Support of farm producers in Russia

The key assessments of Russian agricultural policies made by the OECD experts are as follows¹:

1. From the mid-1990s the level of support to farm producers grew up to 22% PSE² thus exceeding  the current level of support in OECD countries (20%). This is the outcome of tighter customs and tariff regulations in respect to key import items as well as of larger budget transfers to the sector.
2. In the three recent years the support to farm sector has been primarily targeted at import substitution. Special attention has been paid to investments in livestock sector and its protection from import.
3. The set goals of agricultural policies were to a great extent achieved at the expense of consumers and owing to transfer of funds from crop to livestock production. The support was largely confined to subsidizing of farm products’ prices and marketing as well as of input purchase - the most distorting forms of support.
4. The growth of support to farm sector is directly related to the payment of large compensations for crop losses in 2009-2010.  The global economic crisis of 2009 and droughts (especially in 2010) resulted in additional debt prolongations and restructurings.
5. Although forced by emergency situation, the ad hoc assistance aggravated the existing and generated new risks and problems. The restructuring of debts under agricultural credits not only enlarged their amounts but also induced “a spiral” of subsidies for reimbursing interest rate on credits. The growing share of respective subsidies in the State Program’s budget  resulted in smaller allocations to soil improvement, sustainable rural development, rural infrastructure, consulting and other services to farm producers³.
   

The new 8-year State Program for agricultural development and regulation of agricultural markets till 2020 (the State Program), the draft of which is being actively discussed in the Ministry of Agriculture and  the expert community, is intended to overcome these negative trends. According to the State Program’s draft version of August 29, 2011⁴ allocations to soil improvement and rural development are to increase 7.5 fold while allocations to subsidizing of interest rate on credits – less than 2 fold as compared with the previous State Program. The range of to-be-applied measures causing minimal market distortions is widening, e.g. some subsidies will be distributed on a per-hectare and per-head basis and won’t be tied to units of produced farm products. Still, 41% of the planned Rb 2 ,113bn of state support will be used for compensating input costs and supporting market prices.

Since the term of the effective State Program for agricultural development and regulation of agricultural and food markets ends in 2012 and a new program is being worked out, this is the best moment for re-targeting state support from subsidizing of prices to investments in long-term development.

R.G. Yanbykh  – Ph.D. in Economics, leading researcher in Laboratory of agricultural policies.


 ¹ Agricultural Policy Monitoring and Evaluation 2011: OECD Countries and Emerging Economies. Country chapter: Russia. http://www.oecd.org/document/30/0,3746,en_2649_37401_48714398_1_1_1_37401,00.html
 ² PSE – Producer Support Equivalent – coefficient of producer support calculated as the ratio of overall state support  (the sum of annual transfers from consumers and taxpayers to farm producers in producer prices) to the cost amount of gross agricultural output less multiple counting. This indicator is considered to be universal for comparative analysis of farm support levels in different countries.
 ³ In 2010-2011 the growth of carry-over budget commitments  on subsidizing interest rate on credits extended to agriculture entailed more than 3-fold reduction of expenditures on measures under special federal program “Social development of rural areas till 2012”.
 ⁴ http://www.mcx.ru/documents/document/show/16834.342.htm