The classifier determines the structure of budget expenditures largely focused on di rect subsidizing of farm producers that distorts the market. At the same time there are no articles envisaging expenditures on budget services and development of institutional infra structure; expenditures on science, education, social policy and other measures important for the sector’s development but not implying direct government intervention are not transparent. Due to the classifier’s non flexibility, the budget year after year includes pro RUSSIAN ECONOMY in trends and outlooks grams the efficiency of which is not appraised and respective expenditures are not revised remaining constant in nominal terms.
The reform of budget classifier in the process of drafting 2005 budget has actually skipped agricultural articles and failed to solve the problems that accumulated in this field.
The only positive shift is that specific programs supporting crop and livestock production are no longer named in the budget – such programs as “subsidies to flex and hemp pro ducers”, “subsidies to wool producers”, etc. have long been found non efficient and got funds only due to the preservation of respective articles in the budget.
Other problems of budget classifier remain unsolved. Its reform is a compulsory condition for Russia’s accession to WTO and for improving the efficiency of budget expen ditures on agriculture.
Table Structure of federal budget expenditures on agriculture (thousand rubles) 2000 2001 2002 2003 2004 2005 2005 execu execu execu execu as % of struc plan draft tion tion tion tion 2004 ture Agricultural production (sub 6608 12468 20281 22365 24689 22602 92 sidies) Land resources 6 699 6 959 1 347 1401 1 985 2209 111 State support of grain inspec 41 57 98 138 153 0 0 tion institutions Investments in authorized 870 2 000 0 0 capital of the leasing company Forming of authorized capital of Rosselkhozbank (Russian 2 000 1 420 850 0 0 Agricultural Bank) Science 113 187 172 200 213 301 142 Russian Academy of Agricul 739 1 056 1 496 1747 1 991 2319 116 tural Sciences Education 2 929 3 751 5 350 6461 7 817 8548 109 Fixed capital investments (from 2002 – in agricultural production, in 2005 – non 711 347 247 1146 0 2435 program investments and construction) Fixed capital investments / Special federal program “Soil 1884 fertility improvement in Russia in 2002–2005” Ministry staff 99 129 142 167 266 378 142 International activities 16 0 365 713 10 1 Healthcare 12 13 14 107 Social policies 4 5 5 0 0 Financial assistance to re 374 2 1634 67 0 0 gional and local budgets including: Special federal pro gram “Rural social develop 2172 ment till 2010” Other expenditures 96 33 0.4 0 0 Total expenditures on agri 18 036 27 349 30 555 37 361 39 911 42 872 107 culture Source: RF Ministry of Finance.
The real sector Table Subsidies to agriculture (million rubles) 2000 2001 2002 2003 2004 2005 2005 execu execu execu execu as % of struc plan draft tion tion tion tion 2004 ture Support to livestock 603 945 1 100 1 194 1 195 745 62 production including: Pedigree stock breeding 298 619 703 744 745 745 100 Subsidies to wool produc 142 256 327 350 350 0 ers Reindeer breeding 70 70 100 100 0 Purchase of formula feeds 162 Support to crop produc 223 554 622 1 170 2 270 2670 118 tion including:
Elite seed growing 68 248 270 270 270 770 285 Subsidies to producers of 72 85 67 100 100 0 flax and hemp Partial compensation of expenditures on crop in – 222 285 800 1 900 1900 100 surance Other expenditures 2 998 686 5 530 2 153 2 733 1754 64 including:
Building of federal reserve of veterinary drugs Subsidies to waste dis 3 39 40 45 posal plants Centralized delivery of seeds to northern and 140 200 mountain regions Subsidies to horticulture 300 400 and grape growing Building of pesticide re 300 300 serve Creation of leasing fund 2 624 5 500 2 780 Building of federal seed 100 150 150 80 reserve Fixed capital expenditures 865 864 Other 275 647 955 344 Maintenance of subordi 2 505 2 888 6 144 8 964 9 291 9531 103 nate institutions Environment protection 59 100 Subsidizing of interest on 1 627 2 017 3 200 3 200 5370 168 credits Including: short term 1 400 2 000 0 credits Long term credits 617 1 200 0 out of them: credits on construction of port eleva 130 0 tors Seasonal crediting –37 0 Program “Soil fertility im – 4 767 4 531 4 530 1683 37 provement” including: 0 RUSSIAN ECONOMY in trends and outlooks 2000 2001 2002 2003 2004 2005 2005 execu execu execu execu as % of struc plan draft tion tion tion tion 2004 ture Partial compensation of 83* 237 2 100 0 mineral fertilizers’ cost Special federal program “Rural social develop 1470 1 470 1** 0 ment” Subventions for financing food grain purchase inter 1152 0 250 ventions State administration ex penditures Support to individual 2 0 farmers Total 6 297 12 468 20 281 22 365 24 689 22602 92 * in 2000 purchase of mineral fertilizers was subsidized not under the program “Soil fertility improvement”.
** in 2005 this item includes only direct subsidies in the framework of this program while investment expendi tures are presented in Table 33.
Source: RF Ministry of Finance.
Table Investments in Leasing fund from the federal budget (prior to 1997 – billion rubles, after 1998 – million rubles) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Plan 1000 1351 2700 2400 2000 2280 2624 3000 0 870 Actual allo 1053.6 1080.6 1928.9 736.6 1007 2241 2624 5 500 0 870 n.a.
Fig.53. Consolidated and federal budget expenditures on agriculture, million rubles in constant 1999 prices (2004 estimate) Section 3.
The real sector - 2000 2001 2002 ---Source: IET calculations.
Fig. 54. Producer support estimate (PSE), % 2004 (January-November) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Federal Regional Local Source: RF Ministry of Finance.
Fig. 55. Structure of consolidated budget support to agriculture 3.4.3. Basic trends in agrifood foreign trade The persistence of negative trade balance Russia still remains a net importer of agricultural and food products: in 2004 agrifood imports exceeded respective exports 5.4 fold10.
Average foreign trade indicators of the sector at large do not demonstrate any ap parent trends towards reduction of agrifood trade’s negative balance. Imports continued to steadily grow while exports were hampered by toughened export regulations and unfa vourable for Russian grain exporters situation on the world market (Fig. 56). In previous years the growth of imports was partially set off by expanding export supplies. In January January September 2004.
RUSSIAN ECONOMY in trends and outlooks September 2004 agrifood exports were 11% below the corresponding 2003 indicator while imports were up 10.8%.
Trade indicators by selected commodities look more optimistic: despite smaller ex ports Russia continues to be a net exporter of sunflower seeds, wheat and wheat flour (Ta ble 36). Exports of chocolate products, condensed milk and cream are growing. Active supplies of sunflower oil to foreign markets shortened the gap between its exports and im ports. But from the price point of view Russia is still more competitive in exporting the raw input (sunflower seeds) than in exporting the finished product (sunflower oil). A new trend in the oilseeds market is the growing export of rapeseeds and rapeseed oil from Russia. In 2003/2004 marketing year exports of rapeseeds were up 77.8%11. In recent time the world market of this crop is actively developing. Rapeseeds have become the third by their share in the world production of oilseed crops.
Meat quotas As mentioned before, the main efforts of the government’s agricultural policies are currently targeted at the protection of domestic market from agrifood import. Sugar and meat continued to be the primary objects of foreign trade regulation in 2004.
Quotas on import of meat to Russia (tariff quota on beef and pork and absolute quota on poultry meat) introduced in 2003 were maintained. Meat quotas concern a large number of operators on this market. Meat is a very heterogeneous product and many other products are produced out of it. Thus the distribution of quotas and amending of its mechanism raised a lot of debate on all levels of state governance throughout all the period of their ac tion. Let’s examine whether these quotas were efficient and have they really brought the desired result, i.e. the growth of domestic production.
As we have supposed, such a constraint fails to support domestic producers. First, the quota is not applied to meat products and, second, it’s not applied to the CIS coun tries.
Despite the introduction of quotas the decline in livestock production hasn’t been halted. Only poultry production is growing but this growth started before the enforcement of quotas and the latter hasn’t led to its acceleration.
Imports of raw meat to Russia from the non CIS countries are falling (Table 38). This trend was most obvious in the first year of meat quotas’ application (2003). In 2004 im ports of pork and beef to the Russian market were down slightly (by 10%) but still remained approximately the same as in the previous years when quotas were not applied.
The introduction of quotas on meat import from the non CIS countries was accom panied by larger supplies from the CIS. But in 2004 they fell as well. The principal cause thereof is that after a heated discussion of problems entailed by escalating “grey” import of meat from the CIS (in fact originating from other countries) customs bodies stiffened con trol over supplies from these states. Besides, raw meat supplied by them is much more ex pensive than that from the non CIS countries and thus processors’ demand for it is limited (Table 39).
At the same time the decline of raw meat imports was outweighed by growing sup plies of meat products, especially from the CIS countries (Table 38). So, Russia has actu ally introduced a regression scale of import duty. All countries strive to strengthen tariff protection as degree of processing grows while the introduction of meat quotas in Russia stimulated import of processed products and discouraged import of raw meat.
WJ Inter Agro.
The real sector The result was the increase of CIS share in meat import value from 9% in 2002 (be fore the introduction of quotas) to 10.5–12% in 2003–2004 (for meat products – up to 37% in the first half of 2004). Since prices for raw meat from the CIS are much higher than those paid to the non CIS countries (Table 39), prices for meat products manufactured out of this input on the average grow.
So, meat quotas introduced by Russia in 2003 have led neither to larger domestic production nor to smaller imports. At the same time they entailed change in the structure of meat import (larger shares of finished meat products and supplies from the CIS) that was one, although not the only, factor of price growth on the domestic market.
Variable import duty on raw sugar In December 2003 a new mechanism of sugar market regulation was introduced in Russia – the variable import tariff. It actually sets the level of raw sugar support price at US dollars per ton presuming that the basis of “Caribbean Sea – Krasnodar region” deliv eries is 100 dollars per ton. The world price is determined on the basis of New York Board of Trade (CSCE/NYCE) quotations. The principal formula for calculating the size of duty is as follows: the support price less delivery basis and less the average monthly price for raw sugar at the exchange. Since the first two variables are fixed, the duty is determined by the world price: the higher it is, the lower is the duty and vice versa. So, the world market fluc tuations are mitigated on the domestic market ensuring certain stability for both buyers and sellers.
But in fact the calculation of import duty on raw sugar bases upon price that estab lished at the exchange 2 months ago. This mechanism does help to level off import prices to some extent. But the effect is much smaller than it could be in case of a 1 month span (Fig. 57).
Besides, the effect of the variable duty is lessened by the actual lack of constraints on import of sugar from the CIS countries accounting for 90% of the total Russia’s sugar imports. In January October 2004 the volume of CIS supplies was almost twice above the corresponding previous year indicators. In order to settle the problem customs control over import of sugar from these countries was stiffened by means of taking samples to prove the commodity’s origin. But this measure will hardly solve the problem since in case of a favourable ratio between prices for imported and for domestic sugar countries of the Commonwealth will satisfy their markets’ demand by importing the product while the home grown sugar will be exported to Russia.
In order to synchronize measures on regulating import of selected sugar based products the term of tariff thereon (230 EUR/ton) was extended.
Similar to the end of 2003, sugar market operators till the last moment were not sure about the customs regime to be effective in the coming year, and this uncertainty pro duced a highly destabilizing effect on the market. The Resolution on sugar import regula tion in 2005 was adopted only in the middle of December. The new regulation scheme ac tually copies the previous one with just one exception: the period for calculating the arithmetical mean of exchange price for raw sugar was extended from one to three months. As shown above, even a 2 month span in determining the size of variable duty di minishes its smoothening effect. In case of the 3 month price averaging this effect will be even smaller, i.e. the variable duty will ultimately loose sense and engaged market opera tors will insist on regaining quota auctions.
RUSSIAN ECONOMY in trends and outlooks Grain market regulation For the first time since the start of reforms, at the beginning of 2004 Russia intro duced temporary export duties on rye, wheat and their mix, the declared reason being growth of domestic prices for bread. However, as shown in the next section this growth was not caused by poor grain supply on the domestic market. At the same time duties on export of grain could not seriously influence its volume since contracts had been signed earlier and traders had to supply grain to foreign markets despite worse price situation.
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