The algorithm of well-fed Russia is defined in the South Urals

31.10.2011 — Analysis

Russia cannot get out of never-ending financial, climatic and social cataclysms. At the same time, once mighty agrarian nation keeps nervously going over and over its comestibles, while sitting on sacks full of food grains. In January-August 2011, the physical volume of food supplies from non-CIS countries increased by 20.6% as compared to the similar period of the previous year. The similar growth was observed one year earlier, when the import "increment" amounted to 15.5%. On the other hand, Russia also depends on its nearby neighbors who over the recent months have increased meat supplies by half, doubled supplies of vegetable oil, and sold five times as much corn. The RusBusinessNews reporter, together with Ivan Feklin, Agriculture Minister of the Chelyabinsk Region, has attempted to find the root of the Russian agrarian problems.

- The main problem of 2011, strange as it may seem, was heavy crops. Farmers are perplexed, not knowing what to do with the bounteous grain crops showered upon them in abundance. Agricultural producers shout with one voice about the shortage of railcars and terminals. In grain growing regions the silos are full to the brim - grain goes to waste in the open air. In the Chelyabinsk Region, the prices for grain have dropped to 3,500 rubles per ton against the cost equal to 4,500 rubles. What does the agricultural industry do to find the way out of the situation?

- This year, the crops in the Chelyabinsk Region have exceeded 2 million tons of grain. The prices are still going down; nevertheless, agricultural producers have to sell some grain today to perform their payment obligations - for salaries, electricity, loans. The situation is challenging, and it would be disastrous, but for the government assistance. In 2011, the amount of the government support given to farmers of the South Urals (both regional and federal funds) exceeds 3 billion rubles. Primarily, the assistance is provided in the form of subsidies - for repayment of loans, purchasing of machinery, production of milk and meat. Taking into account that the grain production is still more profitable (I mean the previous years) than, say, dairy cattle farming, the provided assistance is mainly of organizational nature: in operating silos, in organization of movement and relocation of machinery, etc.

The subsidies provided to husbandries and farmers for purchasing of machinery and equipment will total 170 million rubles this year. Besides, crop growers have received subsidies amounting to 22 million rubles allocated from the federal budget for purchasing of pedigree seeds and 60.2 million rubles - for purchasing of crop-protecting agents. The regional budget funds allocated for these purposes amounted to 37.5 million and 29.5 million rubles, respectively.

I would like to point out that the capacity of our silos is sufficient to keep all the harvested grain undamaged. Today's demand of the Chelyabinsk region for grain exceeds 2 million tons; therefore, the crops of this year will meet the regional needs.

- Grain interventions were meant to become an emergency response. The need in such interventions has been discussed by the government authorities of the RF constituent entities for a long time; Mikhail Yurevich, the governor of the South Urals, was ready to organize regional procurement activities. However, the federal authorities suddenly decided to turn down the idea of this arrangement, having outlined clouded prospects for pledge operations. The pledge arrangement implies that agricultural producers supply grain to the government at cost prices, and can buy it out, if market prices go up, reimbursing the government for storage costs. What is your opinion regarding this situation?

- The issue about grain sales is still very pressing. Keeping in mind that the Chelyabinsk Region is located far away from the southern ports of Russia, grain export is not profitable for us. Besides, as I have already said, internal needs of the region are quite substantial - more than 1 million tons of grain goes for processing, 760 thousand tons of fodder grain for livestock farming and 300 thousand tons of seeds annually. Therefore, grain generally is sold within the region. At the moment, the attention is focused on operations at silos, where grain of any moisture is accepted and dried up. The task is not only to harvest the crops, but also to retain its quality.

The mechanism of pledge interventions, in our opinion, will become another efficient tool to regulate the Russian agricultural market. However, there is hope that the federal government will announce grain purchasing interventions before the end of 2011.

- In EU countries, subsidies given to agricultural producers reach 45-50% of the cost of the marketable products produced by them; in Japan and Finland - 70%; in Russia - only 3.5%. What are expenditures of the Chelyabinsk regional budget on development of agriculture?

- The government support of agriculture amounts to 4.7% of the regional total agricultural output in monetary terms. This percentage of the regional budget is similar to the percentage of expenditure on agriculture in Russia: in 2010 it was 3.5%.

- The negative experience of last year, when the draught destroyed one third of grain crops, compelled the federal authorities to bolster crop insurance. The RF Ministry of Agriculture intended to reach 80% insurance. How many enterprises went to the fields with an insurance shield in the Chelyabinsk Region in 2011?

- Not many enterprises have taken part in the insurance program so far, despite the performed organizational work. The explanation is simple: the three previous draughts, even though there was government support, were a serious drain on the purses, whereas the support system implies that subsidies will be paid only after insurance contracts have been signed. It means that during the seedtime farmers have to divert sizeable funds in order to insure their crops. That is why we suggested that the regional government should increase substantially the amount of subsidies - in fact, it has reached 90% of insurance expenses (if insurance is for grain crops).

There is another problem - the previous experience of work with insurance companies has shown that farmers received insurance recovery of losses very rarely. As a rule, insurers try to take advantage of any loophole not to compensate the affected party for the damage. Suffice it to say that in 2010, when Russia was hit hardest by the draught, payments of claims accounted for 9% of the total amount of insurance premium payments.

Nevertheless, this year 10 enterprises in the Chelyabinsk Region have entered into insurance contracts for the total amount of 495 million rubles. As compensation for their insurance expenses, enterprises received 29.1 million rubles in subsidies from the government, including 17.3 million rubles - from the regional budget. It should be said that within the previous three years the farmers of the South Urals did not use their insurance.

- One of the measures intended to revive the Russian village is to return agricultural land into circulation. How active is this process in the Chelyabinsk Region?

- By order of the governor, the working group was organized to perform this work; the group consists of representatives of all the concerned entities. All the information about idle land of agricultural use was collected, and it was found out that we have 20% of such land areas. Some of them were waterlogged, returned to forest and cannot be recovered; however, there are still 250-300 thousand hectares of plough land.

By the way, since 2005 agricultural enterprises have returned 338 thousand hectares of abandoned land to agricultural use. Another 10 thousand hectares have been reclaimed this year. Today we are focusing our efforts on two areas. First of all, we are developing collaboration with municipal and federal government authorities that have most responsibilities for supervision over this sector. Our present-day task is to invigorate operations of supervisory agencies to create a thorn in the side of neglectful landowners, compel them either to perform farming operations or sell their land to those who are interested in this type of work. If neither option works out, then, certainly, enforcement actions should be taken - penalties and land withdrawal.

The second area of our attention deals with amendments that must be made to the legislation. In December 2010, the law on agricultural land circulation was amended; for example, the right to recourse to a court with the claim for land withdrawal was delegated to a constituent entity of the Russian Federation (previously, this had been within the powers of municipal and federal government authorities). However, the law does not still have any criteria that would specify what types of land can be deemed as unused. To rectify this discrepancy, by order of Governor Mikhail Yurevich, the letter has been sent to the RF government with the request to speed up the process of specification of the "zero use" characteristics applicable for agricultural land. I would like to point out that even if the court adopts the decision on withdrawal any land property, it will not mean expropriation. The land property will be transferred into the municipal ownership, offered for auction, and the former owner will be paid compensation out of the proceeds.

- Another initiative of the federal government is scheduled for implementation - the program for utilization of the older machinery. 70-80% of the agricultural machinery is older than 10 years. Are these numbers relevant for the Chelyabinsk Region?

- The terms and conditions of the program for utilization of agricultural machinery have not been approved so far, though the program is sought-after by agricultural producers. In the Chelyabinsk Region, 62% of the tractor fleet is older than 10 years, whereas for combine harvesters it is 74%. We prepared our proposals for participation in the government program in May. Based on our estimations, in 2012, 2,077 items of machinery could be replaced by the new ones, including 1,322 tractors of different power, 685 harvester-threshers and 70 forage harvesters; in 2013 - 2,138, and in 2014 - 2,199 items of machinery.

Based on our data, this year agricultural producers, due to regional subsidies, have re-equipped their machinery fleets for the total amount of about 900 million rubles. The husbandries and farms acquired 53 new combine harvesters and 84 tractors. During the torrid year of 2010 farmers purchased much less machinery.

The last large-scale purchasing of combine harvesters was in 1999-2002. Small-sized farms have tractors that have been operating for their second or third service life. Undoubtedly, in purchasing the priority is given to home-made machinery, as it is more affordable in terms of price, and the availability of service centers relieves the problem of its operation. During the previous years the work with Rosagroleasing came almost to a standstill: The main hindrance was debts accumulated in overdue payments for supplies. However, when Mikhail Yurevich came into the governor's office, the problem was solved, the dept were repaid, and the work with the company has been resumed this year. The agrarian producers are expected to receive 170 million rubles from the regional budget in the form of subsidies for purchasing of new machinery.

- According to the governor's statement, the Chelyabinsk Region intends to come to the fore, ranking second in Russia after the Belgorod Region in poultry breeding. What actions will help to "snap at the leader's heels"?

- Based on the short-terms forecasts, in 2011 the regional poultry farms will produce 185 thousand tons of poultry meat - a gain of 10 thousand tons against the previous year. In 2017, with consideration for the planned implementation of investment projects, we intend to reach the output of 330 thousand tons. It will give us the second place in Russia in this type of products.

Today, we are building two new poultry farms, each having the output capacity of 50 thousand tons of poultry meat annually. The Sitno company is building a poultry integrated plant in the Nagaibaksky District; the second project was spearheaded by the Uralbroiler holding company. Uralbroiler has also embarked on large-scale reconstruction of the existing Argayashskaya poultry factory and its other poultry facilities. The total cost of these investment projects is 12.2 billion rubles. The regional budget provided the government guarantee in the amount of 5.5 billion rubles for investment loans. In addition, the regional budget reimburses the costs of the companies relating to the production infrastructure in case of new production facilities. The investors received 610 million rubles for these purposes.

- Another strategic area is livestock farming. The Federal Customs Service has estimated that in January-July the volume of imports of fresh-frozen meat from non-CIS countries increased by 10.8%, whereas imports of poultry meat - by 13.7%. Supplies of fresh and frozen meat from the neighboring countries increased by 51% as compared to January-July of 2010. In beef products, Russia's dependence on import reaches 40%, in pork - 25%. The import quotas for pork, which have been depleted this year, will be cut by one third of this year's volume. Meat-processing companies intend to "retaliate" by increasing prices by 15-20%. Does the Chelyabinsk Region have any intention to regain positions on the meat market from foreign competitors?

- As for the pork production, the reduction of imports plays into our hands. Last year the output of pork at hog farms increased by 20.8% as compared to 2009. Over eight months of this year - by 30.4%. The Ariant and Uralbroiler holding companies are planning construction of new facilities in future. By the way, the Rusagro company, actually, decided to give up the implementation of its project due to the fact that our market is flooded with the products from local producers. In 2017, meat production, including pork, is expected to increase from today's 307 thousand to 500 thousand tons a year.

The Chelyabinsk Region continues developing beef production. The Ariant, an agricultural holding company, is the largest in Russia in cattle breeding; in the near future it is planning to start one more farm in the Uisky District and increase livestock population by half - to 30 thousand. The Uralbroiler, an agricultural holding company, is also nurturing plans for Hereford cattle breeding in the Uisky District. Today in Russia, in terms of the ratio between meat and milk cattle, the meat producing cattle accounts for less than 1%, whereas in the countries with developed cattle breeding - the USA and Canada - such cattle accounts for more than 50%. You can see it by yourself that the growth potential is immense. Today we have a breed herd and we sell breeding livestock to all the regions of Russia.

- Apart from the problem related to the meat output, experts point out the poor development of the slaughtering sector. Do the livestock projects intended for implementation in the Chelyabinsk Region involve a comprehensive solution to the "meat" problem?

- As for slaughtering, all large livestock breeding complexes have slaughter and dressing departments. Undoubtedly, all new projects include construction of advanced slaughter-and-processing complexes with the latest process equipment. Within two years, the Ariant agricultural holding company is planning to build the meat-processing factory, which will be the largest in Russia. The integrated factory, which is located in the vicinity of Chelyabinsk, has the total area of 15 thousand square meters and was designed by BERTSCHlaska, a German company; it integrates cutting-edge European technologies developed for the food engineering industry. Due to this factory, the Ariant output will increase to 140 tons of products daily.

- At the federal level there are talks about Russia's tapping foreign food markets. By 2020 the country is expected to export 170 thousand tons of poultry meat and 200 thousand tons of pork. How realistic are such intentions, in your opinion?

- Quite realistic. Today, we are exporting 30-40% of the poultry meat and pork produced in the Chelyabinsk Region, but part of these products is imported to us from other regions. The same is true about imports: If the Russian market has imported meat products, we have every reason to go to foreign markets. Drawing a parallel between cereals and pasta, I can say that our Makfa and Zlak have good reputation both in the near and far-away countries. Their products are of very high quality and competitive in price due to availability of their own stock. The domestic poultry breeding and hog farming also have a developed raw materials base; the most advanced technologies are used in production, thus giving promising opportunities for future export.

- Developed countries use several price regulating mechanisms in agriculture. Russia is torn apart, not knowing what to prefer. Agricultural producers have repeatedly emphasized the urgency for clear price regulation and quotation of certain volume of agricultural products, taking into account actual needs of the regions to avoid both the deficit and overproduction. What is your vision of the solution to the problem?

- We think that the contribution of each market participant to the price of the finished products must be defined at the legislative level. The participant that incurs the highest expenses on production of dairy products should not receive the lowest profit. The percentage of the agricultural producer in the price of the carton of milk must not be less than 55%, whereas now it is not more than 40-45%. As for quotas for products, there are more problems with regulation, as we are operating on the free market.

The interview was prepared by Lyudmila Solodkova