At its inception, the State Programme 2013-20 has been oriented at the 2010 Doctrine on Food Security. As its primary objective, the Programme stated reaching the self-sufficiency targets in key foodstuffs set in the Doctrine.1 The political context in the second half of the 2010s further strengthened the self-sufficiency orientation for agricultural policy in the Russian Federation. However, while until recently agro-food import substitution has been the principal agricultural policy objective, in 2017 the government announced export development as an additional objective.
The government’s actions during the monitored period also continued to focus on cushioning macroeconomic impacts on the agricultural sector, although the conditions have improved. The rouble has gradually strengthened and inflation has considerably slowed down, leading the Central Bank to lower its key interest rate. Decelerated inflation and some monetary easing reduced the cost pressures on the sector, including the costs of borrowing. The strengthening of the rouble, however, eroded some of the previous competitive margin of local products domestically and internationally.
The State Programme 2013-20 was further adjusted in 2017. This followed the amendments in 2015 which were aimed to support an “accelerated import substitution” for priority products and assist the sector in the deteriorated economic conditions. The changes in 2017 included a consolidation of the previous 11 sub-programmes into seven: i) technical and technological modernisation and innovation-driven development; ii) development of the financial and credit system; iii) development of the sub-sectors of the agro-industrial complex; (iv) ensuring general conditions for the agro-industrial complex,2 v) stimulation of investment activities; vi) administration of the State Programme; and vii) a newly created Priority Project “Export of Agricultural Products”. A related change was the consolidation of some individual support measures into so-called Unified Payment. The latter incorporated twenty-seven individual measures across previous components of the State Programme. All these reconfigurations, however, did not modify the list of individual activities that can potentially receive support. The principal change was that regions received greater flexibility in allocating the funding across specific activities under the broader headings; another purpose was to simplify and accelerate the flows of funding from the federal centre to regions. The State Programme 2013-20 continued to integrate the two “federal targeted programmes” on rural development and on land improvement in 2017, which will, however cease to exist separately in 2018 and will be integrated into other components of the Programme.
In 2017, the federal budget allocated RUB 234 billion (USD 4.0 billion) to the State Programme, 7% more than last year (State Treasury, 2018; MOA, 2017). Around 25% of this total was directed to development of the sub-sectors (iii above) and 35% to stimulation of investment activities (v above), the latter consisting of interest subsidies on investment loans and the co-financing of investment projects. This federal spending within the State Programme was topped up by contributions from the regions. In addition, regions provided strictly regional support beyond the State Programme.
The federal funding for the State Programme is budgeted at RUB 242 billion (USD 4.1 billion) for 2018, which is slightly below the similar budget target set at the beginning of 2017 (FL, 2017a; State Treasury, 2018). For some Programme components the funding targets are maintained nearly at the previous year level, while the component on stimulation of investment activities is to receive around 9% more, and a reduction in the funding is foreseen for the technical modernisation, and export development components.
In a context of low world prices and ample domestic public stocks, the government carried out grain interventions in 2016/17 crop season. In order to reduce storage costs, sellers to the state intervention fund were for the first time provided an opportunity to buy back their grain during the 2016/17 season. After a high grain crop in 2016/17, a record harvest followed in the 2017/18 season, with the result of continued downward pressure on grain prices. Government grain purchases were announced, but postponed until early 2018. Reduced transportation tariffs on domestic grain shipments came into force in December 2017. The associated loss of the Russian Railways company is compensated from the federal budget. It is foreseen to subsidise the transport of 3.181 million tonnes of grain from thirteen Russian regions with excess supplies to another twelve country regions. This measure adds to the temporary waiver of wheat export duty introduced in the previous season that will remain in force until July 2018.
Dairy intervention purchases were introduced in 2017 as a price smoothing mechanism. The government announced minimum prices for butter, and skimmed and whole milk powder. Eleven regions which manufacture dairy products above certain levels were selected for interventions. Interventions are triggered if the price of fluid milk in July falls at least 15% below its level in February. However, no interventions were actually implemented in 2017 as the prices remained above the triggering levels.
Interest subsidies on short-term loans and investment credit are one of the principal producer support measures. The policy orientation at the start of the State Programme 2013-20 has been to downsize the new commitments to subsidise credit. The pledge to accelerate import substitution and the sharp deterioration of lending conditions in late 2014 reversed the original plans. The decision to stop concessional investment loans for industrial poultry production units as of 2015, and for industrial pig production units as of 2017, was suspended. The subsidising of investment loans in these sectors will continue until 1 January 2019, with the focus on Trans-Ural, Siberian and Far East regions. Support is currently focussed on investment credit, particularly on meeting the subsidy commitments on outstanding long-term loans. Total spending on interest subsidies for investment credit was nearly RUB 54.7 billion (USD 938 million) in 2017, of which approximately 10% represented regional co-financing (MOA, 2018).
A new mechanism for providing a part of the interest subsidies was introduced in 2017. Previously, all subsidies have been paid to final borrowers and have been set at a fraction of Central Bank’s refinancing rate. The new mechanism transfers the funds to banks, instead of final borrowers, to compensate the difference between banks’ interest rates and a 5% interest rate set for the borrowers. The new mechanism applies for both long-term and short-term lending. It simplifies the procedures and aims to eliminate delays in subsidy payments. The degree to which the new mechanism changes the cost of borrowing across different recipients and types of loans requires further analysis. In response to initial concerns that access to credit for smaller borrowers would be worsened, in 2018 government established minimum quotas within the total compensation to banks that shall be allocated for credit to small borrowers.
As in 2015 and 2016, the government made transfers to RosSelkhozBank3 for recapitalisation, which in 2017 amounted to RUB 5 billion (USD 86 million) (Federal Treasury, 2018).
Investment grants is a relatively recent measure in place since 2015, whereby investors can receive a 20% or 30% grant on the amount of investment depending on the type of project, increasing to 25% or 35% for the Far East region. In 2015-16, almost 90% of the investment grants were directed for construction of industrial milk production units and greenhouses, the remainder provided for facilities to store horticultural products, wholesale distribution centres, and for setting-up or modernising selection and genetic centres for livestock and plants. In 2017, the sector received around RUB 16 billion (USD 280 million) in investment grants, of which over 90% was provided from the federal budget and the rest by the regions (MOA, 2018).
A unified payment was introduced in 2017, integrating 27 previous individual subsidies from different components of the State Programme. This includes several subsidies for crop and livestock production, subsidies for insurance and interest on short-term credit, support of small-scale producers, and the assistance provided within the previous component on “economically important regional programmes”. The aggregate spending across these supports was around RUB 44 billion (USD 748 million) in 2017, with regions contributing 11% of this amount (MOA, 2018). The purpose of the unified payment has been to simplify the budgeting and transfer of funds from the federal centre to regions. Regions top-up this payment and continue to allocate it across individual supports included in the unified payment. They, however, can determine the proportions of specific types of support depending on regional needs.
In 2017, the government for the first time published a list of Russian regions with unfavourable conditions for agricultural production. Thirty-two regions are currently included, the majority located in the North Western, North Caucus, Siberian, and Far Eastern federal districts. The criteria cover climate, soil conditions, geographical location, and socio-economic conditions. The concept of regions with unfavourable conditions for agricultural production was introduced in 2013 through an amendment to the framework law “On Development of Agriculture”. This newly adopted list is a move towards qualifying for the provision on regional assistance programmes for disadvantaged regions contained in the WTO Agreement on Agriculture. It allows WTO members to claim an exemption of related spending from domestic support reduction commitments.
In the area of taxation, the list of agro-food products eligible for reduced VAT rate (10% compared to a standard rate of 18%) was extended to include additionally certain live animals for slaughter, meat sausages, incubation eggs, seed potatoes and some other products.
Another tax novelty concerns businesses that have opted for the Single Agricultural Tax (SAT). Currently, SAT payers are exempt from a number of taxes, including value added tax (VAT). VAT exemption may create cost disadvantages to taxpayers, for example when purchasing inputs. SAT taxpayers also cannot claim VAT refunds if they export agro-food products. This gave rise to “grey” schemes to access VAT refunds, putting bona fide businesses at competitive disadvantage. From 2019, SAT payers will become eligible for VAT, but can apply for an exemption from VAT if their receipts from agricultural activity do not exceed RUB 100 million (USD 1.7 million), this threshold gradually decreasing to RUB 60 million (USD 1 million) by 2022 (FL, 2017b). This official decision was largely propelled by the action of grain businesses against fraud in VAT refunds which led them to adopt a Charter on Turnover of Agricultural Products. By early 2018, this initiative has expanded beyond the grain sector, with over 2 000 agribusinesses from 20 agro-food sectors joining the Charter in a pledge to restore fair competition and promote intolerance to violation of the national tax legislation (APK Charter, 2018).
