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2. To increase volume of supplies under the system of federal lease of breeding stock, machinery and equipment for the livestock farming sector. The key arrangement is to increase the authorized capital of Rosagroleasing. In doing so, it is envisaged to reduce ( down to 0 % per annum ) the rate for utilization of the Rosagroleasings authorized capital for breeding stock supplies, which would reduce the cost of lease by an average of 20 %, and extend to 10 years the period of lease of machinery and equipment for animal production units. The value is Rb 4 billion annually, of which Rb 3 billion and Rb 1 billion would be allocated to purchase livestock and equipment respectively.

3. To provide guaranteed level of foreign trade protectionism in the livestock farming sector. The key arrangement is to approve the amounts of quotas and customs duties on meat in the period between 2006 and 2007 till 2009 under the existing intergovernmental agreements, abolish customs duties on the technological equipment designed for the livestock farming sector, which has no domestic analogues.

Objective 2. Small Business Promotion.

The following activities have been provided for:

1. To promote growth of personal subsidiary economies and farm enterprises, as well as their cooperatives. The key arrangement is to subsidize the interest rate on loans they obtain from commercial banks in the amount of 95% of the refinancing rate determined by the Bank of Russia. The value is Rb 2,9 billion in 2006 and Rb 3,67 billion in 2007.

2. To support the development of a network of procurement, supply-sale agricultural consumer and credit cooperatives. Rosselkhozbank will provide credit support, as well as information and methodological support, on account of the allocated funds. In addition, agricultural consumer and credit cooperatives provide for participation of Rosselkhozbank as an associate member. In and 2007, Rb 3,6 billion and 4,5 billion Rb respectively is scheduled for allocation from the federal budget to supplement the Rosselkhozbanks authorized capital for this purpose.

3. To develop crediting on security of land areas. A series of federal laws required for setting up a system of land and mortgage lending are scheduled for adoption in the period between 2006 and 2007.

In 2006, Rosselkhozbank will be carrying out pilot projects. In 2006 and 2007, Rb 0,1 billion and Rb 1,2 billion respectively is scheduled for allocation from the federal budget to supplement the Rosselkhozbanks authorized capital for this purpose.

Objective 3. Provision of Housing in Rural Areas for Young Specialists.

The key approach for achieving this objective is to provide constituent entities of the Russian Federation with subsidies to finance the activities intended to provide young specialist with non-expensive affordable housing in rural areas. The key arrangement is to carry out housing construction by economic agents purchase of houses through subsidies allocated from the federal budget ( not more than 30% ), budgets of constituent entities of the Russian Federation ( not less than 40% ) and employers funds ( 30% ), and provide housing for young specialists ( or their families ) in rural areas under an agreement on commercial lease. The value is Rb 2,0 billion in 2006 and Rb 2,0 billion in 2007.

Project s Progress Officially, the National project has been in progress since January 2006, but it had been developed very poorly by that period, so it was further developed during the entire first quarter rather than actually implemented. The objectives and activities of the National Project were better defined and formulated, regulative and methodological documentation, as well as logistics of implementation of the scheduled activated, were developed during that period. Livestock farming projects for subsidizing long-term loans ( up to 8 years ) had been prepared in the regions, an Advisory Commission was set up under the Ministry of Agriculture of the Russian Federation to select such projects. Rosselkhozbank commenced its work on selection of personal subsidiary economies to be extended with loans;

cooperatives started to set up in the regions. Not much was done in terms of propaganda. In particular, the website of the Ministry of Agriculture of the Russian Federation provides a complete description of the project, and a special brochure was published. Rosselkhozbank set up a hotline of the Center for Information Supply and Monitoring of the implementation of the top-priority national project.

Since the Project is still on the initial stage of implementation, it is not the time to measure its actual effectiveness on the basis of the developments in this sector. The sectors growth rates were 101.4% over the first half of the year, which is slightly faster than those of the corresponding period in 2005, but slower than in 2005 as whole ( 102% ). Population of the cattle stock and dairy cows keeps reducing, though the Project is above all intended to provide growth in the population of this type of cows.

Milk production reduced slightly ( by 0.3% )11 in the first half of the year.

As of June 1, 2006, the Expert Team of the Ministry of Agriculture of the Russian Federation has selected 1072 enterprises with a total value of about Rb 105 billion to be allocated for subsidies on eight-year loans. To date, only 458 agreements have been entered upon at a value of at least Rb billion. Discount loans are allocated between federal districts in line with their share in milk production (Table 2). However, the average value of a single enterprise differs by up to three times: the most expensive projects are in the Central and Povolzhie Districts, the cheapest are in the North-West and Siberian ones. Obviously, it is loan gaining for construction or reconstruction and modernization rather than the value of a project. However, the difference is no the less alerting no very expensive project solutions are provided for Rosagroleasing has already purchased more than 25 thousand heads of breeding stock as part of the Project. The turnover of this public corporation has increased incredibly due to the Project: a total of thousand heads were supplied on lease in 2005. However, the total of purchase volume may not increase over a year as compared to the previous year, because domestic enterprises purchased a total of 54 thousand heads of livestock during 2005 ( nearly 27 thousand over six months ). The average purchase price is hardly beyond Rb 50 thousand per head, which is slightly below the world markets price ( for account of purchase from domestic breeding stock manufacturers ). To date, however, only eight thousand heads have been supplied to enterprises.

On the basis of the Federal State Statistics Service As of July 1, 2006, a total of 1243 cooperatives were set up, including 544 credit cooperatives, procurement and supply-sale cooperatives, and 91 processing cooperatives. Privolzhie, Central and Siberian Federal Districts are leading in establishing cooperatives.Table 2.

Discount Loans Gaining for the Development of Animal Production Enterprises at Federal Districts Districts share ( % ) in : Average amount of gain loan per single enterprise total amount of population of milk ( Rb billion ) discount loans cows production Central Federal Administrative District 32.8 17.8 20.7 147.North-West Federal District 9.4 4.5 6.2 44.Siberian Federal District 16.4 18.5 15.2 62.Privolzhie Federal District 22.7 31.1 32.1 113.Urals Federal District 2.6 5.9 6.4 99.North Federal District 14.2 19.6 17.5 46.Fareast Federal District 2.0 2.5 1.9 70.Data source: estimates have been made on the basis of http://www.mcx.ru/dep_doc.html Key Issues and Risks Concerning Project Implementation The system of subsidizing of lending interest rates for the agricultural sector has be in place since 2000 in Russia and has been proved positive. A few years ago this system was first applied to longterm loans as well. In general, there is no questions why it has been included in the National Project.

However, more than Rb 3 billion ( see Table 1) have been provided for these objectives annually, while about Rb 13 billion have been scheduled for allocation for the same purpose in the 2006 budget.

In other words, the activity of the National Project has no significant effect on the level of public support in this field. On the other hand, the Project provides for the same kind of provision of subsidies for major and long-term ( up to 8 years ) projects, though the Project itself is scheduled for two years.

This means that the investors participating in the National Project on this terms are exposed to fairly risky investment projects, because there is uncertainty concerning subsidizing % beyond the projects period. There is a threat that regions might resort to administrative leverage in order to force large agribusiness companies to participate in such projects, which could materialize such a potential risk the agricultural businesses are exposed to.

The program for the development of the livestock farming sector provides for a fairly substantial investments in imports of breeding livestock from other countries. One hundred thousand heads are scheduled for purchase and lease to agricultural manufacturers. (In the meantime, it should be noted that this constitutes an official admission of the all-around failure of the domestic animal breeding science. ) One should realize that import itself of high yield breeding livestock provides no guarantee of such high yield in the Russian environment, because this requires that specific technological conditions should be met, reconstruction of premises, and qualified management. Many Russian regions has already repeatedly financed at their own account purchases of breeding livestock in other countries, which finally have proves ineffective. Obviously, there are private businesses which can meet all the requirements, but the envisaged sequence of measures leaves no hopes for efficiency of the Projects funds in this case. Indeed, initially, Rosagroleasing receives Rb 8,0 billion to supplement is http: //www.mcx.ru/dep_doc.html authorized capital. This public company is then expected to purchase breeding livestock to be distributed on beneficial terms among agricultural producers. The practice shows that our agrarian bureaucratic system is not aware of any method of distribution other than by providing the so called limits ( among regions, districts, agricultural manufacturers ), which means that such breeding livestock would not finally ( or, better say, not always ) come to the hands of those who is able to use it effectively.

Rosagroleasing is not interested in efficient utilization of the funds received: the corporation receives funds to supplement its authorized capital, for which it undertakes to carry out lease transactions, rather than for lease transactions as such. And, of course, no records are expected to be kept on the volume of such transactions.

It is expected to purchase 100 thousand heads of breeding livestock in the nearest two years. This is a fairly big volume for the world market of breeding livestock. According to the market experts, there is no such a volume of livestock in the world market. This means that lower grade livestock have to be purchased to implement the Project. Furthermore, any prior statement of such a major purchase would inevitably boost the world prices. In other words, they are going to purchase lower than excellent grade livestock at higher prices.

Small enterprises were expected to be credited through subsidizing the interest at 100% of the refinancing rate of the Central Bank of Russia ( the federal budget accounts for 95 % and the budgets of constituent entities of the Russian Federation account for 5%). In fact, such subsidy means a negative interest on bank loan. Such a deep discount rate of lending was available of agricultural manufacturers in 1992 ( farmers were credited at a rate of 8% per annum, while the average bank rate was 120% ).

As a result, this sector became highly criminalized, involving numerous law violations, scatteration of funds, and Agroprombank eventually went bust. The advocates of this measure proceed from a good intention to make bank loans available and affordable for small businesses, though they fail to take into account that there are no restrictions whatsoever that could prevent from setting up a small business for no other purpose but obtaining such a loan. It is sufficient to buy a house in rural areas, plough up 100 hectares of potatoes land in order to be granted a status of personal subsidiary economy.

The second part of the National Project has a contradiction, as is the case with the first one. It is envisaged to promote set-up of milk cooperatives designed to buy milk from individuals involved in milk production in rural areas. Thus far, the government believes that rural individuals can generate a decent income by selling milk produced from one or two personal cows. What does it mean On the one hand, they are going to support large manufacturers to develop by purchasing highly productive milk livestock for such enterprises, while on the other hand, they are also going to support milk production of individuals. These two sectors are competitors. By supporting milk cooperatives, they would produce more competitors for those enterprises which are expected to import highly productive milk livestock. The rural population is in desperate need for support in looking for additional income sources ( the more so, because if the first part of the Project proved successful, the volume of employment in rural areas would fall further : to serve highly productive milk cows at high-technology farms, they would need 3 to 4 times as many personnel as they have today ), but it is hard to understand why nothing but milk production at personal subsidiary economies is recognized as such source of income What kind of figures are expected to be attained as a result of the foregoing activities Additional 130 thousand livestock units are expected to be created. Supposing that half of these livestock units would be involved in the milk cow production sector which would attain a European level of milk yield of 8 thousand liters per cow a year. Even with such extra high figures, milk production would hardly grow more than 0.5 million tons a year, taking into account that the countrys annual gross milk yield is 30 million tons. Within two years all the activities are expected to result in growth in gross production of milk and meat by 4.5 % and 7 % respectively.

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