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Facilitation of small scale farming is to be ensured by the following basic measures:

1. Larger crediting of household and individual private farms and their coopera tives. The principal mechanism is the subsidizing of interest rate on credits re ceived by them in commercial banks in the amount of 95% of the Central Banks discount rate.

2. Support to developing the network of procurement, supply and marketing, agri cultural consumer and credit cooperatives. Rosselkhozbank will use allocated funds for providing credit, informational and methodical support to these coop eratives. Besides, Rosselkhozbank is supposed to participate in agricultural consumer credit cooperatives as an associated member.

3. Development of crediting on the mortgage of land plots. In 2006 2007 a set of federal laws needed for establishing the system of crediting on land mortgage is to be adopted. In 2006 Rosselkhozbank will carry out pilot projects.

The basic tool for housing young specialists in rural areas is the construction and purchase of dwellings by entities at the account of subsidies from the federal budget (not more than 30%), from budgets of RF members (not less than 40%) and employers own funds (30%) and granting of these rural dwellings to young spe cialists (or their families) under the commercial rent agreement.

Beginning from 2007 additional tasks were included into the Project: state support of sheep and reindeer production, drove breeding of horses and industrial fish farming; extending the availability of credit resources for purchasing pedigree livestock, machinery and equipment for livestock production (credits on term up to 5 years). The most part of these tasks (except fish farming and horse breeding) are not new directions of state support they simply insert programs effective in re cent years into the National Project. In this way these directions get larger funds in 2007 expenditures on pedigree stockbreeding will double as compared with 2006, 2.5 billion rubles are additionally allocated to medium (5 year) term credits and 8.6 billion rubles to 8 year term credits (versus 3.4 billion rubles in 2006 and the initially envisaged 3.18 billion rubles for 2007) (Table 67).

RUSSIAN ECONOMY IN trends and outlooks Formally the execution of the Project started in January 2006. However, the level of its readiness by this time was so poor that the first three months of the year were spent on elaboration rather than an actual implementation of the Project.

Within this period its objectives and tools were defined more clearly, normative and methodical documents as well as implementation logistics were developed. Live stock sector projects were prepared in regions that envisage subsidizing of long term investment (up to 8 years) credits; an Expert commission for selecting these projects is working in the RF Ministry of Agriculture. Rosselkhozbank started se lecting household farms for granting them credits; cooperatives are forming in re gions. A lot is done for the Projects extension. In particular, the web site of the RF Ministry of Agriculture contains a comprehensive description of the Projects con tents and progress, a special brochure is issued. A hot line of the Centre for infor mational backup and monitoring of the priority National Projects implementation is opened in Rosselkhozbank.

So far the Projects implementation is at the initial stage; therefore its too early to appraise its actual efficiency on the basis of the sectors performance indi cators. In January November 2006 agricultural growth rate equaled 102.2% that is somewhat below the 2005 annual indicators (102.4%). The inventories of cattle and dairy cows continue falling although the Project is primarily targeted at growth in this particular livestock sub sector. By December 2006 the number of cattle re duced by 2.7%, that of cows by 5.6%. At the same time the number of hogs nota bly grew (by 10.7% as compared with December 2006). The output of milk in is slightly up as compared with the previous year (by 0.3%)24.

In 2006 1195 Project participants got credits to the amount of 53.2 billion ru bles for financing 1400 projects in livestock production. The distribution of soft credits between federal districts25 on the whole corresponds with their share in milk output (Table 65). However, while growth rates in production of milk and slaughter livestock and poultry were really the highest in the federal districts that received the largest share of funds under the National Project, the latter failed to stop the de crease of cattle and dairy cow inventories it was the deepest in Central, Volga and Siberian regions despite their being the major beneficiaries of the Project in its ac celerated development of livestock production part. At the same time hog invento ries in these regions grew quite noticeably. This implies that agricultural producers probably use Project funds for hog breeding to a greater extent than envisaged by the project initiators since this sub sector has shorter payback period and high profitability.

In the framework of the Project Rosagroleasing bought 50.2 thousand heads of cattle, 6.6 thousand heads of hogs and 48.1 thousand heads of sheep to the total amount of 3 billion rubles. Besides, 1 billion rubles was spent on purchas ing equipment for livestock production and processing of respective output that al lowed to modernize 78.7 thousand stalls.

Social and economic situation in Russia 2006, www.gks.ru.

The territory of Russia is divided into 7 federal districts each including several oblasts or republics.

Section The Real Sector Thanks to the Project the turnover of this state corporation has grown enor mously: in 2006 Rosagroleasing bought twice more pedigree animals than during all the preceding years of its operation while in 2005 only 6 thousand animals were supplied on leasing terms26. However, the total purchase of livestock in 2006 may exceed the previous year indicators just marginally in 2005 farms bought thousand heads of livestock. The average purchase price was slightly over 50 thou sand rubles per one head or somewhat below the world market price (due to the purchase of pedigree livestock from domestic producers).

Table Development of livestock production: financing and effect by federal districts Financing un Growth rate der develop Growth rate Growth rate Growth rate Milk output of livestock ment of live Share in milk of cattle in of cow inven of hog inven growth rate, and poultry stock output, 2006 ventories tories 2006/ tories 2006/ 2006/ 2005* production production 2006/ 2005** 2005** 2005** 2006/ title RF total 100 100 100.1 104 96.7 95.7 Central 27% 28% 97.6 108.1 93.6 91.6 117.North West 6% 10% 98.3 99.8 95.3 93.4 103.Southern 10% 9% 101.9 105.6 100.8 100.9 Volga 41% 31% 102.2 103.1 97 95.2 106.Urals 4% 6% 102.1 99.5 98.4 96.8 103.Siberian 11% 15% 97.8 104.2 95.9 96 103.Far East 1% 1% 98.7 103.2 93.2 95.4 97.*January September.

** October 1, 2006 as % of October 1, 2005.

Source: www.rost.ru, www.gks.ru The major banks participants of the priority National Project are Rosselkhoz bank (Russian Agricultural Bank 57% of the total number of signed credit agreements and 32% of the total amount of credit resources) and Sberbank of Russia (Russian Savings Bank 31% and 41% correspondingly). As compared with the previous year the amounts of crediting grew by an order up to 40 billion rubles from 3.4 billion rubles in 2005.

In 2006 the number of borrowers exceeded 130 thousand versus 2.5 thou sand in 2005, household farms being the major contributors to this increase. Indi viduals engaged in household farming account for about 55% of extended credits, individual private farmers for 32% and agricultural consumer cooperatives for the rest27.

The development of crediting on land mortgage has started. In 24 regions of the Russian Federation Rosselkhozbank granted credits to the total amount of 2.1 billion rubles on the mortgage of about 84 thousand hectares of land. The cred http://www.rosagroleasing.ru/docs/report20061124.pdf http://www.mcx.ru/dep_doc.htmlhe_id=797&doc_id= RUSSIAN ECONOMY IN trends and outlooks its were taken for construction and reconstruction of livestock complexes, pur chase of farm machinery, equipment, spare parts, fuels and oils, seeds and seed lings, additional farmland plots and for development of smallholder farms.

In 2006 over 2000 agricultural consumer cooperatives were set up. Their forming was most intense in the federal districts that got more funds under the Na tional Project (Table 66). Leaders in this field are Mordovia Republic, Belgorod and Orenburg oblasts and Sakha Republic (Yakutiya)28.

Table Facilitation of small scale farming: financing and effect by federal districts Financing under facilitation of small scale farm Cooperatives formed, % ing title, % RF total 100 Central 20 North West 2 Southern 19 Volga 38 Urals 4 Siberian 14 Far East 3 Source: www.rost.ru, www.gks.ru The system of subsidizing interest rate on credits to agriculture is imple mented in Russia from 2000 and proved to bring good results. Several years ago long term credits also became eligible for this program. The inclusion of this measure in the National project in general does not raise any doubt. However, slightly over 3 billion rubles per annum are envisaged for this purpose (Table 67) although the corresponding 2006 Budget indicator is about 13 billion rubles. In other words, this item of the National project does not seriously influence the level of state support in this field. At the same time, the National project envisages sub sidizing of large and long term (up to 8 years) credits although its own term is only 2 years (and may be extended into 2 following years). This means that investors joining the National project on these terms get involved in very risky investment projects since there is no certainty about continuation of interest rate subsidizing after the National projects term is over. There is a danger that regional authorities will use administrative resource to make large agribusiness companies partici pate in such projects, and the potential risk will become quite real for them.

The program of developing livestock production envisages rather large in vestments in import of pedigree livestock from abroad. There are plans to buy thousand heads of livestock and to lease them to agricultural producers. (By the way, this is in fact an official admission of the domestic selections complete fail ure). One should clearly understand that import of highly productive breeds from http://www.mcx.ru/index.htmlhe_id=981&news_id=2981&n_page=Section The Real Sector abroad per se does not guarantee high animal productivity in Russia since the latter is pre conditioned by compliance with certain technological standards, reconstruc tion of premises, skilled management. Many Russian regions have already funded import of pedigree livestock from regional budgets but these efforts proved to be non efficient. Certainly, there are private businesses that are capable to meet all the requirements but the prescribed implementation scheme leaves no hope for success of this particular project component. Indeed, it starts with allocating 8 bil lion rubles to limited liability company Rosagroleasing for the enlargement of its authorized capital. This state corporation is supposed to buy pedigree stock that will be distributed between agricultural producers on preferential terms. Life shows that our agrarian bureaucratic system knows no other way of distribution than the one by so called limits that are set for regions, districts and agricultural producers.

This means that pedigree livestock will be supplied not to the farms (or not always to the farms) that are capable to use it properly. Rosagroleasing is not interested in the efficient use of received funds: the corporation gets allocations not specifi cally for leasing operations but for the enlargement of its authorized capital condi tioned by conducting of leasing operations. The scope of these operations is ex pectedly not fixed in the documents.

Purchase of 100 thousand heads of pedigree livestock within 2 years is pro claimed. Its quite a large number for the respective world market. Experts say that the available supply is shorter. This means that in order to implement the project livestock with worse quality parameters will be bought. Besides, an a priori an nouncement of such a sizeable purchase will inevitably result in higher world prices.

In other words, not the best livestock will be bought at overstated prices.

Credits to small producers are to be supported by subsidizing of interest rate that will amount to 100% of the RF Central Banks discount rate (95% will be funded from the federal budget and 5% from budgets of the Federations members).

Such a subsidy actually means a negative interest on bank credits. Agricultural producers could enjoy similar super beneficial credit terms in 1992 (then individual private farmers got credits at 8% per annum while average bank interests were as high as 120%). This resulted in an intense criminalization of the sector, mass abuses, dissipation of resources and finally in the bankruptcy of Agroprombank.

The advocates of this measure proceed from good intention to provide access to bank credit for small producers but disregard the fact that there are no barriers to prompt creation of small entities just in order to receive such a beneficial credit. To get the status of a household farm its enough to buy a house in a village and to till 0.01 ha for planting potatoes.

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