Russian grain trading and marketing: Evolution and struggles

Abstract

The Russian grain marketing system is going through a remarkably traumatic evolutionary change, the dimensions of which are potentially unprecedented in the world grain industry. A highly centralized command system, absent of any concept of a market, has been the mechanism for allocating resources within the grain system. Functions were performed exclusively through state-owned facilities. Product distribution was also on a command basis. Concurrent with many other developments over the past 3 years have been numerous institutional changes in the grain system. Of particular importance is the simultaneous development of „exchanges” and numerous joint stock companies within the grain system. Most notable, however, is that market functions that the Ministry of Procurement traditionally provided were replaced in October 1992 by essentially another monopoly, with powers as extensive as the previous regime. Exchanges flourished in Russia during the early 1990s. Some estimates of the number of exchanges are up to 700. However, far fewer active exchanges are trading grain. The number of exchanges is sizeable, resulting in intense interexchange competition. Trade is primarily in nearby positions of grain. Many other agricultural products and inputs are traded, but futures (as known in the West) are not traded yet. Two agencies of particular importance in the Russian grain system are Roskhleboprodukt and ExportKhleb. The former is a joint stock company responsible for providing grain products to retail outlets. Producers continue to have obligatory deliveries to the Federal (and potentially Regional) Reserves, and prices are controlled at the retail level. Most important is that this firm owned and managed all of the handling system facilities throughout Russia. However, those in other CIS countries are autonomous. Consequently, at least within Russia, a near monopoly in grain handling has replaced findamentally ministerial functions and procurement. ExportKhleb has also been transformed into a joint stock company. Besides being the agent for Roskhleboprodukt on credit imports, ExportKhleb has pursued other trading opportunities, primarily in the former CIS countries, acting fundamentally as a trading company. Despite the rapid changes, numerous obstacles must be overcome as this industry makes the transition toward a market system as known in the West. This article describes changes occurring in the Russian grain market system. Specijic sections describe and analyze: economic conditions confronting the industry; traditional grain marketing organization; the current and evolving marketing system, including detailed discussions of the principal agencies, ExportKhleb, and Roskhleboprodukt; grain exchanges in Russia, their current function, and obstacles inhibiting their evolution; and a discussion of the future of this market and likely progression toward a more competitive system, which would be integrated with the rest of the world. © 1995 by John Wiley & Sons, Inc.