Russia’s agricultural progress between 2005-2015

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6-6-2016

Russia’s agricultural

progress between

2005-2015

No collapse and no renaissance

Matthias Voets

s1110152 Master thesis

MA Russian and Eurasian Studies Leiden University

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1

List of used terminologies

Agroholding Large agricultural business groups, often founded by oligarchs who made their fortunes in another economic sector and use these business groups to create a more diverse source of profits.

Anti-dumping (AD) Tariff imposed on significantly low-priced imports, which increases their market price and aims to protect domestic producers from unfair competition.

Bulk crops Agricultural products solely produced on land in large quantities, such as wheat, rice, and sunflower seeds.

Countervailing duty (CD) Tariff imposed on imported goods that have known state-sponsored producers. The tariff increases the market price of the goods to protect domestic producers from unfair competition.

Customs Union Preceding treaty of the Eurasian Economic Union between Belarus, Kazakhstan, and the Russian Federation.

Eurasian Economic Union Economic union of Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia, which came into force on 1 January 2015.

Family farm Private and professionally-run farms not owned by large corporations. Food and Agriculture

Organisation of the United Nations (FAO)

UN agency founded to battle worldwide hunger. The agency acts as a forum for member states to discuss agricultural policies and as a research institution.

Global Trade Alert London-based think tank founded in 2009 to monitor protectionist economic policies by national and international governments. Household production Collective noun for different kinds of small plots used for farming

purposes, mainly the production of meat, fruit, and vegetables. Most of these plots consist of private plots with a maximum size of 2.0 hectares. Kolkhoz Form of a Soviet collective farm in which a member received a share of

the farm's profits (and products) according to his/her efforts.

Market Price Support (MPS) OECD term indicating support measures designed to reduce the prices of food products on the market (such as in supermarkets).

Non-tariff measure Technical barriers to halt or frustrate trade, such as imposing overly-zealous sanitary standards on agricultural import while not applying the same standard of control to domestic producers.

Organisation for Economic Cooperation and

Development (OECD)

International economic organisation of 34 countries, founded in 1961 to stimulate open world trade.

Private plot sector See Household production

Rosstat Abbreviation for the Russian Federal State Statistics Service (FSGS). RUB Russian rouble (1 US dollar = 66.71 RUB)1

Shock therapy Economic theory referring to rapid economic liberalisation by (immediately) realising the majority of price and currency controls, abolishing state subsidies, liberalising (foreign) trade and privatising government-owned assets.

Sovkhoz Form of a Soviet collective farm that employed salaried workers. Structural adjustment

programme (SAP) Loans provided by the International Monetary Fund (IMF) and the World Bank (WB) to countries experiencing economic crises. The conditionality of the loans forces the lending countries to develop a more market-oriented policy to boost their economies.

Tariff-rate quota (TRQ) See Non-tariff measure World Trade Organisation

(WTO) Intergovernmental organisation, founded in 1995 to regulate international trade and provide dispute resolution when member states violate their agreements.

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Introduction

In 1790, Alexander Nikolaevich Radishchev (1749-1802), a Russian author and social critic and a proponent of the Age of Enlightenment, published his critical work Journey from Petersburg to Moscow (Puteshestvie iz Peterburga v Moskvu). In his work, Radishchev takes an imaginary journey between the capital and a major city of the Russian empire, encountering all kinds of injustices and socioeconomic inequalities. One of the examples of the inequalities he faces is the poor peasant, working the fields on a Sunday. When Radishchev asks the peasant if he is a raskolnik (religious dissident), the peasant answers as follows: "’No, sir, I make the correct sign of the cross,’ he said, and showed me his three fingers put together; ‘but God is merciful and does not want a person to starve, as long as he has a family and sufficient strength’".2_{The Soviet} version of Radishchev’s work, published in 1969, cut out the peasant’s citation about God, yet the depiction of the suffering of the Russian rural population remained (Radishchev 1969, 9). Nowadays, Russians working in the agricultural sector are not as impoverished as Radishchev’s 18th_{century peasants. Still, a visitor to Russia driving out of the Saint-Petersburg or Moscow} suburbs will immediately be confronted with the inequalities between the urban and rural areas of the country. Although in most countries urban areas are more developed and wealthier, in Russia, this difference in levels of development between urban and rural areas seems unlikely high compared to Europe (Wegren 2014, 52).

As the Soviet Union collapsed, the agricultural sector took an exceptional damaging hit. In 1995, Russia’s overall food production had been reduced 33 percent since 1990. Throughout the 1990s, this trend continued with a 56 percent reduction in output of crop farming and 49.7 percent of animal husbandry (Enríquez 2010, 41). Although some economic indicators showed improvement at the end of the financial crisis in 1998 and in the 2000s when more favourable agricultural policies were introduced by president Vladimir Putin, total output was still reduced by 32.5 percent compared to 1990 (Ibidem).

Nevertheless, despite the post-Soviet agricultural decline, agriculture still has an important place in the Russian economy. In 2013, the agricultural sector contributed 3.3 percent to the Gross domestic product (GDP) of the Russian Federation.3_{In addition, agricultural labour contributed} 7.0 percent to the Russian working population in the same year.4_{The federal government takes}

2_{Radishchev (1790), “Lyubani”.}

3_{Rosstat (2014), “Korrektirovka valoboî dobavlennoî stoimosti na ekonomicheskie operatsii, nenablyudaemye pryamymi}

statisticheskimi metodami”.

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4 agriculture seriously as well. After the Russian government banned food imports from the West, as a reaction to sanctions installed by Western governments after the annexation of Crimea in 2014, president Vladimir Putin repeatedly stressed the importance of developing an agricultural sector capable of meeting the needs of the domestic market. To reach this goal, Vladimir Putin set his hopes on a new candidate and appointed Aleksandr Tkachev as the Minister of

Agriculture. The task Tkachev is supposed to fulfil is, according to Russian agricultural experts, near to impossible, despite the agricultural background of his family and his know-how gathered as the former governor of the agricultural powerhouse of the Krasnodarskiĭ Kraĭ.5

According to many academics, the Russian Federation’s agricultural sector is in dire straits, despite the importance and attention of the Russian federal government. One of the most known experts of the sector is Grigory Ioffe, a Russian-American professor of geography at Radford University, Virginia. In his article The downsizing of Russian agriculture, which he wrote in 2005, he not only depicts a troubled contemporary reality and future of the sector. In this article, Ioffe makes multiple predictions for the period of 2005 to 2015. These include the following.

Massive bankruptcy

1. Farm polarisation will deepen; a large majority of Russian farms will fail because of pleas of “aid the strong, not the weak”’ by regional administrations (Ioffe 2005, 184, 190). 2. Because of the predominance of regional subsidies, in contrast to federal subsidies, the

large variation of regional budgets will spark “inter-regional conflicts” and will “tear the domestic market apart” (Ibidem).

Depopulation of the countryside

3. In addition to the decline in skilled workers in the Russian countryside, the rural

population in itself is decreasing. According to predictions by the Federal State Statistics Service, the rural population of European Russia will decline by 7.8 percent between 2001 and 2015, including a 15.2 percent decline in the non-Chernozem zone and a 3.1 percent decline in the south of the country (Ibidem, 198).

4. Because of this uneven decline, Russia’s agricultural sector will “soon resemble an archipelago with ‘islands’ of productive farmland immersed in a ‘sea’ of stagnation and decay, ultimately a social desert.” (Ibidem)

5_{RBK (2015), “Putin naznachil Tkacheva ministrom sel’skogo khozyaĭstva”; Rossiĭskaya Gazeta (2016), “Aleksandr}

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5 Emergence of household farming

5. Because of the downscaling of commercial farming, more Russian households will produce food largely for personal consumption: the share of the “household production” in total agricultural production will increase (Ibidem, 200).

An illiberal trade policy or the sacrifice of the agricultural sector

6. The shape of the state treasury of the Russian Federation is slowly improving, which makes multiple instruments to strengthen the agricultural sector available to the federal government. Still, most of these instruments are anti-market, which causes Ioffe to ask the question: “Is there any future at all for Russian agriculture in the liberal economic order that ‘market reform’ or whatever is labelled that way was supposed to create?” (Ibidem, 202).

7. On the other hand, according to Ioffe, the World Trade Organization (WTO) accession of the Russian Federation would finish off Russia’s professional agriculture. While the Ministry of Agriculture is a proponent of tariffs, subsidies, and quotes in favour of domestic food producers, the Ministry of Economic Development and Trade repeatedly confirmed their willingness to “sacrifice” agriculture during WTO accession talks

(Ibidem, 204). According to Ioffe, the Russian agricultural sector will not survive without economic protectionism (Ibidem).

In this thesis, I will analyse the developments within the Russian agricultural sector to learn whether Ioffe’s predictions have come true. The research question of this thesis is as follows:

“Have Grigory Ioffe’s 2005 predictions concerning Russian agriculture come true?” To answer this question, one must first take into consideration economic and political trends throughout the development of Russian agriculture up to 2005. Therefore, I will first describe a brief history of Russia’s agricultural sector extending until 2005, paying special attention to the agricultural policy of the Soviet, Yeltsin, and early Putin governments, as well as to the structure of the sector throughout the years.

Furthermore, to analyse the outcome of Ioffe’s 2005 predictions, I will cover his predictions about farm polarisation and massive bankruptcy within the agricultural sector. For this, I will use economic statistics of the regional departments of the Russian Federal Statistics Agency (Rosstat) and regional governments of major agricultural regions because of the clear overview these statistics are able to provide. Additionally, academic publications on Russian agroholdings

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6 and the perspectives of agricultural experts are included in the chapter to interpret the trends visible in the statistics.

Second, I will analyse Ioffe’s predictions on the depopulation of Russia’s countryside. Similarly, as in the chapter on the first prediction, I will analyse the depopulation of the countryside by using statistics of Rosstat in order to present a clear overview of the developments between 2005 and 2015. Furthermore, academic sources and the comments of Dutch agricultural expert Siemen van Berkum will explain the outcomes of the statistical analysis.

Third, I will analyse Ioffe’s predictions on the (re-)emergence of household farming. For this analysis, I will use federal Rosstat statistics on agricultural production of the household sector, domestic consumer consumption, and Russian-wide land use in order to analyse the absolute and relative development occurring within the sector. Furthermore, in order to interpret the developments of the household sector, I will use the comments of Han van Riel, a Dutch agricultural entrepreneur with experience on the Russian countryside, and a report from the Food and Agriculture Organisation of the United Nations (FAO).

Fourth, I will explain to what extent Ioffe’s two predictions on the agricultural trade policies of the Russian federal government have come true. To determine the outcome of Ioffe’s prediction of rising protectionism, I will use the policy reports of the Russian Ministry of Agriculture and news stories in order to analyse the governments ambitions on subsidising the agricultural sector. Furthermore, because of the (partially) secret nature of trade protectionism, I will use research from the London-based think tank Global Trade Alert, which conducts research on protectionism.

In order to analyse the prediction on “sacrificing the agricultural sector” in favour of WTO accession, I will use publications by the World Trade Organisation to interpret what sorts of protectionist methods the Russian government is supposed to give up. To analyse the outcome of the prediction, I will use data from the Organisation of Economic and Cooperation

Development (OECD), which analyses the level of subsidies the Russian government grants in order to present a clear overview of agronomic support. Interpretation of the outcome will be again provided by academic publications and news stories.

Finally, I will compare the findings of this thesis with the predictions of Grigory Ioffe’s article in a short overview. I will end the thesis with a conclusion.

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Literature review

General literature

Although the Russian economy generally receives considerable attention through academic articles, the Russian agricultural sector seems to be overshadowed by other economic sectors, primarily heavy industry: the oil and gas sector or the steel, aviation, and the defence industry. For example, one of the leading Russian economists, Sergey Aleksashenko, does not mention agriculture once in his article Russia’s economic agenda to 2020 (2012, 31-48), despite the large role agriculture plays in employment and the ambitious plans of the Russian ministry of

Agriculture for the coming decade.

In addition, Berglof and Lehmann, two economists working at the European Bank for Reconstruction and Development in London, wrote the influential article Sustaining Russia’s growth: The role of financial reform (2008) on economic growth in the Russian economy. The article predominantly focuses on the banking sector, resource sector, and briefly mentions the manufacturing and service sector. The agricultural sector is not mentioned.

Another example of the lack of academic attention in literature on the general Russian economy is Sergeĭ Kazantsev’s article Dynamics of innovative activity in Russian regions (2011). In this article, Kazantsev tries to measure the different levels of innovative activity throughout the Russian regions. To accomplish this, Kazantsev first uses indicators of innovation, such as the percentage of exports compared to output and the position of Russian multinationals. By using these indicators, Kazantsev proceeds to focus exclusively on the Russian regions that are either resource-rich, such as the Khanty-Mansi Autonomous okrug and the Samara oblast’, or the major cities of Moscow and St. Petersburg, thus keeping agriculture out of the picture.

However, one academic source on the future of Russian agriculture is available. The (later) Russian Minister of Economic Development, Andrey Belousov, regularly mentions agriculture in his article Scenarios of Russia’s Economic Development: A Fifteen-Year Outlook (2006). Belousov discusses long-term growth factors of the Russian economy through four possible scenarios of long-term development. In Belousov’s (2006, 20) most unfavourable scenario, Russian

agriculture will be exposed to a crisis caused by growing imports, out-dated technology, and a deteriorating social and demographic situation in the rural areas of Russia. In other scenarios, the agricultural complex is predicted to grow in the following ten years (2006-2016) because of either 1) a growing export potential of grain husbandry and “import substitution capabilities”, 2) modernising infrastructure projects, financed through energy exports, and/or 3) growing

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8 domestic demand fuelled by economic growth (Ibidem, 24-27). However, unlike Ioffe Belousov, Belousov does not indicate what scenario, in his opinion, is most feasible.

Academic literature

A few known academics regularly publish on the Russian agricultural sector. One of the most well-known, and certainly the most active, academics on this subject is Stephen Wegren, professor of Political Science and the Director of International and Area Studies at the Southern Methodist University in Texas. In his publications, Wegren predominantly focuses on the transition of Soviet agriculture to the situation in the mid-2000’s. In his work Rural Reform in Post-Soviet Russia (2002), which he wrote in cooperation with David O’Brien, Wegren describes the agricultural reforms implemented by President Boris Yeltsin and the consequences for Russian peasants. The Moral Economy Reconsidered, Russia’s search for agrarian capitalism (2005) is again a description on the situation of the Russian peasant. Agricultural reforms or investments in the agricultural sector are only briefly mentioned.

In his article Institutional impact and agricultural change in Russia (2012), Wegren focuses on the building of an institutional framework within the Russian agricultural sector. In the article, Wegren describes the impact of institution building on household incomes and the results of institutional change on property rights. Many conclusions are based on the results of surveys by different authors, which could cloud Wegren’s conclusions because different survey systems were used. In the conclusion, Wegren states that Russian agriculture has been thoroughly transformed to a freer market-oriented sector and that this happened because, in his view, institutions matter. Wegren is almost exclusively positive about the transition of the Russian agricultural sector.

Grigory Ioffe, professor of geography at Radford University, provides a sceptical analysis of Russian agriculture in his article The downsizing of Russian agriculture (2005). In the article this thesis will focus on, Ioffe pays specific attention to the efficiency of private and collective farms, the living conditions and work ethic of the local rural population, the decline of the Russian population, climate conditions for agricultural production, the role of household production in the agricultural sector, and the illiberal trade policies of the Russian government. The article is primarily based on a large collection of other academic sources, as well as on sources acquired from government databases and media reports. The article is quite negative about future prospects of the Russian agricultural sector and concludes that only immediate and extensive financial support to the sector can save it. A year later, Ioffe co-published the book The end of

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9 peasantry – The disintegration of rural Russia (2006), in which he pays additional attention to socioeconomic conditions of the peasant in modern-day Russia.

In their work Russia’s unknown agriculture – Household production in post-communist Russia (2007), geographers Judith Pallot and Tatyana Nefedova elaborate on a particular section of Russian agriculture: Private household production. The publication is especially interesting thanks to its last chapter in which the likely future developments of household production are described. According to Pallot and Nefedova (2007, 9), the downside of an elaborate study on household production is the unreliability of the collected data; regional agricultural departments tend to only pay attention to large-scale farming. In addition, local departments tend to only analyse data on plots owned by residents of their own raĭon, thus generally excluding data on plots belonging to urban registered farmers (Ibidem).

Laura Enríquez, a professor of Sociology at the University of California and an expert in rural sociology, briefly illustrates the sociological situation of the contemporary peasant in her work Reactions to the market: Small farmers in the economic reshaping of Nicaragua, Cuba, Russia and China (2010). In 13 pages, Enríquez describes the transformation of Russian agriculture from the Soviet 1980s to 2010, explaining the collapse of the Russian agriculture and the rise of household agricultural production. Being specialised in development in Latin America, Enríquez does not pay much attention to the Russian agricultural sector compared to that of Nicaragua and Cuba. However, he provides a brief yet comprehensive overview of Russia’s household production and family farms.

William M. and Olga Liefert’s article Russian agriculture during transition: Performance, global impact, and outlook (2012) gives a broad overview on the Russian agricultural transition from the agricultural sector of the Soviet Union to its contemporary counterpart. The article analyses the effects of Russia’s transition period on production, consumption, trade, and welfare in the agricultural sector. It describes the difficulties faced by the Russian government and the agricultural sector during the 1990s and 2000s, including both internal factors (such as

productivity and climate conditions) and external factors (world food prices, global trade), and concludes with multiple predictions on the future of the agricultural sector, including Ioffe’s 2005 article. The data used in the article extends to 2010, which means that the last five year of Russia’s agriculture remain uncovered.

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Russian academic literature

The main source of Russian academic articles on Russian agriculture is the academic journal of the Russian State Agrarian University, Moscow Timiryazev Agricultural Academy:

Prirodoobustroĭstvo (“Environmental Engineering”). In addition to articles focused on technical subjects, the journal occasionally writes about agronomic matters in the Russian Federation. For example, the first edition of 2015 includes Larisa Efimova’s (2015) article The Central federal district of Russia: the analysis of the economic state and the development priorities on agricultural development and the policy on developing the welfare of the rural population in the Central Federal District. In addition to a brief analysis of economic indicators, Efimova summarises her findings in the end of the article, making it a useful specific contribution to the general

discussion on Russia’s agricultural state.

Vitaly Nekrasov and Yuliya Drygina (2012) consider, in their published article Agriculture of Russia: Crises and the need to bolster competitiveness, the necessity and methods of raising the competitiveness of the Russian agricultural sector. The article is brief but informative, providing information on the success of the Russian agricultural sector in relation to world market

developments and World Trade Organisation admission requirements. Following a broad overview of the Russian position on the world food market, Nekrasov and Drygina present six goals the Russian federal government should aim for in raising the competitiveness of the agricultural sector. Although the two academics raise critical objections to the ambition of the Russian government to join the WTO, they nevertheless advise the Russian government how it can minimise the damage done to the fragile agricultural sector. Still, the article is not extensive enough to give a long-term review of the situation within the agricultural sector.

(International) organisations and institutions

The Joint Research Centre of the European Commission issued a report on the Russian

agricultural sector in 2013: The agri-food sector in Russia: Current situation and market outlook until 2025. This extensive report mainly analyses output indicators, consumption, productivity, and agricultural trade balances, yet only a small part of the report sets its focus on the structure of agricultural companies and their employees. To measure the socioeconomic situation on agricultural labour, the report uses only one indicator: the percentage of the agricultural labour in total labour and the amount of people working in the sector. Despite its extensiveness, the report does not take salaries or other socioeconomic indicators into consideration (Salputra et al. 2013, 6).

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11 The Eurasian Economic Commission does not pay extensive attention to agriculture in its

reports. Some reports have been made, and the agricultural industry usually receives two pages of attention. In the Report on long-term plans for economic growth of the Customs Union member states and the Single Economic Space, measures for their implementation and results achieved in 2013, published by the Eurasian Economic Commission in 2013, five pages are dedicated to the agricultural sector.6_{These pages only describe the agricultural programmes of the national} governments of Belarus, Kazakhstan, and the Russian Federation and the output of the last years. The report does not give its own interpretation of the agricultural situation in the Eurasian Economic Union, except for a few paragraphs of recommendations, which mostly consist of advice for increasing subsidies to the sector.7

In another report, titled Social-economic position of the member states of the Customs Union and the Single Economic Space in the first half of 2012, the agricultural sector is only explained in terms of output indicators, citing higher outputs in Belarus and the Russian Federation and declining outputs in Kazakhstan, without explanations on these developments.8

In the yearly report of 2014 (About the results and perspectives of the socio-economic growth of member state of the Customs Union and the Single Economic Space, and measures taken by the member states of the Customs Union and Single Economic Space in the spheres of macro-economic policies for the year 2013), agriculture is only once mentioned per member state, not extending more than two phrases per member state.9_{Curiously, the organisation does not publish separate} reports on the agricultural sector.

The Food and Agriculture Organisation of the United Nations (FAO) regularly publishes reports on certain themes concerning the Russian agricultural sector. In the last years, it published on the meat sector10_{, the position of the agricultural sector concerning WTO accession}11_{, and}

6_{Eurasian Economic Commission (2013), Doklad o dolgosrochnykh planakh ekonomicheskogo razvitiya gosudarstv –}

chlenov Tamozhennogo soyuza I Edinogo ekonomicheskogo prostranstva, merakh poi h realizatsii I rezul’tatakh, dostignutykh v 2013 godu, pp. 27-28, pp. 69-71, 112

7_{Ibidem, 112.}

8_{Eurasian Economic Commission (2012), Doklad o dolgosrochnykh planakh ekonomicheskogo razvitiya gosudarstv –}

chlenov Tamozhennogo soyuza I Edinogo ekonomicheskogo prostranstva, merakh poi h realizatsii I rezul’tatakh, dostignutykh v 2013 godu, 6, 9, 26.

9_{Eurasian Economic Commission (2014), Ob itogakh i perspektivakh sotsial’no-ekonomicheskogo razvitiya gosudarstv –}

chlenov Tamozhennogo Soyuza i Edinogo Ekonomicheskogo Prostranstva i merakh, predprinimaemykh gosudarstvami – chlenami Tamozhennogo Soyuza i Edinogo Ekonomicheskogo Postranstva v oblasti makroekonomiceskoĭ politiki za 2013 god, 36, pp. 61-62.

10_{Food and Agriculture Organisation of the United Nations (FAO) (2014), Russian Federation: Meat sector review.} 11_{FAO (2014), Countries in the Commonwealth of Independent States: Agricultural policy issues in the context of the}

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12 Southern Russia12_{and public-private partnerships in agricultural education.}13_{However, it does} not provide reports on the general position of the Russian agricultural sector.

Conclusion

Although agriculture is often overlooked in general literature on the Russian economy, there is still much literature specified on Russian farming available. The main academic authorities on the subject, Stephen Wegren, Grigory Ioffe, and Olga Liefert, regularly publish on the subject. Russian academics tend to focus on specific subjects and generally avoid analysing the sector as a whole. Of the international organisations, the FAO often publishes reports on specific themes within Russian agriculture, while the European Commission occasionally analyses Russian farming in general. Curiously, the Eurasian Economic Commission seems not deeply interested in agriculture when publishing about the economic state of its members. In addition, no

agricultural or agronomic reports have been published by the Eurasian Economic Union. To summarise, since 2005, no academic literature has been published that can compare to the extensiveness of Ioffe’s article, incorporating not only agronomic statistics but also

socioeconomic factors into its analysis. This paper strives to provide the academic debate on Russia’s agriculture with a comprehensive analysis on the subject.

12_{FAO (2009), Russian Federation: Analysis of the agribusiness sector in Southern Russia.} 13_{FAO (2012), Public-private partnerships in agribusiness education.}

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Overview of 80 years of Russian agriculture

Soviet agriculture

Originating from the predominantly agricultural imperial economy, the Soviet economy under Josef Stalin rapidly began to industrialise in the 1930s. Part of this rapid modernisation policy was the collectivisation of all agricultural enterprises. Starting the process in 1929 and ending it in 1935, the Soviet government—pared with a high degree of violence and deportations— nationalised all agricultural enterprises (Bezemer 1988, 259-260). The main aim of Stalin’s modernisation was the development of heavy industry, which had to let the Soviet economy catch up with the industrialised nations at a breakneck speed (Ibidem, 263-265). However, agriculture remained one of the most important and supported sectors within the Soviet economy; while in 1928 about three-quarters of the Soviet population was working in the agricultural sector, in 1950, after periods of heavy industrialisation, this share was still around half of the Soviet population (Ibidem, 263).

The main embodiment of Soviet farming was the kolkhoz, the collective cooperation of

agricultural enterprise. Its head was chosen by the members of the kolkhoz and was in charge of leading the board of the collective farm (Ibidem, 261). Apart from collective farms, a small share of land was occupied as private plots, the remnants of pre-collectivisation individual farms. On these plots of lands, the farmers were allowed to grow a small amount of crops, which they could sell on the market (Enríquez 2010, 35). It could occur that when harvests were low, the pay to the farmers by the government was subsequently lower, which forced them to live from their own small plots (Bezemer 1988, 262). Poverty on the countryside remained rife, which led the Soviet government to refuse farm dwellers the right to an internal passport as to prevent them from fleeing the kolkhozy (Ibidem).

Under the leadership of Secretary-General Nikita Khrushchev, collective farms were merged, a measure that had to lead to more productive agricultural enterprises (Ibidem, 345). The number of kolkhozy declined from about 250,000 in 1949 to 38,000 in 1964, while the share of the larger sovkhozy (state farms) rose from about 5,000 to 11,000 in the same years (Ibidem). Khrushchev economic policies granted agricultural workers higher pay without granting them internal passports. However, his radical measures often led to environmental disasters, such as wind erosion in western Siberia (Ibidem, 346). Furthermore, Soviet agriculture was still not able to satisfy its domestic market, which often forced the Soviet government to regularly import ten million tons of grain each year (Ibidem).

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14 Leonid Brezhnev’s agricultural policies were more successful. Not only did the Soviet

government increase the regular wage of the farm workers, it granted internal passports as well (Leonard 2011, 77-78). In 1965, Brezhnev began a policy of improving inputs, which improved the effectiveness of the collective farms. In addition, the Soviet government began to heavily invest in infrastructure, such as irrigation, electricity, and drainage (Ibidem, 78). However, the progress of the 1960s slowed in the 1970s because of unfavourable weather conditions and supply bottlenecks: a large bulk of the investment was put in quantitative improvements, such as increasing livestock herds, ignoring the instability of feed grains (Ibidem, 79). Output barely improved qualitatively while it absorbed a large part of the government spending (Ibidem, 80). Still, Brezhnev’s agricultural reforms were considered a success because of the increased agricultural output of almost 50 percent from 1965 to 1980 (Ibidem, 77).

Mikhail Gorbachev, Brezhnev’s secretary for agriculture, granted more autonomy to collective farms. As in other industries, the Soviet economic system stimulated managers to report lower estimates of profit and exaggerate estimates of loss because increasing production barely provided benefits from the authorities and would usually increase the next quotas (Ibidem). Gorbachev’s policies allowed the agricultural producers greater freedom in the sale of surplus production (Ibidem).

Financially, the agricultural sector remained steep: in 1990 about 10 percent of the Soviet GDP was spent on budget subsidies for the sector (Liefert and Liefert 2012, 45). Costs of bailing out non-profitable farms continued to remain high, and the share of budgetary subsidies in sales rose from 19.4 percent in 1986 to 33.9 percent in 1990 (Leonard 2011, 81). Furthermore, economic reforms were hindered by financial chaos. Struggling with financial instability and faced with only a half-market based supply chain, farm managers were not able to create a market-oriented strategy for themselves (Ibidem).

Russian agriculture

Initially, the transition from the planned Soviet economic system to the market economy of the Russian Federation was disastrous for the agricultural sector. From 1991 to 2000, Russian agricultural output declined by two-fifths. The livestock sector, especially, was hit hard: annual Russian meat production14_{fell by 53 percent between 1991 and 2000 (Liefert and Liefert 2012,} 46). A little less dramatic was the decline in production of grain and meat: while in 1991 about 95 million metric tons of grain15_{was produced, in 2000 this amount was 63 million, a decline of}

14_{This figure includes beef, pork, and poultry.} 15_{This figure excludes rice, sorghum, and pulse.}

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15 34 percent (Ibidem, 48). Overall, the total output of crops declined by 23 percent between 1990 and 2000 (Ibidem, 45).

There are several causes of the decline in output. First, with the introduction of Boris Yeltsin’s shock therapy (shokovaya terapiya) and the following economic crisis, the exorbitant Soviet subsidies to the sector evaporated (Ibidem, 44-45). Agricultural institutions and enterprises were not prepared for such a radical change of income. Second, as a part of the economic reforms, price liberalisation terminated the indirect subsidies for food products, which caused prices to rise dramatically and lessen profits (Ibidem). In addition, growing international trade worsened the competitiveness vis-à-vis foreign agricultural exporters (Ibidem, 46; Enríquez 2010, 40, 42). Third, the decline in profits caused farms to economise on input, such as tractors, fertilisers, fuel, and electricity. Between 1990 and 2000, the agricultural input use of labour declined only by 7 percent, yet the input use of tractors declined by 30 percent, electricity by 43 percent, fertilisers by 75 percent and fuel by 78 percent (Liefert and Liefert 2012, 45). Such a drastic decline of input use was not the result of a more efficient way of using agricultural input: because of the economic crisis, Russian farmers simply did not have the financial resources to buy input (Enríquez, 38). Because of the lack of farms’ financial resources, input use was economised on in order to avoid bankruptcy (Ibidem, 39, 42).

The former collective farms were immediately encouraged by the Russian government to transform themselves into joint-stock companies, limited liability companies, or other kinds of private enterprises (Ibidem, 36). Two years later, in 1993, 59 percent of the farms registered as private enterprises, while 34 percent re-registered as kolkhozy or sovkhozy (Ibidem). In 1994, 95 percent of Russia’s cultivated area belonged to large farms, which accounted in total for 98 percent of annual agricultural output (Ibidem). This lack of privatisation was not surprising since land was not yet fully privatised by the Russian government in that year. Furthermore, on an economic scale, private farming was not necessarily a rational choice during the economically instable years of the 1990s. Although the command economy of the Soviet Union was history, its agricultural system did not disappear entirely: former collective farms still relied on Soviet-era connections to obtain production inputs, as well as provision for social services. Starting a private farm in a declining economy could not offer the same social security as the former collectives did (Ibidem, 36-39). In addition, because of a lack of funds, local governments were not able to provide the necessary credit, technical assistance, and infrastructure in order to complete land reforms. In the context of the structural adjustments programme (SAP) of the International Monetary Fund (IMF) to the Russian government, the Russian government could only receive loans if it would cut spending (Ibidem, 38).

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16 The agricultural crisis of the 1990s wreaked havoc on the financial situation of Russian farmers. With every passing year, more collective farms throughout the federation became financial insolvable: in 1993, 10 percent of the collective farms were financially insolvable; at the end of 1997, this figure had risen to 80 percent (Wegren 1998, 102). This was not a surprising outcome considering the legacy of the Soviet agricultural system in which around 70 percent of the collective farms produced at a loss (Ioffe, Nefedova and Zaslavsky 2004, 921). Moreover, free market reform in the agricultural sector was hindered by either vague or absent land ownership laws, which varied from region to region (Wegren 2012, 195). The absence of clear land

ownership laws discouraged much needed foreign investment. As a result, many Russian agriculturalists retreated into production mainly focused on private consumption. While the growing decline of agricultural output could predominantly be observed at the large farming enterprises, the output by the private plot sector grew by 6 percent (Enríquez 2010, 43). For farmers, this transition was relatively easy to make since the Soviet-era kolkhozy and sovkhozy were built on a collective insurance of the well-being of workers from birth to death. Throughout the 1990s, these connections largely remained but were replaced by miniature internal barter markets (Ibidem, 43). Serious cash shortages strengthened this phenomenon even to the point that urban dwellers would become dependent on the private food production of their rural-based family members (Ibidem).

The private plot sector” specialised” in certain food products, which made them indispensable for the survival of many Russian citizens: by 2004, the private plot sector produced 52 percent of all milk, more than 52 percent of all meat, 80 percent of all vegetables, and 92 percent of all potatoes (Ibidem, 44). The importance of these agricultural communities presented something of a “mini-state” within the failure of the federal government in providing social security.

Memories of the Soviet past and the collective need of preserving the system fostered the feeling of need to preserve the old “rural order” (Ibidem).

The depressing situation for the Russian agricultural sector improved somewhat after the 1998 financial crisis. The financial crisis resulted in the devaluation of the Russian rouble, which made imported food products more expensive for consumers and raised the competitiveness of the domestic food producers (Ibidem, 40). Furthermore, the federal government began to install import quotas on certain food products, such as red meat, chicken, and raw sugar, a policy which, to a certain extent, protected the Russian agricultural producers of these products (Ibidem). After a decade of constant decline, agricultural output started to rise again in 1999. According to the Federal State Statistics Service of the Russian Federation, the national agricultural output grew by 3.8 percent (1999), 6.2 percent (2000), 6.9 percent (2001), 0.9

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17 percent (2002), and 2.4 percent (2004), only experiencing a decline in output of 0.1 percent in 2003.16

In the aftermath of the 1998 financial crisis, agroholdings made their introduction into the sector. These large enterprises entered the sector as outsiders with a more market-oriented mind-set and, more importantly, access to financial credit. These two factors enabled them to acquire farms and provided them with agricultural inputs (Ibidem, 45). As a positive factor, these agroholdings were able to invest in the sector (in contrast to the collective enterprises) and could use significantly more efficient production methods than those of their rivals (Ibidem). As a result of the agroholdings’ modus operandi of a market-oriented outsider, many small farmers were laid off the lands they leased, which further fuelled the rising unemployment within rural Russia (Ibidem).

Furthermore, the bleak prospects of rural Russia during the 1990s and the first half of the 2000s drove many young Russians to look for better lives in the cities. For example, in a series of surveys held at high schools and at the Bashkir State Agrarian University (BGAU) in the Republic of Bashkortostan, one of the largest agricultural regions of the Russian Federation, 52 percent of the high school students stated they wanted to live and work in the city after graduation, while 85 percent of the latter group stated the same (Kazakbaev 2006, 72).

Despite the wish of the young rural Russians to leave the countryside, the total rural population of the Russian Federation did not significantly decline, according to the Russian Federal

Statistics Service. Between 1991 and 2005, the rural population shrank by less than one percent.17_{This modest decline can be explained by two factors. First, between 1991 and 1994,} the countryside became fluxed with internal immigrants from the cities returning to rural family members after being hit by austerity (White, 899). In addition, external immigrants returning to Russia from former Soviet republics added to the increase in population during these years (Ioffe, Nefedova and Zaslavsky, 919). Many of those re-immigrating to Russian villages were either young adults or middle-aged people with large families, who often could not find suitable dwellings in the city, and thus settled in villages near major cities (Vitkovskaya, 32-36). Second, because of a demographic decline starting at the fall of the Soviet Union, small cities were often being re-categorised to “villages”, which added the population numbers of these new “villages” to the total rural population.18

16_{Federal State Statistics Service of the Russian Federation (Rosstat) (2014), “Indeksy proizvodstva produktsii}

sel’skogo khozyaîstvo po kategoriyam khozyaîstv po Rossiîskoî Federatsii”.

17_{Rosstat (2014), “Komponenty izmeneniya chislennosti naseleniya Rossiîskoî Federatsii”.} 18_Ibidem.

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18 Although, in general, young Russians aspire to leave the countryside, it is incorrect to assume that the majority of young rural Russians aspired to live in the two large “European” cities of Moscow and Saint-Petersburg. A research project conducted by Professor Anne White of Glasgow University (2007, 897) shows that regional capitals as a migration destination are clearly more popular among highly-educated Russians than Moscow or Saint-Petersburg.

Contemporary Russia

As of today, the agricultural sector of the Russian Federation contributes 3.3 percent to the Gross Domestic Product (GDP).19_{However, because of the rapid growth of other sectors within} the Russian economy, the share of agriculture has decreased from the 14.3 percent share in 1991 (Salputra et al. 2003, 5). In regard to labour activity, 7.0 percent of the Russian working population works in agriculture 20_{, although the number of enterprises and employees working} in the sector is decreasing (Ibidem, 6).

Regional production

Agriculture is specifically important in the North Caucasian Federal District, where the sector contributes 13.8 percent to the regional GDP, the Southern Federal District (10.1 percent), and the Volga Federal District (6.1 percent).21_{However, in terms of overall agricultural production,} major agricultural regions can also be found in the Central Federal District (Belgorod oblast’, Voronezh oblast’), the Ural Federal District (Chelyabinsk oblast’), and the Siberian Federal District (Altaî kraî).22

19_{Rosstat (2014), “Korrektirovka valoboî dobavlennoî stoimosti na ekonomicheskie operatsii, nenablyudaemye}

pryamymi statisticheskimi metodami”.

20_{Rosstat (2014), ”Zanyatoe naselenie po vidam ekonomicheskoĭ deyatel’nosti na osnovnoĭ rabote, v srednem za god”.} 21_{Rosstat (2013), ”Otraslevaya struktura valoboî dobavlennoî stoimosti sub”ektov Rossiîskoî Federatsii v 2013 g”.} 22_{Rosstat (2014), ”Produktsiya sel’skogo khozyaîstva po sub”ektam Rossiîskoî Federatsii v 2014 godu”.}

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19

Figure I: Annual agricultural output in MM. RUB.23

Figure II: Annual agricultural output in RUB divided by the amount of square kilometres.24

Types of agricultural producers

The Russian Ministry of Agriculture differentiates between three types of agricultural producers: 1) large agricultural enterprises, namely collective farms and agroholdings, 2) smaller “family farms”, and 3) household plot farming. The largest types of farms are the large agricultural enterprises, which mainly consist of former state farms. Many of these farms still have not

23_Ibidem.

24_{Ibidem; Rosreestr (2013), Gosudarstvennyî (natsional’nyî) doklad o sostoyanii I ispol’zovanii zemel’ v Rossiîskoî}

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20 drastically altered their Soviet business methods and structures, mainly because of the

conservative mind-set of many farm managers (Liefert and Liefert 2012, 53). Agricultural corporations tend to mainly focus on the production of bulk crop production, such as grain and sunflower seeds (Ibidem, 55). In 2014, corporate farms held 71.9 percent of farmland in the Russian Federation.25

Private family farms began to appear in Russia during the 1990s, when workers on former state farms used the privatisation policy of the Yeltsin administration to obtain land and break away as independent farmers through their ownership vouchers. Similar to larger agricultural producers, family farms mainly focus on bulk crop production (Ibidem). Family farms account for 23.8 percent of farmland in the Russian Federation.26

Household plots are a collective noun for different types of small plots used for farming purposes. Most of these grounds consist of private plots with a maximum size of 2.0 hectares, leased by agricultural employees on large corporate farms or garden plots cultivated by the general population (Ibidem, 54). In contrast to large enterprises and family farms, household plots mainly focus on the productions of high value products, such as meat, fruits, and vegetables (Ibidem, 55). Household plots account for 4.3 percent of farmland in the Russian Federation.27_In many areas in the Russian Federation, household plots tend to have an important economic relationship with larger farms, providing these farms with a flexible supply of labour in exchange for a steady supply of input materials (Pallot and Nefedova 2007, 108-117).

In 2014, agricultural enterprises contributed 48.6 percent to total farming output; 10 percent was contributed by family farms and 41.4 percent by household plots. Large agricultural producers constitute a high share in every federal district except for the Far Eastern District.28 Family farm production has high shares in the agricultural production of the Southern Federal District, the Northern Caucasian District, and the Far Eastern District.29_{Household plot}

production has relatively large shares in the total production of the Far Eastern Federal District, Northern Caucasian District, and the Siberian Federal District.30_{In brief, large agricultural} organisations tend to dominate “European” Central Russia and have not (yet) fully expanded to Russia’s “peripheries”.

25_{Rosstat (2014), Rossiîskiî statisticheskiî ezhegodnik – 2014 g.} 26_Ibidem.

27_Ibidem.

28_{Rosstat (2014), ”Produktsiya sel’skogo khozyaîstva po kategoriyam khozyaîstv; Ibidem,‘Struktura produktsii sel’skogo}

khozyaîstva po kategoriyam khozyaîstv”.

29_Ibidem. 30_Ibidem.

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21

Figure III: Annual agricultural output in MM. RUB.31

Conclusion

The Soviet agricultural sector came a long way. From the Soviet perspective, its agricultural policies were more or less successful. Compared to Tsarist times, the rural population became more wealth. Yields continued to rise throughout the Soviet era, the system became more flexible, and farm workers were granted more freedom (Ibidem, 84). However, production costs did not decline, and Soviet farms remained rather inefficient. Some estimates placed the

productivity of the Soviet farm labour force at 10 percent of that of their American counterparts (Ibidem).

Three reasons can be found for this inefficiency. First, educational development of the rural working population of the Soviet Union did not enjoy a high preference by the Soviet

government, largely caused by a general preference for industrial development (Ibidem, 84). Second, bottlenecks in planning and supply systems, caused by complex government policies and a lack of autonomy for enterprises, hindered farm productivity (Ibidem, 83-84). Thus, investments did not contribute as much to growth as they did in the West, which led the Soviet agricultural sector to fall behind (Ibidem, 84). Third, the lack of real market incentives could not stimulate farm managers to improve the efficiency of their farms; indeed, without a promise for adequate rewards, mediocrity reigned (Ibidem).

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22 After the dismantling of the generously subsidised Soviet agricultural system, the Russian

agricultural sector experienced major setbacks. Its enterprises were not prepared for free market reforms. Not only was the ineffective agricultural sector hit hard by the sudden introduction of free market environment, the federal and regional governments were

unsupportive in their agricultural policies, not being able to support the sector with technical assistance, infrastructural development, or clear land reforms.

As a result, agricultural output plummeted throughout the 1990s. Because of austerity, collective agricultural enterprises disintegrated into separate private plots of lands, which provided the rural population with not much more than personal survival. This “private plot sector” became the major producer of many agricultural products. The situation improved after the 1998 financial crisis, when market-oriented outsiders started “agroholdings”, which did not try to reform or improve agricultural enterprises, but rather created new ones that competed with the ineffective collective and private plot enterprises. The rise of these agroholdings resulted in a surge of agricultural output, as well as growing investments in the sector. However, rural unemployment rose because of the dismissal of small farmers from the lands they leased. Furthermore, after a short time of migration to the countryside, the Russian countryside experienced a severe brain drain of highly educated Russian graduates to the cities not only because of a lack of career opportunities in the countryside, but also because of poor social services.

Despite this economic decline, agriculture is still relevant to the Russian economy; it is still a major employer and a large sector in Central and Southern Russia. As a result of Russian

economic reforms, three types of producers can be identified: large enterprises (collective farms and agroholdings), smaller “family farms”, and household farming. In terms of output, large enterprises and household farming contribute the largest shares to overall production.

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23

First prediction – Massive bankruptcy

1. Farm polarisation will deepen; a large majority of Russian farms will fail because of “aid the strong, not the weak” regional administration policies (Ioffe 2005, 184, 190).

2. Because of the predominance of regional subsidies in contrast to federal subsidies, the large variation of regional budgets will spark “inter-regional conflicts” and will “tear the domestic market apart” (Ibidem).

Ioffe’s predictions on massive bankruptcies are based on contemporary policies of regional administrations, which, according to Ioffe, tend to favour “the strong” and will drive weak agricultural enterprises into bankruptcy.

“Aid the strong, not the weak”

First, to determine the outcome of Ioffe’s first prediction on the demise of Russian farms, one should examine the number of individual agricultural enterprises given by the statistics of Rosstat. Unfortunately, since 2006, Rosstat has not published these statistics. To understand the overall agricultural policies of the regional administrations and their effects, it is best to analyse the policies of the major agricultural regions in the Russian Federation. I use three statistics to determine the major agricultural players within the federation: 1) overall annual agricultural production (Table I), 2) agricultural production divided by the size of the region (Table II), and 3) the percentage the agricultural sector amounts to the Gross Regional Product (GRP) (Table III).

Table I: Annual agricultural production per region in mm. RUB 32

Region mm. RUB

Krasnodar kraî 278,115

Rostov oblast’33 _190,635

Republic of Tatarstan34 _188,845

Table II: Agricultural production divided by the size of the region 3536

32_{Rosstat (2014), “Produktsiya sel’skogo khozyaîstva po sub”ektam Rossiîskoî Federatsii v 2014 godu”.} 33_{The Regional Statistics Agency does not provide statistics on the number of agricultural enterprises.} 34_Ibidem.

35_{Rosstat (2014), “Produktsiya sel’skogo khozyaîstva po sub”ektam Rossiîskoî Federatsii v 2014 godu”.}

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24

Region mm. RUB divided by square kilometres

Belgorod oblast’ 6.90

Krasnodar kraî 3.68

City of Moscow37 _3.32

Table III: Amount the agricultural sector adds to the GRP in percentages 38

Region Percentage

Republic of Kalmykiya 32.2%

Karachay-Cherkess Republic 20.0%

Tambov oblast’ 17.7%

Figure V: The decline of Russian farms in major agricultural regions.39

The region with the largest agricultural sector, Krasnodar kraî, saw a sharp decrease in the number of agricultural enterprises active in the region. In 2006, this number stood at 8,417, while in 2015 only 5,066 of these enterprises were active.40

37_{The Regional Statistics Agency does not provide statistics on the number of agricultural enterprises.} 38_{Rosstat, “Otraslevaya struktura valavoî dobavlennoî stoimosti sub”ektov Rossiîskov Federatsii v 2013 g.”} 39_{Based on regional Rosstat statistics of footnotes 40-43.}

40_{Rosstat, Regional organ of the Krasnodarskiî kraî (2015), “Raspredelenie predpriyatiî i organizatsiî po}

organizatsionno-pravovym formam”. -80% -70% -60% -50% -40% -30% -20% -10% 0% Republic of Kalmykiya Tambovskaya Oblast’ Karachay-Cherkess Republic Belgorodskaya Oblast’ Krasnodarskiî kraî

Growth percentage of ammount of farms in region

between 2003 and 2015

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25 The number of agricultural enterprises in the Belgorod oblast’ decreased from 2,011 (2006) to 1,130 (2015).41_{In the Republic of Kalmykiya, a clear decline in the number of agricultural} enterprises can be observed. On January 1st_{2007, the republic most dependent on agriculture} had 1,888 agricultural enterprises within its borders. This number declined rapidly, marking an all-time low in 2007, when there were only 462 agricultural enterprises left in Kalmykiya.42_The same applies to the Karachay-Cherkess Republic, where the number of agricultural enterprises declined from 1,532 in 2005 to 750 in 2014 and the Tambov oblast’ (2,685 in 2003 to 1,233 in 2013) 43

These statistics show that, in the ten years between 2005 and 2015, a sharp decrease of agricultural enterprises occurred within agricultural regions of the federation. However, the question remains whether this decline was caused by the economic policies of regional administrations. In his article, Ioffe does not give a precise definition of a “strong” agricultural actor, except for the criteria that the specific farm should be debt-free and competitive.

According to Siemen van Berkum, a senior scientist and agronomist at Wageningen University, only agroholdings (large agricultural business groups, also called agroholdings) fit these criteria.44_{The case of the Belgorod oblast’ further enforces this impression. According to}

Epshtein et al. (2013, 59), Belgorod oblast’ is the region most dominated by agroholdings within the Federation; these business groups own two-thirds of all agricultural enterprises, employ 72 percent of the regional agricultural sector’s workforce and produce around 90 percent of the region’s gross agricultural output (Ibidem).

According to Wandel (2011, 404-405), the phenomenon of Russian agroholdings is seen as a symptom of imperfect competition and market failure. Since the political system in Russia is predominantly based on informal rules, large business groups, such as agroholdings, have an even larger advantage over smaller farms because of their size and economic power (Ibidem, 414-416). With this power, they are more likely to be connected to their influential counterparts in regional and federal administrations.

The rise of agroholdings did, in fact, cause a decline in the number of individual farms for multiple reasons. First, some regional governments supported their creation in order to control their agricultural markets. For example, in the Orel oblast’, the two dominating agroholdings

41_{Rosstat, Regional organ of the Belgorod oblast’ (2015), Statisticheskiî ezhegodnik, 101.}

42_{Rosstat, Regional organ of the Republic of Kalmykiya (2014), Respublika Kalmykiya – Statisticheskiî ezhegodnik, 116.} 43_{Rosstat, Regional organ of the Karachay-Cherkess Republic}_{(2014), “Raspredelenie predpriyatiî I organizatsiî po}

vidam ekonomicheskoî deyatel’nosti”; Rosstat, Regional organ of the Tambov oblast’ (2014), Statisticheskiî ezhegodnik, 66.

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26 (APK Orlovskaya Niva and Orlovskiî Agrokombinat) were directly founded by the regional

administration, whose main objective was to restore price parity: coupling input prices to farm-gate prices. The goal of installing this price parity was to ensure production stability. Insolvent farms were forced by the regional governments to be structured hierarchically into newly founded, vertical production chains (Ibidem, 429-430). A clear example of this policy can be found in the expansions of large agricultural enterprises owned by Oleg Makarevich, a businessman from Krasnodar. In 2007, Makarevich’s company bought a road in the village of Starovelichkovskaya, which led to fields of multiple small farmers. Without interference from the local authorities, he closed off access to these fields, thus forcing the farmers to close their businesses and lease their plots to his company.45

Other agroholdings emerged in a slightly more entrepreneurial way. In many agricultural regions in Russia, the foundations of agroholdings were encouraged by regional governments by inviting large businesses specialised in food processing and trading to engage in primary

agriculture (such as producing maize for animal feeding). Regional governments lured these (in essence entrepreneurial) businesses to take over failing farms by granting them tax breaks or easy access to subsidised credits (Ibidem, 431). An early example of this policy is the regulation of the government of the Belgorod oblast’, No. 710 of 14.12.1999: “On measures to restructure insolvent farms of the oblast”.46_{The resolution recommends unprofitable farms to join larger} (agricultural or non-agricultural) enterprises. After the resolution passed through the regional parliament, the number of agroholdings present in the region rose sharply (Ibidem). Although the Belgorod government supports the development of family farms as well, a publication written by the region’s governor, Evgeniî Savchenko, indicates that family farming should only play an appropriate role in the production of less mass-made commodities, such as vegetables and organic milk (Epshtein et al. 2013, 66).

Therefore, agroholdings enjoyed extensive government support. However, according to Wandel (2011, 430-433, 442), the majority of agroholdings were formed before (regional and federal) administrations began to support their development. Therefore, it is reasonable to conclude that most agroholdings grew because of a pro-business mentality and later lobbied to secure their economic positions. Furthermore, the rise of world market prices for many major agricultural products, such as oilseeds, grain, and dairy products, stimulated a further expansion of business groups in the agricultural sector, many of whom purchased an increasing amount of farmland in

45_{Balotnikova, S. (2016), “Traktora osodyat Moskvu v mae”. ODR Russia and beyond.}

46_{Administration of the Belgorod oblast’ (1999), O merakh po ekonomicheskomu ozdorovleniyu neplatezhesposobnykh}

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27 order to increase production and profits (Ibidem, 433). The professionalization and expansion of agricultural enterprises was, therefore, inevitable.

Predominance of regional agricultural budgets

According to Ioffe, the primacy of regional agricultural support contrasting weak federal support would lead to “trans-regional” conflicts, which in effect cause agricultural powerhouses in Russia to support their farming businesses. A “protectionist war” over the domination of the

agricultural markets was inevitable. As a result, the whole domestic market would be torn apart. Some studies conducted by Russian agricultural institutions indeed show strong differences in the level of agricultural support among regional administrations. In a report by the Russian Presidential Academy of National Economy and Public Administration (RANEPA) on the consequences of the Russian WTO-accession on federal and regional agricultural policies, statistics show that federal financial support largely overshadowed regional support. In 2010, federal agricultural support amounted to 102.6 billion RUB, while regional governments accounted for 103.4 billion RUB in financial support to the sector. In 2012, overall federal financial support to the agricultural sector amounted to roughly 121.2 billion RUB, while overall regional financial support amounted to 102.6 million RUB (Shagaĭda et al. 2015, 32). The

statistics show that in half of the federal districts regional governments account for the larger part of agricultural support, while in the other half, federal financial support dominates. In particular, the North Caucasian Federal District, Central Federal District, and the Southern Federal District were generously sponsored by the federal government in comparison with their own contributions to the sector (Ibidem, 32-33).

Table IV: Federal and regional financial support to the agricultural sectors of Russia’s federal

districts (Shagaĭda et al. 2015, 32-33) Federal financial support, mm. RUB Regional financial support, mm. RUB Ratio of federal to regional financial support

Central Federal District 39,286 17,906 11:5

Far Eastern Federal District

2,894 10,700 3:10

North-western Federal District

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28 North Caucasian Federal District 11,037 4,235 13:5 Southern Federal District 12,579 6,563 19:10 Siberian Federal District 11,581 14,466 4:5

Ural Federal District 4,016 10,332 2:5

Volga Federal District 33,058 30,948 11:10

In 2015, the Central, Southern, and Volga Federal Districts received substantially more federal agricultural subsidies then regional support. In addition, the Far Eastern Federal District saw a slight increase in federal agricultural funding.47_{The prioritisation for these regions in the} distribution of federal agricultural subsidies mainly originates from the dependence on farming in certain regions within the federal districts. For example, the southern republics of Kalmykiya and Karachay-Cherkessiya both receive substantial federal support while their economies are economically dependent on farming.48

Despite the predominance of federal agricultural subsidies over their regional counterparts, analysis of the United Nations Food and Agriculture Organisation (FAO) shows a large

discrepancy between the percentages of regional financial support to agricultural organisations in relation to local Gross Regional Product (GRP). According to a 2013 FAO-publication, the more a region’s economy is dependent on the agricultural sector, the likelier the regional government is to spend a large proportion of the budget to this sector.49

Conclusion

Ioffe’s first prediction on the demise of Russian farms came true. All regions most exemplified of the Russian agricultural sector, examined in this chapter, witnessed a rapid decrease in the number of agricultural enterprises. The reasons behind the decline can be found in the rise of agroholdings, large agricultural business groups that tend to take over smaller, insolvent farms in order to expand. This development is indeed caused by regional administrations’ “aid the

47_{Agro2b.ru, “Reĭting regionov. Subsidii dlya fermerov”.} 48_Ibidem.

49_{United Nations Food and Agriculture Organisation (2013), Federal’naya I regional’naya byudzhetnaya podderzhka}

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29 strong, not the weak” policy. Agroholdings are often supported through tax breaks or generous granting of subsidised credits by regional governments, who strive to gain control of their local agricultural markets. However, the majority of agroholdings were formed before the rise in the federal and regional administrations’ agricultural support, which implies that the decline in farms is partly a result of continuous lobbying of these enterprises to secure their positions. The second prediction on “inter-regional conflicts” proved to be untrue. Instead of a growing predominance of regional subsidies, federal subsidies grew in favour of their regional counterparts. This development is, apart from a growing federalisation in Russian politics, caused by the Russian government’s desire to stimulate agriculture in fertile regions, such as the Southern Federal District, and maintain agricultural employment in regions dependent on the sector. Although researching the occurrence of “inter-regional conflicts” is difficult because of a discrepancy in the level of agricultural support, the chances of its occurrence has become less likely. The growing responsibility of the federal government in supporting the sector’s

substantially relieves regional governments of the responsibility to save their local farms from bankruptcy.

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30

Second prediction - An Empty Russian countryside

1. In addition to the decline in skilled workers in the Russian countryside, its population is decreasing. According to predictions by the Federal State Statistics Service, the rural population of European Russia will decline by 7.8 percent between 2001 and 2015, including a 15.2 percent decline in the non-Chernozem zone and a 3.1 percent decline in the south of the country (Ibidem, 198).

2. Because of this uneven decline, Russia’s agricultural sector will “soon resemble an archipelago with ‘islands’ of productive farmland immersed in a ‘sea’ of stagnation and decay, ultimately a social desert.” (Ibidem)

Depopulation

The first prediction on the total decline of the rural population can easily be answered. About 39.2 million people lived in the Russian countryside and villages in the year of 2001, according to statistics provided by Rosstat.50

As part of a total population of 146.3 million citizens, the rural population in 2001 constituted about 26.8 percent of the total population: 39.2 million people.51_{According to 2015 Rosstat} statistics, about 37 million people live in villages and in the countryside 52_{, constituting 26} percent of the population.53_{These statistics show that between 2001 and 2015 a 5.6 percent} decline in the total number of rural Russian citizens occurred.

50_{Rosstat (2014), “Komponenty izmeneniya obshcheî chislennosti naseleniya”.} 51_Ibidem.

52_{In the census, Rosstat defines settlements not approved by legislation as a city or as a town.} 53_{Rosstat (2015), “Chislennost’ naseleniya”.}

Russia’s agricultural progress between 2005-2015

6-6-2016