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Marketing Strategies in Changed Circumstances: Observation from Farmers in Novosibirsk Oblast' , Russia

2006; Taylor & Francis; Volume: 18; Issue: 2 Linguagem: Inglês

10.1080/14631370600619964

1465-3958

Jeremy Franks, Irina Davydova,

Agricultural Development and Policies

Abstract Recent changes in the food distribution and marketing systems in Russia are described. Findings from a survey of the marketing strategies used by directors of joint-stock companies (JSC) and private farmers in Novosibirsk oblast' to cope with these changes are presented and compared. These farmers have adopted different strategies. JSC directors withdrew from value-adding enterprises (VAE) complaining of poorly regulated markets — which remove incentives to create product distinctiveness — problems with bad debts, unstable markets and low profitability. As a result many JSCs have reverted to their core production activities, strategies that suggest they are prioritising longevity rather than profit maximisation. However, the larger private farmers, later entrants into farming and food production, had no apparent complaints in any of these areas. Unlike the JSC directors, they did not welcome more government intervention but wanted a stable macroeconomic climate within which to conduct business. To re-couple JSC directors with VAE and markets, the Russian authorities need to tighten regulation over competition, branding and food quality, and provide better access to market information. These changes will let the federal food corporations reduce their role as farmers, able to extract full benefit from investments made to create distinction, will develop their products and vertically integrate along the food chain. Notes 1. Kolkhozy (collective farms) and sovkhozy (state farms). 2. Although for some crops their share of production is larger, e.g. in 2002 sunflower 19.9%, grain 12.2%. 3. The Federal Food Corporation became the state's main food purchasing agent. Its key objective, similar in many ways to that of the original Treaty of Rome in 1957 which established the European Union's Common Agricultural Policy, was ‘to regulate the food market in the interest of food producers, satisfy the demand of the population for food and of industry for raw agricultural products’ (Wegren, Citation1996, p. 169). 4. The soft budgetary constraint refers to the importance of achieving production targets rather than financial targets as a measure of business success and viability, whereas the hard budgetary constraint refers to the need to repay borrowings to ensure business viability. 5. Amelina (Citation2002) compared the working of the food corporation in two raiony from two separate regions, one in an interventionist oblast', Engels raion, Saratov oblast', the other, Vsevolozhsky raion, was in the laissez faire Leningrad oblast'. She commented: Both Leningrad and Saratov have oblast'-level food corporations. However, the share of inputs they provide, the share of outputs they accumulate, the price-making powers they possess and even the title they hold differ. (Amelina, Citation2002, p. 277) Her research shows a de facto reintroduction of central control in one oblast' but a more laissez-faire regime in the other. 6. The municipal authority had taken shares in this JSC in exchange for settling its debts and was investigating various managerial forms for its continued existence. 7. Further details of the survey are available in Franks et al. (Citation2004). 8. We have translated the Russian word ‘goszakaz’ — which literary means ’state order’, that is a request for a specified quantity and quality of produce which the government will buy from farmers in a year — as ‘quota’, as it reflects the proportion of production that has a guaranteed market. 9. In the 1980s all agricultural produce from Suzun raion was processed within the raion (interview with the Deputy Head of the Agricultural Department, Suzun raion administration). 10. The biggest problem according to Wegren's respondents in 1995 was ‘to get paid’. 11. It was the household plot and LPKh sector that dramatically expanded after the launch of the agrarian reforms in 1991 (Caskie, Citation2000; Kalugina, Citation2000). 12. The price of bread in the city is more than twice this. 13. The farm gate price for milk varied from 3.5 to 5 rubles/litre depending on the season; even at the lower end of this range butter from Russian farms would be uncompetitive. 14. ‘Since production necessarily involves specialisation, producers will be more concentrated than consumers. It follows that producers' individual gains from market protection will outweigh individual consumers and tax payer losses, incurred as a result of the protection. It will thus pay producers to exert more effort in persuading the political system of their just deserts than consumers and taxpayers can be expected to spend on opposing such protection’ (Harvey, Citation2004, p. 266). 15. This is a trend that has also been observed across Europe. For example, in the UK farmers' share of the retail price paid for a basket of food items in 1988 was 47%; by 2004 this had fallen to 35%, a reduction of over 25% in the 16 years (Defra, Citation2005). 16. Across Europe in general, the increased mark-up has been the result of a fall in farm produce value caused by changes in the exchange rate, a switch in CAP funding from commodity support to direct payments, developments in the handling of food after it has left the farm — particularly the greater proportion of processing and packaging of food, most of which occurs beyond the farm gate, additional regulations beyond the farm gate, e.g. food safety in meat processing, and the structure of the food chain. The total share of the UK grocery market in the hands of the largest four supermarkets in the 12 weeks to 4 January 2004 was 75.4% (Guardian, Citation2004, p. 6). Additional informationNotes on contributorsJeremy R. Franks The authors would like to express their thanks to the Farmers Club for the award of a travel scholarship which made this research possible. Our special thanks to Olga Fadeeva and Zemfira Kalugina for their help organising the field-work, arranging and conducting the interviews. Our thanks also to all those who took part in the interviews. Irina Davydova .Dr Irina Davydova, at the time of the research Occasional Lecturer, University of Manchester, Manchester, UK.The authors would like to express their thanks to the Farmers Club for the award of a travel scholarship which made this research possible. Our special thanks to Olga Fadeeva and Zemfira Kalugina for their help organising the field-work, arranging and conducting the interviews. Our thanks also to all those who took part in the interviews.