Agriculture In Russia - Russian Agriculture

For the period before 1989 see Agriculture in the Soviet Union and Agriculture in the Russian Empire.

Agriculture in Russia survived a severe transition decline in the early 1990s as it struggled to transform from a command economy to a market-oriented system. Following the breakup of the Soviet Union in 1991, large collective and state farms â€" the backbone of Soviet agriculture â€" had to contend with the sudden loss of state-guaranteed marketing and supply channels and a changing legal environment that created pressure for reorganization and restructuring. In less than ten years, livestock inventories declined by half, pulling down demand for feed grains, and the area planted to grains dropped by 25%.

The use of mineral fertilizer and other purchased inputs plummeted, driving yields down. Most farms could no longer afford to purchase new machinery and other capital investments. Following a nearly ten-year period of decline, Russian agriculture has experienced gradual ongoing improvement. The transition to a more market-oriented system has introduced an element of fiscal responsibility, which has resulted in increased efficiency as farmers try to maintain productivity while adjusting the resource constraints. The relatively smaller corporate farms and family farms that have emerged and grown stronger in the new market environment are now producing in aggregate value more than the total output of large corporate farms that first succeeded the traditional collectives.

Ownership and farm structure

After the collectivization in the Soviet Union, until the 1980s, most agricultural land in Russia was in state ownership, and the transition to a market-oriented economy had to start with privatisation of land and farm assets. Russia's agricultural privatisation programme can be traced back to 1989â€"90, when Soviet legislation under Gorbachev allowed, first, the creation of non-state business enterprises in the form of cooperatives; and second, legalized private ownership of land by individuals (the November 1990 Law of Land Reform). While household plots cultivated by employees of collective farms and other rural residents had played a key role in Russian agriculture since the 1930s, legislation enabling independent private farms outside the collectivist framework was passed only in November 1990.

The Law on Peasant Farms adopted in December 1990 was followed by laws and decrees that defined the legal organizational forms of large agricultural enterprises, the legal aspects of land ownership, and the procedures for certifying and exercising ownership rights. Specifically, agricultural land was denationalized, and its ownership (together with the ownership of other farm assets) was legally transferred from the state to the ownership of kolkhozes. But at the same time imposed a ten-year moratorium on buying and selling privately owned land

The new legal environment created expectations among Western scholars and Russian reform advocates that family farms would emerge in large numbers and the large-scale collective farms would be restructured. But as it turned out, few peasants were interested in establishing individual farms, and management and operating practices inside large agricultural enterprises remained largely unchanged despite formal reorganization. The lack of enthusiasm for the creation of private farms was attributed to inadequate rural infrastructure, which did not provide processing and marketing services for small producers and also to the fear that families striking out on their own might lose eligibility for social services that were traditionally provided by the local corporate farm instead of the municipality.

Starting in 1993, privatized kolkhoz and sovkhoz became corporate farms. These farms were legally reorganized as common stock companies, limited liability partnerships, or agricultural production cooperatives and turned over, usually in their entirety, to the joint ownership of agricultural workers and pensioners. These farms continued to operate largely as they had done under the Soviet system. Today, the term "corporate farm" is an all-inclusive phrase describing the various organizational forms that arose in the process of privatisation without involving distribution of physical parcels of land to individuals.

In diametric opposition to corporate farms is the individual farm sector, which consists of the traditional household plots and the newly formed peasant farms.

The land-code reform of 2002, advanced by the administration of Vladimir Putin, called for the ownership of real estate objects to henceforth follow ownership of the attached land plot; granted exclusive right to purchase or lease state-owned land to the owner of the attached real estate object; gave to private owners of buildings on land plots owned by other private parties the preemptive right to purchase the land; and prohibited the future privatization of real estate objects without the concurrent privatization of the attached plot.

Russian agriculture today is characterized by three main types of farms. Two of these farm types â€" corporate farms and household plots â€" existed all through the Soviet period (the former are basically the successors of the Soviet collective and state farms). The third type â€" peasant farms â€" began to emerge only after 1990, during the post-Soviet transition. The evolution of Russian agriculture since 1990 shows a significant change of resources and production from the formerly dominant corporate farms to the individual farming sector. During 2006, household plots and peasant farms combined controlled about 20% of agricultural land and 48% of cattle, up from 2% of agricultural land and 17% of cattle in 1990. The share of the individual sector in gross agricultural output increased from 26% in 1990 to 59% in 2005. Producing 59% of agricultural output on 20% of land, individual farms achieve a much greater productivity than corporate farms.

Shares of agricultural land, cattle headcount, and gross agricultural output
for farms of different types (in percent of respective totals)

During 2004, peasant farms accounted for 14.4% of Russia's total grain production (up from 6.2% in 1997), 21.8% percent of sunflower seed (up from 10.8% five years earlier), and 10.1% of sugar beets (3.5% in 1997). Corporate farms produced the remainder of these crops, with hardly any contribution from the small household plots. However, household plots, with a maximum size of 2 hectares (4.9 acres), produced 93% percent of the country's potatoes and 80% of the vegetables, either for family consumption or for sale in the local markets. They also produced 51% of the milk and 54% of the meat in 2003, with the rest coming primarily from corporate farms (the contribution of peasant farms to livestock production was negligible).

Corporate farms

Corporate farming plays a strong role in Russian agriculture after reforms such as the Russian Land Code which establish reliable title to land. Some such as Black Earth Farming and Vadim Moshkovich's Rusagro have sought external financing through IPO's on western stock exchanges.

Household plots

As the household plots gained more land in the process of reform, their share in Russia's agricultural production increased from 26% of aggregate value in 1990 to 53% in 2005. According to a survey conducted in three Russian villages, the increase in land holdings and farm production tripled the nominal family income from 512 rubles per month in 1997 to 1,525 rubles per month in 1999 (this includes both cash income and the value of food that the family consumed from its household plot). The change in family income outstripped inflation, increasing by 18% in real terms (the Consumer Price Index grew by 252% between 1997 and 1999). This real growth in family income reduced the percentage of rural households living in poverty from 29% in 1997 to 17% in 1999.

Planting and harvest dates

The winter-crop planting season stretches over nearly three months. The sowing campaign begins in August in the north and advances southward, concluding in late October in the Southern provinces. Spring grain planting in European Russia usually begins in April and progresses from south to north. The "summer" cropsâ€"chiefly corn and sunflowersâ€"are last to be sown, and planting approaches completion by late May or early June. The harvest of small grains (chiefly wheat and barley) moves from south to north and begins in late June in extreme southern Russia. Harvest operations are in full swing by early July and largely finished by mid-to-late August. Corn and sunflower harvest begins in September and continues through October. (View regional crop calendars.)

In the spring wheat region, planting typically begins in May. Oats are sown first, followed by wheat, then barley. Planting is concluded by June. Spring wheat advances through the reproductive stage during mid-July, when temperatures climb to their highest levels and grains are most vulnerable to heat stress. Grain harvest begins in late August and continues through October. It is not unusual for a significant portion of the Russian grain cropâ€"millions of hectares in some yearsâ€"to remain unharvested, due chiefly to unfavorable weather during the harvest campaign. In an average year, 10 percent of the area planted to spring wheat is abandoned compared to 97 percent of the country's winter wheat area.

Sectors

Grain

Dairy

Farm credit

While agricultural policy in Russia had been poorly structured and largely unsuccessful, some basic trends have helped to create forces for change. The first is that state tax revenues have been falling, and hence the spending capacity for agricultural policy has been falling. Total federal transfers to agriculture fell from 10% to 4% of GDP from 1992 to 1993, and budgeted transfers for 1994 are about 5% of GDP.

There has been improvement in the agricultural credit situation in Russia over the past five years â€" for some farms, at least â€" due largely to subsidies from the federal government. The national project for agriculture has given impetus to the growth of small farms. During 2006, 36 billion rubles in credit were given to more than 100,000 recipients (as compared to 3.4 billion rubles in credit to 2,500 borrowers in 2005). Traditional farms and personal plots play an important role in the sector, providing more than 87 percent of all production.

The State offers in-kind credits, whereby seed, fertilizer, and other inputs are provided in exchange for grain harvested at the end of the season, though the use of in-kind credit is reportedly decreasing. The government also provides subsidies for the purchase of plant-protection chemicals and fertilizers, and subsidizes two-thirds of the interest rate on loans from commercial banks, which provide the majority of farm credit. Banks remain cautious and insist on certain farm management practices and minimum levels of input use before granting loans (a policy which, according to some observers, has had a significant positive effect on overall efficiency in the agricultural sector), but banks’ confidence is boosted by increasingly reliable guarantees from regional administrations who see stability of food production as a high priority. Banks recognize the inherent risk in agricultural financing but also see agriculture as less risky than other industries and are generally willing to lend money to solvent, well-managed farms.

Over fifty percent of Russia’s farms, however, are already saddled with considerable debt, due in part to the disparity between grain prices and production costs, and few farms are able to offer sufficient collateral to secure a loan. As a result, many farms are forced to rely on outside investors to guarantee loans. These investors, frequently referred to as holding companies, typically are large, cash-rich, traditionally non-agricultural companies that became involved in agriculture over the past five years. Some viewed crop production as a potentially highly profitable venture, and others were working to guarantee raw materials for vertically integrated food-processing operations.

Holding companies possess assets that satisfy banks’ demand for collateral, and a farm that receives a commercial loan with the help of a holding company is still eligible for the federal interest subsidy. Many holding companies, particularly those who were attracted to agriculture by the high grain prices during 2000, have lost interest in crop production following two years of low prices and are bailing out. Investments in crop production don’t pay off quickly, in contrast to investments in trade. Although some holding companies remain comfortable with the variable profitability of agriculture and will continue to work with farms, several prominent commodity analysts feel that the overall involvement of big companies in agriculture is declining.

This means that current prospects for significant, long-term investment in agriculture â€" particularly the purchase of agricultural machinery and grain-storage facilities â€" are somewhat dim. Land reform has been evolving in Russia since the basic right to own farmland was established in 1993, but "landowners" are still unable to use land as collateral in securing a loan. The situation, however, is not one that can be resolved quickly or easily through legislation alone.

There is no mechanism currently in place to enable banks to evaluate the value of land based on its productivity before issuing loans, and banks likely would be reluctant to use land as collateral regardless of legislation. Furthermore, there are restrictions against non-agricultural use of land that is currently used for agriculture: if land is used for other purposes, the owner loses the title to the land. This imposes a limit on the land’s "re-sellability," and, in turn, its value. The use of land as collateral appears to be a remote prospect.

Investments

Investments in fixed capital within the agricultural sector were 10.17 billion USD in 2010, which is 3.3% of total investments in the national economy of Russia. Most investments occurred in corporate farming, where about 47.2% of the investments were allocated to production buildings and 36.4% in machinery and technological equipments. Financing of investments was shared by own financial means (49%) and by external means (51%).

State investment program

In December 2006, the State Duma passed a law requiring a state program for investment in agriculture to be passed every five years. This is the first of those programs. Between 2003 and 2007, agriculture received 37.1 billion rubles' support per year.

Governance and economy of Russian agriculture

As non-agricultural sectors grew more rapidly after the collapse of the Soviet Union, the share of agriculture in total GDP in Russia decreased from 14.3% in 1991 to 4% in 2011. The agricultural sector accounted for 9% of total employment in 2010.

In early 2014, Russian lawmakers including State Duma agricultural committee deputy chairman Kirill Cherkasov, proposed equating GMO-related activities that may harm human health or even cause death to terrorist acts and to impose criminal liability on producers, sellers and transporters of genetically modified organisms.