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In Russia and the states of the Former Soviet Union, Eric Trachtenberg of McLarty Associates, reported to the Outlook Forum that the national food system collapsed when subsidies ended and agriculture faced the reality of the marketplace. Production fell 40% after 1991, and the livestock industry was in decline. Food aid for consumers was needed for half of the 1990s. However, after price controls were ended and the ruble devalued, private sector expansion has taken over 75% of the Russian economy. In the past year, agricultural output grew by more than 16%, helped by abundant supplies of land, water, cheap energy and growing investments in machinery to produce food.
Even with increased capacity for food production, Russian food imports doubled from 2005 to 2011, with more than $1.3 billion purchased from the U.S., including red meats and poultry, livestock genetics, soybeans and a variety of other products. Currently Russia is the fifth-largest beef market for the U.S. and the sixth-largest pork market.
So far Russia has traded outside the World Trade Organization, but that will end in August, following WTO acceptance last December. Duties that Russia imposes will decline from an average of 10% to just under 8%. The tariff on soybeans will drop to zero and the tariff on soybean meal will decline to 2.5% within a year. The tariff on pork will drop to 25% by 2020.
Russian restrictions on incoming products must be limited to sound science, under terms of the trade agreement. U.S. poultry products will be allowed, along with biotech products, US food safety rules must be accepted, and special licensing requirements must be reduced or eliminated. Quotas on imported pork, beef, and poultry are being raised or eliminated.
Trachtenberg said the opening of the Russian market offers many opportunities for increased US agricultural products, particularly with 142 million people, and great economic growth around cities. He said there are opportunities for companies selling animal genetics, since it is currently a $58 million market for livestock, and it is already the fourth-largest market for U.S. farm equipment makers.
However, there will be challenges imposed by some technical standards, such as plant and animal health, protections against dumping and limited protection for intellectual property and branding. Trachtenberg also said there will be strong competition from local producers in Russia, along with Ukraine and Kazakhstan, and the European Union. And an older US law that targeted the Soviet Union and disallowed free trade, needs to be amended to allow normal trade relations. But he also said Russian commerce is also full of corruption, currency, and economic volatility.
The growth of developing country economies, such as in China and Russia, afford many opportunities for US agriculture. Consumers have money and want better food, and in some cases trade is more free and open than in prior years. However, there are still many hurdles, both in trade rules and governmental policies, and successful trade will come with high amounts of risk.