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Sanctions as the Driver of the Russian Agricultural Sector

2014.10.16

The second International Investment Forum “Agricultural and food market of the CIS: integration, investments, prospects.”The agri-industrial trade show Golden Autumn 2014 became the platform for the second International Investment Forum “Agricultural and food market of the CIS: integration, investments, prospects.” Ministers of Agriculture of the CIS as well as Heads of regions and representatives of the leading banks and businesses of Russia participated in this event.

By Anna Bordunova

Agricultural production incentives in Russia were one of the topical issues discussed at the forum.

According to Nikolay Fedorov, RF Minister of Agriculture, the government is planning to provide additional investment in the amount of several hundred billion rubles for the development of the industry, and the Agricultural Ministry presented a new edition of the governmental programme for  development of the agricultural sector which stipulated an increase of the resources provided. The Head of the Ministry announced  happy news to the agricultural producers by telling them that the government will pay the arrears on its support of investment loans before the end of the year.

Nikolay Fedorov, RF Minister of AgricultureWith regard to the exact areas of governmental support, it was reported that a proposal for support of agricultural products processors was introduced into the State Duma. Aid will also be provided to  industries in which the import share before the sanctions was considerable. The government has also developed new subprogrammes for the development of dairy farming, vegetable farming and seed production.

In order to avoid price inflation on agricultural products, a draft resolution enabling agricultural producers , retailers and regions to conclude three-party agreements to fix the obligations of trading networks to sell products at a set price was developed wihtin the framework of the forum.

The painful issue of loan resources was also discussed at the forum. Currently, the government is developing a new loan granting procedure for Russian agricultural producers presupposing a decrease in the pledge ratio and cancellation of advance payment.

However, the high cost of loans still remains a pressing issue. Andrey Klepach,  Deputy Head of Economic Development of the Russian Federation, explained that bank resources largely depend on capital inflows from the world markets.

Currently, the inflows have almost stopped, and in the near future there will be persistent stagnation in the loan industry. During the first half of 2014, the increase in the general amount of loans granted within the agriculutral sector was at a minimum rate - 1% (according to the statistics of the RF Central Bank).

‘The key issue in granting loans to agricultural industry is not the lack of money but risk management,’ Andrey Klepach points out. ‘The banks do not want to take risks. The Central Bank is already developing models for providing financial resources from the National Welfare Fund to banks supported by the government. However, without a new clear funding model developed together with the Ministry of Agriculture, agricultural producers and banks, stagnation will continue into the next year. 

Representatives of Sbernamk and Rosselkhozbank emphasized that sharing of risks with the government is a powerful motivation for triggering financing of investment projects.

Stefan Dürr, President of EkoNivaStefan Dürr, President of EkoNiva, who, as Nikolai Fedorov noted, earned his Russian citizenship by his  hard work in favour of the Russian agricultural sector, represented Russian agricultural producers. 

‘The Russian response to the sanctions was correct,’ says Stefan Dürr. ‘This is a great chance for the agricultural sector which cannot be missed.’ Agricultural producers must do all they can and even more to fill the now empty food niches and access  external markets in the future. However, we must make a lot of effort to successfully implement all the programmes which were driven by the sanctions and the embargo. The most important thing is not to allow any of the components to fall out of the chain:  government, business, banks and agricultural producers.’