Moscow needs a supermarket

Published Feb. 9, 1992|Updated Oct. 10, 2005

As the developed nations wring their hands over how to help the Russian people survive their cold-turkey plunge into free-market economics, both sides are grappling with a monumental chicken-and-egg question that is both literal and figurative.

The critical issue, of course, is how to keep the Russians from starving while market forces take over from discredited central planners the tasks of producing, transporting and selling chickens and eggs and other commodities. For instance, the chicken cooperative in Magnitogorsk now hesitates to step up production, even if it could, to feed the hungry citizens of Moscow.

It's uncertain that there will be feed grain, refrigerated trucks to transport the chickens and an organized market to sell them. And a would-be entrepreneur contemplating the purchase of a Soviet army truck to ship the chickens and eggs the 1,000 miles or so to Moscow wants to be sure that his truck won't remain idle for lack of fuel.

The ability of the buyers, producers, transporters and sellers to get together is further hampered by a lack of market infrastructure, including viable banking, legal and communications systems, all of which will take years to develop fully. The Russians obviously don't have that kind of time.

Meanwhile, Western economists stew over whether the developed nations should supply armies of technocrats to advise the Russians, give them billions in cash and commodities, or some combination of the two.

Even backers of extensive food-cash aid would have to concede that some of the money would wind up in the hands of corrupt apparatchiks, as would much of the food in their pantries. So how does one break the chicken-and-egg cycle quickly and efficiently without breaking the egg?

One place to start is mind-boggling for its simplicity: a large, Western-style supermarket in the heart of Moscow. Such a supermarket, along with a warehouse and teams of Western food merchandisers and agricultural experts, would serve as a catalyst for bringing the means of production and distribution into rapid alignment. It would do so by serving as a laboratory for training everyone in the supply chain in free-market management, marketing, production and legal practices and sorting out, day by day, all the inevitable bugs arising as goods make their way from producers to consumers.

In many respects, this pioneering Great East and West Tea Co. supermarket would be a latter-day, eastern version of the legendary general store of the American frontier. At every cattle crossing some daring entrepreneur set up shop without knowing exactly where all of the inventory was going to come from, or how it was going to get there. But one way or another, buyers and sellers managed to connect.

A 50,000-square-foot area suitable for a supermarket-warehouse complex could be renovated, equipped and stocked in four months at a cost of less than $10-million, chicken feed compared with the billions in aid some have advocated. To be sure, a single supermarket is not going to solve the Russian food supply problem in the short term. But it would serve as a demonstration project for putting more chickens and eggs in Russian pots at affordable prices over the long haul. Such an effort also would be a litmus test of the feasibility of future western ventures in the former Soviet Union.

This crash project could be approached in several ways. The preferred route would be to entice an American or European supermarket chain to undertake the effort, using its own capital and methods. Its investment would be guaranteed by the Overseas Private Investment Corp. or some other official-type agency. In turn, the Russian authorities would promise the Western financing guarantor ruble convertibility not to expropriate the property and to provide a shield against other political risks.

Alternatively, one or more of the group of 47 nations whose representatives met in Washington last month on the question of ex-Soviet aid could simply underwrite the venture and hire a supermarket organization, on a fee basis, to manage the project.

The ruble proceeds of sales would require continuous high priority access to hard currency at a market rate so that new Western sources of inventory could be available on an ongoing basis. Initially, Russian commodities could also be bartered for Western goods. But, over time, this requirement would diminish as local goods supplanted imported items.

This is not the time for voluminous World Bank reports and feasibility studies and billion-dollar giveaways. The chickens have already come home to roost, and the super (market) solution represents one low-cost, high-reward way to get them to long-suffering Russian consumers.

Peter Greenough is president of Greenough & Co., a New York-based investment banking firm active in Soviet market development. Phillip Zweig is a New York-based financial writer. Their commentary first appeared in Newsday.