led to a contraction of the trade volume. After the financial crisis of 1998 these disintegrative tendencies have been strengthened further. In this difficult situation only close cooperation between reform-oriented regions can help to create conditions which facilitate the emergence of a domestic grain market in the long run.