Fig. 45. Amount of credits eligible for reimbursement of interest rate in 2006-2010, billion rubles At the same time the financing of efforts to develop priority agricultural sub-sectors was reduced: in livestock production – by 3 billion rubles, in crop production – 9 fold (from 4.billion rubles to 500 million rubles). Funds aimed to support farm producers in Extreme North regions and to establish perennial plantations were cut down to zero, those to encourage flax and rape production – almost to zero (Table 49). An actual withdrawal of support to rape producers is an indirect sign of no wish to develop alternative energy sources (for instance, in the US the amount of subsidies to farmers for the production of crops to be processed into biodiesel grows year after year).
Following the reduction of subsidies for partial compensation of expenditures on crop insurance the share of insured areas in the total crop acreage continues to decline – in 2010 it fell down to 13%. The monopoly of regional insurance companies in this field remains very strong. The technical modernization of agriculture slows down – in 2010 the number of purchased new tractors and harvesters of all types was 3 fold below the planned indicator (Table 49).
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. Capital investments in building, reconstruction and restoration of meliorative systems are falling. Allocations to create the system of state informational support to agriculture dropped 4 fold. Financing of consultative assistance to farm producers and re RUSSIAN ECONOMY IN trends and outlooks training of agricultural specialists ceased completely despite the most acute deficit of skilled labour.
A special section of the State program specifies measures to improve financial sustainability of smallholder farms whose aim is to increase output and sales of agricultural products by individual private and household farms and to raise incomes of rural residents.
Federal budget funds for subsidizing interest rate on credits and loans to smallholder farms in 2010 amounted to 6 091.2 billion rubles – somewhat below the 2009 indicator (6 327.2 billion rubles) but 1.2 fold above the level of the first year of the State program’s implementation (in 2008 subsidies to smallholder farms equaled 5 227.2 billion rubles).
The access of smallholder farms to credits and loans improved – in 2010 the total amount of subsidized credits and loans extended to them exceeded 110 billion rubles (taking into account carry-over credits and loans of previous years). Household farms accounted for the major part of these subsidized credits and loans (65%), individual private farms – for 28% of them, agricultural consumer cooperatives – for 7%. Smallholder farms of the Southern and Volga federal districts got the biggest shares of these credits – 35.5% and 26.3%, respectively.
According to preliminary data submitted by regions the amount of subsidized credits received by individual private and household farms and agricultural consumer cooperatives reached 44.4 billion rubles.
In 2010 the Volga, Urals and partially Southern and Central federal districts were afflicted by drought. Taking into account this situation on the 23rd of June, 2010 emergency team was formed in the RF Ministry of Agriculture aimed to assist farm producers that suffered from drought. The Ministry made an expert estimate of information submitted by regions. According to conclusions of this analysis, farm crops perished on the territory of 13.3 million hectares, 25 173 farms in 895 areas in 43 regions-constituent members of Federation were found afflicted by the 2010 drought. The documented direct loss according to the expert estimate totaled 41.8 billion rubles.
To cope with the aftermath of 2010 drought some measures were adopted to help the affected farm producers. They include the financial assistance rendered in compliance with order of the RF Government Chairman V.V.Putin to the amount of 35 billion rubles, of which:
- 25 billion rubles are budget credits for the term up to 3 years for the partial compensation of regional budgets’ deficits;
- 10 billion rubles are subsidies to regional budgets aimed to support their balance.
An additional measure to support drought-afflicted farm producers being currently considered is the extension of bank credits and leasing payments. For instance, Sberbank of Russia decided to extend credits to the amount of 9.6 billion rubles, “Rosselkhozbank” – to the amount of 6.4 billion rubles.
Low percentage of insured farm producers implies the lack of a system of their complex insurance protection. This is due to a whole set of factors:
First, at present the state-supported agricultural insurance is applied in crop production but does not cover livestock farms and farm producers’ property. Thus not all agricultural sectors are protected against possible risks.
Second, the cessation of activities of a single insurance organization in some RF regions (for instance, in Altay kray) resulted in complete absence of insured crop areas therein.
Third, the lack of a complex system of re-insurance in the sector results in regional cumulation of risks that strongly deters not only the development of agricultural insurance system Section 4.
The Real Sector of the Economy but also the implementation of regional policies for supporting agriculture and its selected sub-sectors.
Finally, the most important factor is that corporate and individual private farms are often unable to pay the insurance rate in due amounts and time.
4.5.5. Conclusions and outlook 1. The Doctrine of food security despite the modern definition of this term still remains the document targeted at increasing the share of domestic output in the country’s commodity reserves instead of being the regulation directly ensuring population’s access to food products.
Because of that its definitions, indicators and criteria of food security contradict each other.
These indicators and criteria should be brought into compliance with the notion of “food security” as “the provision of the country’s population with safe agricultural products, fishery and other products from aqua bioresources (hereinafter referred to as fishery products) and foodstuffs”. Otherwise some tools of state economic policies in the field of ensuring Russian Federation’s food security cannot be applied – for instance, monitoring of food security situation in the RF regions. It’s also necessary to continue efforts in the framework of the adopted strategy and to define specific tasks for each economic policy guideline. The current version of the strategy is too general and the implementation of its goal – the provision of population with food products and their availability – cannot be monitored.
2. In 2011 the practice of unreasoned rechanneling of budget funds from one section of the State program to another should be discontinued and the budget adopted in 2007 should be executed more strictly. The Ministry of Agriculture should limit the growth of subsidies for compensating interest rate and focus not only on protectionism and import substitution but also on measures supporting competitiveness, investments, innovations and rural development.
3. The increase of investment index in agriculture will be below the State program’s objectives due to the slower growth rates of farm producers’ incomes and the reducing attractiveness of agrifood sector for outside investors.
4. Next year one can expect the following trends on selected food markets. According to forecast of the Institute for Agricultural Market Studies, the gross output of grain can reach million tons. In this case the ban on grain export should be lifted – otherwise it will result in overstocking of grain in the country’s southern regions. The government can introduce export quotas. But the basic bottleneck of this regulation is the difficulty of administrating quotas.
2010 displayed high profitability of potato production. In the coming 3-4 years this trend will continue.
In recent years import substitution was progressing on the pork market supported by import restrictions in the form of tariff quotas. Higher prices for feeds following the drought will force unprofitable pig farms out of the market. First of all the livestock numbers will decrease in households and small farms (with less than 2 thousand animals). This will in turn enlarge the market for highly efficient commercial sector – industrial pig complexes with modern production technologies and capacities for slaughter and primary processing.
5. Measures for regulating grain market cannot be regarded as successful. Federal Law No. 264-FZ of December 12, 2006 “On development of agriculture” sets minimal prices to be used for intervention purchases at commodity exchange for supporting producer prices. When the law was drafted, the minimal price set by the state was supposed to be the bottom purchase price providing guarantee for farm producers. But the law’s implementation revealed RUSSIAN ECONOMY IN trends and outlooks several bottlenecks that were highly detrimental for farm producers both in good and poor crop years. First, the timing of interventions. When they are carried out, producers no longer have grain – the bulk of it has already been bought by resellers. Second, the law’s definitions allow to bid the established minimal price at Dutch auctions. As a result the minimal price becomes the maximal one and purchases are made at prices below this minimum. Third, farm producers have no access to exchange trade because of the location of tender sites and the size of lots. Only about 2 thousand sellers take part in exchange auctions – less than 3% of thousand farms producing commodity grain. Fourth, at intervention auctions grain is purchased by the United Grain Company acting as a representative of state. At the same time it has the right to purchase it for its own needs, mainly for resale. This is a stimulus for lowering prices1. Fifth, the state spends 1 billion rubles a month for storing the purchased grain2. Sixth, the law does not envisage any limits for the volume of grain to be purchased at minimal prices. But this limit is applied when carrying out purchase interventions.
In order to cope with these bottlenecks it would be rational to announce the minimal prices before the start of next crop sowing. It’s necessary to determine terminals for collecting grain at minimal prices, to inform all producers about them, to engage a special organization or local authorities in forming of lots for auction sale, to ensure electronic or other access to tenders for farm producers3.
4.6. Foreign Trade 4.6.1. State of the Global Economy The year of 2010 saw the global economy continue to recover after the 2008-09 crisis. As many as 20 out of 23 nations that are leading importers of Russian goods posted growth in their GDPs vs. the same period of 2009, while in another three ones (Hungary, Spain and Lithuania) GDP continued to decline. Growth in GDP on a quarter-on quarter basis was constantly noted since Q3 2009 in such economies as the US, the Euro zone countries, Switzerland; since Q4 the same tendency was reported by the UK and Japan. In Q1 2010, the aggregate GDP growth rate of the group of Russia’s leading trading partners was down, but, propelled by the acceleration of growth in GDP in the Euro zone, it bounced back substantially in the next quarter.
The National Bureau of Economic Research announced on 20 September 2010 that the longest economic slump in the post-WW II history of the US had come to an end in June 2009. Its length was 18 months (the past recessions of 1973-75 and 1981-82 lasted for months each). The 18 month long recession cost the US 7.3 mln. jobs, the 4.1% fall in the industrial output and 21% of the nation’s wealth4.
A stage of the business cycle is defined on the basis of the dynamic of industrial output, employment, sales volume, and the population’s real disposable incomes. In the period since the start of the recession the minimal value of industrial output was registered in June 2009, the one of employment - in December 2009, that of the population’s real disposable incomes – in October 2009, and the nadir of volume of sales – in March 2009.
Uzun V.Ya. http://www.rg.ru/sujet/571.html http://www.kazakh-zerno.kz/index.phpoption=com_content&task=view&id= Uzun V.Ya. http://www.rg.ru/sujet/571.html http://www.nber.org/cycles/sept2010.html Section 4.
The Real Sector of the Economy That June 2009 was picked as the end date of the recession can be explained by the fact that GDP had been climbing up in the prior months, while minimal employment often was a typical feature of the period right after the end of the US recession. NBER noted, though, that the end of the recession does not herald the arrival of favorable conditions of economic development and that business activity typically is below normal at early stages of economic recovery.
Since June 2009 the US reported a practically unstoppable (except for a short interegnum in February 2009) growth in industrial output. Meanwhile, the employment still was on a relatively low level. Jobs were on the upswing between February and May 2010, but tumbled again between June and August. The real disposable incomes were growing between February and June and plummeted in July 2010. The sales volumes were on the rise between April 2009 and April 2010, plunged between May and June and bounced upwards in July 2010.
The US’s real GDP has been growing during four quarters in a row since Q3 2009. The growth rates hit their peak in Q4 2009 and crayfished over the next two quarters. Their drop in Q1 2010 was chiefly ascribed to the negative effect of net export driven by the slowdown in growth in exports and expansion of import of goods and services.
According to the US DoC data, in Q4 2010 the nation’s GDP posted a 3.2% growth in annual terms vs. the previous quarter. This is just the first GDP estimate out of three, and it might be substantially revised later on. In Q3, the US economy grew by 2.6%, and in Q2 - by 1.7%. So, the tendency of acceleration of the pace of economic growth after the recession is there.
The growth in the US’s GDP in 2010 was fueled by more robust consumer spending, exports and the federal administration’s mass spending. While imports contracted in the last quarter of the year, they ultimately grew over the year, nonetheless.