Monthly Archives: August 2002

Regional Review: Central and Eastern Europe

For well over a decade, the 13 countries of Central and Eastern Europe (CEE) encompassed in this regional review have been in a state of transition from socialist central planning to open market economies. Their progress along this arduous path has varied, but all have shared a common beginning as members of the former Soviet Bloc.

Seven of these nations are newly independent states resulting from the break-up of the Soviet Union itself in 1991: the small but strategically placed Baltic states of Lithuania, Latvia and Estonia; the geographically immense Slavic lands of Russia, Ukraine, and Belarus; and oft-overlooked Moldova. The FSU (former Soviet Union) countries, with the exception of the three Baltic lands, are members of the CIS (Commonwealth of Independent States).

The six contiguous countries to the west were classified as Eastern Europe during the Cold War, though these days Poland, Czech Republic, Slovakia and Hungary — with pending accession to the European Union — are thought of as Central European. The final two countries treated here, Romania and Bulgaria, are keys to an economically and politically stable southeastern Europe.

Without exception, grain production and grain processing in all of these countries has been subject to wrenching changes with privatization of farms, storage, flour milling, feed milling, and oilseed crushing on one hand, and liberalization of domestic and international trade on the other. Progress has been made, although interrupted by periodic — but severe — economic crises from country to country, such as the 1998 ruble devaluation in Russia, and the sharp 1996 recession in Czech Republic. Nevertheless, in all of the countries, privatization and trade liberalization in the grain industry have progressed.

Perhaps the most important change for the world grain industry is the potential for Russia and Ukraine to emerge as grain-exporting superpowers. In the other countries, grain production and consumption were, more or less, in balance during Soviet times and remain so today. Hungary is a moderate exporter, and Romania has potential to be a consistently moderate exporter of wheat. Poland, Czech Republic, Slovakia and Bulgaria primarily need to import soybean meal as poultry production expands. Aligning themselves with the EU’s common agricultural policy will probably result in a continuing status quo in grain production for all six countries. Of the FSU, only swampy Belarus imports a lot of grain.

In the grain processing industries, a key factor is the coming EU membership of up to nine of these countries: Poland, Czech Republic, Hungary and Estonia in the first wave; and later Latvia, Lithuania, Slovakia, Romania and Bulgaria. The need to meet EU standards could mean flour and feed industry consolidation with the closing of small inefficient plants, but it could also invite much needed investment from the West. Another highlight is surging investment in poultry production and oilseed crushing in several countries.

Capital: Minsk
Population: 10.3 million
Of the countries reviewed here, Belarus is the most unreformed both politically and economically. It is the largest net grain importer, now that Russia and Ukraine have turned around their agricultural sectors. The country’s low-priced but sturdy tractors could benefit from the investment boom in Russian and Ukrainian grain production.

Capital: Sofia
Population: 7.7 million
Bulgaria is essentially self-sufficient in grain, with average production of 5 million tonnes. Of the average 3 million tonne wheat crop, 10% to 15% is surplus available for export. As an aspiring EU member, some consolidation in the flour milling sector is expected. Farm sizes are small, and privatization of agricultural land has been slow.

Capital: Prague
Population: 10.2 million
Though agriculture accounts for only 2% of its GDP, the Czech Republic is self-sufficient in wheat and most grains. In the last decade, rapeseed has become an important crop, and exports of malting barley and barley malt have surged to Russia’s and Ukraine’s booming breweries, which are importing over one million tonnes per year from Europe.

Capital: Tallinn
Population: 1.4 million

Estonian ports could become an important outlet for Russian grain exports if international rail tariffs can be lowered. As traditional markets were lost after independence, livestock herds plummeted to half the level of the 1980s. The grain boom in Russia and Ukraine could stimulate exports of phosphate fertilizers from here and the other two Baltic countries.

Capital: Budapest
Population: 10.1 million
Grain production averages about 14 million tonnes, of which wheat accounts for 5 million. About one-fifth of wheat production and one-third of wheat flour production is generally shipped to neighboring countries. High production costs and cutbacks of export subsidies with EU entry could lead to reduced wheat exports.

Capital: Riga
Population: 2.4 million
Farmland was returned to the pre-communist period owners very early in the transition period in Latvia, the first FSU country to enter the WTO. Food enterprises were also privatized early, resulting in a very competitive sector able to withstand imports. Some of the former focus on livestock is being switched to poultry production.

Capital: Vilnius
Population: 3.6 million
A wide variety of grains are grown and consumed; production of barley, rye, and millet together exceed wheat. Since 1998, production of rye, a traditional favorite for bread baking and porridge, has declined by 41% to 234,000 tonnes on 111,000 ha in 2001, while wheat has held steady at just over one million tonnes on 350,000 ha.

Capital: Chisinau
Population: 4.4 million
Moldova has an advantage in sunflower seed production, achieving the highest yields in the region, with 1.27 tonnes per hectare. About 40% of the labor force is in agriculture, and 53% of the small country’s land is arable. Privatization of government farms has resulted in 1.1 million citizens owning a total of 1.7 million ha of farmland.

Capital: Warsaw
Population: 38 million

Poland’s ag sector remained in private hands while in the Soviet bloc, resulting in numerous individual farms averaging 6 to 10 ha in sizes. Although occupying over 20% of the population, farm production contributes only 3.8% of GDP. Protection from competition by import tariffs slowed farm modernization and restricted Poland’s affect on world grain markets — despite its large population and 2001 grain production of 23 million tonnes, 8 million of which was wheat.

Capital: Bucharest
Population: 22.3 million
Romania has struggled in market reforms. Although state farms broke up into small inefficient units, 17 million tonnes was harvested in 2001, 5 million of which was wheat, and grain production remains potentially competitive. Export infrastructure is being built at Black Sea ports, and Romania is likely to become the number three net grain exporter in the region, surpassing Hungary.

Capital: Moscow
Population: 145.4 million
Long a major net importer of grain, Russia is on the way to becoming a large net exporter. The 2001 harvest of 85 million tonnes left a large surplus to be carried over, due to poor export infrastructure. Agriculture is now one of the hottest sectors for investment. New laws passed in the Russian Parliament this summer permit the buying and selling of farm land for the first time since the Russian Revolution. Poultry production is set to take off, perhaps bringing soybean and soy meal imports back toward the levels of the 1980s.

Capital: Bratislava
Population: 5.4 million
Grain production is on a bigger scale and more mechanized than in Poland and Hungary. One of ADM’s few joint ventures in CEE is a maize milling operation in Slovakia. ADM also has operations in Hungary, Romania and Bulgaria. EU accession could mean increased grain production. Only about 4% of GDP is from agriculture.

Capital: Kiev
Population: 48.7 million
Ukraine has been lagged in market reforms; the state is only now withdrawing from flour milling ownership. Grain production is responding to the economic reforms, and the 2001 crop of 46 million tonnes severely tested the Ukraine’s long underutilized export infrastructure as 9 million tonnes left Black Sea ports. Grain exports could increase greatly in coming years. A dynamic poultry and livestock industry will help absorb some excess grain production.

Regional Review: Processing a decade of change

The benefits to the average citizen of the last decade of economic reforms in the CEE countries are as evident in the food industry as anywhere. Central planners had permitted only a limited number of standard bread and pastry types, but now small entrepreneurs, foreign companies and re-energized former state enterprises have combined to offer an astounding diversity of baked goods.

Liberalization of processed food imports by Russia in the early 1990s made it one of the largest export markets for Western European food companies. This competition set a high standard for Russian producers, and also made inevitable investment by multinational food companies in local production.

The economic change has also brought hardships to consumers in the form of higher food prices, and in almost all CEE countries, meat consumption and livestock counts dropped sharply during the last decade.


There has been a dynamic restructuring and considerable new investment in the flour milling industries of Central and Eastern Europe in the last 10 or 12 years. The upgrading of old plants is not yet complete in much of the region, but several factors argue against further capacity expansion.

First of all, the countries of Central and Eastern Europe have some of the lowest rates of population growth anywhere. In all but two or three of the countries in this survey, the growth rate is negative. In Russia, plummeting birth rates, shorter life spans and outward migration have caused an average decline in population of over half a million per year. Even without stagnant or declining population numbers, actual milling capacity is far beyond what is needed in most countries.

Romania provides a somewhat extreme example. Doris Stoian, executive director of the Romanian National Association of Flour Milling and Baking Industries (ANAMOB), estimates that the milling capacity in Romania is twice what is required. Just the members of her association, which are mainly small or medium-sized private mills that started in the 1990s with 25 to 75 tonnes daily capacity, have a combined annual capacity of 6,130 tonnes. That figure alone matches Romania’s consumption. But the large former state-owned flour mills that have been privatized as joint stock companies are not members of ANAMOB and also offer as much capacity.

What happened in many, if not most, countries of the region was a mushrooming of new mills just a few years after private enterprises were allowed.

Stoian said that virtually every town or village in Romania now has a flour mill, many of which operate on a toll basis. A local farmer may bring in wheat and pay to have it ground into flour that he may partly use for himself, while selling or bartering the rest.

The large former state-owned milling enterprises in Romania were still centrally controlled and lacking in working capital when the small private mill phenomenon started. Now they have been reorganized as independent entities and can start to compete.

Inevitably, there will be consolidation, and many of the new, smaller mills have already been idled, Stoian said. Nevertheless, the association is contacted from time to time by newcomers who want to build small mills. Needless to say, they are discouraged.

However, steady upgrading of facilities in order to achieve production efficiencies in a highly competitive environment seems likely. This process could be sped along in countries entering the EU. In particular, all food processing enterprises will have to meet the EU’s strict hygienic standards, often by more actively enforcing existing regulations.


In feed milling, the picture is much different as the potential for growth and new investment is much larger. This results from a recently begun upward trend in meat consumption, associated with nascent prosperity in many CEE countries.

Despite this positive movement, feed production is only a fraction of what it was at the end of the Soviet era. There was huge contraction in livestock herds and feed production during the 1990s transition period. Only in the last few years have the numbers of domestic farm animals begun to stabilize in most countries.

Most of the new meat consumption has been poultry, with the trend expected to continue. The Czech Republic is one example. There, during the early and mid-transition period, consumption of pork, a traditional staple, held fairly steady while beef plummeted. Poultry is a relatively new item in the diet of the average Czech.

In Russia, the shift to poultry as a cheap source of protein has been particularly pronounced. Through 2001, the country has been the largest poultry importer in the world, with nearly 80% of the supply coming from the U.S. Exports to Russia had accounted for 8% of all U.S. production with the annual total exceeding 500,000 tonnes, and monthly shipments averaging US$50 million.

Now, rising incomes in Russia are expected to bring about a doubling of poultry consumption in just a few years. Much of this higher consumption could be met by increases in domestic production. Several large poultry projects have been announced, some by prominent business groups not previously involved in the food industry.

The highest profile project is being built by Mosselprom, Russia’s largest advertising agency. The new company, Agro-Industrial Complex Mosselprom, said its poultry operation will be the largest in Europe and fully integrated from incubation to packaged product. Heading the new company is Sergei Lisovsky, former chairman of the Russian Poultry Union and a supporter for Russian products against low-priced ‘Bush legs,’ as U.S. poultry is universally known in Russia.

Existing Russian poultry companies are also expanding. Elenar Broiler Farm, located south of Moscow, has a unique origin. Its funding was from the U.S. government to provide poultry technology transfer as a settlement in a mid-1990s dispute with Russia over veterinary standards for poultry products being shipped to Russia. With a team of American managers supplied by the U.S. Agricultural Export Council, the company has been expanding rapidly.

The most explosive growth in poultry production may be taking place in Ukraine. Andriy Yarmak of APK-Inform said poultry production is expected to double in 2002. However, there is expected to be ample supplies of feed grain due to the country’s bumper crop in 2001 and that projected in upcoming years (see companion article). To help absorb these large grain stocks, government officials have announced that Ukraine will become a major supplier of poultry and other meat to its immediate neighbors and even on world markets.


The CEE countries were important players in oilseed markets both as consumers of soy meal and producers of sunflower seeds in the socialist period of the 1980s. They continue to play that role today, but in different ways.

Increased domestic poultry production is driving increased demand for soy meal in several CEE countries. In addition, demand for edible oils is up in most countries as diets improve. The bulk of new European investment in oilseed crushing plants is taking place in the CEE countries.

In Russia, the consumption of edible oils in the form of margarine, mayonnaise and salad dressings has grown enormously and is likely to continue to increase. Average annual per capita vegetable oil consumption in Russia is 14 kg — up from previous years, but still far below the average level in the U.S. and most of Europe.

In recent months, there have been a spate of announcements of new soybean processing plants to be built in Russia and Ukraine. Agros, the newly created agribusiness arm of Russian business group Interros, has announced it will build a medium-capacity soybean extraction plant near St. Petersburg in conjunction with an unnamed international partner. Other announcements have been made for similar projects at both Russian and Ukrainian Black Sea ports. Other companies, including Dupont Technologies in the U.S., have made public plans to build plants to produce edible soy proteins and flour concentrates.

The industry in Ukraine has attracted some multinational investors. Cargill’s sunseed crushing plant in Donetsk, Ukraine is the world’s largest, with a daily capacity of 1,500 tonnes of seed. The French company Cereol owns a large plant in Dnipropetrovsk. At least a couple of other sunseed crushing plants have been built with participation of foreign investor groups in the last five years.


There is hardly a country in the CEE where international brewing groups do not control a significant share of beer production.

In Russia and Ukraine, beer consumption has seen dynamic growth. Annual Russian and Ukrainian imports of barley malt and malting barley now exceed one million tonnes per year. There is a move to build modern malting capacity in Russia and the Ukraine. A malting plant in St. Petersburg was built jointly by Russia’s largest brewery, Baltika together with the French maltster Soufflet. Recently, the Belgian brewing group Interbrew announced a project to build a large malting plant in the Ukraine. Other malting projects by independent breweries and other groups are underway.

The new efficient domestic malting plants will stimulate the breeding and production of local barley varieties for brewing, eventually replacing imports and augmenting in another small way Russia’s and Ukraine’s position as net grain exporters.

Regional Review: The new superpowers?

One of the world’s great grain belts extends along the Ukrainian and southern Russian steppes, into the black earth zones of central Russia, up and down the Volga River, across the low lying Ural Mountains, and far into western Siberia and northern Kazakhstan. This vast expanse of arable land — covering 4,000 kilometers from east to west and, in places, 1,000 km from north to south — never had the chance to approach its potential during 70 years of centralized socialist agriculture.

Now, a foundation is being laid for the two largest former Soviet republics, Russia and Ukraine, to emerge as grain exporting powerhouses. Astonishingly, if trends continue, before the end of the decade the two countries taken together could challenge the United States’ long-held position as the world’s top wheat exporter.

In just a few years, they have transformed themselves from being large net importers into large net exporters of grain. Both Russia and Ukraine experienced bumper harvests in 2001 — the best in over a decade. The Russian crop was 85 million tonnes, consisting of wheat, barley, rye, oats and oilseeds, principally sunflowers. The Ukrainian crop came in at about 46.5 million tonnes, up from an average of only 25 million tonnes during much of the 1990s. The 2002 crop is expected to be somewhat smaller in both countries due to a severe drought this May, but the long-term trend is clearly upward.

Much needs to be done before the enormous breadbasket potential of Russia and Ukraine can be realized. While free market reforms are finally starting to create a productive agricultural sector, a great deal of export infrastructure, principally grain terminals and even new or expanded ports, still needs to be built.

Both countries will have to work hard to offer the quality and varieties demanded by world markets. Much of the wheat exported now from the two countries is feed wheat, but in the future there will be emphasis on milling wheat.

The two Slavic nations will also have to overcome the protectionist instincts of potentially their largest market, the EU, which absorbed a large amount of the recent surpluses before the flow was abruptly halted by the EU’s imposition of higher import duties on Russian and Ukrainian grain in the spring of this year.

There is a clear sense of urgency in the Russian grain industry. Alexander Ivlev, vice-president of the Russian Grain Union, an industry association based in Moscow, estimates the carryover from last year’s Russian crop at 15 million tonnes. Total grain export capacity of Russian ports is currently only 5.5 million tonnes, he said. Another 2 to 3 million tonnes of Russian grain could be exported through Baltic and Ukrainian ports except that Russian rail freight rates for international shipments are much higher than the already steep Russian domestic rates. Even if industry lobbying gets this issue resolved, the additional port capacity provided by the Ukraine and Baltics will not be nearly enough.

In recent months, several projects to build new grain export terminals at Russia’s Black Sea, Baltic Sea and even Pacific ports in the Russian Far East have been announced. The owners and operators of the facilities are intended to be private Russian grain enterprises. However, in some cases, the announcements were made jointly by private companies, the port authorities and the Russian Ministry of Agriculture, showing the importance that grain export development carries at a national level.

Transforming markets

It is only a matter of time before Russia’s newly dynamic market economy solves the grain export bottlenecks, and it can be said that optimism reigns today in the Russian and Ukrainian grain industry. This scenario is in stark contrast to this region’s previous history while under central planning.

Stalin’s brutal collectivization of agriculture in the 1930s exterminated the kulaks, the class of highly skilled and wealthy farmers, bringing declines in agricultural production, and even a couple of years of artificial famine. Steady underperformance was the rule after that. Throughout the 1980s, the Soviet Union was the world’s largest grain importer taking 10 to 20 million tonnes annually.

The collapse of the Soviet system brought new dislocations and decline once again as the former collectives were cut off from the central budget. No money was available for inputs or equipment. Andriy Yarmak, director of the Kiev branch of APK-Inform, points out that fertilizer was not spread in Ukrainian fields for most of the 1990s. Average wheat yields dropped from 3.5 tonnes to 1.9 tonnes per hectare. Ukrainian grain production hit a low of 24 millon tonnes in 1999, when the country even applied to receive milling wheat from the U.S. under USDA aid programs.

Grain trading was liberalized early on in the reform process. It became the domain of a huge network of small private traders which sprung up. Major companies, such as Cargill and Louis Dreyfus, who previously had only exported grain to Russia, became active players in the domestic grain trade as well.

The proliferation of the grain traders and fierce competition among them was partly due to a milling and baking industry that had been privatized and liberalized early on in Russia, though with much delay in the Ukraine. Suppliers competed on the basis of price, quality, service and financing. There has since been much consolidation among the private traders. Trading company Razguliay Ukrros now employs over 500 people at its Moscow headquarters, the same building where it started with just a handful of employees 10 years ago.

While privatization of the food processing industry happened fairly quickly, agricultural reforms took much longer. The former socialist collectives – the sovkhozes and kolkhozes – have now all been converted into joint stock companies with each member receiving shares. Also, a new class of private farmers has emerged in each country. The Russian Grain Union estimates their number has now stabilized at 260,000 farmers, though there is still a big turnover as some give up and others try their hand.

Increased investment and corporate farms

The key reason for anticipated bigger harvests is the increased level of investment in agriculture. Suddenly, private business groups spawned by the ‘Wild West’ capitalism of the FSU have discovered that there is money to be made not just in the city, but also on the farm. Many of these companies are based in the financial and industrial sector.

By buying up majority packets of shares in the former agricultural collectives, they gain long-term control over large tracts of land. They hire well-trained and motivated farm managers, make formal business plans to win credits from their banks, and buy equipment and inputs from major international companies.

In fact, the Russian grain sector has been attracting investment from some of the country’s best-known corporate names. Interros, with nickel mining and airplane engines in its portfolio of companies, is one of these Russian business groups. At the end of 2001, the company formed a subsidiary, Agros Holdings, which in the second quarter of 2002 acquired a majority share in the former state company Roskhleboprodukt. The latter had formerly acted as the grain products monopoly in the Ministry of Procurement.

The company’s grain elevators have room for 2 million tonnes; annual flour milling and feed milling capacities are 800,000 and 1.8 million tonnes, respectively. Following the trend among competing enterprises, Interros Agros has recently announced plans to acquire farmland. It will concentrate on the fertile region around Stavropol, Russia’s southernmost grain producing area, where very high protein wheat can be grown.

Bart Swankhuizen of Cargill’s Krasnodar trading office in the southern Russian grain zone, guesses there are 10 to 15 private Russian business groups with holdings between 50,000 ha and 150,000 ha. The trend is toward greater and greater accumulations. One company based in the metals industry has set up an agribusiness enterprise called Stoilenskaya Niva. According to Russian press reports, it has already gained control of one million ha in a single Russian oblast (state or province). The company purchased 150 combines in 2001 from Russia’s leading manufacturer.

Domestic and foreign grain companies now own all of the Soviet era grain elevators. The grain zone is punctuated with hundreds of these concrete behemoths, mostly silo structures, dating to the 1960s and 1970s, which — on paper at least — offer sufficient storage capacity for much larger crops. However logistical considerations, outdated handling systems, poor energy efficiency and maintaining grain quality in these crumbling structures are the questions that face all who own and operate them in the new competitive environment.

Nevertheless, asset values have been very low for these structures, often just a few dollars per tonne of storage capacity, and buying and upgrading them has usually been the most economical option. In fact only a handful of new modern grain storage facilities have been built in Russia and Ukraine since market reforms began.

Grain production influences

Grain growing must be profitable to attract big business groups, and indeed a well-managed corporate farm has every possibility to keep its production costs low in Russia and Ukraine.

Yarmak of APK-Inform, said Ukraine now ranks as one of the world’s lowest cost grain producers. He performed a study that showed quality Ukrainian wheat loaded on a vessel at a Black Sea port can cost US$70 to $75 per tonne, even with a generous profit for the trader included. He estimated the average farm cost at $45 per tonne.

Cargill’s Swankhuizen said there are certain areas in southern Russia where wheat farms are yielding 5 tonnes per ha with production costs of only $180 per ha, including transport to the port.

Low production costs have mainly to do with exceedingly fertile land leased or bought inexpensively. Other factors are low labor costs — a Ukrainian farmhand earns less than $100 per month — and cheap energy supplied from Russia’s vast petroleum and gas resources.

Even farm machinery can be a bargain. Thanks to the large devaluation of the ruble in 1998, combine harvesters produced in Rostov in southern Russia and basic tractors manufactured in neighboring Belarus are only a small fraction of the price of deluxe machines made by the major international companies.

In Russia, sown area is rapidly increasing after contracting for much of the 1990s. Expansion began less than two years ago, but already there has been an increase of 1.5 million to 2.0 million ha, according to Swankhuizen. In 2002, about 60 million ha were planted. Swankhuizen estimates that there are 15 million to 30 million ha of untilled land that could still be planted with grain.

There is also an underlying demographic factor adding to these grain surpluses. With negative population growth and lower living standards, Russia and Ukraine are consuming less grain than ten years ago. Current consumption is estimated by Russian Grain Union officials at around 70 million tonnes.

A 50% to 60% decline in livestock herds in Russia since 1991 has also reduced feed consumption. As of January, cattle numbers stood at 26.9 million compared to 57 million in 1991, and contraction has been even greater for pigs, sheep and goats.

Predictions for the level of future grain crops vary widely. Swankhuizen predicts Russian grain crops will range from a low of 80 million to a high of 130 million tonnes, depending on weather and market conditions. The median of this range is nearly 25 million tonnes larger than Russia’s bumper harvest last year, and 30 to 35 million tonnes above Russia’s annual consumption. Yarmak of APK-Inform is even more enthusiastic about Ukraine’s prospects. He believes that in several years, a low target for Ukrainian grain production will be 65 to 70 million tonnes, one and a half times as big as the 2001 bumper harvest.

Where will it all go?

What will be the outlet for this deluge of Ukrainian and Russian grain?

The traditional channels are for barley and feed wheat to be shipped to Saudia Arabia and other Gulf Countries, while milling wheat goes to the burgeoning North African market. There is even a steady market for Ukrainian feed wheat in South Korea. According to Yarmak, the Ukraine exports grain to about 30 countries. Ivlev of the Russian Grain Union said there are 25 members of the RGU doing some exporting, 10 of which are very active.

The key for now is not who exports or where the grain is sold, but simply how the increase in exports will be handled. In Ukraine, there was just enough Black Sea port capacity to handle the 9 million tonnes of grain shipped abroad from the 2001 crop. Two to three million tonnes additional capacity could be added in the next few years. The country benefits from having several deepwater ports.

Russia does not. Of the several new port projects that have been announced, none have even secured their sites, and it could be years before the new export terminals are operating. Russia’s only deepwater port on the Black Sea, Novorossiysk, has just a single berth for Panamex vessels. On the Baltic Sea, the St. Petersburg port of Ust-Luk could accommodate. New export grain terminals have also been announced for the Pacific Ocean port of Vladivostok, but some industry insiders are skeptical. Rail transport costs are high in Russia, and it is 4,000 km from the grain growing areas of western Siberia to Russia’s only ice-free Pacific ports.

It is easy to surmise that wheat prices to the producers in Russia and Ukraine will decline below world levels as long as both countries produce surpluses without the transportation capacity to move that extra grain to world markets. In fact, July 2002 farm prices for Russian wheat are running 15% to 20% below the level of a year ago at this stage of the harvest. Falling prices could dampen the general enthusiasm prevailing now, and slow the rapid pace of new investment in grain production in the short term.