Russia: Ag Development Law “Hollow”

Avatar for Matt Hopkins By Scott C. Lucas|24 January 2007

Vassilieva writes that on January 9, Russian Minister of Agriculture Aleksey Gordeyev reported to President Putin that the long-awaited Federal Law would meld the government’s sporadic agricultural policies into a system, and for the first time would provide a legal interpretation of agrarian policy as an integral part of federal socioeconomic policy.

Minister Gordeyev also pointed out the law’s merits to be that:

  • It sets priority directions for government support of agriculture, including sustainable rural development;
  • It envisages the adoption of 5-year government programs of development for agriculture and the regulation of markets, and a procedure of the adoption of this program;
  • It gives the government authority to survey prices of agricultural products, fuel, and agricultural machinery, and in case of "parity" violations, authorizes subsidization of agricultural commodity producers and conduct of government commodity and procurement interventions; and
  • It obliges the government to inform the public about progress and results of implementation of the government program every year by May 15 in the form of a National Report.

Members of both houses of the Russian parliament have described the law as “hollow,” but have also characterized it as a "start" – perhaps not a particularly good start, but a start nonetheless.

Most Russian economists, agrarian leaders and businessmen believe the law adds nothing to the present situation. Quiet opponents of the law predict that the law will neither stimulate nor hamper development of agriculture, increase of the domestic food supply, nor will it improve the well-being of rural communities, as it does not set budget parameters of support or specify mechanisms or instruments for implementation of agrarian policy.

Opponents argue that the share of income from sale of agricultural products should be decreased from 70% of income to 50%, as a significant portion of agricultural enterprises are being forced to diversify their operations in order to survive. The current 70% ceiling deprives these producers of government support. Duma Deputy and Agrarian Party Chairman Vladimir Plotnikov and others proposed to amend the definition, such that smallholders would be held to the 50% threshold, but these amendments were defeated. Based on earlier drafts, the law should have determined, but now does not, specific government support for improving soil fertility, acquisition of agricultural machinery, renovation of capital stock, seed and livestock selection, support of livestock and fish brood material, compensation for price increases of motor fuels and lubricants, and the development of viticulture, gardening, tea, and hop farming.

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Vassilieva added that the passage of the law containing no specific authorizations for appropriation of funds represents a victory for the Ministries of Finance and of Economic Development and Trade, who fought to keep such authorizations out of the bill. Russia’s agriculture sector has a poor history of return on investment in gross production. While the Russian economy as a whole has grown at a rate of 6% to 8% per annum in this decade, Russian agricultural production over the past seven years has grown at a rate of only 1% to 1.5%. This low growth occured despite massive private-sector investment since 2000 into the transformation of bankrupt collective and state farms into "agroholdings" and government support amounting to US $3 billion per year.

Vassilieva also wrote that there are some bright points in the law. For one, Russia finally has a legal definition of "agricultural producer." In Russia, upwards of 40 million households (implying over 100 million people out of a total population of 143 million) are in one way or another engaged in food production. Though the law’s definition is easy to criticize (should commercial producers derive 70% or only half of their income from farming?) at least it includes the major groups of producers, including private plot holders, peasant farmers, and production cooperatives, and corporate farms.

The law also mandates free dissemination of information, critical to adding transparency to a market notorious for being obscure. The Ministry of Agriculture during its 2004 reorganization contracted out its public information functions to a private firm, which began charging the public for access to information that in Western countries is easily available and free of charge.