Is Russia good for farming?

In the Russian outback, on the outskirts of the Vladimir region, lives a native of South Dakota, Justin Irwin, also known as the Big Wolf. The American, together with his family, cultivates the land, raises poultry and livestock, and dreams of a prosperous peasant economy. To advanced residents of megalopolises, this story may seem like a utopia, but meanwhile, the ranks of those who see themselves as an agricultural entrepreneur are growing, people are going to start their own business in the countryside. And the popular belief that agriculture in Russia is ineffective is covered with a web of decades and sent to an archive folder entitled “Myths”.

Today agriculture is one of the few fast growing sectors of the economy. In the crisis year of 2015, this industry was practically the only one that demonstrated convincing growth – 2.9% compared to the previous year. However, there are not only prospects behind the encouraging figures, but also a number of pressing problems.

The main trends in the development of agriculture

The unsuccessful agricultural policy pursued in the 90s left its mark on the industry as a whole, but in the 2000s the situation returned to normal due to the provision of state support to farmers and the establishment of a system of agricultural insurance and lending, the development indicators of the industry began to grow.

The results of 2015 showed that the target values ​​of the State Program were exceeded, the index of agricultural production in all categories of farms was 103%. The gross grain harvest was at 104.8 million tons, which exceeds the expected indicator of the State Program by almost 5%. Production of livestock and poultry in 2015 reached 13.5 million tons, exceeding the value of 2014 by 4.2%. Egg production increased by 1.6%.

It is important

Due to the growth of domestic agricultural production and the introduction of an embargo by Russia against a number of countries, imports of food and agricultural raw materials decreased in 2015.

The volume of imports of products in 2014 amounted to 39.9 billion US dollars, in 2015 it decreased to 26.5 billion.Over the year, imports of fresh and frozen meat decreased by 30%, by 44% – by fresh and frozen fish, by 36.5 % – cheese and cottage cheese. At the same time, most of the imported products go to non-CIS countries and the CIS.

In 2015, the export of agricultural products increased: poultry and pork – by 20%. The share of exports of wheat and sunflower oil increased. Most of the exports went to non-CIS countries and the CIS.

Currently, there is active support for exports (by the institutes “EXIAR”, “ROSEXIMBANK”, “Russian Export Center”). The most promising export positions in 2016 are:

One of the main trends in the development of agriculture is the technical modernization of the industry. But in 2017, a slight decrease in its rate is predicted, due to the devaluation of the ruble and the growth in the cost of imported equipment. Another important area is subsidizing agricultural producers. The state supports greenhouse vegetable growing, pig breeding, parent herd development, seed production, etc.

By the way

The intensive development of greenhouse vegetable growing has become relevant due to the deterioration in relations with Turkey. However, the demand on the domestic market is insufficient – the average Russian consumes fresh off-season vegetables 2 times lower than the norm – 11 kg per year.

The high level of subsidies for agriculture attracts large investors to the agricultural market. However, a number of problems remain unresolved in the field of subsidies, for example, the irrational distribution of subsidies (a significant part of subsidies is allocated to support livestock breeding, while the area of ​​feed production remains uncovered, etc.). Agrarians have long complained about the lack of subsidies for the modernization and reconstruction of storage facilities and greenhouses.

The volume of issued credit resources is growing. In 2015, agricultural enterprises were granted loans for seasonal field work in the amount of RUB 263 billion (mainly by Rosselkhozbank and Sberbank). In May 2016, the volume of loans issued doubled compared to the same period in 2015. However, despite the official statistics on lending growth, the level on average across the country is decreasing – large priority projects are being financed, and small peasant farms are still finding it difficult to obtain government support, they have to deal with system bureaucratization and many pitfalls: a lot of information, different expertise, hidden conditions not spelled out in official documents.

In general, the agricultural sector in Russia is developing steadily, but many unresolved issues remain. Production indicators are growing every year, however, against this background, the main problem in 2017 may be a mismatch between supply and demand. In all markets in 2017, there is a decrease in consumer demand associated with a deterioration in the purchasing power of the population. And this, in turn, can lead to overcrowding of the market and lower prices for agricultural products.

Let’s consider the main vectors of development of the industry and ways to solve some of the problems outlined in the State Program

Figures and facts

Despite the growth of the industry indicators, the wages of agricultural workers remain low. So, in 2016 it is 16,000 rubles a month.

Agricultural Development Program until 2020

In July 2012, two major significant events in the field of agriculture took place: firstly, Russia joined the WTO, and secondly, the State Program for the Development of Agriculture and Regulation of Agricultural Products, Raw Materials and Food Markets for 2013-2020 was approved (hereinafter referred to as the State Program). Its priority areas are:

According to the results of the State Program, by 2020 there should be an increase in the share of Russian food products in the total resources of food products: grain – up to 99.7%, beet sugar – up to 93.2%, vegetable oil – up to 87.8%, potatoes – up to 98.7%, meat and meat products – up to 91.5%, milk and dairy products – up to 90.2%.

The total increase in agricultural production of all categories in 2020 compared to 2012 should be 24.8%. The level of profitability of agricultural enterprises should increase by 10-15%. Bringing the ratio of wage levels in agriculture and the average for the country’s economy – up to 55%. Increase in potato production – up to 6 million tons, open field vegetables – up to 5.2 million tons, greenhouse vegetables – up to 1.4 million tons.

Also, by 2020, it is planned to increase the area of perennial plantations by 65,000 hectares.

According to the State Program, a total of 1.5 trillion rubles has been allocated for the development of agriculture – the amount is insufficient – it does not correspond to the obligations of the Russian Federation for the development of the industry in accordance with the WTO standards. However, the reports of regional bodies on the preliminary results of the implementation of the State Program demonstrate high indicators, corresponding to those stated in the Program.

Key areas of agricultural development in 2017

Continuing the topic of analyzing the state program, we will consider in more detail the most relevant directions of the industry development in 2017.

Import substitution in agriculture

Today and in the near future, import substitution is one of the key and most urgent areas of agricultural development. Import substitution has acquired particular importance after in 2014 Russia, in response to sanctions from European countries, the USA, Canada, Australia and Japan, banned the import of a number of products, including: cattle meat, pork, poultry, salted and smoked meat, dried, fish, crustaceans, molluscs, milk and dairy products, cheeses, cottage cheese based on vegetable fats, vegetables, roots, fruits, nuts.

According to the Minister of Agriculture Alexander Tkachev, today 80% of food products on store shelves are of domestic production and only 20% are foreign. According to the Minister’s forecasts, in 2017 the grain harvest will exceed 100 million tons, while the internal demand for grain is estimated at 70 million tons. The buckwheat harvest is also expected to be surplus in 2017. It is important to increase the production of cattle and poultry meat, milk, vegetables, fruit and berry products, and grapes. Sufficient for the domestic market indicators of meat and poultry production are planned to be achieved in 2-3 years, dairy products – in 7-10 years. Full provision of Russian consumers with domestic vegetables and fruits is forecasted in 3-5 years.

Food embargo: 2 years later …

On the shelves, the buyer most of all lacks the following imported products:

Increasing the role of the state in the development of agriculture in Russia

Over the past few years, agriculture has received a serious impetus for development from the state. New measures of agricultural policy, fixed in the State Program, boil down to the active participation of the state in the distribution and redistribution of monetary incomes in agriculture, an increase in the level of financing for agriculture with the strengthening of the role of regional financing, seasonal and universal lending to the industry within the framework of state support, compulsory state insurance of agriculture (insurance risks of death or loss of crops and animals).

Agricultural producers are provided with more than 30 types of state support, one of the main ones being subsidizing part of the interest rate on long-term loans and per hectare support (subsidies are calculated from the yield per hectare).

The state has developed a number of measures aimed at supporting novice farmers: grants for the creation of farms (up to 1.5 million rubles and one-time assistance for household improvement up to 300,000 rubles), subsidizing investment loans, subsidizing part of the first installment for leasing agricultural machinery.

Some banking institutions, such as Rosselkhozbank, are constantly updating the line of financial products aimed at developing the agricultural business (loans secured by livestock, grain or special equipment, loans for the acquisition of land, the development of food and processing businesses). For representatives of small and medium-sized businesses, the rate on an annual loan is from 15.95%. The loan portfolio of Rosselkhozbank in one year (2014–2015) grew by 13.2% and reached more than one and a half trillion rubles.

The modern agro-industrial complex in Russia for the most part exists at the expense of credit funds. Today, there is an acute problem of lack of investment, especially in the long term.

Attraction of investments

In the current year, the problem of investment is one of the main constraints on the development of the agro-industrial complex. Despite the generally favorable situation, the low profitability of the overwhelming number of agricultural enterprises does not allow hoping for a significant inflow of investments. But investors may be interested in those areas for work in which companies will receive subsidized loans, primarily pig breeding, greenhouse vegetable growing, seed growing, as well as the production of export-oriented products (grain and oilseeds).

Investing in almost any segment of the agro-industrial complex is risky, however, according to experts, 2017 will be a successful year for investments in the production of dairy products (in particular, cheese), pork, poultry, and fish.

The state stimulates the inflow of investments in the agro-industrial complex by adopting new measures. Thus, the replacement of part of the direct costs of capital construction involves the reimbursement of funds to the investor up to 20%. Investors will receive compensation for individual projects in the field of vegetable growing this year. In 2017, the state plans to allocate 16 billion rubles for this measure of support.

On a note

The average payback period for investments in the agro-industrial complex is 4–5 years.

Development of our own scientific base and manufacturability of the industry

The fundamental factor for the development of agriculture is the training of qualified personnel. Therefore, the formation of agricultural universities is important today. At the moment, there are 54 agricultural universities in Russia, in total they graduate 25,000 specialists annually, which should cover the needs of the agro-industrial complex in young personnel.

Currently, research is being carried out to improve the forms of farming, research in the field of selection and genetic engineering, new species of plants and animals are being developed that are more resistant to pests, viable, and have high productive qualities.

In addition, it is important to develop the field of feed production and veterinary medicine.

Farming development

According to statistics, 355,000 agricultural producers work in Russia, more than half of them are individual entrepreneurs and small enterprises. According to AKKOR (Association of Peasant (Farming) Farms and Agricultural Cooperatives of Russia), 38% of rural residents in Russia would like to create their own farm.

Is it possible to develop farming in Russia? Of course, yes. And there is clear evidence of this. For example, today the area of ​​intensive agricultural production is the Oryol region, 90% of all the region’s land is agricultural land, 300,000 people live in rural areas, that is, 40% of the population of the Oryol region. The development of private farms is the direction in which the domestic agro-industrial complex is moving. The future of Russian agriculture lies with both large enterprises and farmers.

More and more often from the pages of the press and from the TV screens we read and hear about how the townspeople, fed up with the frenzied pace of megalopolises, break from their homes in search of quiet family happiness in the bosom of nature. This does not mean that they want to live in a straw hut and eat black bread and salt. No, they want a wealthy, well-fed, beautiful life with all the attendant components – but at the same time they want to walk in the forest, and not in the park near the house, swim in the river, not in a chlorinated pool, drink fresh milk, not packaged milk, bring up healthy people, pink-cheeked kids, not sickly unsociable gamers.

Of course, these arguments are exaggerated, but examples of how urban residents move to the village, moreover, even come from abroad to settle in the Russian outback, are numerous.

So, a vegetable grower from Yakutsk, Hamid Ismatullaev, worked as a taxi driver, then was engaged in supplies, and a few years ago he decided to open his own farm for growing cucumbers, tomatoes and herbs. Today he has 6.5 hectares of greenhouse land and open ground. He is a regular supplier of products to the market of his region.

Probably, many have heard of Justas Walker, an American-born farmer from Krasnoyarsk, who established the production of dairy products. He supplies kefir, yoghurts, cheeses and fresh milk for sale. Walker says farming in Russia is profitable because the average family spends 30–40% of their monthly income on a grocery basket, compared to 8% in the US. A farmer in Russia can receive a high income even with a very small farm. The biggest challenge is getting land. You have to face an impenetrable bureaucratic wall.

“It’s hard to get land in Russia – tell American or European farmers about it and they’ll think you’re kidding!” (J. Walker)

The state stimulates the development of all forms of farming in Russia, and the system reciprocates – the growth of production indicators in agriculture is stable, despite the difficult political and economic situation. At the same time, a number of acute unresolved problems remain in the agro-industrial complex: low profitability, debt burden of agricultural producers, rather high interest rates, insufficient modernization and renewal of the technical base. The state program for the development of agriculture, approved in 2012, should solve most of the problems, develop an effective food policy, increase the efficiency of agricultural production and the competitiveness of domestic products.