Government support to Agricultural sphere under WTO agreement
N.A. Guz,
канд. экон. наук, доцент кафедры «Теория финансов», Финансовый университет при Правительстве Российской Федерации (101000, Россия, г. Москва, Малый Златоустинский пер., д. 7, стр. 1; e-mail: guzn@mail.ru)
Аннотация. В статье показано, что вступление в ВТО предполагает ограничения политики регулирования и субсидирования сельского хозяйства. Рассматриваются возможные пути смягчения последствий этих ограничений. Сделан вывод, что в современных условиях сельскохозяйственное производство значительно затронуто неценовыми факторами. Среди них: высокие операционные издержки, плохо развитая инфраструктура рынка, неблагоприятный климат и погодные условия, недостаточная материальная и технологическая основы сельскохозяйственного производства и др.
Abstract. Joining the WTO implies restricted regulations and financing of agricultural sector. The article features ways for mitigations of these restrictions. Under present-day conditions agricultural production is greatly affected by nonprice factors. Among these, high transaction costs, poorly developed market infrastructure, adverse climate/weather conditions, insufficient material and technological base of agricultural production, etc.
Ключевые слова: ВТО, агропромышленный комплекс, погектарные субсидии, экономические последствия вступления России в ВТО.
Keywords: WTO, Agro-industrial Complex, Payments Per Hectare, economic consequences of joining of Russia to the WTO.
The WTO accession is fundamental issue for Russian agriculture. As a result of a series of complicated talks conducted for 17 years, Russian negotiators managed to achieve the agreement on better conditions for the agro-industrial complex. An optimal balance between interest protection of domestic farmers and accession for foreign companies to the Russian market has been achieved. Level of agribusiness state support has also been defined.
Despite the fact that Russia's accession to the WTO was expected and planned long ago, it caused concerns of Russian farmers. Agriculture has always been and developed with vigorous support of the state. The necessity to adhere to the new rules of international trade that simplify import of agricultural products to the Russian market and reduce government subsidies, force entrepreneurs to form a new strategy for the agribusiness development.
In 2012, in order to adapt the agro-industrial complex under the WTO agreement, a package of legislative initiatives was formed to increase the competitiveness of the Russian agriculture. A certain number of tax incentives for farmers were extended, primarily related to indefinite application of income tax at zero rate (total tax benefit is about 14 billion rubles per year). Farmers were granted tax exemption (value-added tax -VAT) on import of
pedigree cattle, embryos, semen up to 2020. These measures will make it possible to reduce burden on farmers and develop competitive production later on.
Subsidizing interest rates on loans, the main tool for ensuring a constant investment process in the industry, played a significant part in the Russian agro-industrial complex development in 2012. It helps to attract private investors and introduce new capacities for the agricultural production growth.
In 2012, the federal budget of Russia provided 73 billion rubles for funding loans (100% of the annual limit), including short-term loans up to 20.2 billion rubles, investment loans - 46.9 billion rubles, loans to small enterprises - 5.8 billion rubles, and loans to fish farming - 110 million rubles.
Under the WTO agreement Russia has to abandon the old forms of subsidies, passing to the support of profitability of farmers. It means to leave behind funding for stock seeds production, purchasing of fertilizer, fuel, loans to seasonal work, etc. These backup measures has been decided to transform into so-called "per hectare" subsidies. As far as this measure isn't included in the "amber box", it can be used without restrictions under the WTO agreement. Amount of the subsidy will be determined by the rate per hectare, calculated on
МАКРОЭКОНОМИКА
the specified parameters, that is a sign of a shift from direct funding to targeted support of producers.
Measures taken to agribusiness support.
1. Agricultural loans funding. Financing interest rates is the main tool for ensuring the continuous flow of investment into the sector, capable to attract private investors and introduce new power for the growth of agricultural production.
In 2012, 73 billion rubles from the federal budget were distributed to funding credits(100% of the annual limit ), including 20.2 billion rubles on short-term loans, 46.9 billion rubles on investment loans, 5.8 billion rubles on small enterprises development loans, and 110 million rubles on fishery development loans.
2. Funding of agricultural machinery fleet renewal. In order to achieve technical and engineering modernization of agriculture Russian Ministry of Agricultural has been financing investment credits on farming machines acquisition to stimulate purchase of high-tech machines for crop and forage sectors. In 2012 9.9 billion rubles were distributed from the federal budget to achieve goals mentioned above. Almost 20 thousand tractors, about 6 thousand combine harvester and almost 1.5 thousand forage harvesters were purchased.
3. In comparison with 2006, the proportion of three years service life vehicles in the total fleet was increased by 5.6 % (actually fleet of tractors renewed by 4.2% , combine harvesters by - 5%, forage harvesters by - 5.9% ) [1] .
"The Development of beef cattle subprogram" with funding up to 65.3 billion rubles has become a new line of "The Agriculture Development Programme and the regulation of agricultural products, raw materials and food for the 2013 -2020 years". State support will be increased from 6.8 billion rubles in 2013 to 9.5 billion rubles in 2020. A new way to support dairy industry was introduced. It means subsidies for every liter of milk sold. The amount of funding will be 10-12.5 billion rubles a year.
Financing agribusiness features are determined by the specificity of agricultural production. The seasonal variability of agricultural production provokes sharp fluctuations in working capital assets used for certain time periods that cause the need for debt financing.
According to experts, the main issue for Russian agriculture under the WTO agreement is to increase its competitiveness. This goal is possible to achieve due to:
a) Rapid modernization of production;
b) Acquisition of highly productive animals, genetic material and introduction of modern technologies;
Journal of Economy and entrepreneurship, Vol. 8, Nom. 1-2
c) Expansion in the supply of products to foreign markets.
Support for the local farmers can be given through stimulation of demand in the foreign market, for example through the establishment of an Agency that would promote Russian products to international markets, monitor the current situation and promptly inform the authorities of the Russian Federation of unfair competition from other WTO members.
Unfortunately, due to objective reasons, the opportunities for increasing the competitiveness of agribusiness at the expense of accelerated modernization of the sector are limited by the ability of people to obtain loans from one hand, and capability of banks to continue lending from the other.
The main issue that the Russian agricultural sector faced after WTO accession was the problem of government funding and agricultural sector lending. The issue is still open and requires the government's special attention. And the need to modernize the financial sector only exacerbates the issue.
According to the markets monitoring, initiated by the Russian Ministry of Agriculture, the most risky agrarian segments against the background of the WTO accession are the production of milk, meat, poultry, and sugar. From 96 to 107 billion rubles will be required of these sensitive sectors to be adapted to the new conditions.
Payback periods in the agricultural sector will also grow. In the field of pig breeding - from 8 to 12 years, beef production - from 11 to 15 years, etc.
The Russian Federation under the terms of the WTO agreement has retained the ability to use tariff quotas on imports of three kinds of meat (beef, pork and poultry). It will help to implement the plan of cattle breeding development and to provide the population with quality domestic products. It was decided to allocate an additional 6 billion rubles annually for 3 year period to support the deep processing of pork.
To stay competitive, Russia needs to increase the share of compensation to farmers, which is now only 7% in the final product, while in the U.S. it is 30%, in Canada - 40%, Japan - 70%, in some European countries - more than 80%. Otherwise the Russian agricultural production would be uncompetitive not only in international market, but also in domestic one.
Article 7 of the Federal Law "Agriculture development" dated from December 29, 2006 (№ 264) envisages transition, in case of unfavorable conditions, to Green box policies. Green box policies refer to measures that deal with infrastructure development, scientific research, science, consult-
ing, veterinary science and medicine, food security stocks, regional development programs, crop insurance, structural adjustment of agricultural programs and etc.
Negotiations on agriculture were to reach an agreement on agriculture domestic support volume within the frames of Amber box policies. Amber box policies have a distorting effect on trade, including price support, subsiding interest rates, recovery of fuel and electricity expenses.
Such measures are limited and should be reduced. Obligations in the terms of Amber box set for each WTO member in the form of aggregate measures of support. According to commitments undertaken under the WTO on aggre
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