July 13, 2007

Russia's rural development program

16:00 | 13/ 07/ 2007

RIA Novosti economic commentator Vasily Zubkov. The break-up of the Soviet Union left Russian farms in a sorry state. Now the government is finally ready to tackle the twin problems of rural poverty and low agricultural output through a national program to develop the agro-industrial sector in 2008-2012.

The Ministry of Agriculture played the main role in designing the project, and other relevant departments, including the Economic Development and Trade and the Finance ministries, have also taken part in drafting it. Regional authorities, economists, trade unions and associations of agricultural producers also made a contribution.

Minister of Agriculture Alexei Gordeyev says that the government has adopted a new approach to agriculture in the last few years, and is now treating it as a promising and potentially high-tech industry. One example of this is the launching of a priority national project to develop the agro-industrial sector two years ago and the adoption of a federal law on agricultural development last spring. The current program is called Agricultural Development and Regulation of Agricultural Produce, Raw Materials and Foods for 2008-2012.

This document will have a big impact on the lives of the majority of Russians. Agriculture and food processing employ over seven million people, accounting for almost every 11th job in the economy and supporting another 30 million family members. Everyone else consumes what is being produced by farmers and workers in the food-processing industry. Judging by polls, Russians prefer domestic produce to imports, but the latter's share of national consumption is still high - 33%, according to estimates by the Ministry of Agriculture, which exceeds the threshold of food security. But the country's potential is enormous - with a mere 2.2% of the world's population, Russia possesses 8.9% of its arable land, one fifth of its fresh water and 8.3% of its chemical fertilizer production. Nonetheless, the agriculture and food industry's share of GDP stands at a regrettably low 8.5%.

The reasons for this situation are obvious. Agriculture was hit the worst by the decline of the 1990s, which affected all spheres of the Russian economy. Its consequences are still taking a toll. Half of all rural dwellers live beneath the poverty line, but they themselves are hardly to blame for this. Production facilities and equipment are ageing, and millions of hectares of land have been bought by new owners but not put to good use. Yet there have been some positive changes -agriculture has registered a small amount of growth for more than seven years.

The new program is designed to speed up this progress. Its predecessor - the Soviet Food Program - was devised a quarter century ago and collapsed in 1990. The Soviet Union failed to provide the population with food using non-market methods, and some people joked that in order to feel well-fed everyone should read the Food Program three times per day.

The planned figures for 1990, which look quite meager to modern consumers, still remain the goal for rural workers. The 1990s targets were reached only in plant cultivation and grain production. Livestock production has only been restored to half of its previous level, despite the rapidly growing demand.

Increasing amounts of imported food are compensating for the shortfall. The overall purchase of foreign foods and agricultural raw materials (save textiles) went up by 2.9 times between 2000 and 2006, reaching $21.6 billion. The share of imported meat and dairy products is particularly high. Local producers are finding it very hard to compete with imported foods, especially when they arrive at dumping prices. In the main exporting countries, farmers enjoy huge amounts of government support, whereas levels of assistance in Russia are among the world's lowest. According to estimates by the Organization for Economic Cooperation and Development (OECD), which brings together 30 advanced countries producing two thirds of the world's commodities and services, the average aggregate assistance given to rural producers (including market price support, direct subsidies, tax breaks and other benefits) by the organization's members is twice as large as in Russia. We cannot match this level for the time being, but the government is increasing the help it gives to the countryside - in the next five years it will total $21 billion. This is not a big sum, but it is almost twice the current amount of funding.

Direct financial aid to the countryside is not the only goal of the new program. It also pays a lot of attention to creating equal conditions for competition on the Russian food market. A mechanism of indirect support through private-public partnership should facilitate this task. It is also important to encourage investment in the agro-industrial sector.

What results will the program help to achieve? According to tentative estimates, it will bring the agro-industrial growth rate to four percent, and livestock breeding to five percent. This will increase the share of Russian food on the domestic market to 70%, and 80% in milk and dairy products. Some 400,000 hectares of idle land will be put to use, investment in the agro-industrial sector will grow, agricultural equipment will be upgraded, and farms will be better supplied with energy. But we must make sure that the program does not remain just an elaborate plan.

The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.

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