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However, the appraisals of demand indicate that the dissatisfaction with the volumes of sales increases. After the 60 per cent satisfaction with the volumes of sales registered in October of 2004, the share of answers normal declined to 48 per cent. At the moment, the level of satisfaction with the volume of sales makes only 28 per cent in electrical power engineering, light industry, and construction industry. An opposite situation is observed in ferrous (72 per cent) and nonferrous (96 per cent) metallurgy. Along with the obvious dependency of the level of satisfaction with demand on its dynamics, evaluations of finished stocks (the less are these stocks, the better), and dynamics of profits, this indicator also rises depending on the lack of excessive production capacities (but not the personnel), increase in employment and the size of enterprises (larger enterprises are more often satisfied with demand than smaller ones). It should be noted that the dynamics of output and the dynamics of finished stocks do not affect the formation of normal evaluations of demand.

In January of 2005, there was also registered an absolute decline in output. The balance of changes in output (prior to the adjustment for the seasonal factor) decreased from + 13 per cent to -26 per cent.

A year ago the balance declined only to -8 per cent. After the adjustment for the seasonal factor the balance makes + 7 per cent (i.e. a growth in production persisted); however, the results observed in January of 2004 were better (+ 23 per cent). Such slow rates of growth in output as in January of were registered for the first time in 25 months. This conclusion is supported by the data on utilization of production capacities. For the first time since January of 2003 this indicator has stopped to increase:

after 67.2 per cent observed in October, the respective level declined to 65.7 per cent. A decrease in utilization of production capacities was registered across all industries.

Enterprises still consider low demand (48 per cent as compared with 38 per cent registered in October of 2004) and the lack of working capital (46 per cent as compared with 42 per cent) as the major hindrances to growth in output. Other hindrances were mentioned twice less often. The third most important hindrance to production was the competing imports (22 per cent as compared with 17 per cent), followed by the lack of skilled personnel (20 per cent as compared with 28 per cent), payment arrears of consumers (18 per cent as compared with 16 per cent), and the lack of equipment (18 per cent as compared with 19 per cent). However, not all factors indicated by enterprises really hindered them to increase production. In 2004, only the lack of skilled personnel increased the probability of decline in output. The influence of other factors was either insignificant, or did not result in a real decrease in output.

In January, the balance of evaluations of finished stocks declined by 6 points as excessive hoarding decreased. The decline in excessive finished stocks became possible due to a rise in the number of the share of enterprises where the rates of changes in demand outpaced the rates of changes in output (this share made 21 per cent as compared with 12 per cent registered in December) and a rise in the optimism of forecasts. The decline in excessive finished stocks did not occur only in nonferrous metallurgy (in this industry, there persisted the lack of finished stocks), the forestry complex and food industry (after 10 months of the lack of finished stocks there was observed a minimal excess).

Although the forecasts of changes in demand became more optimistic (the balance was the best since November of 2000), enterprises still did not believe that the probability of these forecasts to turn out true was as high as earlier. This fact was indicated by the evaluations of excess or lack of production capacities in relation to the expected demand. The balance of such appraisals remained positive and increased at once by 7 p. p. in January of 2005. In other words, the overhang of excessive production capacities in relation to expected demand persisted in the Russian industry and this overhang even increased.

After a nine months period of stabilization, the balances of plans of changes in output increased by 6 points in January (the growth not adjusted for the seasonal factor made 31 p. p.) Forecasts improved across all industries with the exception (due to the seasonal factor) of electrical power engineering.

The most intensive increase in production was planned in fuel industry and mechanical engineering.

However, the production plans of enterprises only in 64 per cent of cases were based on forecasts of demand. At the moment, the share of enterprises where output would increase at the rates outpacing demand makes 30 per cent. Such outpacing rates of growth in production in comparison with demand have not been registered since July of 2002. This fact makes doubtful the feasibility of production plans of enterprises.

S. V. Tsukhlo Russia: budget support to farm production in In 2004 the nominal amount of budget support to farm producers continued to decrease while trade protectionism, on the contrary, strengthened. In January-November 2004 allocations to subsidizing agriculture from the federal, regional and local budgets totaled 52.4 billion rubles. The budget discipline in financing agriculture becomes better with every passing year: in 11 months the sector has received 84% of the annual agricultural budget appropriations while the budget at large was executed by only 78%. However, the strengthening of budget discipline goes in line with the decrease in total amounts of financing (Picture 1): in 2004 the respective consolidated budget expenditures are to reduce by 2% in nominal terms. The share of agriculture in the overall consolidated budget expenditures is down from 1.6% in 2003 to 1.4% in 2004. Still, the aggregate support estimated by PSE11 is growing rather rapidly (Picture 2) evidencing larger contribution of regulation tools designed to directly influence prices and markets.

After two years of federal components expansion, the share of regional and local budgets in the consolidated agricultural budget started to grow again (Picture 3): in 11 months 2004 they accounted for 64% of the total budget expenditures.

Moreover, beginning from January 1, 2005 the subsidizing of farm producers is transferred to the competence of regional and local administrations. This decision will have the most destructive effect on the sector. First of all, regions-donors able to finance support to agriculture on their territories are primarily located in the climatic zones that are least fit for farming. Thus the shifting of farm supports gravity center from the federal to regional level implies encouraging of non-efficient resource utilization in agricultural production. Second, for already many years regional support results in trade wars between regions, attempts to oust neighbors from the all-Russia market by means of direct subsidies to local producers, bans on agricultural and food products transit, etc. In other words, this decision of the RF Government brings in the domestic market all the negative sequences of protectionism on the world agricultural markets that the WTO Agricultural Agreement strives to eliminate (by the way, Russia wants to join this organization with its anti-protectionism principles).

Already in 2004 financing of agrifood sector from the federal budget decreased notably. In JanuaryNovember it amounted to 20.4 billion rubles that is 11% less in real terms as compared with 2003. The annual expenditures on agriculture in 2004 are planned to reach 38.6 billion rubles, or are 3% below the previous year level.

The plan for 2005 envisages further reduction of expenditures on agriculture by 3% in nominal terms. Budget appropriations for the agrifood sector in 2005 Federal Budget account for 1.3% of the overall federal budget expenditures while in 2004 their share reached 1.5%.

A positive trend is the shift in structure of federal budget financing: while direct subsidizing of farm producers reduces (by 17% in 2005), general services (science, education) get more funds (Table 1). In 2004 expenditures on agricultural education and training increased by 20%, in 2005 - are planned to increase by 9%. Growth of expenditures on science accelerated markedly. So, allocations are gradually redistributed in favor of general services which is a positive trend in budget structure evolution.

The structure of budget expenditures on subsidizing agriculture remains constant throughout the recent decade (Table 2). The reform of budget classificator in the process of drafting 2005 budget has actually skipped agricultural articles and failed to solve the problems that accumulated due to the inadequacy of the effective budget classificator of expenditures on the agrifood sector.

Plenty of subsidy programs are preserved in the budget year after year only because they are included in the budget classificator. Though many of them have long been found non-efficient, the respective expenditures are not revised remaining constant in nominal terms.

One of the most successful farm support programs was the subsidizing of interest on credits. It helped agriculture to get over 40 billion rubles annually.

Beginning from 2002 the program envisages subsidizing of interest on investment credits as well. In 2002-2004 the amount of subsidized investment credits totaled about 10 billion rubles.

This indicator summarizes the effect of both budget support to farm producers and measures leading to higher prices for agricultural commodities (including trade protectionism tools).

In March 2004 the rules in force for several years have been radically revised. First, the subsidizing of interest on credits to processing enterprises was abolished which is a very serious limitation for agricultural crediting. Due to the high credit indebtedness and small available collateral of farm producers banks are not disposed to credit them directly. At the same time processors used to take credits for contracting farm input suppliers. In other words, credits reached agriculture through processors. In 2004 this scheme became impossible.

Second, interest subsidies are now tied not to the repaid but to the granted credits. Probably, this somewhat simplifies the subsidy application procedure but the amendment opens an opportunity to get subsidies for farms that do not pay back their debts. In other words, while earlier the program helped to improve agricultural producers access to bank credit, from now on it will become one of the forms of non-repayable subsidizing. Such an amendment completely alters the initial concept of the program.

The largest by the amount of allocated funds program of farm support is the program of leasing.

From January 2002 to July 2004 1500 contracts were signed on leasing of farm machinery and pedigree stock to the total amount of 22.2 billion rubles (Table 3).

Before 2002 leasing was the only program for supporting technical modernization of agriculture.

The existence of a single leasing company receiving large donations from the federal budget monopolizes the market, resulting in higher cost of leased machinery for farm producers and closing access to agricultural leasing programs for private companies.

In 2001 5.5 billion rubles were allocated from the federal budget to forming of the leasing fund and authorized capital of Rosagroleasing; in 2002 this amount reduced two fold, in 2003 down to thousand rubles, but in 2004 it again more than doubled. The overall investments in Rosagroleasing authorized capital in the previous years total 11.3 billion rubles (Table 3). The creation of man-made monopoly on the market with the help of government funds leads to non-efficiency of the leasing program. The program of subsidizing interest on investment credits is much more beneficial for producers.

In 2004 the financing of program for partial compensation of farm producers expenditures on crop insurance notably grew (Table 2). The compensation equals 50% of the insurance premium paid to insurer that has a license on insuring farm crops. Few insurers in regions get such a license; the 50% discount from the cost of insurance contract multiplies their clientele among farm producers and, respectively, the amount of received premiums. This seems to make such companies more disposed to pay the insurance. In 2004 we carried out a sample survey of 49 farms in Perm oblast. It showed that in insured farms the incidence of insured events is very high and they are much more frequent than in non-insured farms (Table 4) though both the former and the latter are located in the same regions. In 2002 amounts received by insured farms (payment from the insurer plus partial compensation of insurance premium) averaged 0.93 rubles per each ruble spent on insurance, in 2003 1.34 rubles. In 2002 8 farms got under the insurance contract more than they had spent, in 2003 already 14 farms (out of 28 farms that answered the questions about the size of insurance premium and insurance payment). Given that one can assume that apart from its original objective insurance has become a form of direct subsidizing of farm producers.

The regulation of prices on the domestic market was primarily effected by means of trade protectionism. The only exception is grain interventions. They were carried out in February-June 2004 with the aim to lower prices for food grain and thus to constrain growth of prices for bread. Overall, about 1.5 million tons of soft wheat #3 and #4 and rye #A were sold the volume almost equaling monthly consumption of food grain in the country. This means that each month the market received additionally from 20 to 25% of grain. Such an intervention could well influence prices and be a cause of lower rates of bread and bakery retail prices growth in the first half of the year (Picture 4). The Picture shows that in 2004 the ratio of bread and food price indices from January to July fell while in the two preceding years it grew. Still, its questionable whether there was a need to constrain bread prices at such a cost. At the same time the experiment with interventions showed that a single grain market has formed in the country.

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