Agricultural Commodity
Exchange Project (COMEX) in Russia

May 30, 1996

Team Report, Executive Summary

The Russian Agricultural Commodity Exchange Program (COMEX) began in early 1994 and continues through 1996. The last of the Russian workshops was held in October/November 1995 and the US short courses in April 1996. A directory of Russian traders was published the same month. Still remaining to be completed is the Russian-language grain trading manual, a project which has yet to reach draft form (see below) but which is planned to be published by year-end 1996.

Because of the rapidly changing status of the Russian grain trading system, the project was run on an ad hoc approach. Initially designed to support the development of nascent commodity exchanges, it soon became apparent that those markets were not functioning. What was meant to be futures trading was, in reality, cash trading. Most commodity exchanges were privately owned and became, more then anything, sources for information on grain trade. All these have disappeared and today there is no active agricultural commodity exchange operating in Russia. Indeed, the lack of a general legal framework for most commercial and business operations and a weak rule of law handicap the creation of any industry-wide institution in the grain sector.

The ad hoc approach of the COMEX project was both its strength and weakness, allowing for flexibility in developing new projects to meet Russia's needs but also leading to imprecise strategies, goals, and responsibilities. The project succeeded best with personal contact. The USDA asked the COMEX organizers to use the Institute of World Economy and International Relations (IMEMO). a Russian thinktank with diverse responsibilities. Its agribusiness center coordinated COMEX operations in Russia as well as performing other tasks for other international donors.

Major Successes

Overall, there is no question that the COMEX project yielded important results in:

1. Developing contacts and networks for Russian grain traders and American agricultural experts interested in the area, furthered by the publication of a trade directory. While there are clear schisms in the ranks of the Russian group, based upon company size, region, ideology or self interest, this network will serve as a basis for the continued emergence of the private sector in Russia. The identification of these traders is also important for developing future U.S. policy, providing an understanding of the key players in the field. In addition, US business interests gained an increased understanding of the Russian market and grain institutions.
   
2. Developing educational programs for a broad group of Russian traders, officials and businessmen. Six workshops and one "advanced seminar" were held in Russia and four short courses in the United States, two each in Fargo and Champaign-Urbana. Over 300 Russian participants attended the workshops of which 40 were chosen for advanced work in the short courses in the United States. Russian agricultural economics, business and government regulation are plagued by the vestiges of Marxist thought and insular, nationalistic practices. These workshops and small courses provided the basis for an understanding of the nature of free agricultural market economics, the mechanics of American grain channels, specific skills in pricing, grading, financing and hedging, and other factors. Key to this success was flexibility in curriculum as well as adjustments in the program through the two year period. While some trainers may have been overly academic, this fault was more then made up for by highly-skilled and experienced American businessmen who provided substantial, first-hand knowledge, especially in the US-based short courses. Some Russian participants criticized what they considered the wide breadth of the programs but this complaint is minor, essentially saying "next time we want more information in our specific field." Most Russian informants appreciated the need to offer general principals and revealed a greater understanding of agricultural economics. Indeed, clear evidence of the success of the program is seen in the large firms who repeatedly sent participants to the sessions.
   
3. Strengthening overall private sector development in Russia, providing a positive image of the benefits of market economics, as well as imparting the elements and complexities of agricultural marketing channels. This is critical in a country that has not had private trading for seventy years (unlike, say, Poland) and where the most ardent free market proponent betrays statist sympathies.
   
4. Enhancing the overall image of the United States through its generosity in business information, training and finance as well as through interpersonal relations.
   
5. Developing the knowledge of Dr. Dmitri Rylko, the Russian agribusiness adviser (RAA) counterpart. An intelligent and passionate advocate of private sector development in the agricultural sector, Dr. Rylko came to understand the American marketing system and its applicability for Russia.

Technical Assistance

The COMEX project, in cooperation with other international donor agencies, assisted in developing a variety of institutions, with varied results. Once it became apparent that Russian agricultural commodity exchanges were not functioning, COMEX shifted direction to encourage private enterprise to develop a more competitive grain industry and the skills of a core group of traders and other experts in the channel. The emergence of private grain traders brought less stability to the domestic market and created trading problems with contracts, standards, certification and phytosanitary issues, all areas that COMEX addressed. The project advised the RGU, and attempted to develop information services in St. Petersburg. In particular, COMEX:

6. Supported the development of the Russian Grain Union (RGU) which has some 30 paying members. Dr. Rylko assisted in the writing the charter of the union and, together with the Resident adviser (RA) Mr. Si Matthies developed a close relationship with the U.S. Feed Grains Council. It should be noted, however, that the RGU operates for a few, self-interested groups, excludes smaller organizations, does not represent the needs of the industry and, in fact, functions as a union in name only. COMEX's advice to change RGU by-laws to include other institutions was ignored early on and continues to be ignored. Smaller but important grain firms openly express disdain for the organization. Although many RGU members are successful, profit-making firms, it relies upon donors for many of its activities.
   
7. Provided support and advice to advance the idea of a warehouse receipt system. This initiative has led to a series of pilot programs, funded by the World Bank, the Eurasia Foundation and other donors. Dr. Rylko published an article on the subject and encouraged members of the Grain Union to lobby Russia's Anti-Monopoly Committee and commercial banks to develop legislation, rules and regulations. This effort is still in its early stages and there is some question as to whether the necessary economic and financial preconditions exist in Russia to allow for a successful warehouse receipt program.
   
8. Worked to develop grain futures market in the Moscow, Samara and Krasnodar Commodity Exchanges, including a pilot wheat futures contract in Russia. While it did provide valuable experience, this effort did not succeed as the role of the commodity exchanges declined.
   
9. Assisted in development of commercial information systems for the Melcom milling consortium in Saint Petersburg. While the commercial aspects of the information system have not functioned, information continues to be provided to Melcom member firms.
   
10. Attempted to examine and review the complexities of the grain standards system and develop some understanding of the difficulties of the grain marketing transportation infrastructure.
    
11. Assisted in developing other resources. Through the activities of the RA, Mr. Matthies, and the RAA, Dr. Rylko, additional assistance was developed, from USAID, the U.S. Grains Council, the Citizens Network, Winrock Foundation and Volunteers for Overseas Cooperative Assistance. Activities were also coordinated with the Harvard Agribusiness Center.

These achievements and tasks were not easy. The byzantine nature of the industry, the vastness of the Russian geography with regional disparities and conditions difficult to comprehend, shifting political and business relationships, a rapidly changing economy and, in some cases, outright corruption, complicated COMEX's responsibilities. Understanding these conditions was difficult enough, but the lack of any permanent American presence in Russia complicated it more. The "Resident Adviser," Mr. Matthies, was not resident at all, coming and going on periodic visits. His participation ended early. When in Russia, he worked on an unusual part-time basis, his responsibility based upon deliverables rather then on days. While his knowledge and input contributed immeasurably to the success of the project, the lack of a full-time expert in Russia for a contract this size limited its potential.

The RAA, Dmitri N. Rylko, also contributed strongly to the project's knowledge, but it took time for confidence and responsibilities to develop on both sides. Furthermore, COMEX was administered in the United States on a part-time basis by experts with other significant responsibilities. To be clear: all of the participants were knowledgeable and contributed to the above listed project successes. Nonetheless, the slow awareness of rapidly developing conditions and the difficulties in extending networks outside of IMEMO's circle, detracted from achievements. This became a greater problem towards the project's end when the RA was removed and the COMEX presence in Moscow was reduced.

In a rapidly changing environment, with other international agencies overlapping in the same area and without a constant presence for gathering information, there are doubts as to the wisdom of some assistance. For example, relatively late in the project, in February and May 1995, planning documents show that COMEX continued to focus its efforts to provide support to the Moscow, Samara and Krasnodar commodity exchanges. By then, the importance of commodity exchanges had already begun to fade. Similarly, as Russian institutions develop, the support of one institution over another, such as the Grain Union, has important political implications.

The last months of the project saw a shift in emphasis from attempts to directly influence the Russian agricultural trade to more benign activities. Aside from the last short course in the United States, the RA was withdrawn and the activities of the RAA, lessened. More academic activities were put in their stead, notably the preparation of the grain traders manual.

The grain traders' manual, "Russian Grain Marketing" could not be assessed completely. Rough drafts and information from Russian sources are currently being reviewed and initial working drafts have yet to be written. Significant doubts exist as to the wisdom of such a work in such a vague and transitory period, especially with the removal of the "Resident adviser" role in Moscow. The work, over a year in preparation, researched in Russian, translated, written and retranslated into Russian, risks being dated before it is published.

A "Training the Trainer" program was originally envisaged to train two or three people over the longer-term at American universities. They were to return home to serve as a basis for an agricultural extension service. No suitable candidate was found to participate because most Russian agricultural experts could not afford the time away from what is a rapidly evolving industry. Secondly, no Russian institution could be found to continue the extension training.

Last modified: Tuesday, November 25, 2003