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If passed, the bill should establish much-needed economic conditions of development of the local deposits, which otherwise would appear unprofitable under the general taxation regime, because of the need to secure huge volumes of capital investments in infrastructure, as dictated by the local deposits geographic and geological peculiarities.

RUSSIAN ECONOMY IN trends and outlooks A differentiated alleviation of the tax burden for certain regions whose specificity lies in increased development costs, appears justifiable in the frame of the present tax law, as it allows a necessary rate of return on investment in development of new deposits. That said, while being a simple mechanism from the perspective of tax administration, the tax break regime seems fairly imperfect. The problem is, it implies a uniform averaged approach to all deposits located in a given region (continental shelf), with no account whatsoever of significant differences in costs of development of each of them.

Plus, as far as relatively small-sized deposits are concerned, during the period of tax holidays, the oil production at them, under a normal pace of development, will be substantially below the set margin, so tax holidays generate incentives to expedite their development to exempt from taxation a maximum volume of produced oil. Hence, a possible drop in public revenues and a fall in the ultimate recovery efficiency rate.

Taxation of additional income, or super profit, seems a more perfect form of taxation.

Whereas all geological and geographical characteristics of a given deposit are ultimately reflected in the income from its development, such an approach secures an automatic differentiation of the tax burden, depending on concrete conditions of oil extraction. It also enables one to factor into both the producers gross income and costs of oil extraction at a concrete deposit.

In the case of highly efficient projects, taxing super profits ensures a progressive withdrawal of the resource rent in favor of the government coupled with improvement of conditions of implementation of low efficient projects. If employed, such a regime allows creation of necessary conditions for development of new deposits that require greater capital, operational and transportation costs.

4.5. Russian agrifood sector in 2010: performance and trends 4.5.1. General outline of agricultural performance in One of the priority targets of Russias social and economic policies is the development of national agrifood sector. In the beginning of 2010 the RF President approved the Doctrine of Food Security worked out in the framework of the Strategy of National Security of the Russian Federation till 2020 (enacted by the RF President Decree No. 537 of May 12, 2009). For the first time the Doctrine treats food security not as the self-sufficiency in domestically produced agricultural products but the way it is defined by international institutions as the provision of the countrys population with safe agricultural products, fishery and other products from aqua bioresources (hereinafter referred to as fishery products) and foodstuffs. Domestic production is regarded as a guarantee of populations access to safe food products. The concept of food security as the covering of demand by domestic production of agricultural products has transformed into the concept of food independence of the Russian Federation sustainable domestic production of food products in quantities not below the set thresholds of its share in commodity resources of respective products on the domestic market. For the first time the document contains such notions as indicators and criteria of food security, economic availability of food products, physical availability of food products, the systematization of risks and threats to the RF food security. Besides, the guidelines of state economic policies in the field of ensuring Russias food security are formulated1.

http://www.kremlin.ru/acts/Section 4.

The Real Sector of the Economy Food security is treated as the countrys economic performance when food independence of the Russian Federation is ensured, each citizen is guaranteed physical and economic availability of food products corresponding to requirements of the Russian Federations law on technical regulation and in quantities not below the rational norms of consumption of food products necessary for active and healthy way of life.

Despite the application of standard international terms, the Doctrine of Food Security in its part addressing guidelines of state economic policies for ensuring food security of the Russian Federation in the field of producing agricultural and fishery products, raw materials and foodstuffs envisages measures formulated similarly to the ones typical for times of centrally planned economy.

Thus, efforts should focus on the following directions: improvement of soil fertility and yields, enlargement of areas planted in farm crops by cultivating non-used arable lands, reconstruction and construction of meliorative systems; accelerated development of livestock production; expanded and more intensive use of aqua biological resources and new technologies of their industrial production, etc. So, the declared task is not to support and encourage the increase of farm output and the sustainability of rural economy but to improve, to reconstruct, etc. The exception are market-oriented definitions of some measures such as the perfection of market regulation mechanisms and elimination of price distortions on the markets of agricultural and fishery products and farm inputs. But the experience of recent years shows that its the current practice of market regulation that is obviously not efficient enough for supporting economic sustainability of agricultural development. The proposed indicators of food security are also questionable. For instance, among them there are disposable household incomes, nutritive value, consumption of basic products, availability of sites for retailing and catering, etc. Although these indicators have a certain impact on food security, they are not the evidence of its attainment. Its not clear what should be the value of an indicator (for instance, the availability of sites for retailing and catering per 1000 persons) to mean that the food security of Russia is strengthening. So, in order to be informative these indicators should be tied to food security criteria with set values. But one specifies other indicators as the criteria, i.e. indicators of domestic outputs share in commodity resources. Meantime, there are no indicators describing the access of population to foodstuffs (e.g. the share of population unable to buy or secure consumption of certain quantities or caloric value of food). Despite the use of modern terminology commonly accepted in the world, the document sticks to traditional Russian ideology as regards indicators, criteria and methods of improving agricultural production. This relates not only to the definition of food security (the attainment of threshold levels of self-sufficiency in basic products) but also to the formulation of state economic policys guidelines in the field of producing agricultural and fishery products, raw materials and foodstuffs.

The key factor determining agricultural performance in 2010 was natural conditions. A very hot summer1 has blown up plans for increasing production and yields as well as for improving the economic availability of food products for population. The heat and the consequent fires affected agricultural performance in 43 regions of the Russian Federation:

The head of Roshydromet Alexander Frolov says that such an abnormally hot weather has not been observed on the territory of Russia for at least a thousand years and is an absolutely unique event (http://www.pogoda.ru.net/news/5184). The head of RF Hydrometcenter Roman Vilfand notes that according to paleoclimatic research data there has not been such a summer on the territory of Russia for over one or probably for even five thousand years (http://www.ami-tass.ru/article/68230.html).

RUSSIAN ECONOMY IN trends and outlooks - farm crops perished on 13 million 300 thousand hectares, i.e. 30% of areas planted in these regions (17% of the total areas planted and 30% of the total grain acreage in the Russian Federation);

- 25 thousand farms suffered from drought, mainly in Volga and Central federal districts.

The reported direct loss of farm producers exceeds 41 billion rubles1. Its clear that the amount is largely underestimated. Such a hypothesis can be advanced if one compares the value of loss with data on the share of perished farm crops in more than half of RF regions.

The loss is reported to amount to only 41 billion rubles while the total agricultural output in 10 months of 2010 equals 2032.3 billion rubles2, i.e. the loss is as small as 2% of the output in current prices. Meantime, crops perished on 13.3 million hectares out of 74.8 million hectares of planted acreage (Rosstat data)3, i.e.

on 18% thereof. This means that farm producers may count on compensation of only a minor part of their damage and the result will be a further weakening of agricultural sector in the future.

120,110,100,90,80,70,60,1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 total crop production livestock production Source: Rosstat.

Fig. 36. Index of agricultural production Index of agricultural production as percent of the previous year fell down to 88.1% (Fig.

36). This decrease was due to smaller crop production its index plunged to 74.6%. Livestock production was still unaffected and by the end of 2010 even showed growth by 2.6% as compared with the previous year. However, this increase is the smallest in the five recent years. If examined by types of farm producers, the general production decline down to 88.5%88.6% was observed in corporate and household farms. Agricultural output of individual private farms fell more dramatically down to 82.5%. This is due to the sectoral structure of agricultural production therein. Production of grain and industrial crops as well as pig and poultry production is concentrated in corporate farms. Household farms also focus on livestock The report of RF Minister of Agriculture E.B.Skrynnik in the Council of Federation on October 27, 2010.

www. mcx.ru.

Rosstat, http://www.gks.ru/bgd/regl/b10_01/IssWWW.exe/Stg/d10/2-1-4-1.htm Rosstat, 2010.

Section 4.

The Real Sector of the Economy production and on growing of potatoes and vegetables. Individual private farms produce mainly grain and industrial crops. Because of the small share of livestock production therein, it could not help to slow down the decline driven by the crop sector.

150,0 130,140,125,130,120,120,115,110,110,100,105,90,100,80,95,70,60,0 90,2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2001 2002 2003 2004 2005 2006 2007 2008 2009 corporate farms household farms individual private farms corporate farms household farms individual private farms Source: Rosstat.

Fig. 37. Indices of crop and livestock production by types of farm producers In 2010 the biggest decreases as compared with 2009 were observed in the production of grains (by 37.3%), potatoes (32.1%), flax fiber (31.3%), sugar beets (25.5%), sunflower seeds (16.5%) and vegetables (9.4%). The data on sowing of winter crops in autumn of 2010 suggest potential decline of grain production in Russia in 2011 versus relatively good 20091: according to Rosstat the acreage sown in winter crops by November 1 was almost 21% below the previous year indicator 10.5 million hectares2.

Earlier the decrease of livestock inventories whose dynamics till 1998 were dramatic was halted and a clear upward trend shaped in some sub-sectors (breeding of poultry, pigs and sheep till 2009). From 2009 to 2010 the number of animals reduced but this reduction was insignificant (Fig. 38): from 0.5% for pigs to 3.1% for cattle. However, the drop of grain output by over one third and the rise of prices for it pre-condition a sharp decrease of livestock inventories and as a result a growth of meat production in the short run. The data on feed stocks for winter season of 2010/2011 support this suggestion: by November 1, 2010 their size amounted to 1000 kg of feed units per conventional animal unit in only 33% of the RF regions. In 2009 such stocks were accumulated in 58% of the RF regions. By the beginning of January 2011 the availability of feeds in corporate farms was 25.2% below the 2009 level.

Taking into account that the share of fodder grain (except for corn) in the structure of grain production reduced, the situation with feed supply raises concern. The ban of export of wheat will entail larger offering of expensive food grain for feeding purposes. But it wont help to solve the problem of livestock producers since they are constrained by solvent consumer demand and the use of such grain for feeding is not cost-effective.

2009 was chosen as the basis for comparison since 2010 was the year with abnormally bad climatic conditions.

At the same time the RF Ministry of Agriculture reported this acreage to be 14 million hectares and promised to increase the area under winter crops up to 15.5 million hectares. The report of RF Minister of Agriculture E.B.Skrynnik in the Council of Federation on October 27, 2010.

RUSSIAN ECONOMY IN trends and outlooks 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Cattle incl. cow s Pigs Sheep and goats Source: Rosstat.

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