With Her Accession to the WTO, Russia Must Increase the Budget Support for the Agro-Industrial Complex

Over the period of 2008–2010, the amount of aggregate support provided to agricultural companies in Russia was Rb 621.8bn, including that from the consumers of agricultural products – Rb 481.8bn and budget allocations – Rb 140bn (budget expenditures in the amount of Rb 328.4bn less budget revenues resulting from the implementation of support measures in the amount of Rb 188.5bn).

It is noteworthy that in Russia, highest priority is given to support for agricultural producers. In 2010, they received almost 85% of the overall amount of allocated support. The remaining part of support is allocated for ‘general measures’.

In the USA in 2010, the structure of aggregate support was fundamentally different: more than 50% of the money was spent on the implementation of general support measures, about 30% – on support for consumers, and less than 20% – on support for agricultural producers.

The primary sources of financial support for agricultural companies are the taxpayers (the budget) and the consumers of agricultural products. Russia’s agricultural policy over the past decade has resulted in a situation when the main primary source of financial support for agriculture is the consumers of agricultural products. In 2010, their share in the aggregate support structure constituted 68.7%, while budget allocations accounted for only 31.2%. For reference: in the USA, the share of budget allocations in the aggregate support structure was 98%; in the EU – 86.8%.

The adjustment of Russia’s agricultural policy after her accession to the WTO must be oriented in the main towards altering the structure of the primary sources of financial support for agriculture through reducing consumer-to-producer transfers and increasing budget allocations.

Suppose that the volume of support for agriculture in Russia after her entry into the WTO remains the same, while the structure of its sources will evolve to closely resemble that of the EU. Then the amount of budget allocations will have to be increased nearly threefold (from Rb 140bn to 497bn). At the same time, the yellow basket measures must not exceed the threshold of $ 4.4bn. This means that, in order to maintain the existing level of agricultural producer protection, the amount of funding through the green and blue basket measures will have to be increased approximately by $ 12bn. Otherwise the producers will be faced with an unequal competitive situation and may lose their former positions in the domestic and foreign markets.

Besides, it will be necessary to improve the structure of support by decreasing the share of expenditures allocated directly to support producers and increasing the share of expenditures allocated for general support measures. The support mechanism itself will have to be altered: the product-specific subsidies paid depending on production volume (which distort the market) will have to be cut, with the corresponding increase in the amount of subsidies recognized by the WTO as belonging to the green basket.

There is no doubt that one of the goals must be that of improving the competitive capacity of agricultural producers in the domestic and foreign markets, first of all by means of modernization and creation of favorable conditions for the functioning of businesses.

V. Ya. Uzun – Doctor of Economic Sciences, leading researcher, Agricultural Policy Department