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The mentioned growth in meat sector based on the investments of previous years. In thanks to the pre-crisis investments new pig breeding complexes were put into operation and reached projected capacities and so also did some of the existing ones that had been reconstructed. An additional growth factor was lower prices for feeds due to the weakening of prices for grain in 2009.

Besides, domestic producers of poultry meat were able to enlarge supply owing to the temporary withdrawal from the market of the US products, the import of which was banned from January to August 2010. This restriction was due to the introduction of new RF sanitary regulations forbidding import and marketing of poultry meat treated with chlorine-containing substances.

The US quota in 2010 equaled 600 thousand tons or 77% of the total poultry meat imports.

After the restriction of US imports a part of this quota (150 thousand tons) was redistributed between other countries. Within these limits deliveries were primarily made from Europe and Brazil. However, these and other countries have failed to make full use of the allowed volumes due to the deficit of poultry meat supply on the world market and the high prices as compared with prices for poultry from the US.

The non-delivery of US poultry meat to the market was compensated by the output of domestic producers. As a result despite the reduction of imports (by 60.1% in JanuarySeptember 2010) the capacity of the market remained actually the same1. Table 47 illustrates the dynamics of meat imports.

Poor crop of grain in 2010 entailed high prices for it and consequently for compound feeds. Livestock farms started to feel their pressure already by the end of 2010 when earlier stocks of cheap 2009 fodder grain were exhausted. As of the end of October 2010 940 kg of feed units per conventional animal unit were stored up while in the previous year - 1 230 kg2.

Higher prices for compound feeds will largely affect the cost of pork and poultry meat production. The likely consequences of larger feed costs are higher prices for meat and decline of meat producers profitability. Non-efficient farms with poor feed conversion rate may become loss-making and disappear from the market. In the coming years the pig farms margin will also reduce due to the stronger market competition following the expected growth of domestic pork production. As noted above, in 2010 the major part of new pig breeding complexes reached their projected capacity.

According to data of IKAR (the Institute for Agricultural Market Studies) in 7 month 2010 the capacity of poultry meat market fell by only 3%.

According to data of Rosstat.

Section 4.

The Real Sector of the Economy Table Imports of meat to Russia in 2007-2010, thousand tons Jan.-Sept.2010 as % of 2007 2008 2009 Jan.-Sept. Jan.-Sept.Meat, fresh and frozen 1489.4 1710.9 1437.1 1031.3 106.Poultry meat 1287.0 1218.0 964.8 259.1 39.Source: Rosstat.

Beginning from 2003 meat is imported to Russia within the set tariff quotas. According to the approved regime of import regulation for 2011, the amount of pork and beef quotas wont change as compared with 2010: the quota for fresh and chilled beef will be 30 thousand tons, for frozen beef 530 thousand tons, for pork 472.1 thousand tons, for pig trimmings 27.thousand tons. The quota for poultry meat import will reduce more than two fold from to 350 thousand tons. Besides, beginning from January 1, 2011 Rospotrebnadzor (the Federal Service for Customers Rights Protection and Human Well-Being Surveillance) imposes the ban on utilization of frozen poultry meat for industrial food production. Actually this means a full ban on import of foreign poultry meat that is usually used in meat processing and as a rule is cheaper than the domestic one. This can lead to higher prices for non-expensive meat and sausage products containing poultry meat. Besides, this forces Russian poultry producers to have quite developed logistics to manage deliveries of chilled meat to long distances taking into account the extended countrys territory.

4.5.3. Production of food products The food industry responded to crisis developments back in 2008: the index of food production fell till the second quarter of 2009. From the second quarter of 2009 till the end of 2010 it was growing. The 2010 dynamics was very much like that of 2006 (Fig. 43). The quarter increases in 2010 ranged from 3.8 to 6.4%.

I-III IV-VI VII-IX X-XII 2005 2006 2007 2008 2009 Source: Rosstat.

Fig. 43. Index of food (including beverages and tobacco) production as % of the comparable period previous year RUSSIAN ECONOMY IN trends and outlooks Table Production index for selected groups of food products, % 2010 as % of Slaughter livestock meat and edible by-products 115.Poultry meat and edible by-products 114.Sausage products including stuffed 105.Sausage products out of heat treated ingredients 116.Fish and fish products, processed and canned 102.Processed and canned potatoes 105.Fruit and vegetable juices 127.Crude sunflower oil and its fractions 91.Crude soybean oil and its fractions 115.Liquid milk, processed 111.Kefir 111.Wheat and wheat-rye flour 96.Buckwheat groats 82.Bakery products not for long storage 99.Mineral water, non-sweetened and non-flavored 118.Source: Rosstat.

Production of sunflower oil, flour, bakery products and buckwheat groats in 2010 reduced as compared with 2009 (Table 48).

Smaller output of vegetable oil was primarily due to the curtailed production of crude oil.

In the group of dairy products the biggest decrease is observed in production of condensed milk while its imports doubled as compared with 2009.

Fixed capital investments in food industry in 2010 were 7% smaller than in 2009 and the increase of foreign investments was below 1%.

In general the financial performance of food industry deteriorated. The number of lossmaking enterprises decreased slightly (by 1.8%) but the profits of profitable ones fell by more than 9% and the loss grew by 30.7%. The indicators of current liquidity (143.9%) and availability of own circulating assets (-21.3%) as well as the equity-assets ratio (30.3%) in food industry are far below the values considered normal (200, 10 and 50%, respectively). At the same time according to Rosstat data the profitability of food processors sales and their assets actually hasnt changed.

At present several state support tools are applied to encourage the development of food industry. Among them there are protectionist measures in order to defend domestic producers from food imports, greater support of input sectors, tariff policies aimed at supporting import of equipment having no domestic analogues and other equipment for food industry, subsidizing of interest rate on credits for purchasing domestic raw inputs and for re-equipment. Besides, target programs Development of Russian sugar beet sub-sector in 2010-2012, Development of primary livestock processing in 2010-2012, Development of butter and cheese production in Russia in 2011-2013 were developed. These programs are aimed at the solution of specific problems associated with forming of sustainable input basis and development of food industry enterprises.

4.5.4. Modification of agricultural policies in The specific conditions of 2010 forced authorities to take urgent measures for regulating agriculture. Revisions were made in the State program for agricultural development and regulation of agricultural and food markets in 2008-2012 (hereinafter referred to as the State proSection 4.

The Real Sector of the Economy gram) the five-year plan of the sectors development adopted by the RF Government Resolution No. 446 of July 14, 2007.

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 agricultures financial sustainability.

- V Regulation of agricultural and food markets.

The projected financing of the State Program in 2008-20101 amounted to: 296.3 billion rubles from the federal budget, 290.1 billion rubles from the regional budgets and 311 billion rubles from non-budget sources. But actually these amounts were largely revised each year in the process of adopting budgets for the next fiscal year.

The initial project envisaged prioritized financing of measures to support rural social and engineering infrastructure and to provide for subsidizing of interest rate on loans in order to improve access to credit funds for the most efficient producers.

However, in 2010 budget funds were primarily allocated to subsidizing of interest rate on credits the share of this measure in the total State programs financing increased from 40% in 2009 to 76% in 2010 (Fig. 44). The financing of other measures was notably revised downwards.

Sustainable development of rural Sustainable areas development of 5% rural areas Creation of general 7% Market regulation Authorized capitals conditions for of Rosselkhozbank farming 4% Creation of and Rosagroleasing 11% general conditions 28% for farming 8% Development of priority sub-sectors Development of 10% priority subsectors 5% Market regulation 6% Attaining of Attaining of agriculture's financial agriculture's sustainability financial 40% sustainability 76% 2009 Source: State program, the RF Ministry of Agriculture.

Fig. 44. The structure of expenditures under the State program in 2009 and 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 552 billion rubles projected for 2008-2012. In 2010 7.7 billion rubles were allocated for the improvement of social and engineering infrastructure in rural areas instead of the initially adopted 23.billion rubles (Table 49).

Resolution No. 446 as in force on July 14, 2007.

RUSSIAN ECONOMY IN trends and outlooks Table Basic indicators of the State programs implementation in Financing from the federal budget, The indicators value for Guidelines million rubles Planned* Revised Planned* Actual** 1. Efficiency indicators 1.1. Index of agricultural production in farms of all types as % of 104.1 89.3 the previous year (in comparable prices) 1.2. Index of physical volume of investments in agricultures 110.2 95.5 fixed capital, % 1.3. Disposable monthly incomes of rural households, rubles per 10 388.0 9 780.7 one member of household 1.4. Share of domestic output in available resources of 1.4.1. meat and meat products, % 65.7 72.6 1.4.2. milk and dairy products, % 79.9 80.7 2. Sustainable development of rural areas 2.1. Financing of measures to improve social and engineering 23 943 7 infrastructure in rural settlements, total 3. Creation of general conditions for farming 3.1. Total financing under the section 13 781 8 3.2. including subsidies to farm producers for the purchase of 4 120 4 domestically produced mineral fertilizers and pesticides 3.3. including creation of system of state informational support to 1 021 agriculture 3.4. including development of consultative assistance to farm 1 055 producers 4. Development of priority agricultural sub-sectors 4.1. Development of livestock production 4.1.1. Subsidies to support pedigree livestock breeding 4 420 3 4.1.2. Supply of pedigree livestock to Rosagroleasing, thousand 30 000 7 640 head 4.1.3. Supply of equipment for livestock production to Rosagro- 65 000 6 415 leasing, thousand stalls 4.2. Development of crop production 4.2.1. Subsidizing of measures to support elite seed breeding 490.3 472.4.2.2. including financing of measures to support farm producers 1 000 in Extreme North regions 4.2.3. including financing of measures to support flax production 595.8 including financing of measures to support rape production 975.7 including financing of measures to establish perennial 1 367.9 plantations 5. Attaining of agricultures financial sustainability 5.1. Total amount of subsidized credits (loans), billion rubles 290 374.2 5.1.1. including short-term credits 150 258.8 5.1.2. including investment credits 140 115.4 5.2.1. Subsidizing under short-term credits 10 000 13 5.2.2. Subsidizing under investment credits 28 445 54 5.3. Amount of subsidized credits received by smallholder farms 35 33.3 5.4. Subsidizing of interest rates on credits (loans) received by 8 027 5 smallholder farms 5.5. Purchase of tractors by all types of farms, units 35 000 10 565 5.6. Purchase of grain harvesters, units 11 000 3 677 5.7. Purchase of fodder harvesters, units 3 500 1 187 TOTAL 120 000 97 * Resolution No. 446 as in force on July 14, 2007.

** RF Ministry of Agriculture, preliminary data.

The analysis of preliminary indicators of State programs implementation and their comparison with the planned ones leads to the conclusion that in the 2010 budget financing of all efforts was rechanneled in favour of subsidizing interest rate on credits and loans (primarily investment ones) taken by farm producers. The amount of subsidies for reimbursing interest Section 4.

The Real Sector of the Economy rate in 2010 was almost twice above the initially projected (Table 49). 71% of such subsidies from budgets of all levels are allocated to the support of investment projects.

In the framework of these efforts borrowed funds to the total amount of 407.6 billion rubles were found eligible for subsidizing, including short-term credits to the amount of 258.8 billion rubles, investment credits 115.5 billion rubles and credits to smallholder farms 44.4 billion rubles (Fig. 45).

450 400 79,Investment credits 350 Short-term credits 300 58,Credits to smallholder farms 250 Subsidies to regions from the federal budget 200 25,150 28,100 10,50 0 2006 2007 2008 2009 Source: National report on implementation of State program in 2009, preliminary data of the Ministry of Agriculture for 2010.

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