Reforms/Finance/Crops/Livestock

The radical division between urban and rural cultures in Russia belies their profound interdependence. Be it through the centrality of the Rynok (market) to Russian life, market gardening, kulaks or  kolkhozi, Russian agriculture is a historical expression of the trauma and resourcefulness of the Russian people. Since 1991, the sector has been characterised by the prolonged and difficult introduction of reforms pitted against the deeply entrenched conservatism of Russia's agricultural community, with a Duma dominated by Communists throughout the 1990's. For better or for worse, these factors have slowed the rate of development in a sector with enormous potential. 

At time of writing (October 2006) few major investment houses have an established policy for Russian agriculture, preferring more profitable blue-chips and established sectors to one perhaps slowest of all to shake off the weight of history. Indeed this author was greeted with a blank stare by the head of KPMG in Russia when posing a question on agriculture at a conference recently. Some emerging agri-businesses have successfully floated shares on the RTS, with an emphasis on vertical integartion from land to brand, and balanced year round cash-flows (approximately 10% more meat is bought in the second half of the year than the first, for example) and the Russian Union of Industrialists and Entrereneurs established an Agri-business commission in October '06.

Reforms: The main thrust of Yeltsin's agricultural reform was to reorganize state and collective farms into more efficient, market-oriented units. A December 1991 decree required farmers to choose to either maintain their existing structure, or reorganize into joint-stock companies, cooperatives, or individual private farms. Under the joint-stock and co-operative arrangements, the 12 million or so workers would hold shares in their farms and take responsibility for managing the enterprises. An individual farmer could also later decide to break from the larger unit and establish private ownership of his or her share of the land or be provided with land elsewhere in Russia. About one-third of the state and collective farms essentially retained their earlier structure. Most of the others, fearing unstable market conditions and unpredictable supply and demand, chose a form of collective ownership, either as joint-stock companies or cooperatives. The conservatism of Russia's farmers prompted them to preserve as much as possible of the inefficient but secure Soviet-era controlled supply and output relations.

Farm growth stalled shortly after 1991, and by the mid-1990s Russia's 280,000 private farms accounted for only 5 percent of Russia's arable land. The major factor contributing to the slow progress of agricultural reform was a necessary culture shift from total subsidization to open competition. Russia is not unique in this however, one simply has to look at the extent to which North American, Australian and European farmers are supported by government to appreciate the importance of state support in agriculture. In Russia, until the mid-1990s, the state and local government continued to act as the chief marketing agent for the food sector by establishing fixed orders for goods, thus guaranteeing farmers a market. The government also subsidized farms through price guarantees, which reduced incentives to maximize efficiency.

Perhaps most importantly, effective land reform has not been accomplished in Russia. The original land reform law and subsequent decrees did not provide a clear definition of private property, nor did they difinitively outline landholders' rights and protections. The nebulous status of private landholders under the new legislation made farmers reluctant to risk entrepreneurship. In March 1996, President Yeltsin issued a decree allowing farmers buy and sell land. However, in April 1996 the State Duma, heavily influenced by the anti-reform KPRF and its ally, the Agrarian Party of Russia (representing the still formidable vested interests of collective and state farms), passed a draft law prohibiting land sales by anyone except the state. Opposition to the new notion of private landownership is based on a strong traditional Russian view that land is a collectively rather than individually held property.

Since the 1990's however, the federal government has retreated from its role as a guaranteed purchaser and marketer, although some regional governments are stepping in to fill the role. Minister for Agriculture Alexei Gordeyev, who in 2001 established the Russian Agrarian Movement (a lobby group with its own radio station, press and sponsors) is seen as a supporter of large co-operative and commercial agri-businesses availaing of economies of scale, yet is also very strong on concessions necessary for Russia's much anticipated WTO entry in 2007. The question of Russia's international competetiveness is central to understanding the policies guiding its internal agricultural policy.

Speaking at a Russian British Investment Forum in Oct '06 presidential aide Arkady Dvorkovich described the challenges faced in developing a viable agriculture industry, particularly when Russian products compete with Europan products  which are subsidized by up to 40% through the Common Agricultural Policy. The survival of the rural fabric is also central to Russia's cohesion and integrity as a polity. At present depopulation and the possible consequences of homogenised land use schemes suitable for commercial markets are perhaps the most significant concerns for Russia's agricultural community. After all, as President Putin has said, when speaking of Russian agriculture we are in fact discussing a social issue.

Finance: Russia's state-controlled agriculture bank, Rosselkhozbank, granted a total of 63,500 loans to the amount of RUR49bn ($1.9bn, or €1.4bn) in the first quarter of 2007. Last year, the bank granted 186,000 loans amounting to RUR168bn ($6.51bn, or €4.81bn at the current exchange rate). 

RUR5bn ($193.72mn, or €143.18mn) will be used to develop livestock breeding, RUR5.3bn ($205.35mn, or €151.78mn) has been granted to owners of private subsidiary holdings, and RUR2.7bn ($104.61mn, or €77.32mn) to rural farms and businesses. The results of the bank’s performance were summed up at a meeting of the bank’s supervisory council chaired by Agriculture Minister Alexei Gordeyev in May '07. The main recipients of the bank’s loans are agricultural producers who account for 75% of the borrowed sums, or RUR116bn ($4.49bn, or €3.32bn).

Rosselkhozbank's loan portfolio grow by more than 250% in 2006 to Rbs157 bln ($5.9 bln). The number of provided loans increased by a factor of 9. Debt on credit was up eight-fold to over Rbs70 bln ($2.6 bln) for the year. At January 2007 the bank and its branches service over 400,000 clients, 150% more than in 2005. In 2005 Rosselkhozbank opened five regional branches and 446 additional offices in municipalities. It also opened its 71st regional branch in Siberia’s Tyumen district

From January to August 2006 Russian agricultural producers received about 70,000 loans worth a total of more than 31 billion rubles from state-owned agricultural bank Rosselkhozbank. Of the total, Rosselkhozbank provided 1,013 loans worth 15.3 billion rubles for the development of livestock farming and 67,800 loans worth 15.9 billion rubles for the development of small farms. In addition, Rosselkhozbank concluded agreements to provide more loans worth a total of 18 billion rubles before the end of this year.

In the Volga Federal District 27,169 farms took out loans totaling 9.3 billion rubles in January-August, in the Central Federal District agricultural producers took out 9,700 loans worth a total of 7.1 billion rubles, in the Southern Federal District they took out 15,300 loans totaling 6.2 billion rubles and in the Siberian Federal District they took out 11,400 loans totaling 4.9 billion rubles, the ministry said. Agricultural producers in the Far East and Northwest federal districts are less active in taking out loans.

Consumption: Russia consumes over 2 million metric tons of bird meat a year. Its import is restricted by the import quota of 1.09 million metric tons a year. Major bird meat suppliers are the U.S. (74 percent of total amount of import) and European Union countries (18 percent). According to US Department of Agriculture, the U.S. supplied 784,700 metric tons of bird meat for a total sum of $667.2 million.

Crops: Covering a planted area of over 23 million hectares, wheat comprises over half of Russia's grain production, 70% of which is food-grade, or milling quality. Russia produces over 10 million tonnes of Barley a year from 10 million hectares, most of which is used for feed grain, though the expanding brewing industry has increased demand for malting barley, currently at approximately 1.2 million tonnes per annum.

Grains are among Russia's most important crops, occupying more than 50 percent of cropland. Wheat is dominant in most grain-producing areas. Winter wheat is cultivated in the North Caucasus and spring wheat in the Don Basin, in the middle Volga region, and in southwestern Siberia. Although Khrushchev expanded the cultivation of corn for livestock feed, the crop is only suitable for growth in the North Caucasus, and production levels have remained low compared with other grains. Barley, second to wheat in gross yield, is grown mainly for animal feed and beer production in colder regions (as far north as 65° north latitude, or Arkhangel'sk) and well into the highlands of southern Siberia. Oat production, which once ranked third among Russia's grains, has declined as machines have replaced horses in farming operations.

Legumes became a common crop in state farms in the 1980s. Potatoes, a vital crop for food and for the production of vodka, are grown in colder regions between 50° and 60° north latitude. Sugar beet production has expanded in recent years; beets are grown mainly in the rich black-earth districts of European Russia. Flax, also a plant tolerant of cold and poor soils, is Russia's most important raw material for textiles. Russia produced about half the world's flax crop in the 1980s. Flax also yields linseed oil, which together with sunflowers (in the North Caucasus) and soybeans (in the Far East) is an important source of vegetable oil, and increasingly important market for the expanding bio-fuel industry. Production of fruits and vegetables increased as private farms began to expand around 1990. In the mid-1990s, the largest yields in that category were in cabbages, apples, tomatoes, and carrots.

Livestock: Increased production of fodder crops and expansion of pastureland have supported Russia's livestock industry, although economic conditions have caused cutbacks in animal holdings. Cattle are the most common form of livestock except in the drier areas, where sheep and goats dominate. The third-largest category is pigs, which are raised in areas of European Russia and the Pacific coast that offer grain, potatoes, or sugar beets as fodder. Only very small numbers of chickens are kept, and frozen chicken has become one of Russia's largest import items.

Related Articles: 

The Survivors (A Brief History of Russian Agriculture), By Jenny Smith, Special to Russia Profile, Oct 26th 2006 

A Plot of One’s Own (Land Reform shows that small farms can produce big results), By Vasily Uzun, Special to Russia Profile, Oct 31st 2006. 

Taking a Head Count (Post-Soviet Russia’s First Agricultural Census Spots Both Positive and Negative Trends), By Andrei Kolesnikov, Special to Russia Profile, Nov 1st 2006 

Down on the Farm (A Dairy Complex in Perm is a model for the future), By Paul Abelsky, Russia Profile, Nov 7th 2006 

Growing in Importance (An Interview with Chairman of the Russian Grain Union, Arkady Zlochevsky), by Dmitry Babich, Russia Profile, Nov 9th 2006 

Letting History Speak for Itself, Comment by Yulia Kharlamova, Special to Russia Profile, Nov 9th 2006 

Going Back to Stolypin, Comment by Georgy Bovt, Special to Russia Profile, Nov 9th 2006 

Playing in the Big Leagues (Agriculture take shold in the Kursk Region), By Alexander Yakuba, Special to Russia Profile, Nov 15th 2006 

New Funding For Farming, By Paul Abelsky, Russia Profile, Nov 21 2006 

Not all Big Business, By Vyacheslav Shironin, Special to Russia Profile, Nov 23rd 2006 

The Politics of Agriculture, By Dmitry Babich, Russia Profile, Nov 27th 2006

President Wants Order in Markets Kommersant 18th October 2006

Russian Agriculture Attracts Investment  RIA Novosti (Nov. 24, 2004)

Problems of Agricultural Imports to Russia from Europe and U.S. are being Solved  RIA Novosti (Sept. 2, 2004)

Russian Agriculture Minister Does Not Support Draft Budget 2005  RIA Novosti (Aug. 23, 2004)

Salvation Farming, By Dmitry Babich, Russia Profile, July 29th 2005

Russian Cows Not Likely To Go Global -- Will WTO Rules Mean More Trouble at Home for a Small Russian Dairy Farm?  Russia Profile  (May 14, 2004)