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RUSSIAN ECONOMY IN trends and outlooks Despite the over-production of vegetables in Russia in 2011, retail networks continue to give preference to imported products. This is due to the fact that the quality of domestic fruits and vegetables does not satisfy retailers and even given lower prices domestic products cannot compete with the imported ones. Retail networks are more willing to work with importers since in the season of relatively low prices the marketable condition of commodities plays an important role in their sales.

A serious problem of fruit and vegetable market is the under-development of capacities for storing produce and its further marketing out of season. Therefore those producers that are short of adequate storage facilities have to sell large volumes of output before the end of the year.

So, by the end of 2011 low demand for domestic root crops coupled with their abundant supply exerted strong pressure on prices. Comparing wholesale prices for vegetables in Moscow region in the middle of December 2011 with the respective prices of 2010, one can see that for potatoes they were Rb 6 and Rb 23 per kg, for carrots Rb 7.5 and Rb 18 per kg, for onions Rb 7 and Rb 21 per kg, for beets Rb 5 and Rb 15 per kg, accordingly1.

The 2011/2012 MY revealed serious problems of the fruit and vegetable sector. In the last two marketing years, when prices were high, producers concentrated on enlarging areas planted and construction of vegetable storage facilities. At the same time, small attention was paid to the development of marketing and improvement of product quality that play the decisive role in the situation of high supply and low prices.

Producers of vegetables and fruits will hardly make profit in the 2011/2012 MY. Those of them who invested in after-treatment and quality of products as well as development of marketing and establishment of ties with retail networks will find themselves in a better situation.

4.5.3. Russias accession to the WTO On December 16, 2011 at the Ministerial Conference of the World Trade Organization (WTO) held in Geneva Russia was officially accepted in this organization. Negotiations on the countrys accession to the WTO went on for 18 years (!). Russia will become the fullfledged member of this organization beginning from September 2012.

Accession to the WTO imposes certain commitments regarding both the level of customs tariffs applied to imported agricultural and food commodities and the level of state support to agriculture.

The final bound import tariffs2 on agricultural and food products will be 10.8%, lower than the current average of 13.2%. In particular, by the end of implementation period import tariffs for dairy products should be reduced from 19.8% to 14.9%, for cereals from 15.1% to 10.0%, for oilseeds, fats and vegetable oils from 9.0% to 7.1%.

The final bound rate will be implemented on the date of accession for more than one third of national tariff lines with another 30% of the tariff cuts to be put in place three years later.

The longest implementation period is established for pork.

Tariff quotas are preserved for import of meat see Table 46.

Data of APK-Inform: vegetables and fruits.

The final bound import tariff is the maximum level of tariff allowed by the end of implementation period that cannot be raised without notification of the WTO members or compensation (e.g. lower tariff for another imported item). Implementation period is the period within which a country member of the WTO should meet its commitments.

Section The Real Sector of the Economy One of the basic challenges for the domestic pig raising will be the cut of import duty for live pigs down to 5%, which will notably reduce the level of domestic prices for pork in live weight and increase imports of animals. According to data of the Institute for Agricultural Market Studies (IKAR) imports of live pigs in 2013 may exceed 1m head and amount to nearly 2m head by 2015 entailing the lowering of price by about Rb 10 per kg.

The accession to the WTO will also have a negative effect on the cattle raising and first of all the segment of high-quality beef. At present an actually prohibitive duty of 8 per kg is applied here. In summer 2012 it will fall down to 15% and this may entail the growing supply of non-high-quality beef since this item is not subject to import quotas. Thus domestic producers that are not numerous as it is may face unfair competition.

Table Measures of customs and tariff regulation of meat import to Russia in compliance with the WTO rules Items and Currently Quota upon Final Analysis of Currently applied tariff Beginning bound tariff their customs applied WTO acces- bound risks and rates rates codes quota sion tariff rates problems Within the Outside the Within the Outside quota quota quota the quota Beef and veal 560,000 15% but not 50% but not 570,000 tons 15% 55% 27.5% in Former (fresh, chilled, tons less than less than 1 case no regulation frozen) 0201 0.2 per kg per kg tariff quo- practices tas are are preapplied served Beef by- no 25% but not less than 0.35 no 15% 15% Growing products per kg imports of cheap byproducts High-quality no 15% but not less than 8 per no 15% but the price crite- 15% Worse beef kg rion does not apply to the investment 0201 30 00 5, USA, Canada and Argen- prospects 0202 30 100 5, tina for the 0202 30 500 5 sector and 0202 30 900 Pork 0203 320,000 15% but not 75% but not 400,000 tons 0% 65% 25% from The basic tons less than less than 01.01.2020 challenge 0.25 per kg 1.5 per kg for domesPork trim- 30,000 tons 15% but not 75% but not 30,000 tons 0% 65% 25% from tic pig mings 0203 29 less than less than 01.01.2020 raising is 0.25 per kg 1.5 per kg the lowering of Pork by- no 25% but not less than 0.35 no 15% 15% domestic products and per kg price by 6fat 8% (Rb Live pigs 0103 no 40% but not less than 0.5 no 5% but not less than 0.1 5% but not per kg of per kg per kg less than live 0.1 per kg weight).

The loss of domestic pig producers may total from Rb 18bn to Rb 24bn depending on the level of state support Source: http://www.wto.org/english/news_e/news11_e/acc_rus_10nov11_e.htm; the Institute for Agricultural Market Studies (IKAR).

RUSSIAN ECONOMY IN trends and outlooks The total trade distorting state support to agriculture should not exceed $9bn in 2012 and by 2018 should be reduced to $4.4bn. Still, there remains an opportunity for unlimited increase of green box support measures (research, training, extension, infrastructural services, food aid, decoupled income support, payment insurance, etc.) that can be used for indirect support of farm producers.

4.5.4. Modification of agricultural policies in As different from 2010 with its abnormal drought and other natural calamities, the past year was relatively favourable for farming and large allocations from the agricultural budget were not hastily switched from one destination to another. But it has not saved the State program for agricultural development and regulation of agricultural and food markets in 20082012 (hereinafter referred to as the State Program)1 from further amending.

Although the State Program sets five guidelines for allocating funds (I Sustainable development of rural areas; II Creation of general conditions for farming; III Development of priority agricultural sub-sectors; IV Attaining of financial sustainability of agriculture; V Regulation of agricultural and food markets) and declares sustainable development of rural areas as its main objective, the bulk of budget funds are spent on increasing subsidizing of farm producers expenditures on interest rate (see Fig. 67), and this share is growing year after year.

Regulation of agricultural markets Attaining of financial sustainability of agriculture Development of priority agricultural sub-sectors Creation of general conditions for farming Sustainable development of rural areas Source: data of the RF Ministry of Agriculture.

Fig. 67. The structure of planned and actual budget expenditures by guidelines set in the State program for agricultural development in 2008This is primarily due to the fact that the restructuring of debts under agricultural credits not only increased their amounts but also induced a spiral of subsidies for reimbursing interest rate on credits. The growing share of respective subsidies in the State Program budget (under the guideline Attaining of financial sustainability, see Fig. 67) resulted in smaller allocations to soil improvement, sustainable rural development, rural infrastructure, consulting and Approved by the RF Government Resolution No. 446 of June 14, 2007 On the State program for agricultural development and regulation of agricultural and food markets in 2008-2012.

l l et et ed ed ed ed ed ua ual ua t t t n n dg dg nn n n nn nn ac ac ac la la la la la bu bu p p p p p Section The Real Sector of the Economy other services to farm producers1. But one will hardly manage to halt this trend within the framework of ending State Program for 20082012 due to both the increased budget commitments on subsidies and the fact that the budget for the 3 coming years has already been adopted.

Similar to the previous year, the financing of section Sustainable development of rural areas was cut most severely. According to the initial version of the State Program it was to get 20% out of Rb 552bn projected for 20082012. In 2011 Rb 7.7bn were allocated for the improvement of social and engineering infrastructure in rural areas instead of the initially adopted Rb 28.4bn (Table 47).

The amount of subsidies for reimbursing interest rate was almost twice above the initially projected. 71% of such subsidies from budgets of all levels are allocated to the support of investment projects.

At the same time, the financing of efforts to develop priority agricultural sub-sectors was reduced: in livestock production by Rb 2bn, in crop production by 25% (from Rb 4.5bn to Rb 3.4bn). Funds aimed to support farm producers in the Extreme North regions and to establish perennial plantations were again negligibly small, measures to encourage flax and rape production were actually discontinued. An actual withdrawal of support to rape producers is a sign of growing disillusionment and no wish to finance development of alternative bio-energy sources.

Table Basic indicators of the State Program implementation in Financing from the federal budget, 2011 indicators million rubles Components as of the replanned* planned* actual porting date 1 2 3 4 1. Efficiency indicators 1.1. Index of agricultural production in farms of all types as % 104.1 122.1 of the previous year (in comparable prices) 1.2. Share of domestic output in available supply of 1.2.1. meat and meat products, % 68.1 54.6 1.2.2. milk and dairy products, % 80.4 63.3 2. Sustainable development of rural areas 2.1. Financing of measures to improve social and engineering 28 362 7 infrastructure in rural settlements, total 3. Creation of general conditions for farming 3.1. Total financing under the section 14 659.5 11 3.2. including subsidies to farm producers for the purchase of 4 950 5 domestically produced mineral fertilizers and pesticides 3.3. including creation of the system of state informational 1 050 support to agriculture 3.4. including development of consultative assistance to farm 1 113.5 producers 4. Development of priority agricultural sub-sectors 4.1. Development of livestock production 4.1.1. Subsidies to support pedigree livestock breeding 4 807 3 4.1.2. Supply of pedigree livestock to Rosagroleasing, head 30 000 8 597 4.1.3. Supply of equipment for livestock production to 65 000 11 350 Rosagroleasing, number of stalls In 2010-2011 the growth of carry-over budget commitments on subsidizing of interest rate on credits extended to agriculture entailed more than 3-fold reduction of expenditures on measures under special federal program Social development of rural areas till 2012.

RUSSIAN ECONOMY IN trends and outlooks contd 1 2 3 4 4.2. Development of crop production 4.2.1. Subsidizing of measures to support elite seed breeding 513.2 1 4.2.2. including financing of measures to support farm produc- 1 000 405.ers in the Extreme North regions 4.2.3. including financing of measures to support flax produc- 542 246.tion 4.2.4. including financing of measures to support rape produc- 1 025 252.tion 4.2.5. including financing of measures to establish perennial 725 522.plantations 5. Attaining of financial sustainability of agriculture 5.1. Total amount of subsidized credits (loans), billion rubles 208 200.8 5.1.1. including short-term credits 168 152.3 5.1.2. including investment credits 140 48.5 5.2.1. Subsidizing under short-term credits 10 500 18 5.2.2. Subsidizing under investment credits 29 738 38 5.3. Amount of subsidized credits received by smallholder 35 31.6 farms 5.4. Subsidizing of interest rates on credits (loans) received by 7 400 5 smallholder farms 5.5. Purchase of tractors by all types of farms, units 41 000 9 799** 5.6. Purchase of grain harvesters, units 12 500 2 144** 5.7. Purchase of fodder harvesters, units 3 500 745** 6. Carrying out of grain purchase and commodity interven- 1 430 7 tions, support of export TOTAL 125 000 125 * Resolution No. 446 as in force on July 14, 2007.

** RF Ministry of Agriculture, preliminary data.

In the section Creation of general conditions for farming only one indicator subsidies to farm producers for the purchase of domestically produced fertilizers and pesticides displays stable growth. The primary beneficiaries of this form of state support are producers of mineral fertilizers and petrochemical enterprises. Capital investments in building, reconstruction and restoration of meliorative systems are falling. Allocations to create the system of state informational support to agriculture dropped 2.5 fold. Financing of consultative assistance to farm producers and re-training of agricultural specialists ceased completely despite the most acute deficit of skilled labour. Meantime, allocations to grain purchase and commodity interventions grew 5.6 fold.

So, the range of economic policy tools applied in agriculture gets narrower year after year.

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