Similar to its first part, the second part of the National project is also inconsis tent. It envisages support to cooperatives marketing milk from households. The au thorities still think that rural residents can earn money for decent living by selling milk of 1 2 cows. What’s the logic then On the one hand, we assist development of large scale production by importing highly productive pedigree livestock for large commodity corporate farms and by facilitating their modernization, and, on the other hand, we support old women with their tiny milking business. But these are RUSSIAN ECONOMY IN trends and outlooks competing sectors. When supporting milk collecting cooperatives we create com petitors for large commodity enterprises that will buy imported highly productive dairy cattle. Rural population urgently needs help in the form of providing alterna tive income sources (the more so in case the first part of the project succeeds – then rural employment will further fall since handling of productive cows at farms with advanced technology requires 3 4 less workers than today) but why should it be solely household milk production What are the expected results of all the named measures 130 thousand stalls are to be created. Let’s suppose that half of them will be created in dairy cattle production and the sector will attain the European level of 8 thousand liters of milk produced per cow annually. Even given this super good performance milk output will increase by slightly over 0.5 million tons per annum while currently the gross domestic output of milk exceeds 30 million tons. The outcome of all the planned measures will be the growth of milk output by 4.5% and meat output – by 7% within 2 years. Let’s suppose that the profitability of milk production will become incredi bly high – 30%. If so, the profit from additionally produced milk will be about 5 bil lion rubles. Even in case milk production gets only one fourth of the National pro ject’s funds, the efficiency of their use will be below 100%. The situation for meat is similar.
There is one more problem that can have long term negative effects. The ma jor measure targeted at the development of cooperatives in the framework of the National project is the enlargement of “Rosselkhozbank’s” (Russian Agricultural Bank’s) authorized capital by 9.4 billion rubles within 2 years. “Rosagroleasing’s” authorized capital is also to be enlarged by 8 billion rubles in order to implement such measures as import of pedigree animals and renovation of fixed capital in live stock production. So, the implementation of the National project is largely (56% of the envisaged expenditures) confined to the transfer of budget funds to state cor porations monopolists. The intended monopolization of input and financial markets in agriculture hinders their normal development and affects farm producers’ ac cess to these resources. On the other hand, neither “Rosselkhozbank” nor “Rosagroleasing” needs enlargement of authorized capital to fulfill functions as signed by the Project. They could cope with their mission even if these funds were simply transferred to their management.
Besides, the initial stage of the Project’s implementation revealed some other risks. In particular, the lack of standard designs of livestock farms may result in fi nancing of technically deficient and too expensive projects.
The super soft crediting of rural residents may also bring negative effects.
First, it opens an opportunity for fraud on the credit market. The situation was simi lar in 1992 when individual private farmers got credits at 8% per annum while the average interest rate in the economy at large surged up to 210% provoking re sale of these credits. Second, these credits are primarily used for consumer purposes (there is information about a rapid growth of consumer crediting in regions after the Project was launched) implying no sources for their reimbursement. Finally, low interest money in countryside accompanied by higher prices for alcohol (due to the Section The Real Sector new regulation of alcohol market in the country) will inevitably bring about an up surge of hard drinking and shadow turnover of home brewed alcohol in rural areas.
One of the basic problems of agricultural and rural development in Russia is the excessiveness of agricultural labour aggravating as productivity of this sector grows. Nowadays the commodity agricultural production accounts for only 1/3 of rural employment. The excessive able bodied population is ousted to the sector of household farming that produces competing agricultural output with lower produc tivity. Such a dualism on the rural labour market cannot fail to result in lower in comes from agricultural employment. The opportunities for alternative employment in rural areas are still very scarce and include mainly gathering of wildly growing species, non formal intra village services and infant rural tourism. This employ ment is non formal and non regular. It primarily attracts marginal population ousted from principal employment. In this situation the country needs strong rural development policies oriented towards creation of adequate off farm employment in rural areas. Regardless of this, in the framework of the National Project rural residents can get credits only on agricultural activities that will further aggravate the situation.
Moreover, this complicates implementation of the programs for creating al ternative employment already launched in regions. For instance, Perm kray suc ceeded in establishing municipal funds of rural crediting that for several years have been granting small and tiny credits to rural population for any economic activities.
Cooperatives created in the framework of the Project credit only farming. There fore, not to lose a part of federal financing parallel cooperatives need to be founded in the region.
All state support in the form of credit on mortgage will be provided through only one bank – “Rosselkhozbank”. In case such crediting becomes a commercially profitable project, this approach will engender unjustified monopoly of one bank on the respective market with all the associated monopoly costs for borrowers. If one supposes to develop crediting on mortgage as a social project (commercially non profitable) this will inevitably result in bankruptcy of “Rosselkhozbank” which was already the case with its predecessor “Agroprombank” in 1994 1995 when it granted commercially disadvantageous credits to agriculture. Both scenarios con tradict the goals of national agrifood sector development.
Finally, there is one more serious deficiency of the Project’s logistics. The Na tional Project does not comprehend all the agricultural policy issues. At the same time its implementation requires so much effort from the sector’s administration that all other fields of work get simply halted.
Subsidizing of prices for fuels and oils Farm producers’ complaints about growth of prices for fuels and oils could not be ignored in the agricultural policies (Fig. 75). The decision was taken to start direct subsidizing of prices for fuels and oils used by farm producers beginning from 2006. 5 billion rubles (about 10% of the federal agricultural budget) are allo cated in the budget for partial compensation of their cost. The principal danger of RUSSIAN ECONOMY IN trends and outlooks this measure is that no mechanism of control over the use of subsidized fuels and oils is envisaged to prevent their outflow to parallel markets. Similar measure in the West European countries is combined with either distribution of subsidized fuel per hectare of cultivated area or with its colouring. Besides, in Europe this subsidy ac tually implies abolition for farmers of very high excise on fuel (about 70%) that cou pled with control over use of this fuel exclusively in agriculture results in lower cost of this input. In Russia excise on fuel is not an essential factor of price growth.
Since prices for fuel for farm producers tend to rise during periods of mass agricul tural works (Fig. 75 illustrates the trend – in 2005 and 2006 prices for fuels and oils surged in April and October) the main problem is not the price for fuel per se but the peak demand for it. Peak demand for fuels and oils coincides with simultaneous sale of farms’ output resulting in seasonal drop of prices for agricultural products.
The outcome is price disparity affecting agriculture. Thus the problem should be solved not by subsidizing prices for fuels and oils (the subsidy will eventually out flow to the fuel and energy complex) but by enabling farm producers to extend the sale of their output throughout the marketing year, to get credit on the security of this output and to consequently buy the necessary inputs more evenly during a year.
The law “On agricultural development” After four years of Russian agrarian establishment’s continuous work on Law “On agricultural development”, it has at last been adopted by the State Duma and signed by the President (on December 29, 2006).
The start of recovery growth in the domestic agrifood sector after 1999 ne cessitated legal regulation of agrifood policies. By this time a rather strong agri business sector emerged in the country that was interested in and able to lobby for adoption of such legislation, market consistent agrifood policy tools formed on both the federal and regional levels. It should be also noted that similar legislation efficiently works in almost all developed countries. The most illustrative example of such a law is the so called US Farm Bill adopted each 5 7 years starting from the 30s that details the US agricultural policies in the medium run.
At the beginning of 2000s the consistency of medium term farm policies also became an urgent problem in Russia. Growth in the sector after the 1998 crisis, the involvement of large investors in agriculture and affiliated sectors necessitated predictability of state interventions on agricultural and food markets within the in vestment terms – at least 3 5 years. So far agricultural policies based on annual budget laws and annual government resolutions on support to agriculture. Thus the first and principal objective of the new law was the extension of state policy plan ning term in the sector.
One would think that given the ongoing budget reform and the transfer to year term budget planning the idea of agricultural law embracing 3 5 years should have got the most vigorous support from the Federal Ministry of Finance. But the actual collision when passing the law was the confrontation of the Ministry of Agri culture and the Ministry for Economic Development and Trade with the Ministry of Section The Real Sector Finance that was flatly against adopting the law with definite budget parameters of state agrifood policies for 3 5 years. The outcome of this long confrontation was a compromise: instead of a law (or two laws) setting parameters of state policies in the medium run, a framework law was adopted envisaging State program for year term with detailed outlining of tools and scale of agrifood sector financing. In the current situation the passing of the Law “On agricultural development” is surely a progress fostering development of the domestic agrifood sector.
The new law introduces the notion of State program that is fully consistent with the concept of result oriented budgeting. The Program is to set priority targets for agrifood sector development in the medium (5 year long) term. These targets involve designation of specific tasks to be carried out through respective sub programs. Sub program is a set of government regulation tools in the sector. Each sub program specifies goals and, respectively, indicators of their achievement, mechanisms of state regulation and the amount of funds to be allocated from the federal budget in each year of the program’s implementation. In principle, State program of this kind should provide a stable basis for development in the agrifood sector, make its investment climate more attractive and serve as a guide for agri business.
According to this law, when working out agrifood policy decisions the gov ernment must (!) involve producer unions and associations concerned. It’s a re markable step forward not only in elaborating of realistic and balanced agrifood policies but also in forming of civil society in the country. Though, the law requires such unions and associations to produce “over two thirds of the total output of se lected agricultural and food products and materials on the territory of Russian Fed eration”. So far, there is hardly any union in the country conforming to this require ment. On the other hand, the prospects for real participation in agrifood policy shaping may encourage producers to form real associations widely representing the sector and having more democratic (as compared with the existing ones) oper ating rules.
According to the law, State program is the basic document establishing agri food policies for 5 years. Its implementation is the responsibility of RF Ministry of Agriculture that has to make annual reports not on the performance of agrifood sector in general (which was the case so far) but on the implementation of specific sub programs within the State program, i.e. on the results of its work. The law en visages preparation and promulgation of an annual National report of the Ministry of Agriculture. Moreover, a year before the end of State program an expert com mission is formed including representatives of agrifood sector, independent ana lysts and government officials (their share is limited to one third of the total number of commission members in order to make the assessment of government’s activi ties under the State program really extramural and independent). The task of this expert commission is to evaluate the results of State program’s implementation, to estimate the efficiency of designated tools and to decide what has to be preserved, what has to be adjusted and what – to be abandoned. The commission’s conclu sions have to be promulgated but they are only recommendatory for the govern RUSSIAN ECONOMY IN trends and outlooks ment – a useful input for working out a next State program. This is the so called feedback. Presently many tools of agrifood sector’s state regulation continue to be applied just due to inertia and lack of information on their efficiency. The expert es timation of Program’s performance is to improve the situation.