Price Reform in Russia Bewilders Many
Despite reform of price system, confusion and empty shelves are still the rule in shops and food stores
ALEXANDROV, RUSSIA — THOUGH this small city is only about 75 miles northeast of Moscow and is situated along the route of the Trans-Siberian railway, it seems light-years apart far from the hustle and bustle of the capital.
Alexandrov, which itself was briefly the capital of Russia under Ivan the Terrible, is now mostly a collection of one-story, single-family dwellings with fading paint jobs and ornately carved wooden trim. The city of about 70,000 has only one traffic light and it is always flashing yellow.
But behind the facade of a sleepy provincial city, Alexandrov residents are grappling with the same problems facing Muscovites following sweeping price increases carried out by the Russian government of President Boris Yeltsin Thursday.
In a society used to cheap, state-subsidized food, the freeing of prices has left many muttering to themselves. At the same time, shop workers are confused by new entrepreneurial responsibilities such as setting prices, which most of them are ill-equipped to handle.
The cost of milk at Alexandrov's Food Store No. 7 reflected the chaos that has accompanied the lifting of price controls. On Jan. 2, the day of the price increases, milk was at first being sold in the store for 8 rubles 38 kopeks a bottle (roughly 9 cents), almost a seven-fold increase over the previous price.
"No one could afford that, and so no one bought it. By the afternoon the price was already lowered and people were buying again," says Valentina Gamova, a pensioner.
The milk price is now 1 ruble 31 kopeks, actually 5 kopeks lower than before prices were freed, says Tatyana Ryzhkova, the director of Food Store No. 7.
"We decided to give it a try and quickly realized it was a mistake," a smiling Ms. Ryzhkova says of the 8.38-ruble milk price. "We lowered to 1.31 because we have to keep the people happy."
Price liberalization was designed once again to fill the mostly empty store shelves by making goods accurately reflect the cost of production.
For years the state kept prices artificially low, especially on essentials such as bread and dairy products, a major cause of the shortages now griping the nation. But the Russian government's plan, now that it has been set in motion, more resembles a state-supervised price increase than an unleashing of market forces.
Price ceilings are still in effect for essentials, as the cost of milk, for example, is permitted to rise only three-fold. That milk mistakenly cost seven times more in Alexandrov was attributed to "a lack of understanding of the mechanism," says Yuri Lakayev, the mayor of Alexandrov.
Mr. Lakayev, along with the city trade commission, appeared to be making all the decisions in Alexandrov when it came to pricing of goods, many of which still do not reflect the cost of production. According to the mayor, the wholesale cost of milk in his region is about 6 rubles 60 kopeks for a bottle sold at 1.31 in the stores. To make up the difference, the city still pays a 1 ruble subsidy per bottle, and the rest is supposed to come from profits made on the sale of other dairy products such as butte r, sour cream, and cheese, which are exorbitantly priced.
The only problem is there was no cheese and little sour cream and butter to be found in the city, residents say. Indeed, except for milk, most shop shelves remained bare.
Store workers throughout the city complained they could not do much to help the situation. They added they were unable to negotiate individual supply contracts with area farms because the local administration still made all the decisions - a feature of the old communist system.
"We can't negotiate with enterprises because our shop isn't a legal entity," said one store director, who declined to give her name. "I don't even know how much money is in our store's bank account."
In Moscow, the situation is mostly the same - confusion and empty shelves. The Russian government has issued strict guidelines on what items should cost, store workers say, adding that some items not covered by state controls are apparently subject to price fixing by producers.
Sausage, for example, has reappeared in many shops, but the price for a kilo (2.2 pounds) costs about 130 rubles ($1.30), far beyond the reach of most citizens, who earn an average of about 500 rubles per month.
"Someone is controlling the prices, but it's not us," says Natasha, a Moscow food store manager who refused to give her last name.
"We're afraid to buy sausage from suppliers at these prices because no one can afford it, and if we can't sell it then we're responsible for the loses," she continued. "We have decided to wait before we offer sausage in our store - hopefully the prices will come down."
Some shop employees predict it will take a month or more before people grew accustomed to the new system, and goods finally start to appear in stores.
"Give us a while and we'll have everything," says Ryzhkova, the director of Store No. 7.
But others are gloomier, saying price increases are only a small part of the solution to the nation's food shortage.
"The farms simply have nothing to offer. They aren't producing," says Tanya Sinitsina, an employee at one store in Alexandrov. "They can raise prices as much as they want but it still won't fill our shelves."