Chapter 515: Chapter 88: The Cold Winter
 

St. Petersburg, since the failure of Crown Prince Alexandrovich’s trip to Austria, the Tsarist Government had realized that the Russian-Austrian Alliance had come to an end.

A heavy frost doesn’t form in a single day. Over time, contradictions between Russia and Austria had been gradually accumulating.

In the past, the two governments suppressed discordant voices through their alliance, but now they could no longer contain them.

Relations between Russia and Austria began to change with the accession of Alexander II. The personal inclinations of an Emperor in a monarchic state have a significant influence on politics.

After the outbreak of the Prusso-Russian War, Austria didn’t offer full support to the Russians, showing their displeasure towards the Tsarist Government beyond just matters of interest.

No great power is willing to be another’s subordinate, especially after a shift in the balance of power. The initial contest between Russia and Austria was essentially a struggle for dominance over the alliance.

Alexander II’s approach was not wrong, it was just that the Tsarist bureaucracy didn’t measure up, losing the Prusso-Russian War and thereby the Russian Empire shifted from prosperity to decline, losing its dominance over the alliance.

If the Tsarist Government were willing to admit defeat, then the matter would have ended, and the Russian-Austrian Alliance would still be Europe’s most important political force.

Clearly, that was impossible. The pride of the Russian Empire couldn’t be extinguished by a single battle. With a long history often worse than the present, how could the Tsar really give up hegemony in Europe?

Franz had little interest in continental hegemony, but Austria’s geographic location ensured it could not avoid the struggle for power in Europe.

Austria’s stature spoke for itself, and no one would believe claims of disinterest. Therefore, Austria had to bite the bullet. Now, France and Austria’s joint division of Europe’s hegemony emerged from this background.

For the Tsarist Government, the collapse of the Russian-Austrian Alliance was indeed a blow, but the alliance treaty still had a few years before its expiry, posing no immediate threat.

What was most crucial now was to promptly find a willing financial backer, otherwise Alexander II’s reforms could not proceed.

The ideal choice, of course, was Austria; the Tsarist Government could use foreign debt to bind the two countries more tightly together. The Vienna Government dared to abandon the Russian-Austrian Alliance because they didn’t owe enough.

If the Tsarist Government’s debt to Austria were not 183 million Divine Shield but rather 1.83 billion Divine Shield, then no matter the circumstances, the Vienna Government would likely have no choice but to hold firm.

According to the current situation, by the time the Russian-Austrian Alliance expired, the debts owed by the Tsarist Government would also be mostly repaid.

This was not something Alexander II could delay; the Austrians were simply taking profits from Russian tariffs, accumulating over twelve million Divine Shield every year.

The higher the tariffs set by the Tsarist Government, the faster this repayment. Coupled with some compensation in the form of mineral resources, Russia could still repay over ninety percent of its debt obligations annually.

A pledged loan cannot be simply shrugged off by Alexander II. Otherwise, Russia and Austria would immediately become hostile. If then Austria were to close the trade passage between the two countries, an economic crisis in Russia would promptly erupt.

There was no choice; it was determined by geography. If Austria blocked the way, over seventy percent of Russia’s exports would be doomed.

The grain from the Ukraine region cannot go through the Dardanelles Strait; it certainly couldn’t be transported overland to St. Petersburg to then be shipped out, could it?

Given the current international situation, if Russia and Austria did fall out, the Russian Empire would be completely blockaded. With a little encouragement from Austria, sponsoring two ironclad ships, Prussia would dare to block the Baltic Sea.

We are now in the age of the ironclad ship. The Russian navy’s bunch of broken ships might as well be dismantled for firewood. Most are wooden military ships that haven’t been updated in over twenty years, what more is there to want?

It’s not that Alexander II doesn’t value the navy or is unaware that warships need modernizing, it’s just that the government has no money in its pocket. Ever since the outbreak of the Near Eastern War, the Tsarist Government’s finances have never been good.

Alexander II isn’t worried about Prussia moving closer to Austria. Although the Kingdom of Prussia had given up on its strategy to unify the Germany Region, Austria hasn’t yet, and that’s an obstacle they couldn’t get past.

Alexander II anxiously asked, “How are the negotiations with the British going? Are they willing to give us a loan?”

This loan was out of the ordinary, as the Russians intended to repay it with food. If the British agreed to grant this loan, the Tsarist Government would have to send to England annually 1.2 million tons of wheat, 400,000 tons of corn, 300,000 tons of barley…

It appears like a loan, but it’s more akin to exporting grain. However, on the international agricultural market, Russian agricultural products simply have too little competitive edge.

Dumping them at low prices would drive down international grain prices, rendering high-cost Russian agricultural production unprofitable.

To avoid the worst case scenario, Russian economists devised a plan to tie loans to sales, contracting one country’s grain imports at a price below the international market.

The reduced profit would account for the financial cost of the loan. It’s better than engaging in a price war with competitors, which ends up losing money to gain market share.

“Your Majesty, the British want to halve the amount of the loan and also demand a decrease of one-fifth in the grain compensation price, equating to 70% of the current international grain export price,” responded Foreign Minister Clarence Ivanov, causing a stark change in Alexander II’s expression. Grain export wasn’t a lucrative industry; if the price was reduced by thirty percent, they wouldn’t even recover the costs.

Alexander II, unwilling to give up, asked, “What if we agree to join the free trade system and peg the Ruble to the British Pound?”

Clarence Ivanov replied, “If so, securing the loan would not be a problem. However, the price of grain is still non-negotiable.

The British grain merchants believe the current international grain prices are too high and predict a substantial decline soon. They insist on accepting only 70% of the current market value.”

According to current market prices, the total value of agricultural products planned for export to England by Russia amounts to 38 million pounds. A thirty percent reduction would drop it to 26.6 million pounds, creating a shortfall of 11.4 million pounds.

Crown Prince Alexandrovich’s face was ashen as he said, “The British are engaging in extortion. We absolutely cannot accept such terms!

At 70% of market prices, we won’t be able to profit from grain exports; instead, we’d incur a loss.

Unless we further lower the grain purchase price, but the domestic price of grain is already very low. If we press any further, it turns into a loss for the farmers.”

Grain is a major commodity, and transportation has always been a big problem. The Russian Empire has inconvenient transport, high transportation costs, and these costs must be taken into account.

Usually, these costs ultimately fall on the farmers who produce the grain. Now, if we’re exporting at 70% of market prices, it will fall on their shoulders, and they’ll only end up bankrupt.

The peasant class is the Tsar’s largest support group, the cornerstone of his rule. If they’re driven into bankruptcy, the stability of Tsarist governance would be compromised.

Alexander II sighed, shook his head, and said, “The international grain price plummet has become a certainty, and the British assessment is not wrong.

The international market is only so large, and our increased grain production is so vast that once it’s released into the market, the international grain prices will collapse.

To put it bluntly, if Russia could export all of its surplus grain, even if other grain-exporting countries stopped their exports, Europe would not experience a shortage of grain.”

This is a hangover from extensive land reclamation; while it solved domestic land issues, overproduction of grain has become a severe social problem.

Even more tragically, farmers, having just acquired land, are highly enthusiastic about producing grain, and Russia’s grain output is continuing to rise.

As the price of grain falls, Russia’s grain distillation industry has begun to flourish. But such high-end spirits are beyond the reach of ordinary citizens, leaving the market extremely limited. Relying on the distillation industry to consume surplus grain production capacity is an impossibility.

After pondering, Crown Prince Alexandrovich said, “Then let’s guide the farmers to switch to cash crops. Whatever the market lacks, we will plant.

If we don’t reduce domestic grain production, the international grain market will burst sooner or later. To my knowledge, the Vienna Government is already planning to cancel the agriculture tax.

Their cost of grain production is already lower than ours, and they have a complete set of matching industrial chains, so they’ll undoubtedly be more resistant to risk than us. If a price war breaks out, our country might see millions of bankrupt citizens every year.”

Alexander II nodded. He had no doubt that Crown Prince Alexandrovich was exaggerating—the facts were evident. Except for the Ukraine Region, all other Russian agricultural lands have relatively high costs of grain production.

Even in the Ukraine Region, due to insufficient development and utilization, agricultural production technology is backward. Despite having fertile chernozem soil, the yield per mu still doesn’t match that of Austria.

This is a repercussion of inadequate market demand. After all, the total population of the European continent is less than 300 million, and the grain produced locally already meets the majority of demand.

The only way to expand the grain export market is to first flood the market with low-priced grain, breaking the agriculture industry of various countries.

This was Alexander II’s initial plan: if the agriculture of various countries collapsed, then Russia would control the lifeline of the European continent.

It’s a good plan, but the only problem is that the Tsarist Government lacks sufficient funds. With powerful rivals, engaging in low-price dumping—a tactic to break the agriculture of other countries—might also break Russia’s own agriculture.

In fact, not only Alexander II had such a plan, but Franz had also formulated a similar one, although, in the end, he abandoned it.

There’s no helping it—it’s the colonial era, which colonial power lacks arable land? If domestic grain production is insufficient, can’t they sort it out with their colonies?

Without achieving a monopoly, playing with low-price dumping is just fighting against one’s own wallet. Agriculture is still profitable, so there’s no need to cut it down to zero.

Alexander II felt somewhat dejected as he solemnly said, “Reducing grain production capacity and switching to cash crops is essential, but it cannot be done overnight. Grain planting is relatively simple, and farmers are accustomed to it.

To change this traditional planting model, we must learn from Austria. Alexandrovich, you’ve been to Austria, you should be well aware of how advanced their agriculture is. Where do we fall short, have you noticed?”

Crown Prince Alexandrovich fell into thought. He hadn’t stayed in Austria for long, and his understanding was limited to Vienna, mostly gained through newspapers.

“It should include climate, transportation, agricultural technology, and the supporting processing industry. We can’t compensate for climate differences, but we can catch up on the last three points slowly.”

Alexander II nodded and said, “In that case, we must accept our loss.

If we don’t reach an agreement with the British now, I fear that in a few months after the autumn harvest, we won’t be able to sell our grain even at today’s 70% market price. Low prices are still better than having unsellable stock.

Unless large-scale natural disasters occur, once our bountiful harvest enters the international market, this year is destined to be a harsh winter for agriculture. By then, a large number of farm products will be unsold.

Since we’re going to incur losses anyway, it’s better to secure the loans first. Later on, we can also reduce agricultural taxes to minimize farmers’ losses.

Only when the railways are built, and our domestic transportation issues are resolved, will the Russian Empire have a future. For now, let the British revel in their victory!

If it weren’t for the attempt to strike at Austria, the British probably wouldn’t have made such an offer. They don’t need this batch of cheap grain; even their grain processing industry isn’t very developed.

If the London Government doesn’t provide favorable policies, those grain merchants won’t invest in the agricultural product processing industry. After all, in this field, Austria is the master and they have no advantage.”