The farce of nickels and dimes for agriculture

22.02.2012 — Analysis

Russia has turned its attention to its food security needs on the eve of joining the WTO. The Russian government is considering additional funding for agricultural producers. In addition to providing farmers with a number of tax and investment incentives, there is a discussion of ramping up the construction of housing and social infrastructure and supporting cooperation and new agricultural entrepreneurs. But many farmers are skeptical of these government promises. They claim that several types of support for rural communities are declining, not expanding. This columnist for RusBusinessNews attended a gathering of farmers from the Sverdlovsk region and saw once again how difficult it is in Russia not only to grow wheat, but even to establish ownership of land.

According to Ilya Bondarev, the minister of agriculture for the Sverdlovsk region, four billion rubles were allocated from the regional and federal budgets in 2011 to support rural communities, which included the installation of gas lines and construction of housing. Andrei Savchenko, the chairman of the Union of Agricultural Businesses in the Sverdlovsk Region, a noncommercial partnership believes that this is not nearly sufficient. The more remote parts of the country lack decent roads, and issues related to the provision of water and gas supplies have yet to be resolved. The government also contributes a negligible amount of aid directly to agricultural producers - a total of six kopecks per ruble of gross production was provided in 2011.

Farmers receive some support in the form of subsidies to purchase farm equipment. The Sverdlovsk region was granted a total of 645 million rubles, which was sufficient to buy only 32 pieces of equipment, at discounted prices. This year that subsidy has been slashed to only 220 million rubles and may only be used for the purchase of forage harvesters. The amount of discounted diesel fuel that is available did increase from 38,000 tons to 42,500 tons in 2012, but this was no cause for celebration. Farmers did not take advantage of their full allotments of the fuel last year, because of concerns over its low quality.

Agricultural producers claim that the support they now receive from the government is not useful. They feel that the state money should be allocated per hectare of land cultivated, or per hundredweight of crops grown, or per head of livestock raised. That's how it works in Finland, where farmers from the Urals go for training. According to Klavdiya Chusovitina, a farm manager, almost half of the income of their Finnish counterparts comes from state subsidies - 580 million euros a year is spent to support the production of meat, milk, and other products. Agricultural cooperatives that offer loans at only a 2-3% annual interest rate are also a great help to agricultural producers there.

But Russian farmers can only dream of living in such a world. Yelena Shestakova, the deputy director of a branch of Rosselkhozbank, OSJC, stated that credit would be available in 2012 at the rate of 10.75% for one year and at 13% and up for five years. But the farmers don't believe her. They claim that her specialized bank charges at least 14% per year for even short-term loans. In addition, the banks require additional documents that are not required by law, and they refuse to accept as collateral land that is owned in common with other farmers. And those who merely lease their land can forget about applying for a loan at all.

The main problem is that, unlike in Finland, no one is going to transfer the land and forests over to the farmers for free. It's true that the state is actively offering to legalize ownership of land that is currently under lease, by compensating a portion of the costs, but that takes years. Andrei Savchenko claimed that it took him eight years (!) to privatize his plot of land.

And it is government agencies that are the biggest scofflaws. For example, for many years the Russian Ministry of Defense ignored the request of Ivan Zakharov, a farmer, that it formalize his ownership of the land where his livestock farm is located, unused land that at some point was registered to the military. When Yelena Skrynnik, the Russian minister of agriculture, learned of this story, she requested a list of all the land in the Sverdlovsk region that was being used for farming but that actually belonged to the Ministry of Defense, so that she might raise the issue of getting all the land transferred to the farmers who were using it. But a knife and fork are no match for an armored tank, and the prospects of coaxing the land away from the military look very bleak.

The government's pledges to support new farmers also seem very ambivalent. The Russian Ministry of Agriculture is betting on the development of family-run dairy farms and milk processing. But regional officials are more skeptical. They believe that large holding companies and cooperative farms are best suited for the successful expansion of agriculture. Ilya Bondarev publicly stated that "we will not support processing", because the Sverdlovsk region already has 30 factories and 20 facilities that bottle milk. And the region has no real need for more milk - in 2011, 60,000 tons more milk was processed than was required. But for some reason that fact had no effect on the prices of the surplus raw materials and facilities. The processors strong-arm the farmers, and the retail trade preys on the consumers of dairy products who end up paying full price for sour cream and cottage cheese.

New farmers roll their eyes at the idea that the state is supporting them. A would-be farmer must have 100,000 rubles of start-up capital in order to receive any government assistance, even though salaries in rural areas are 2.5 times lower than in the cities and unemployment is as high as 11%. Farms, which help to absorb this excess workforce, must content themselves with the leftovers from the infusions of government cash into agriculture. And as a result, they lose interest in the production of wheat and milk because of the extremely low profit margins.

Experts are confident that Russia must place a priority on bringing order to the market and establishing parity between the prices for manufactured goods and agricultural commodities. Only this can prevent Russia's membership in the WTO from becoming a tragedy for agricultural producers. The state's promises to consider additional measures to support small businesses in rural areas are nothing but hot air.

And so it remains a mystery what exactly the Russian Ministry of Agriculture is thinking when it promises to create 24,500 agricultural farms, build and renovate 1,200 livestock farms, transfer the ownership of six million hectares of land to farmers, and increase farmers' agricultural production by 7.4%, all by the year 2020.

Vladimir Terletsky