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% Beef Butter Poultry Cheese Macaroni Sunflower oil Smoked sausage Semi-smoked sausage Vegetables, fresh and canned TABLE 1. IMPORT OF BASIC FOOD PRODUCTS IN 6 MONTHS 2001 AS COMPARED TO 6 MONTHS 2000, % Total From the CIS From the non-CIS countries countries Red meat, fresh and frozen 2.1 fold 104.4 2.7 fold Poultry meat 3.1 fold n.a. 3.3 fold Canned meat and meat products 87.3 62.8 137.Fish, fresh and frozen 2.1 fold 123.8 2.3 fold Condensed milk and cream 99.7 n.a. n.a.

Butter 3.2 fold 3.3 fold 3.1 fold Sunflower oil 128.8 138.1 111.Raw sugar 85.5 n.a. n.a.

White sugar 87.7 35.9 n.a.

Food grains 35.3 37.6 31.Cacao products 2.0 fold 2.5 fold 122.Coffee 98.9 n.a. n.a.

Tea 94.2 80.7 94.Citrus fruits 105.7 n.a. 102.Alcoholic and alcohol-free 138.6 142.3 132.beverages Source: Data of the RF State Committee for Statistics.

Meat and poultry imports were rapidly restoring intensify this process and encourage further inflow after the lifting of restrictions thereon connected of capital to agriculture in the near future.

with the unfavourable veterinary situation in some In the first half of 2001 direct foreign investments countries. Besides, duties on different poultry in the primary agricultural production grew by 1/items were unified and the number of border (i.e. by 5 million dollars). The major part of them customhouses through which they could be came from Panama being actually a repatriation of imported was restricted. As a result some part of Russian-origin capital rather than real foreign poultry supplies could come out of shadow and investments.

thus elevate the statistically recorded imports.

It's difficult to estimate agriculture's profits While the import of livestock products in the first reinvestment in the first half of the year as due to half of 2001 grew, that of grains, raw and white the seasonal nature of production the bulk of sugar noticeably fell.

investments is made after the crop is sold. But the The agricultures financial performance was initiated restructuring of debts with requirements to determined by the positive development trend in fulfil can make agricultural producers budgets the past two years and the start of restructuring very tight and entail a cut of their investments in debts to the budget. Some segments of the agrarian fixed capital.

sector became quite profitable (e.g. the profitability Nominal budget outlays for the agrarian sector of grains in some regions amounts to 400%).

grow since 1999. However, in 2001 their share in Together with the substantial tax privileges it the total federal expenditures fell (Picture 2). The makes agriculture attractive for investors. Capital share of agrifood sector in the consolidated budget comes from external industries, e.g. fuel and shrank as well - from 2.75% to 2.13%. At the same energy. Vertical holdings continue to develop in time the contribution of federal budget to the the sector. Adoption of the new Land Code will sectors financing increased from 22% to 28%.

PICTURE 2. EXPENDITURES FOR AGRICULTURE IN THE FEDERAL BUDGET 25 000 2,00% 1,80% 1,74% 20 000 1,60% 1,52% 1,40% 15 000 1,20% 1,19% 1,00% 22 20 10 000 0,80% 15 0,60% 5 000 0,40% 0,20% 0 0,00% 2000 2001 Expenditures on agriculture in the federal budget The share of agriculture in the total federal budget expenditures Federal budget execution in the agrarian sector is members of the Russian Federation5. These only about 75% which is the lowest indicator in the budget subsidies are not envisaged in the first half of the year. Subsidies were financed Federal Budget Law and actually continue the much better - over 84%. In 2001 actually all notorious practice of budget credits to agriculture subsidies to crop and livestock producers were known since 1992-1994. Then it resulted in preserved. We find that most of them are building up of bad debts in the sector, financial inefficient. Meantime, these items are the best irresponsibility of producers and corruption in the financed ones. In the first half of the year the administrative bodies.

largest federal budget funds were allotted to the Agrifood sectors performance in 2001 will still be compensation of agricultural producers spendings good, but already the next year will be much on purchase of mineral fertilizers, pesticides and harder. First, given the current trends the effect of elite seeds, and on soil fertility improvement import substitution will be completely exhausted (melioration). We continuously stress that and it will become clear what Russian products compensation of expenses on mineral fertilizers have real comparative advantages on the world has no radical effect and in the last season their market. Second, the initiated restructuring of debts application even dropped as compared to the will induce a wave of bankruptcies in agriculture.

previous year. Moreover, budget funds are still The clearing of the sector of inefficient producers used to compensate the agricultural producers will eventually bring positive results. But at the spendings on seeds of grains and oilseeds despite initial stage it will rather entail production drop.

their being the most profitable crops. The reasons Besides, the lack of more or less sound rural for that are very doubtful since the marginal development policies is likely to increase social product in grains and oilseeds production fully tension in regions where many agricultural covers marginal cost of purchasing elite seeds and producers go bankrupt.

thus producers are quite able to pay for them The structure of agricultural production will shift themselves.

to large holdings while household farming will Almost 1/3 of federal budget outlays for spring gradually become less important as field works (1.7 billion rubles) was used to render macroeconomic situation improves. The progress financial assistance on request in the form of of vertical integration will imply capital inflow in interest-free budget subsidies intended to cover cash gaps in executing budgets of constituent Data of the RF Ministry of Agriculture: htpp://aris.ru.

% million rubles the agrifood sector although in the near future Despite the progress of negotiations on Russias nominal investments in the primary production acceptance to WTO, the agrarian protectionism wont be large. Restructuring of agricultures debts will strengthen. Due to errors in market regulation can lead to a somewhat deeper involvement of additional corrective practices will be introduced banks in financing the sector and a wider spread of rather than inefficient ones will be discontinued.

financial leasing. Thus, Russia can get into a vicious circle of protectionism.

APPENDIX TABLE 2. AREAS PLANTED IN BASIC AGRICULTURAL CROPS 1995 1996 1997 1998 1999 2000 Grains 54.7 53.4 53.6 50.8 46.8 45.9 47.Sunflower 4.1 3.9 3.6 4.1 5.5 4.6 3.Sugar beets 1.1 1.1 0.9 0.8 0.9 0.8 0.Potatoes 3.4 3.4 3.4 3.3 3.3 3.2 3.Vegetables 0.8 0.7 0.7 0.7 0.8 0.8 0.Source: Social and Economic Situation in Russia, corresponding years.

TABLE 3. TOTAL PRODUCTION AND MARKETING OF BASIC LIVESTOCK PRODUCTS IN JANUARY-JULY AS % OF THE CORRESPONDING PERIOD PREVIOUS YEAR 1998 1999 2000 Prod-n Mark-ng Prod-n Mark-ng Prod-n Mark-ng Prod-n Mark-ng Livestock and poultry for 94.4 92.6 92.1 87.5 102.9 103.6 99.3 100.slaughter, live weight Milk 98.4 100.4 95.5 97.1 99.7 99.2 100.9 103.Eggs, billion pieces 104.2 108.0 98.3 99.3 103.6 105.3 101.4 100.Source: Social and Economic Situation in Russia, corresponding years, January-July.

TABLE 4. PRODUCTION OF BASIC FOOD PRODUCTS IN JANUARY-JULY AS % OF THE CORRESPONDING PERIOD PREVIOUS YEAR 1998 1999 2000 Meat 96.4 87.9 112.9 110.Sausage 90.5 88.8 114.0 109.Butter 94.7 90.1 103.7 104.Whole milk products 105.2 100.1 110.5 107.Vegetable oils 2.0 fold 120.1 2.0 fold 95.Sugar 109.5 136.7 92.7 95.Flour 95.3 104.8 97.9 100.Groats 100.2 80.4 100.1 128.Macaroni 97.0 146.8 97.6 107.Margarine 84.0 24.5 12.3 115.Canned meat n.a. 160.5 85.9 99.Source: Social and Economic Situation in Russia, corresponding years, January-July.

TABLE 5. PRODUCTION OF AGRICULTURAL INPUTS IN JANUARY-JULY AS % OF THE CORRESPONDING PERIOD PREVIOUS YEAR 1998 1999 2000 Tractors 78.0 137.9 146.1 80.Tractor ploughs n.a. 75.2 162.9 121.Tractor seeders n.a. 172.6 180.4 124.Tractor cultivators n.a. 65.3 188.8 114.Grain harvesters 103.5 131.4 2.5 fold 2.0 fold Tractor mowers n.a. 121.6 99.2 64.Mineral fertilizers 98.6 123.0 109.9 104.Source: Social and Economic Situation in Russia, corresponding years, January-July.

E.Serova, I.Khramova, N.Karlova, O.Shick, T.Tikhonova Foreign trade In July 2001 Russias foreign trade turnover 2000 (i.e. fell by 6.8%) while imports accounted dropped by 12.1% compared to the prior month for USD 4.2 bln. vs. 3.6 bln. registered in July and accounted for USD 12/2 bln. When compared 2000 (a 18.3% growth). Because of the decline in to its respective period of the prior year, the exports and imports, the balance of Russias foreign trade remained practically unchanged. Its foreign trade slid to USD 3.8 bln., which also growth accounted just for 0.6% which became the became the lowest value noted over the past tow lowest rate over the past two years. Russia exports years.

made up USD 8.0 bln. vs. 8.6 bln. reported in July FIG. Main indices of Russias foreign trade (as USD bln.) - 1998 . 1999 . 2000 . 2001 .

Balance Export Import In July, the trend emerged to downfall in world oil monthly price for Brent made up USD 26.3/b.

prices the average price for Brent accounted for (down at 3.3% against the respective period of the USD 24.6/barrel (down at 11.5% compared with prior year), while Urals- USD 24.4% (- 6.2%). The June), while Urals was quoted for USD 23/b. situation in the world market for petroleum (down at 10.2%). The main reason for such a derivatives generally followed the one noted in the downfall is the recession noted in the major world market for crude oil. At the same time, during the economies, which traditionally is accompanied period in question the contracting price for the with lower oil consumption. In addition, the oil Russian natural gas supplies grew by 44.7%, price fall was caused by the Iraqs decision to however July showed the trend to its decline.

renew its oil supplies to the world market and the The world markets for ferrous metals were rather growth in oil and oil products stock in the US> In stable over the period concerned, with price view of that, in late July the OPEC members made fluctuations being insignificant. Between January a decision on contracting the oil output by 1 mln.

to July 2001 the main non-ferrous markets were barrel daily since September 1, to maintain the dominated by a bullsih trend induced by a low price corridor within USD 22 to 28/b. Thus, consumer demand between January through July 2001 the average TABLE 1 THE AVERAGE WORLD PRICES IN MAY OF THE RESPECTIVE YEAR 1996 1997 1998 1999 2000 Oil ( brent), USD/t 20,66 18,25 12,96 18,8 28,4 24,Natural gas, USD/mln.m3 - 2,121 1,983 2,363 4,01 3,Petrol, USD/t 0,6338 0,5941 0,4234 0,6002 0,935 0,Copper USD/t 1935,9 2481,7 1754,3 1744,8 1864,2 1541,Aluminum, UDS/t 1455,4 1563,7 1377,7 1403,5 1565,9 1412,Nickel, USD/t. 7350 6737,3 4620 5273 8202,0 5956, Sep Sep Sep Sep Jule Jule Jule Jule Jule May May May May May Jan.

Jan.

Jan.

Jan.

Jan.

Nov.

Nov.

Nov.

Nov.

March March March March March Since October 1, 2001, the new import customs federal budget Rb. 336.96 bln. in customs duties duty rates approximately on 400 commodity vs. 220.44 bln. reported over the same period of positions have been introduced for the term of 9 the prior year.

months. In addition, the duty rates on almost 3.Before addressing the customs tariff system thousand goods lowered and unified as of January reform, the Russian authorities took into account 1, 2001, will remain effective. It should be noted both foreign and domestic experiences, which that the lowering and unification of import duty witnesses that high rates become efficient only if a rates has encouraged the reduction in violations of government intends to limit the importation of a the customs procedures and the transition of an number of goods. However, if nowadays the increasing number of economic agents towards the mission is to increase the customs duty collection, legal sphere.

such high rates are not effective, because they Whilst changing the import duty rates, the RF entail abuse and fraudulence and, finally, lead to a Government was willing to encourage an contraction in the amount of customs collection.

activation of the importation of technological In order to protect national producers, since equipment to Russia. It is a very urgent issue due January 2002 the customs import duty on to high deterioration rates of the production unrefined sugar should make up 40% of its equipment noted at the majority of national customs value, but not less than Euro 0.12/kg., enterprises. That is why the duty rates on the whole while the one on refined sugar should become range of technological equipment were decreased, 40%, too, nut not less than Euro 0.14/kg. The and on some kinds of that, particularly, the noted seasonal import duty on unrefined sugar equipment not produced in the country and needed should be introduced for the period between July for technical modernization of domestic through December 31 and would make up 50% of enterprises, the rates were lowered from 10-15% to the products customs value, but not less than Euro 5-10%. The process of customs duty rates 0.15/kg, while the one for refined sugar should be unification also covered paper, colorings, 50%, too, but not less than Euro 0.18/kg.

chemicals, machine-engineering equipment. In the As concerns the trade with the CIS countries, in past, different kinds of these goods were subject to July the respective export supplies remained at the rather a broad range of duties between 5 to 15%, average level reported over this year and accounted - which provoked indecent importers fraudulent for USD 1.1 bln. which exceeds the analogous operations.

average annual level at 9.5%.

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