E. German Farms Fight Bankruptcy

Faced with huge surpluses, many farmers are countering with scrappy new retailing strategies

PIGS are piling up at Joachim Stengel's East German farm cooperative. The cow stalls are full of pigs. The pigpens are full of pigs. Every three weeks, 300 piglets are born here, but Mr. Stengel can find buyers for only about a third of them.

Stengel is director of LPG Tierion (animal production) in this speck of a village called Scho"bendorf, just south of East Berlin. What's happening to him is repeating itself nationwide.

Unable to sell their meat, dairy, grain, and vegetable products, East Germany's 800,000 agricultural workers are building up tremendous surpluses.

They are also wondering when they will be forced out of business. Analysts from East Germany say about a third of the cooperatives will go under due to inefficiency, high costs, and quality problems. Some Western analysts say more than half will fail.

Sales began shrinking in March, but the real catastrophe hit when the West German mark moved East on July 1. At that point, grocery stores here emptied their shelves of drab East German food products and replaced them completely with Western ones. (See box below.) Overnight farmers found themselves cut off from the marketplace.

Many of the coop directors have since done what Stengel has - gone directly to the public with their wares. Market squares in towns are regaining their traditional function, roadside produce stalls are springing up, and cooperatives are selling their goods on the premises.

But as Stengel puts it, this makeshift retailing is like ``a drop of water on a hot stone.'' It can't eliminate his ever-growing surpluses. ``I'm counting on two things, the Soviets and the West Germans,'' says Stengel, a native of Scho"bendorf and director of the cooperative for 27 years.

As of today, both the European Community (EC) and West Germany are dropping their restrictions on East German agricultural goods. Meanwhile, East Berlin plans to export its surpluses to non-EC countries, chiefly the Soviet Union.

``There's a giant market in East Europe, but the problem is, they can't pay,'' says Kurt Brennenstuhl, at the Ministry for Nutrition, Agriculture, and Forestry in East Berlin.

As concerns the lifting of EC and West German restrictions, Mr. Brennenstuhl predicts mixed results. ``I'm skeptical about opportunity in the EC market, because the market is already being sufficiently supplied,'' he said. On the other hand, he is positive about the impact of free trade with West Germany.

One of the biggest problems for the East Germans is turning their ``raw'' goods into smartly packaged, high-quality finished goods. Without the West German trade restrictions, more ``raw'' goods - for instance, milk - can be shipped to West Germany and returned as finished goods, such as yogurt.

But the agricultural sector in East Germany will have to improve and build enough of its own dairies, slaughterhouses, and packaging factories to take care of this at home, says Horst Willer at the agriculture ministry in Bonn. It's too costly to send raw food products to West Germany for processing and back, he says.

Much of the capital for these improvements is expected to come from West German investors. But they are holding back because East and West Germany still have not settled disagreements over property and ownership rights.

This leaves East German farmers struggling to adjust to the new competition. East Berlin has responded in a stopgap way by arranging 800 million marks of credit to keep cooperatives afloat and able to pay their workers for July and August.

Cooperative director Stengel is disappointed that his farm doesn't qualify for the credit because it is not running a deficit. ``Why are they giving money to the people who are going to go under? They should be helping cooperatives like us who have a chance,'' he says.

Stengel ran his cooperative more efficiently than average because, as he puts it, he had to. ``I wasn't a party member. I had to produce more to keep my job.'' He hopes he can hang on until his two contracts with a slaughterhouse and dairy in West Berlin kick in after German reunification in December.

Meanwhile, he's planning on layoffs (he's already let 40 of his 220 workers go) accompanied by wage increases to boost motivation for those people who are left.

He admits he's making plans ``in complete darkness.'' Unsure of future prices, unsure of present costs, he's trying to turn a cooperative that did everything for the workers - including building 40 houses for them - into a lean, Western-style farm.

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