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Supposing that milk production would attain an unbelievably, against current levels, high profitability of 30 %. This means that profit generated from additional milk would grow within a range of Rb 5 billion. Even if we suppose that milk production would hardly account for one fourth of the National Project s funds, utilization of these funds would fail to attain a 100 % efficiency. The same is true with meat production.

There is another issue which has a long-term adverse affect. The key measure aimed at developing cooperatives as part of the National Project is to increase the Rosselkhozbanks authorized capital by Rb 9,4 billion in two years. To implement the measures such as purchase of breeding livestock and replacement of fixed assets in the livestock farming sector, it is envisaged that the Rosagroleasings authorized capital should grow by Rb 8,0 billion. Hence the implementation of the basic part of the National Project ( 56% of the earmarked expenditures ) is to transfer budget funds to public corporations ( monopolists ). Artificial monopolization of the markets of material and technical resources for agricultural industry would hamper normal development and have an adverse affect on the terms of access to these resources by agricultural manufacturers. On the other hand, neither Rosselkhozbank, nor Rosagroleasing need to replenish their authorized capitals to perform the functions required under the Project. These funds could be transferred to them for management so that they perform the same functions.

In addition, the initial stage of Project implementation has revealed another risks as well. In particular, the mere lack of standard designs of animal production units may result in financing projects that are technically imperfect and overpriced.

Deep discount crediting of the population in rural areas also leads to unwanted consequences. First, artifices have become possible in the credit market. The similar situation was reported in the Russian rural areas in 1992, when farmers could obtain loans at the rate of 8% per annum, while the average interest rate was up to 210% in the economy, which created an opportunity for reselling of such loans.

Second, these loans are basically obtained for consumption purposes ( data is available on expansive growth in consumption lending in the regions since the inception of the Project ), which means that there would be no sources for repayment of these loans. Finally, low cost of funds in the rural areas, which is simultaneous with price rise of alcohol products due to a new regulation of the alcohol market in the country, would inevitably result in outburst of alcohol addiction and production of illegal, home-made alcoholic beverages in rural areas.

For the time being, extra labor in the agrarian production, which is aggravated with growth in productivity in the sector, is the key issue concerning the development of the agricultural industry and the rural areas in Russia. Agrarian market production is currently providing only one third of work places in rural areas. Excessive employable population has been driven out to the personal subsidiary economy sector producing competitive, but less productive, agricultural products. Such a dualism in the rural labor market can not but result in fall of incomes generated from employment in the agricultural sector. To date, there are few real alternative options of employment in rural areas, which are basically represented by wild grasses harvesting, provision of informal services in the internal rural market of services, and primitive tourism in rural areas. These types of employment are of informal, inconstant nature, and seem to be attractive basically for marginal individuals driven out of the basic types of employment. Under the circumstances, the federal government should pursue a strong policy of agricultural development oriented at creating full-fledged employment of non-agricultural nature. Notwithstanding, it has been envisaged as part of the National project that rural population should obtain loans only for agricultural type of activities, which would further aggravate the prevailing situation.

Furthermore, this would make it more difficult to implement the programs on alternative employment and activities, which have already been commenced in the regions. In Perm Territory, for instance, there are municipal credit funds which have successfully been operating over several years in rural areas by extending small and very small loans to rural individuals for any kind of business activity. However, the cooperatives set up as part of the Project, are expected to extend loans only for activities of agricultural nature. This is why Perm Territory has to set up parallel cooperatives for fear of losing a share of its funds covered by the federal government.

With regards to mortgage crediting, the entire state support is represented by a single bank, Rosselkhozbank. Should mortgage crediting become a more lucrative project, such approach would lead to unreasonable monopoly of a single bank in the market of such services within the agricultural sector, and inevitable monopoly-related costs to be incurred by borrowers. Should it be suggested to develop mortgage crediting as a social project ( which is commercially unfavorable ), Rosselkhozbank would inevitably go bust, as was the case with its predecessor, Argoprombank, in 1994-95, when it extended commercially loss making loans in the agricultural sector. Both development options are in contradiction with the objectives of the national agricultural industry.

Finally, there is one more major disadvantage in implementation logistics of the Project. The National Project does not use up the full range of trends of the national agrarian policy of this country.

However, its implementation requires so much efforts to take by all senior managers in the sector, that all other trends have been suspended.

Prospects of Project Being Extended Beyond What Should be Retained The current version of the Project may create serious problems, likely adverse affects, and doesnt comply with the concept of national project. Nevertheless, the Project includes long-term governments commitments to the Projects participants ( recipients ), which should be guaranteed to secure stability in the sector. In particular, no defaults or delays are acceptable in payment of subsidies for all long-term loans ( which means till 2015 ). The volume of the required funds can be calculated on the basis of extended loans and declared subsidizing rates.

In addition, it is important to extend, for another 3 to 4 years, exemption of customs tax on technological equipment designed for livestock farming sector. The declared treatment in the field of customs duty rate regulation in the meat production sector must be maintained stable inviolate.

What Should be Changed Providing support to cooperatives in rural areas is the most important trend to be pursued as part of the agrarian policy. The following changes should be made to do so:

Rosselkhozbank should provide methodological and information support to such cooperatives.

Loans may be extended by any commercial bank, while at the moment of loan repayment cooperatives should be directly provided with subsidy on a share of interest rate on account of federal budget. The currently impending Rosselkhozbank s monopoly in the cooperative movement in rural areas should be prevented;

to make amendment to the Tax Code of the Russian Federation abolishing double taxation on agricultural cooperatives and introducing a tax allowance on property of consumption agricultural cooperatives;

to allow as part of the Project credit cooperatives to extend loans for the purposes other than agricultural activities in rural areas.

Breeding livestock lease should remain unchanged as well. Rosagroleasings monopoly in this type of activity should be removed. It is the agricultural manufacturers costs on purchase of breeding livestock of certain quality and in certain minimal quantities ( to support really effective projects on livestock replacement ) that should be subsidized.. Rosagroleasing needs no replenishment of its authorized capital to this effect.

As soon as Rosselkhozbank has completed its pilot projects on mortgage crediting in the agricultural sector, regulatory documents, which will be needed with regard to such pilot projects for extensive development of such crediting, should be adopted. The mortgage crediting monopoly of a single bank should be removed thereafter. The government will subsidize mortgage crediting along with other long-term loans.

What Should be Cancelled It is obvious than the current version of discount crediting of personal subsidiary economies should be replaced with a new one. Instead, there is a need in a system, well balanced program on the development of rural areas oriented at creating an alternative employment and business activities in rural areas. A good example in the international practice is a similar EC program ( Pillar II of Common Agricultural Policy ), especially in terms of its application to the newly accessed Central and East European countries. Such a program should also include solution of the program on provision of housing for qualified personnel in rural areas. It is the personnel qualification must be the key criterion for the provision of housing subsidy, not the age, as it is the case with the current Project.

Whats New Should be Introduced In prospect, after 2007, should the national project format continue, it is expedient to retain the lines concerning development of the livestock farming sector and agricultural development taking into account the said reservations. Two projects ( sublines ) can be recommended as part of the second line, which perfectly match the national project format: total gasification in rural areas in the medium-term period and inception of a large scale program on provision of access to Internet in rural areas.

E. Serova Foreign Trade For the time being, all Russian foreign trade parameters have been experiencing an upward trend due to favorable market conditions and growing effective demand of natural bodies and legal entities.

The negotiations on Russias accession to the World Trade Organization failed to show the expected success in July 2006.

In May 2006, Russian foreign trade turnover reached another record breaking result of 39,9 billion US dollars, which grew up 11.1% year on year. The growth in the basic Russian foreign trade parameters is supported by favorable conditions in the world market growing effective demand of natural bodies and legal entities.

Export supply grew by 33% to reach 27 billion US dollars, while imports grew by 33.8% to reach 12,9 billion US dollars. Hence the export surplus grew 30.4% to reach the biggest over the last years record of 14,1 billion US dollars year on year.

2000 2001 2002 2003 2004 2005 Balance Export Import Data source: the Federal State Statistic Service of Russia Figure 1. Basic Parameters of Russian Foreign Trade ( USD billion ) The value of export has been growing due to the growth in prices prevailing at the world markets of energy resources and non-ferrous metals. According to the estimates of the Bank of Russia, world prices, taking into account of the Russian export structure by aggregate of goods accounting for about 70% of its value, remained at the same level in May 2006 against the pervious month. In the period between January and May 2006, they grew 31% year on year.

In May 2006, the monthly prices of Brent, Dubai and Western Texas oil fell by an average of 1.0%, while that of Urals oil fell by an average of 1.2% ( down to $65.2 US dollars per barrel ). In the period between January and May 2006, oil prices grew 35 and 36.9% respectively year on year.

In May 2006, prices of oil products grew by an average of 1.6% against the same period of the previous year, prices of diesel fuel grew by 1.7%, gasoline by 2.8%, fuel oil by 1.3%. In the period between January and May 2006, prices of oil products grew by an average of 36% year on year ( prices of gasoline, diesel fuel and fuel oil grew by 35%, 28.5%, 54% respectively ).

In May 2006, prices of natural gas in Europe and the United States grew by 0.5% and 12.6% respectively against last April. Over the last five months of 2006, prices of natural gas in Europe and the United States grew by 43.2% and 10.5% respectively year on year.

Jul Jul Jul Jul Jul Jul Okt Okt Okt Okt Okt Okt Jan Jan Jan Jan Jan Jan Jan Apr Apr Apr Apr Apr Apr In May 2006, world prices of products supplied by the Russian fuel and energy industry decreased by an average of 0.2% against the previous month. In the period between January and May 2006, they grew 37% year on year.

Table 1.

Average Annual Prices in May of the Corresponding Year 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Oil (Brent), USD per barrel 19.29 19.00 14.51 15.91 27.50 28.71 25.21 25.34 37.9 47.8 68.Natural gas, USD/1 million. BTU 2.271 2.187 2.349 3.724 4.220 3.254 5.984 6.465 6.497 8.Gas, USD per gallon 0.678 0.634 0.513 0.529 0.957 1.095 0.767 0.835 1.342 1.44 2.Copper, USD per ton 2756.7 2480.4 1736.2 1539.9 1834.7 1708.2 1596.2 1667.5 2720.0 3254.0 8022.Aluminum, USD per ton 1623.0 1618.9 1370.6 1317.9 1464.7 1536.7 1344.3 1397.6 1615.7 1746.0 2852.Nickel, USD per ton 8135.2 7468.1 5058.3 5239.5 10141.4 7115.7 6764.0 8351.9 11068 16930.0 Data source: calculated on the basis of the data of London Metal Exchange (Great Britain, London), International Oil Stock Exchange ( London ).

Prices of aluminum, copper and nickel kept growing in May 2006 due to a high demand for these metals prevailing under the circumstances of high oil prices and USD losing its exchange power against other world hard currencies. In May 2006, average prices of copper, nickel and aluminum reached their maximum.

In May 2006, prices of aluminum, copper and nickel grew by 8.8%, 25.9%, 17.3% respectively against the previous month. In the period between January and May 2006, prices of non-ferrous metals grew by an average of 31% year on year ( prices of copper, aluminum and nickel grew by 78%, 36%, 5.2% respectively ).

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