Russia Agriculture Policy Review

An Expert's View about Agriculture and Animal Husbandry in Russia

Last updated: 27 Mar 2010

One in a series of policy notes on work of the OECD of interest to Canada. This note first touches upon agriculture's place in Russia's economy. Then, trends in domestic support are reviewed. Recent moves to regionalization and the devolution of powers are then discussed. The note closes with a summary of developments and the identification of key issues that will affect Russia's prospects and performance.

Russia Agriculture Policy Review One in a series of policy notes on work of the OECD of interest to Canada Context and Overview Support to agriculture fell markedly in 1999 and 2000 due to Russia?s financial crisis. As the country covering the world?s largest Russia?s pre-crisis PSE averaged 20% land mass and with a population of 142 between 1995 and1997. Since then, support million in 2005, Russia remains a country of levels have rebounded somewhat, with the significant influence and interest. PSE averaging 17 % for 2001-2005. Russia?s support has been slightly below Canada?s for the latter period. Market price support, input and output payments remained the dominant policy instruments. This note first touches upon agriculture?s place in Russia?s economy. Then, trends in domestic support are reviewed. Recent moves to regionalization and the devolution of powers are then discussed. The note closes with a summary of developments and the identification of key issues that will affect Russia?s prospects and performance. The dissolution of the Soviet Union in 1991 marked the beginning of a transition from a centrally-planned to a more market-oriented Agriculture within the Russian Russian economy. While significant progress economy has been made, the transition has not been easy or linear. In fact, in some sectors the Since its 1998 financial crisis, Russia?s state has deemed ?strategic?, the move economy has strengthened significantly, toward greater market orientation has been growing at roughly 6.7% annually between reversed in recent years, with the state taking 1999 and 2005 ? propelled largely by a boom on a greater role. in oil and gas markets. This growth fueled demand for higher value food products while Russia's PSE Russ oil and gas related revenues also allowed the ia's PSE compared Russia's PSE to other OECD countries compared to other OECD countries compared to other OECD countries state to increase its role in other sectors, 50 50 including agriculture. 50 40 40 40 Following a period of decline, agricultural 30 EU output has shown positive growth in recent 30 30 OECD years. Currently, agriculture accounts for 20 Canada 20 about 11% of total employment and 5% of the 20 Russia nation?s GDP. Agriculture has important U.S. 10 10 10 implications for the welfare of Russian 0 society; some 18% of the population lives 0 0 1995 1997 1999 2001 2003 2005 1995 1997 1999 2001 2003 2005 1995 1997 1999 2001 2003 2005 below the poverty line, and food and beverages account for 38% of expenditures Source: OECD. for low income households. Agriculture?s contribution to the overall economy has been Russia % of adjusted value of production % of adjusted value of production % of adjusted value of production 2 falling as agriculture has been growing more target of increasing meat and milk slowly than non-agricultural sectors. production by 7% and 4.5% respectively in 2006-07 through subsidized loans. Russia's Agricultural Output Russia's Agricultural Output (2) Smallholders will receive subsidies to RusAsnia's Agricultural Outputnual % Change Annual % Change Annual % Change 10 encourage them to increase output by 10 10 6%. Loans, technical assistance and 5 5 infrastructure are the main instruments. 5 0 0 (3) Housing assistance will be provided to 0 young farmers in rural areas. -5 -5 -5 As discussed earlier, support to producers -10 -10 -10 has been gradually returning to pre-1998 -15 financial crisis levels. For 2003-05, 74% of -15 -15 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 the PSE was market price support, largely 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 from import protection for sugar, livestock and Source: OECD. poultry products. Budgetary transfers made up the remaining 26% of the PSE, with input Russian agri-food imports are substantial and subsidies accounting for almost 57% of total increasing, given the nation?s relatively static budgetary support, output payments for 11%, domestic production and growing consumer while another 10% was due to an implicit demand. Consequently, the import-export subsidy from the debt rescheduling. Hence, trade balance has been widening since 2000. market price support, input and output The EU is Russia?s largest agri-food supplier, payments collectively accounted for 92% of followed by Brazil, Ukraine and the United the overall PSE. OECD research shows that States. Russia takes one-third of US exports market price support, input subsidies, and of frozen cut poultry and two-thirds of Brazil?s output payments are all highly production and pork exports. Russia is a net-exporter of trade distorting. This underlines the grains and oilseeds. Leading export importance of monitoring Russia?s policies, destinations include Egypt, Kazakhstan, and given their potential to impact world markets. Ukraine. The ruble?s appreciation has made imports more affordable while undermining RUSSIAN MEAT TARIFFS AND TRQs the competitiveness of non-energy exports. In-quota Over-quota TRQ tariff tariff tonnes Beef, frozen General services and distorting 2005 15% 40% 430,000 support are modest but increasing 2007 15% 52.5% 440,000 2009 15% 40% 450,000 The federal government is now making efforts Pigmeat 2005 15% 80% 467,400 to improve agricultural efficiency, with more 2007 15% 55% 484,800 assistance being put into capital and 2009 15% 40% 502,200 technological improvements. A new Federal Poultry meat Law on Development of Agriculture is being 2005 25% No over-quota 1,090,000 put in place to provide a more stable legal imports and regulatory framework for the sector. 2007 25% 50% 1,171,200 2009 25% 40% 1,252,000 Agriculture is now benefiting from an Note: Specific in-quota and over-quota tariffs also exist. improved Russian economy and a return to Source: OECD. pre-crisis levels of policy support. Federal programs are being implemented during After sugar, the highest levels of support are 2006-10 to emphasize sustainable farming, provided to the poultry, pork, dairy, and beef rural development, and quality of agricultural sectors. The livestock sector also enjoys labour and life in rural areas, including the substantial import protection in the form of two-year 2006-07 National Priority Project for tariff rate quotas (extended to 2009). Development of Agro-Industrial Complex. The Project consists of three main elements: (1) The government is providing more support to livestock industries, with a Russia 3 BOX 1: Significant changes to Russia?s agri-food chain, including the emergence of super-companies Since the early 1990s, three types of farms FEW AGRICULTURAL ORGANIZATIONS have emerged in Russia (i) privatized REPRESENTED MOST PROFITS, 2002-2004 successors of former collective and state Share of all agricultural organizations represented farms, now called agricultural organizations by 300 major enterprises (ii) small, individually-owned household plots and (iii) family farms that emerged with the Profits 70% policy to develop family-type farms. Market Receipts 20% In 2005, agricultural organizations Farmland 3.5% represented 41% of total agricultural output, Number 1.5% households 53%, and family farms 6%. Source: OECD. Agricultural organizations are the main producers of grains, and households Agro-holdings have been seen by some produce most fruit and vegetables. While local authorities as a means of reviving local households traditionally produced for self- agriculture. Local administrations sometimes consumption, some are evolving into small- hold a stake in agro-holdings and may scale commercial producers. provide preferences to them through low- interest credit. The performance and size of agricultural organizations is changing, with successful, Food processing and retailing have modernizing producers now developing experienced considerably more structural within this group. Agro-holdings are being change than primary agriculture. created among these organizations, often Supermarkets are developing extremely through takeover of insolvent farms by non- rapidly, represented by both national and agricultural or agribusiness investors. Agro- international retailing chains. They are holdings can be highly diversified and integrating upstream to ensure a constant vertically integrated. flow and quality of supplies. In the Belgorod region of Russia?s black soil area, there are 4 super-large agro-holdings, one of which operates 277,000 hectares and employs abou t 16,000 persons. Altogether in this region, there are 37 agro-holdings, representing 581,000 hectares. Regionalization: its benefits and territory. Therefore, regional administrations will have discretion to develop and finance risks their own programs. This may help to improve targeting and responsiveness of Agriculture administration in Russia is agricultural policies and programs. undergoing ?regionalization.? This change is part of the broad administrative reform Since the majority of regions have a limited initiated in 2004. Under the new division of fiscal base, however, most regions will responsibilities, the federal government will probably continue to rely on federal support. focus more on strategic policy direction and But regionalization could also result in a special national programs like the National decline in policy coherency, equity, and Priority Project for Development of Agro- transparency. Risks include: Industrial Complex. ? ?Rich? regions may provide high support to Regions will now have the lead for local farmers, leading to inefficiencies in implementing agricultural support within their resource allocation. Russia 4 Increasing tax receipts from a stronger ? There is potential for regional economy allow Russia to become more protectionism, including discrimination interventionist and direct more funds against outside agents, and restrictions on movement of agri towards some sectors, including agriculture. cultural products in and Policy and budgetary support that distorts out of the region. input and output prices and, therefore, ? Policy transparency is reduced, which production and trade, continues to make up further complicates an already complex a significant share of Russia?s policy set. policy monitoring process in Russia. The ruble?s ongoing appreciation and increased energy revenues leave room for This reduces transparency and creates the increased support, but the World Trade potential for conflicts of interest, blurring the Organization (WTO) and the Organization distinction between the state?s commercial for Economic Cooperation (OECD) and regulatory roles. accession will be a factor. Russia?s prospects, and those of its agri- Summary and Prospects food sector, depend on developments in a number of key areas: (1) its transition to a Russia?s economy continues to grow on the more market oriented economy, with a basis of strong demand for energy and other decoupling of commercial and regulatory natural resources. This resource-based mandates; (2) international oil and energy growth has also caused the appreciation of market revenues; (3) exchange rate the ruble. As a result of this economic movements; (4) WTO accession and growth, Russia is expected to continue to integration with international markets; (5) the experience stronger food demand and ability to cope with a population in decline prices for higher value food products, since 1992. particularly livestock products. This in turn may help boost agricultu ral output, which has been stagnant for several years. Sources However, the agriculture sector still faces OECD (2006) OECD Economic Surveys: challenges. While the economy is growing, Russian Federation, Paris, November. the energy boom has also resulted in a sharp increase in fuel costs. Producers face OECD (2007) Agricultural Policies in Non- a significant price-cost squeeze and the OECD Countries: Monitoring and government has introduced a subsidy for Evaluation, Paris. this input. The appreciation of the ruble is also undermining the competitive position of Russian exports on international markets. For a link to the OECD reports, please go to: http://www.oecd.org For more information contact: OECD Main Report: Olga Melvukhina Tel: 33 1 45 24 95 61 E-mail: olga.melvukhinai@oecd.org AAFC Review: Luc Tanguay Tel: 613 759 7114 E-mail: tangual@agr.gc.ca Odette Vaughan E-mail: vaughano@agr.gc.ca Aleks Jotanovic Tel: 613 759 6691 E-mail: jotanovica@agr.gc.ca Publication: 10567E ISBN: 978-0-662-47669-6 Catalogue: A38-4/13-2-2008E-PDF Project: 07-100-b Russia
Posted: 25 March 2010, last updated 27 March 2010

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