Vladimir Putin hands out a hundred billion roubles to agriculture
Prime Minister Vladimir Putin yesterday spearheaded the battle against the drought which is expected to cut Russia's grain harvest this year by 11% against the target. He ordered 100 billion roubles in government credit for the regions to deal with the aftermath of the drought, which is only slightly less than the total credit issued by Rosselkhozbank for the 2009 farm season. The money will not reach the regions until September, but, as an advance payment, Vladimir Putin brought the long-awaited rain to the fields in Orenburg Region for the first time in weeks.
Prime Minister Vladimir Putin yesterday instructed the Finance Ministry to consider the possibility of granting subsidies and budget loans to drought-stricken areas in the amount of 100 billion roubles. The Prime Minister issued the instructions at a meeting in Orenburg where the 2009 harvest was discussed. It was attended by First Deputy Prime Minister Viktor Zubkov and Agriculture Minister Yelena Skrynnik.
Mr Putin decided to help farmers fight the drought after visiting a barley field in Orenburg Region. Ironically, it started raining just as Putin arrived. However, the miracle demonstrated by the Prime Minister came too late. He should have visited in June or July for the barley crop to survive. But more importantly for Orenburg, the Prime Minister offered a financial rain storm. "I ask the Finance Ministry to consider the possibility of granting a budget loan to the regions to assist with the results of the natural disaster. There are still 100 billion roubles left," said Mr Putin, apparently impressed by the picture of the drought, referring to the remainder of the allocated budget money. The final figure may be even larger: the Prime Minister said that the Government might render assistance to distressed farms out of the "commodity reserves."
The 100 billion roubles in Government subsidies will be used to compensate for the shortfall of 11 million tons of grain Russia will have this year, Agriculture Minister Yelena Skrynnik said yesterday. According to preliminary data, crops on 3.6 million hectares were destroyed in nine Russian regions, affecting more than 5,000 farms. If one divides the amount of Government assistance by the amount of grain lost, it turns out that the Government intends to pay 9,000 roubles for every tonne of wheat shortfall, which is double the procurement price paid during grain interventions in 2008 (4,600 roubles per ton).
The amount of money Mr Putin promised to combat the drought is comparable to the total credit available to finance agriculture this season. This credit totals 114 billion roubles, Viktor Zubkov announced yesterday (Rosselbank disbursed 71 billion roubles and Sberbank 43 billion roubles). "Subsidies to compensate for part of the cost of short-term credit exceeded 10 billion roubles and to insure crops almost 1 billion roubles," he said, adding that the Government set lower fuel prices for agriculture compared with last year. However, speaking about the consumption of fuel and lubricants, the First Deputy Prime Minister questioned the forecasts of the regions' requirements. "Nationwide, only 25% of requested petrol and about 40% of requested diesel fuel have been used," he said.
Be that as it may, the decision to declare the drought to be a disaster to which the federal Government must respond has been made. The drought-stricken regions have been given time until August 20 to submit an assessment of their losses, Viktor Zubkov said. The money to compensate for loss due to drought will be available by autumn. "The Agriculture Ministry should be able to verify these documents before September 20 and submit an application to the Finance Ministry," the First Deputy Prime Minister said calling on the regions "to deliver effective aid to the victims immediately, without waiting for money to start flowing from the federal budget."
The First Deputy Prime Minister also called for accelerating the work to improve agricultural insurance. "The concept of improving the insurance system was approved by the Commission on the Agro-Industrial Sector back in February. This year's budget provides 2 billion roubles for insurance. Unfortunately, the system has yet to function," said Mr Zubkov noting that out of the 6,000 drought-stricken farms in the Volga Area only 508 have been insured.
In spite of the drought, the Agriculture Ministry has not changed its forecast: in 2009 Russia should have harvested 85-90 million tonnes of grain, not counting the 9 million tonnes of last year's crop which forms the intervention fund.
The Ministry has postponed the start of grain interventions from August 1 until the end of the month. Twenty billion roubles in Rosselkhozbank credit have been earmarked for state procurement of grain. This year, considering that the Agriculture Ministry expects the prices to be at last year's level when 46 billion roubles were spent on interventions (9.6 million tons of grain, or 9% of the national production was purchased), only half that amount will be procured.
No information was available yesterday as to which Government agency would conduct grain interventions. The Unified Grain Company created by the Government to succeed the Food Market Regulation Agency (which conducted all the previous interventions) "may not be the Government's agent" this year, the Chairman of the Russian Grain Union, Arkady Zlochevsky, said a week ago. He said "the Unified Grain Company has exhausted the quota per borrower and can no longer receive funds from Rosselkhozbank for grain procurement." The Agriculture Minister announced a tender to pick a second Government agent but, according to Mr Zlochevsky, "private business is not eager to take part in it": Rosselkhozbank may create a trading house to solve the problem. Alternatively Rosagrolizing, previously headed by Minister Skrynnik, may be brought in.
In any case Government financial assistance to drought-stricken regions in 2009 will substantially change the rules of the game in agriculture. Although Vladimir Putin yesterday warned against "a free-ride attitude" in the regions, the allocation of more than $3.5 billion in farm aid, given that Russia's grain exports since the start of 2009 amounted to $1 billion, is an unprecedented move. This is not about the natural disaster as such: most of the regions which imposed a state of emergency in the summer said there was no threat of famine and that the move was necessary to provide an argument for the restructuring of Rosselkhozbank loans.
Oleg Butrin
