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Commercial commoditycredit

0.04

0.04

n/a

109

697

n/a

...

...

...

Table 2.26

Production of main food industry produce,1996, thous. mt


1996

1996 as % of

1995 as % of



1992

1995

1994

Vegetable oil

755

82.3

108.9

87.1

Sugar

3285

83.7

104.4

116.0

Bread and bakedgoods

8154

51.2

82.2

85.0

Flour

8632

49.1

75.0

89.7

Groats

715

41.5

66.8

98.9

Sausages

1300

84.0

97.0

82.0

Meat*

1329

35.0

76.7

72.8

Unskimmed milkproducts**

4384

47.2

89.3

76.0

Butter

270

36.4

68.4

80.1

Strongalcohols, mn deciliters

68.5

45.5

56.5

98.2

* including subproducts of 1stcategory

** counted in milk

Source: Short-term Economic Indexes.Russian Federation.

The recession in the food industry,continuing since the 90’s, resulted in an immense slack of the production capacities: in1996 they were used for 12% to 22% in production of meat, unskimmed milk, andmargarine, and by 32% to 45% in production of bread, baked goods, macaroni, andpastry.

The situation in the food industry was aninevitable result of the critical change of the governmental policy followed bythe change of the consumer behavior, the feedstock crisis, the redistributionor loss of the traditional sale markets, the investment and technology crises.The domestic food industry approached the stage when the functioning on thebasis of the old principles has become impossible; today, it is necessaryto develop flexible market strategies, change radically the productionnomenclature. These tasks are more complicated than just the technology upgradebecause they need the changes of the economic practice stabilized in decades,the new thinking, and the new skills.

The last year also showed certain adaptationprocesses in the food industry. The investment activity in this sector grew. Onthe background of the general crisis of the processing industry and thedisastrous situation of the local processors, the positions of the large-scaleentities have been strengthening. The investments in the food production aregrowing in the regions of the relatively high purchase demand, i.e., largeindustrial centers. The lack of the assets for the large investments requiredto expand or upgrade the capacities results in mobilization of the foreigncapital for investments. For the other hand, the potentially high capacity foodmarket improves the interest of foreign companies in the direct investments inthe food production complex.

The foreign investments in the foodproduction have the following forms:

- establishment of entities with foreigncapital in forms of joint ventures or purchase of shares of stock of theexisting Russian entities. The examples are: the beginning of implementation ofthe Nestl Zhukovskoye Morozhenoye OOO on the basis of the ZhukovskiRefrigeration Factory; the purchase by Fazer(Finland) of 15% of shares ofstock of the AOPekar’, the largest producer of the oriental confectionery in theNort-West region of Russia; or the purchase by Bahlzen (Germany) of 25% ofshares of stock of the largest bakery of the Leningrad region;

- direct foreign investments, e.g.,construction by Krger (Germany) of a children’s food factory; opening of thelargest in Europe ice-cream factory by Baskin & Robbins; opening, inMay1996 of the chocolate factory in Stupino, Moscow region, by MarsInc.(USA); or opening by Wrigley’s of a chewing gum factory. PepsiCo and Coca Cola declared theirintentions to invest US$550mn and US$250mn, respectively; and

- crediting by foreign banks of the upgradeprojects for food producers, e.g., the DM2.5mn credit from the BNP-DresdnerBank for purchase of the upgrade equipment for the AOZTSamson, the largestproducer of sausages in the North-Western region of Russia; the German WartburgBank intends to open, at the beginning of 1997, the credit line for DM60mn toimplement the project of construction in Russia of 10vegetable oilfactories.

The foreign capital is being invested in theentities with high value added, such as producers of ice-cream,children’s food,pastry. The investments also cover the creation of the relevant distributorsnetworks. At the same time, the processing sectors with low value added see theinvestments and property concentration mainly with participation of thenational capital, e.g., such groups as Alfa, Menatep, etc. In certain regionsthey control the production and wholesale of such products as vegetable oil,sugar, macaroni, tea, etc.

Agrarian policy

In 1996, on the background of the electoralcampaign, the RF President’s decree On the Guarantee of the Constitutional Rights of Citizensto Land; actually, it completed the formation of the legal basis of the landreform conception and transformation of the rural economy entities which hadbegun in 1992. The transformations in the rural economy resulted in anambiguous situation with the land property: lands are owned by the collectivesof the former collective farms and State farms, while the users (often free ofcharge) are rural economy entities. From the legal viewpoint, theirrelationships had not been fixed as they should: the owners had received almostno guaranteed or contracted rental payments, while the land tax had been paidby the users. The use without contract had also been inconvenient for theusers: any owner had been able to require, at any moment, to have its plot(share in property) to be returned. According to the above Presidential Decree,all the actual users of the land plots were to make, during the twelve monthsfollowing, official contracts with the owners for rent or purchase.

To the beginning of 1997, about 70% of thecontracts to be registered were legalized. Most owners of the land plots rentthem to joint ventures. The cases of sales or investments in the shared capitalare not numerous. The process of the land redistribution which began duringsuch registration attracts attention: some owners prefer renting land not totheir closes economies, but to neighbors, because the latter offer higherrental payments. The rental payments have, usually, the forms of supply,following the year results, of a share of produce (usually, grain, sunflower,or their processing products), services to the private households,etc.

In certain events, the managers of theagricultural entities refuse to rent land plots from some of their workers orretired persons. In the next year, this may become a social problem, especiallyacute in the marginal agriculture areas where the demand for land isminimal.

The problem of the AIC crediting was anothergrave problem of the 1996 agrarian policy. The new administration of theMinistry for agriculture and food began its activities by the conception ofcreation of the special governmental fund for the AIC support. This fund willbe managed by the Ministry, while the settlements will go by the Agroprombank.The latter, being one of the largest banks in Russia, and possessing the secondlargest network of branches and subsidiaries, had the current liquidity loss ofRbl.1trln. to the middle of 1996. Besides, the bad debts of the borrowersexceeded this sum. The problem of sanation of the bank was combined, in theMinisterial conception, with the idea of centralization of all the resourcesallotted to the AIC. According to the Presidential Decree, it was supposed tonationalize the Agroprombank (the governmental share was 1.5% of the stocks,while the other shares were distributed among thousands of rural producers) andauthorize it to distribute the resources from the specially created FederalFund for AIC financing.

The Ministry for economy was energeticallyagainst the nationalization of the unprofitable bank. As a result, theAgroprombank was authorized to issue additional shares of stock to be put to apublic tender. As a result of the tender, the Agroprombank was integrated inthe structure of the Stolichny Bank of Savings, and the new structure was namedSBS-Agro. The first measures undertaken by the new management of the SBS-Agroallow to expect an improvement of the situation of this financial institution:the bank is oriented to accumulate assets of the rural population and toorganize, for these purposes, crediting cooperatives; it considers necessary tofinance, first of all, the processing and food industries, which are to become,in their turn, sources of the finance for the rural economy; moreover, itorganizes a large-scale campaign of personnel training within its system,reorganizes the branch offices network for the on-site control of transactions,etc.

When considering the problems of the formerAgroprombank, it is necessary to separate the problems of this financinginstitution as itself from the rural economy crediting problems. TheAgroprombank credits covered only a half of the credits to the rural economy,and even less than 40% in such rural regions as the NorthernCaucasus.

Despite the above reorganization of theAgroprombank, the Fund of soft loans to the agriculture is being created underthe Presidential Decree On the Measures for Stabilization of the EconomicSituation and Expansion of Reforms in AIC. It is supposed to form it from theRbl.2.8trln. of allocations from the Budget and the Rbl.9trln. of thereturn for the last year commodities credits. The Fund will credit at the 25%annual interest rate of refinancing of the Central Bank. The renewal of thesoft loans may be dangerous for the AIC financing system in 1997, though it canbe supposed that there will be no real replenishment of the Fund.

On the background of the electoral populism,the President signed certain Decrees aimed to show the support to the farmers,Cossacks, and part-time farms. The Decree was also signed trying to solve thelong-lasting problems of the Consumers Union (Potrebsoyuz) having becomemonopolist in the rural retail trade. However, the documents not supported byreal financing, became only declarations of intentions of the executivepower.

The Decree On Stabilization of the EconomicSituation and Development of Reforms in AIC of 16April1996 became a moresignificant advance in the electoral codification. The latter Decree, signedafter the earlier traditional governmental decree on the rural economy, was ofan obviously propagandist character. Nevertheless, the measures it envisionedwere not extraordinary, they stayed within the limits of the general ruraleconomy strategy and did not amend seriously the trends of the sectorevolution. The most important measures envisioned by the above Decree were theprolongation of the rural producers debts for the commodities credit of 1995 to1998 and the further delay of their debts for the centralized credits of1992-94, not written off in 1995, to 2005. As it was unrealistic to expect thereal redemption of these debts to the Budget, this write-off was the de jureacknowledgment of the already real fact of the economic life.

For example, for the commodities credit of1996, of Rbl.11.8trln., the rural producers repaid, to the spring of 1997,only a little more than Rbl.3trln.; moreover, half of this sum was cleared asthe Budget payments for the regions having suffered acts of God. It can besupposed that the practice of writing-off will continue for the commoditiescredit of 1996, as well.

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