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E. Serova, I. Khramova Introduction of Grain Quotas by the EU The European Union plans to alter the regime of grain market regulation. In June the Agricultural Commissioner Mr. Fishler announced quite an ambitious program of further liberalization of the EU Common Agricultural Policy (see www.iet.ru/afe/news) that looked even more liberal when compared with the new US Farm Bill (Ibid.). Nevertheless, the sharply growing import of cheap grain from Eastern Europe includ tons rubles per ton 13.11.14.11.15.11.19.11.20.11.22.11.26.11.27.11.28.11.ing Russia and protests of local grain producers entailed shifting to new policies that envisage the introduction of tariff quotas on import of food wheat.

Beginning from January 1, 2003 the EU enforces the tariff quota on import of low and average quality food wheat totaling 2 981 600 tons. Within this quota the customs duty will equal 12 EUR per ton, in excess of it 95 EUR per ton. Quotas will also regulate the import of brewers barley (50 000 tons with 8 EUR per ton duty within the quota) and other barley (300 000 tons with 16 EUR per ton duty within the quota). The effective duty (93 EUR per ton) will be applied to all barley in excess of the quotas.

The EU has already signed agreements with the US and Canada on granting them a quota for import of about 600 000 tons of grain, meaning that only 2 300 000 tons remain for the East European countries.

Lets first examine whether this measure complies with the WTO Uruguay Round Agricultural Agreement (1994). According to this agreement all non-tariff import restrictions should be tariffed (i.e. transferred into an ad valorem form) and their further application is principally not permitted. In developed countries the initial rates of coupled tariffs had to be reduced by 36% within 6 years (till 2000), in developing countries by 24% within 10 years. 4 countries (none of which is European) were allowed to temporarily preserve quotas.

Besides, members of WTO had to set quotas for products the import of which during the base period (19861988) was below 5% of the domestic consumption. When enacted these quotas had to equal at least 3% of the domestic consumption and by the end of 6-year period 5%.

As we see, quotas were supposed to be a mechanism of expanding access to domestic markets rather than a mechanism of constraining import. In late 80s the EC grain imports were very small and thus when Uruguay Round agreements were initially implemented, grain quotas could serve as a tool of easing penetration into the Communitys market. However, today the European Union imports over one fourth of all the consumed wheat. The introduced in 2003 quota is very small less than 3% of the domestic production. In other words, the new regime contradicts the spirit of Agricultural Agreement since one of its three basic principles is easier access to domestic markets of WTO countries.

What does this imply for Russia In the current marketing year the country actively exports wheat (and even rye!) to the European market. The major buyers of Russian wheat in recent months were Italy, Greece and Spain. In July-October Russian grain was imported by 11 of the 15 EU countries. Within 4 months the volume of new crop grain supplied to the region totaled almost 3 million tons of which over one third was wheat. Since during all these months exports to Europe continued to grow, one can expect that by the end of the year Russia will additionally supply 1 million tons of grain to the EU. Thus, already now Russian exports almost equal the annual quota for all East European countries. In other words, the introduced by the EU new trade regime dramatically restricts our access to this market. The 2003 grain crop in Russia is likely to be smaller but the drop wont be very deep since even given the current technical level our grain output is far from being the largest possible. Domestic consumption will hardly show noticeable growth. All this means that in the coming year the countrys grain sector will preserve its export potential. So the new grain trade regime introduced by the EU countries significantly limits Russias export opportunities.

E. Serova 2003 Agricultural Budget The State Duma passed the Law On 2003 Federal Budget in the third reading. In the coming year the expenditures on agriculture will total 37,7 billion rubles (Table 1). This is 18% (or about 7% in real terms) more than in 2002. Expenditures on agriculture grow slower than the total budget expenditures (up 9% in real terms). Still, this growth is quite noticeable when compared with the preceding year (1,15% in real terms). The share of agriculture in the total budget expenditures remains at approximately the same level 1,61% (in 2002 1,64%).

The efficiency of budget support to the agrarian sector is determined by the way funds are distributed among items and goals rather than by the total amount of budget allocations. The structure of agrarian budget remains actually unchanged as compared with the previous year. As before, 64% of funds will be spent on various subsidies and programs of support to agricultural producers. The financing of budget services (the most important and efficient part of the agrarian budget including expenditures on control and inspection institutions, on education and science, on providing market information to producers) remains at the previous year level. While in 2002 expenditures on science and education started to grow, the 2003 budget envisages nothing of the kind.

Subsidies to agricultural producers are of the greatest interest from the point of view of next years agricultural policies. The structure of federal budget expenditures on these subsidies does not change since early 90s (Table 2). Thats where two basic problems of the 2003 agricultural budget originate. On the one hand, the draft budget preserves all the programs of support to agricultural producers, the inefficiency of which has long been spoken about. On the other hand, it does not envisage programs and regulation tools that the Government and the Ministry of Agriculture declare to be the most important ones for the sectors development.

For instance, purchase interventions aimed to support grain prices are conducted for the second year round. Regardless of their efficiency, they need financing since they take place. Still, neither 2001 nor budget allocated funds for this purpose and had to be amended right before the interventions started. The 2003 budget item Agriculture and fishery specifies that 1 billion rubles will be spent on financing interventions. These funds are intended for servicing the Sberbank credit on conducting grain purchases in 2002/2003. Its not clear from what sources the principal debt will be paid back. In case next year similar interventions are needed, there is again no corresponding allocation in the budget.

In order to stabilize the domestic grain market the government plans to take several rational (from our point of view) steps: to alter state grain standards, to favor export including compensation of transport tariffs and development of ports infrastructure. Out of all these measures only one gets financing from the budget: 130 thousand rubles are allocated to compensation of interest on long-term credits used for construction of port elevators.

On the other hand, the budget contains programs of support to agricultural producers, the efficiency of which is very doubtful: subsidies to utilization plants, support to flax and hemp growers, subsidies for wool, etc.

Given high profitability of crop production in recent years, seed growing becomes profitable as well and no longer needs state support. Nevertheless, the expenditures on this program in the past two years grew at a high rate.

Federal subsidies for seed growing as well as some of the above mentioned subsidies look even more irrational given that similar programs exist at the regional level. Allocations from the federal budget are often so minor as compared with regional expenditures that they do not have a stimulating effect.

The novelty of 2003 budget are expenditures on implementation of the recently adopted Target program of rural development. One of its positive features is the allocation of budget funds to completion of social infrastructures transfer from agricultural enterprises to municipal balances and its technical updating.

The financing of leasing programs is more than halved. Before 2002 leasing was the only program facilitating agricultures technical re-equipment. However, the applied leasing scheme proved to be inefficient as we have continuously noted in our publications. Thus, the cutting of expenses thereon should be welcomed.

In 2002 the program of compensating agricultural producers for interest paid on medium-term credits of commercial banks was initiated. In 2003 its likely to substitute for the leasing program since its terms are much more beneficial for farms. The financing of medium-term credits program will be almost doubled as compared with 2002 and one can suppose that the demand for such subsidized credits will be high.

In 2003 1,2 billion budget rubles will be invested in Rosagroleasing authorized capital. Large funds continue to be used for strengthening monopoly operating at the budget expense. Its effective margin is well above the leasing market average (not only in agriculture but in economy as a whole) thus burdening agricultural producers and hindering the development of normal market of leasing services in the agrifood sector.

Expenditures on partial compensation of insurance costs are increased 3,5 fold. The fast progress of agricultural debt restructuring allows to suggest that farms may have enough funds to insure against risks, and the corresponding government program will foster the spread of insurance practices in the agrifood sector.

Still, today its hard to assess how these allocations will be actually used in 2003.

The expenditures on maintaining subordinate institutions will grow by 1/3 since the financing of veterinary inspections, seed inspections and melioration organizations is transferred from the regional to the federal level.

The 2002 budget envisages that Rosselkhozbank and Rosagroleasing will be the governments agents collecting debts on previously granted credits and leasing payments. Their remuneration for performing this function is 20 million rubles. In the draft 2003 budget the amount is raised to 40 million rubles (Clauses 7678) though its not clear what is this rise due to the success of debt recovery campaign in 2002 or the change of agents functions. Besides, there is again no provision as to whether the remuneration is to be paid in case debts are collected in full or just partially. To our mind, it should be set as a percent rate of recovered sums. In any case, these allocations mean strengthening of commercial institutions at the budget expense and favoring of selected market agents.

Table 1.

Structure of federal budget expenditures on the agrifood sector in 2001-2003, thousand rubles 2001 2002 2003 % of change plan execution % of execution plan draft Agricultural production 9 627 700,0 12 468 099,2 130% 20 444 700 24 010 800 117% Land resources 6 912 000,00 6 959 204,10 101% 1 937 000 1 801 300 93% State support to grain inspection in- 55 000,00 56 894,50 103% 97 614 108 300 111% stitutions Budget investments in the leasing 1 270 company authorized capital Forming of Russian Agricultural 2 000 000,00 2 000 000,00 100% 1 420 000 1 150 000 81% Banks (Rosselkhozbank) authorized capital Science 140 199,70 186 777,90 133% 171 562,30 181 179,5 106% Russian Academy of Agricultural 879 641,60 1 056 049,20 120% 1 496 327,90 1 650 717,1 110% Sciences Education 3 280 498,20 3 751 271,60 114% 5 350 106,10 6 452 482,3 121% Capital investments 440 498,30 577 914,90 131% 246 850 864 500 100% Ministrys staff 94 536,80 129 197,80 137% 142 029,10 152 229,8 107% International contacts 16293,8 10 Medical service 12 Social policies 4071 5 386,Financial assistance to regional and 374545 1 600 72 400 4525% local budgets Other expenditures Total expenditures on agriculture 23 430 075 27 580 319 118% 31 307 789 37 741 940 118% Source: Draft Law On execution of 2001 federal budget, Law On 2002 federal budget, draft Law On 2003 federal budget, www.agrodar.ru.

Table 2.

Subsidies to agriculture in 2001-2003, thousand rubles 2001 2002 2003 % of change plan execution % of execu- plan draft tion Support to livestock production 960 000,0 944 522,7 98% 1 060 000 1 195 000 113% including Pure stock breeding 620 000,0 618 639,3 100% 670 000 745 000 111% Subsidies for wool 270 000,0 255 996,7 95% 320 000 350 000 109% Reindeer breeding 70 000,0 69 886,7 100% 70 000 100 000 143% Support to crop production 550 000,0 554 274,3 101% 650 000 1 350 000 208% including Elite seed growing 250 000,0 247 812,9 99% 270 000 270 000 100% Subsidies for production of flax and hemp 70 000,0 84 533,8 121% 100 000 100 000 100% Partial compensation of expenses on crop in- 230 000,0 221 927,6 96% 280 000 980 000 350% surance Other expenditures Building of federal reserve of veterinary drugs 150 000,0 0% Subsidies to utilization plants 40 000,0 38 869,6 97% 40 000 45 000 113% Centralized supply of seeds to northern and 150 000 200 000 133% high mountain regions Support to horticulture and viticulture 300 000 400 000 133% Building of pesticide reserve 450 000,0 300 000 300 000 100% Building of leasing fund 3 000 000,0 5 500 000,0 183% 2 780 000 0% Building of federal seed reserve 150 000,0 150 000,0 100% 150 000 0% Maintenance of subordinate institutions 2 570 000,0 2 887 690,2 112% 6 144 200 8 162 900 133% 2001 2002 2003 % of change plan execution % of execu- plan draft tion Other expenditures 300 000,0 1 038 928,9 1 819 500 2 027 500 111% including Capital expenditures 864 500,0 864 500,0 100% Other 955 000,0 1 163 000,0 122% Expenditures on environment protection 59 400,0 59 372,2 100% 100 000 0% Subsidizing of interest on received credits 1 398 300,0 1 293 880,1 93% 2 200 000 3 200 000 145% including Short-term credits 1 400 000 2 000 000 143% Long-term credits 800 000 1 200 000 150% of them: subsidized crediting of port 130 elevators construction Soil fertility improvement program 4 751 000 4 533 400 95% including partial compensation of mineral 2 600 000 2 082 400 80% fertilizers cost Program Social development in rural areas 1 470 Grain market regulation subventions 1 027 Total subsidies 9 627 700,0 12 468 099,2 130% 20 444 700 24 038 850 118% Source: Draft Law On execution of 2001 federal budget, Law On 2002 federal budge

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