Is the Russian agriculture ready for western commodities embargo?*
In the age of globalization, extension and deepening of international economic relations, commodity markets lose its national and territorial borders, turning into commodity global markets. In the last 20 years integration rates of the national markets to the global ones were active owing the breakup of the USSR. At the same time, in the current year political situation influenced on the trade relations formation between countries. The stated issue was faced by the food market as well. Thus, on August 6, 2014 the president of Russia, Vladimir Putin signed the decree on agricultural commodities, raw-materials and food products embargo from the countries, which imposed sanctions against Russia. The Chairman of the Consumers Union of Russia, Petr Shelisch and the Vice-chairman of the committee of the Chamber of Commerce and Industry on agro-industrial complex, the Director of Sovhoz Lenina, Pavel Grudinin tell about forecasts on embargo influence on the global economics development, in particular, economics of Russia.
Win or failure?
According to P. Shelisch losses of European producers, which faced commodity embargo, will total 420 bln RUR and nearly 0.5 trn RUR for producers from USA, Canada, Austria and Norway. Meanwhile, at an early date, they will be not able to refocus commodities exports. At the same time, there will be less agricultural and food commodities on the Russian market, thus the prices will increase. But in the EU the prices will decrease due to the domestic market glut by commodities, which previously were exported to Russia. Thus, Russian consumers, unlike the European ones, to face losses. The expert stated in the current situation Russia solves political issue, meanwhile European countries will face losses on taxes, compensation payment from the budget for agricultural producers which faced income losses, etc.
At the same time P.Shelisch stated in the contract is mentioned that all limitations are imposed by coordinated decision of all countries-members of the Customs Union. But, if the one member of the CU wants to impose limitations, he can do it for a term of half a year. Meanwhile, the stated member should propose other members of the CU to make the same decision in three days prior.
P.Grudinin declared the countries-members of the CU, which refused to impose ban, have to protect country, which impose embargo, from forbidden commodities. At the same time, according tщ the expert, there are no real mechanisms for the stated issue due to the lack of customs control between countries-members of the CU.
P.Grudinin added that last year the Federal Veterinary and Phytosanitary Monitoring Service banned imports of European potatoes. Despite the stated situation, there was French, Polish and Holland potatoes in the Moscow shops. Thus, the stated products were imported through Belarus.
Intercommodity or import substitution?
Is the Russian agriculture ready to replace banned import products on domestic manufactured commodities? For many years, Russian experts appealed to the Government in order to found the conditions in which consumers mainly purchase domestic products. To date, according to the experts, within the current political situation the Government decided to solve this problem. Thus, if in a couple of years there are 75-80% of the domestic products in the Russian markets, the stated decision will be successful.
At the same time, administrators of the Russian Federation negotiate mainly with Brazil, Argentina, China, Turkey, Azerbaijan and on commodities substitution, which was banned. But, there is no discussions on the tax cancellation for domestic producers, or on theirs financial assistance provision on the governmental level.
Someone always pays for food products...
P.Grudinin declared, in Russia issue on state support is rather important, after WTO accession. Thus, to date there is no effective system of agriculture's co-financing through the federal subjects, which have no money.Remind, that government executives of some regions had to refuse from 5 bln RUR from the federal budget due to the lack of funds in the regional budget for co-financing. Thus, in Russia agricultural support depends on the budget of the subjects.
Also, there is a problem with credit rates. If in the EU and USA credit rates total 2-4%, in Russia the stated rate at the level of 4-5% is the state support.
As for support on agricultural machinery purchase, in the EU while machinery purchasing from dealer, the framer gets 50% of reparation, and further the Government refund the value of machinery. In Russia there is Rosagroleasing which gets state support instead of farmers.
The expert added that in Russia subsidies per ha are very low. If in the EU agrarians receive donations at the amount of 300-600 EUR per ha, in Russia the stated rate totals maximum 6 EUR per ha. Thus, Russian producers have to reduce production due to the competition from the European producers. Meanwhile, if there are no changes in agricultural policy, Russian producers will face hard competition with Belarus and Kazakh producers.
* The article was prepared according to the materials of the press-conference “Food wars: West sanctions and response measures of Russia”
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