According to estimates of V.Uzun7 slightly over 40% of financially viable farm produc ers account for about 75% of the sector’s commodity output (in 2002 42% of farms were profitable, in 2003 – 49%). The research of M.Grazhdaninova8 showed that about one half of agricultural producers is situated on the production possibility frontier while the other half is within this frontier. In other words, the output produced by one half of farm produc ers using available resources is much smaller than the one currently possible in Russia (i.e.
the one produced using similar resources by the other half of producers).
One more interesting sign of production concentration can be detected on the re gional level – it’s a striking change of grain yields by weeks of harvesting. During the first weeks of harvesting average yield indicators are the highest since they reflect perform V.Uzun. Large and small business in the Russian agriculture: adjustment to market and efficiency. Moscow, 2004. Proceed ings of IET conference “Social and economic transformation in the CIS countries: achievements and problems” held on Sep tember 13–15, 2004. Mimeo.
M.Grazhdaninova. Factors of agricultural production efficiency in the Russian transitional economy. Ph.D. dissertation pa per. 2004, IET.
The real sector ance in the southern, most fertile regions. Later the average starts to encompass indica tors of regions situated to the north where yields are lower, and respectively begins to slide down. In previous years the decrease was rather smooth but in 2004 the difference be tween southern and other regions was very impressive (Fig. 6) evidencing a qualitative leap in grain productivity. Production of milk is also gradually concentrating: in 2000 the top regions accounted for 12% of its gross output, in 2004 – for already over 15%.
Investments grow both in agriculture and in food industry (Fig. 4 and 5). In case the agrifood sector really plunged into a crisis, it wouldn’t attract capital. But given the above mentioned dichotomy of the sector, it becomes clear that investments are made in its effi cient part.
Moreover, production of farm machinery again started growing (Table 27). Since its export is very limited, this supplement is consumed by the domestic market. Machinery is also purchased by the part of agricultural producers that are most efficient and dynami cally developing.
One can draw some conclusions about these producers on the basis of foreign in vestments’ dynamics. Fig. 5 shows that in the past two years the share of portfolio in vestments in agriculture noticeably grew – quite a strange phenomenon for traditional farming since shares of major producers are not quoted on the stock market. The matter is that new farm producers named agriholdings emerged in Russia. These are large corpora tions that among others have agricultural departments in their structure. Shares of such holdings are quite quotable on the stock markets, some of them – even on the world mar kets (e.g. those of Wimm Bill Dann company).
The second – non efficient – part of farm producers gradually shrinks. Some of these enterprises simply get closed, others either improve efficiency or get into more efficient hands and thus also become more efficient. Before 2003 the number of agricul tural enterprises grew, first of all due to the creation of parallel entities to which non indebted assets were transferred. Loss making farms were the primary initiators of such new farms’ foundation, and accordingly the share of loss making entities was growing (Table 28). In 2003 the number of loss making farms reduced by 2800: on the one hand, price parity improved helping 1500 more farms to end the year with positive balance and, on the other hand, 1300 failed farms (or 4.5%) were liquidated. As a result the share of profitable farms grew.
As mentioned above, the bulk of liquidated farms are a kind of bridge enterprises in tended to solve the problem of indebtedness. However, in the current situation mass bank ruptcy of marginal farms will soon start leading to their liquidation. The developments in recent years show that agrarian protectionism fails to solve the problem. Thus the present day agricultural policies should be urgently retargeted at solving problems of this part of agriculture, or, to be more exact, of the former agriculture. First of all, the problems of re employment and social rehabilitation of people in these areas as well as of efficient use of other released factors of agricultural production should be addressed. But so far the policy is targeted at supporting loss making farms. For instance, in 2003 subsidies to agriculture exceeded the sector’s net result 1.6 fold (in 2002 the ratio was even more striking – fold!). This means that the only sources of covering expenses in some farms were subsi dies and credit defaults that in fact are also subsidies.
RUSSIAN ECONOMY in trends and outlooks Table Concentration of agricultural production Share of the top 100 farm producers in the commodity output, % 2000–2002 1996–Grain 8.3 Sunflower seeds 16.6 Sugar beets 20.7 14.Potatoes 35.5 16.Vegetables 54.9 40.Milk 9.8 3.Beef 9.2 3.Pork 54 22.Poultry meat (top 50 farms) 58.3 15.Eggs 60.8 54.Source: V.Uzun. Large and small business in the Russian agriculture: adjustment to market and efficiency.
Moscow, 2004. Mimeo.
Table Production of agricultural inputs (as % of the previous year) 2000 2001 2002 2003 2004 2004 as % of Tractors 137.2 78.8 63.5 87.3 107.5 4.Tractor ploughs 170.8 113 68.9 44.6 124.3 1.Tractor seeders 166.9 122 82.2 77.4 137.4 11.Grain harvesters 2.2 fold 174.3 83.4 80.4 145.4 12.Mineral fertilizers 106.2 106.9 104 103 111.5 98.Source: Social and economic situation in Russia (respective years).
Table Financial performance of agricultural enterprises 2000 2001 2002 Number of farms, thousand 28.5 29.6 29.9 28.Number of profitable farms, thousand 13.3 13.0 12.5* 14.0* Number of loss making farms, thousand 15.2 16.0 17.4* 14.Share of profitable farms in the total number of farms, % 47 44 42 Overall profitability (including subsidies and compensations), % 6.7 9.2 0.2 3.Net overall income of farms (including budget subsidies), million rubles 13858 23922 621 Including subsidies from the budget, million rubles 8952 12051 15006 Subsidies as % of net income 64.5 50.3 2416 166.Returns from marketing all products, billion rubles 232 299 317 * The original data is adjusted by 5% as it seems to contain an arithmetic error.
Source: calculated using data at http://www.mcx.ru/dep_doc.htmlhe_id=797&doc_id=Table The incidence of insured events in the sampled farms 2002 Number of positive responses 23 as % of the total number of insured farms 79 Number of negative responses 14 including given by insured farms 6 5* as % of the total number of insured farms 21 12* including given by non insured farms 8 as % of the total number of non insured farms 57 * 4 of the insured farms did not answer this question.
Source: results of the sample survey conducted by the AFE Centre in Perm oblast in 2004, 49 agricultural en terprises.
The real sector ------Source: Federal Service of State Statistics.
Fig. 46. Russian agriculture: percent change of annual output in 1985–------Source: Federal Service of State Statistics.
Fig. 47. Russian food industry: percent change of annual output in 1986–2004 as % of of 2004 as % 1986-RUSSIAN ECONOMY in trends and outlooks 120 100 80 60 40 20 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 grain (left axis) sugar beets sunflower seeds Source: Federal Service of State Statistics.
Fig. 48. Gross output of basic farm crops (million tons) 1996 1997 1998 1999 2000 2001 2002 agriculture food industry Source: Economic Journal of the Highest School of Economics.
Fig. 49. Investments in agrifood sector’s fixed capital (constant 1995 prices) billion rubles (1995 prices) Section 3.
The real sector 1996 1997 1998 1999 2000 2001 2002 foreign investments in Russian agriculture including direct investments Source: Economic Journal of the Highest School of Economics.
Fig. 50. Foreign investments in Russian agriculture 2004 2003 2002 Source: WJ Review. Weekly Journal. No. 30, November 9, 2004.
Fig. 51. Average grain (except corn) yields in agricultural enterprises by weeks during harvesting, cwt/ha million dollars 17 July 23 July 30 July 5 Novem.
6 August 2 October 9 October 14 August 21 August 28 August 16 October 23 October 30 October 4 Septemb.
RUSSIAN ECONOMY in trends and outlooks Livestock and poultry for slaughter (live weight) Milk Source: Federal Service of State Statistics.
Fig. 52. Production of basic livestock products (as % of the previous month) 3.4.2. Basic shifts in domestic support to agriculture Transfer of agricultural regulation authority to the regional level In 2004 the decision was taken to transfer farm support authority to the regional level9. As a result only one tool is left for federal bodies to regulate agriculture – implemen tation of departmental budget programs of supporting the sector. These programs are to become the primary form of state regulation on the federal level. At the same time it’s nec essary to find ways for limiting those activities of regional administrations that may lead to the destruction of nation wide market of agricultural and food products. One of such ways was proposed in the draft Federal Law “On agricultural development and agrifood policy”.
But in 2004 this document hasn’t been adopted.
The granting to regions of exclusive powers to regulate agriculture will have the most destructive effect on the sector. First of all, regions donors able to finance support to agri culture on their territories are primarily located in the climatic zones that are the least fit for farming. Thus the shifting of farm support’s gravity center from the federal to regional level implies encouraging of non efficient resource utilization in agricultural production. Sec ond, for already many years regional support results in “trade wars” between regions, at tempts to oust neighbors from the market by means of direct subsidies to local producers, bans on agricultural and food products’ transit, etc. In other words, this decision of the RF Government brings in the domestic market all the negative effects of protectionism on the world agricultural markets that the WTO Agreement on Agriculture strives to eliminate (by the way, Russia wants to join this organization with its anti protectionism principles).
In compliance with the Federal Law “On introducing amendments to the Federal Law “On general principles of organization of legislative and executive bodies of state power in constituent members of the Russian Federation”” No. 95 FZ.
The real sector One more outcome of this decision will be the broadening of state intervention in agrifood markets. In 2004 this trend could already be observed, primarily on the regional level. On the federal level beginning from 2005 the number of applied regulation programs reduced while the share of expenditures on general services is up (Table 30 and Table 31).
On the contrary, on the regional level all the increase of expenditures (Fig. 10) goes to di rect support implying state intervention in agricultural and food markets. The structure of agrifood sector regulation in most regions becomes more complicated, the number of programs and spheres of regulation grows. The hardening of administrative pressure on agrifood markets and the emergence of barriers to inter regional trade will be the inevita ble outcomes of funding authority’s transfer to the regional level.
The government’s refrain from any long term commitments as a factor of instability in the sector The draft Law “On agricultural development and agrifood policy” suggested the shift to medium term budget planning as an important tool for improving the efficiency of budget expenditures on the agrifood sector. At present some stability has settled in the sector and economic entities plan their activities 3–5 years ahead, while the term of gov ernment regulations is only one year and thus they cannot be taken into account when making production decisions. The draft Law suggested the adoption of 3 year term pro grams of farm support that would contain principal amounts of budget expenditures under the program, foreign trade regulation baselines for the period of its implementation, inter vention prices on the grain market and other essentials needed by the economic entities.
At the same time the Ministry of Agriculture would have an opportunity to revise the adopted indicators in case the market situation changes but not more than by 10 15%.
Besides, the annual budget provisions would allow 10–15% deviations for meeting changes in the financial situation.
However, the draft Law provisions pertaining to medium term planning of budget ex penditures were not supported by federal bodies, and the passage of the Law was sus pended. The main cause thereof was the financial authorities’ refrain from any medium term commitments undermining the sector’s stability and hindering the creation of pre conditions for long term growth. Besides, when medium term programs of farm support are not backed up by budget commitments and any concrete figures at all their efficiency cannot be estimated since it depends on the amount of funds that will be spent. This re veals a declarative nature of the administrative reform currently underway and the reform of budget financing both from the point of view of transfer to result oriented budgeting and of medium term planning of budget expenditures.
Reform of budget classifier and budget process in the agrifood sector The reform of budget classifier in force from January 1, 2005 has not solved the problems engendered by the effective system of classifying budget expenditures on agri culture that has long become a hindrance to raising the efficiency of domestic state sup port to the sector.
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