 
 RESTRICTED  WORLD TRADE  
ORGANIZATION  WT/ACC/SPEC/RUS/16 
5 March 2001 
 (01-1076) 
Working Party on the 
Accession of the Russian Federation Original:   
 
 
ACCESSION OF THE RUSSIAN FEDERATION  
 
Priorities of Agro-Food Policy and Agrarian Reform   
in the Russian Federation and Domestic Support Distribution Assessment  
 
 The following communication was submitted by Permanent Mission of the Russian 
Federation with the request that it be circulated to members of the Working Party.  
_______________ 
 1. All priorities of the agro-good policy and agrarian reform are focused on agricultural 
producer support.  One of the main goals is to ensure food security as the very important public good. 
2. Agricultural enterprises debt restructuring
 is one of the most serious and acute issues.  
Currently nearly 90 per cent of all agricultural enterprises are indebted.  Often even currently profitable enterprises are not able to cover the debts of the earlier years and 
their overall financial performance is negative. 
Debt restructuring takes at least ten years.  The restructuring estimates are based on 
three year period applied for the Aggregate Measurement of Support calculation, even if the funds are allocated as a lump sum. 
The major part of debts was getting due to the adverse macroeconomic environment 
resulting from price liberalization, inadequacy of penalty fees to the inflation and other 
factors not linked to the enterprises performance efficiency.  The majority of debts are the debts to the federal, regional and local budgets as well as to the state non-budgetary funds so it could and should be writing off. 
The recurrent writing off reaches RUB80.7 billion (US$3.3 billion).  Taking into account 
three-year base period the annual figure will amount to RUB26.9 billion (US$1.1 
billion). 
As for another part of the debts it should be repaid by the deferring of payment.  Those 
debts amount to RUB26.8 billion (US$1.1 billion) or to the annual figure of RUB2.7 billion (US$0.1 billion) given to the ten year grace period.  The accumulated interests based on the current Central Bank of Russia interest rate will entail the overall expanses 
in the annual amount of RUB28.9 billion (US$1.2 billion).  The deferred amount is 
calculated on the basis of the realistic capabilities of farm enterprises to repay debts. 
Also, there are agricultural producers debts to their input suppliers.  The main ones are 
companies with a major government interest – PJSC "Integrated Energy System of Russia" and Gazprom.  The debt restructuring is to be also supported by the state and 
interest-free budget loan to farm enterprises will amount to RUB15 billion (US$0.6 
billion) for a six year period.  Annual figure will comprise RUB2.3 billion (US$0.1).  The WT/ACC/SPEC/RUS/16 
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 expenses for accommodating six year interest-free loans will reach RUB1.4 billion 
(US$0.06 billion). 
The rest debt to suppliers should be covered by profit and from other sources (accounts 
receivable). 
The sum of restructuring is based on the overall indebtedness of RUB170 billion.  Out of 
this amount 107.5 billion of debts to budgets of different levels and non-budgetary funds 
are subject to restructuring, as well as debts to suppliers in the amount of RUB15 billion.  The total amount is of RUB122.5 billion.  The data on indebtedness are complied by statistical bodies and recorded in accounting documents.  Debt restructuring will facilitate the following positive implications: 
− farm enterprises will be able to shift from barter to money transactions, that will 
improve transactions efficiency (reduce price) for agricultural producers; 
− farm enterprises will have better access to loans and be less dependent on 
intermediaries in obtaining loans, that will reduce the price of credit resources; 
− economic transactions will be more transparent; and 
− potentially efficient producers will be given opportunity for normal operations, 
while inefficient ones will be subject to the bankruptcy procedures. 
3. To ensure the normal operation the agricultural credit system
 is needed.  First of all 
there is an acute need for lending to finance seasonal stocks and costs . 
However, commercial loans are not accessible for agriculture due to a number of 
reasons:  lack of adequate collateral, high risk associated with agricultural production, high transaction costs of lending services, high interest rates due to the unhealthy macroeconomic environment, low profitability and long payback period in agriculture. 
As for loan collateralization, agricultural land might be viewed in the future as 
collateral only for long-term loans.  However, now and in the near future land resources 
are difficult to consider as a sound collateral since there is no adequate efficient demand on agricultural lands.  Their liquidity is very low as well. 
Currently the direct budget soft credits allocations have been replaced by the system of 
subsidized interest rates on commercial loans to farm enterprises.  The subsidy will account of 70 per cent of the Bank of Russia interest rate, or RUB4.8 billion (US$0.2 
billion).  In other words, currently there are no plans to set up credit facilities in parallel 
to the existing commercial institutions.  Commercial banks will independently assess the credit worthiness of farm enterprises.  The latter will pay only partially the interest rate.  The other part will be compensated by the state budget appropriations. 
As opposed to the lending of seasonal stocks and costs the leasing fund has been set up 
for long text budget lending.  Its establishment was necessitated by the fact that 
commercial banks are reluctant to give long-term agricultural loans in the current context.  The leasing fund requirement is assessed based on 50 per cent of the recorded depreciation charges.  It should be US$0.5 billion. 
In 2001 the leasing payments are to be made to the budget (not to the leasing fund).  
This implies annual budget outlays.  Additional budget appropriations are eligible to 
compensate for inflation losses as well as for alterations in depreciation charges.  The 
federal leasing funds are disposed by the Russian Federation Ministry of Agriculture pursuant to the procedures approved by the Russian Federation Ministry of Finance,  WT/ACC/SPEC/RUS/16 
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 the Russian Ministry of Agriculture and the Russian Federation Ministry of Economic 
Development and Trade.  It should be special tender between leasing companies to get budget money for operation. 
The soft credit facilities including the leasing fund operation will contribute to the 
financial resources inflow to agriculture and foster production efficiency growth.  The 
leasing fund should enhance farm fixed asset growth to promote introduction of 
advanced technologies. 
4. Food market regulation
 is essential taking into account yield fluctuations and existing 
price supply elasticity.  Price regulation will stabilise not only farm incomes, but also the main agricultural outputs.  The latter is the priority due to the low stocks of the main 
agricultural products and resulting food aid. 
The introduction of income insurance and other schemes requires optimal food stocks 
and even surpluses, as well as adequate administrative arrangements and well-developed market infrastructure and environment.  Those conditions are lacking in the Russian Federation. 
The food stocks funding requirements is assessed based on five per cent of the main 
agricultural outputs (cereals, sunflower, sugar beet, beef, pig-meat, poultry and milk) in 1999.  It costs US$0.5 billion. 
The food market regulation will create additional incentives for increase of agricultural 
products currently in deficit and will simultaneously stabilize agricultural incomes. 
5. Crop insurance
.  To facilitate the agricultural producers access to crop insurance 
schemes the Russian Government compensates 50 per cent of insurance payment for 80 
per cent of farm enterprises.  The losses eligible for insurance coverage are compensated by insurance companies and not by the Government.  Consequently, producer income losses have nothing to do with the right to insurance payments compensation. 
In this context the financial involvement of the Government in the insurance is limited 
to insurance payments compensation for agricultural producers, but not to the producer 
losses compensation.  The insurance payments compensation depends on the type and amount of agricultural production:  the higher the output, the bigger the total insurance payments and, consequently, the compensation amount.  This is the reason why those support measures cannot be classified as "green box" measures. 
The requirements are estimated based on plant product sales (including feed) in 1999 
(RUB104 billion) and average insurance rate – 12 per cent.  The overall amount of 
insurance payments is RUB12.5 billion that will comprise RUB10 billion for 80 per cent of farms.  Half of the compensation will equal RUB5 billion or US$0.2 billion. 
6. Input subsidies
.  Fuel subsidies are the domestic support scheme unique for agricultural 
sector.  The scheme is tailored to optimize agriculture input and output price ratios.  
The oil share in the arable farming cost structure reached 23 per cent in 1998 as 
compared to nine per cent in 1999.  The growth of world prices on crude oil and oil products, as well as fourfold rouble devaluation entailed dramatic production unit costs increase. 
Despite the fact that the national currency decline has contributed to the strengthening 
of domestic producers competitiveness, energy supply price growth on the internal WT/ACC/SPEC/RUS/16 
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 market following the world market trend, actually eliminates the devaluation 
component of the competitiveness.  In this context the energy resources compensation becomes of a paramount importance. 
To upgrade the output of food cereals, technical crops, to prevent soil fertility 
deterioration and to implement agricultural practices with application of mineral 
fertilizers and plant protection chemicals the Government of the Russian Federation 
partially compensates agriculture chemicals costs to agricultural producers including peasant (private) farms. 
The compensations are given regardless of the ownership form of agricultural producers 
by decreasing the chemicals costs supplied by producer plants.  Agricultural producers 
are compensated the costs when paying for mineral fertilizers and plant protection 
chemicals is elaborated and approved by the Ministry of Agriculture of the Russian Federation together with the Ministry of Finance of the Russian Federation. 
The funds allocated to compensate partial costs on acquisition of agricultural chemicals 
are transferred to the plants-producers of mineral fertilizers and plant protection 
chemicals.  The procedure of financing and delivery of mineral fertilizers and plant 
protection chemicals is elaborated and approved by the Ministry of Agriculture of the Russian Federation together with the Ministry of Finance of the Russian Federation. 
The contract terms for mineral fertilizers and plant protection chemicals supply by 
manufacturers to farm enterprises incorporate 30 per cent discount for railway transportation fees.  The Government of the Russian Federation partially compensates 
concentrated feed costs only for large-scale livestock and poultry farms.  The subsidies 
requirement assessment is based on 1991 consumption level.  The lump sum for input subsidies is at least US$4 billion. 
7. Investment subsidies
.  According to the accounting records the agricultural fixed assets 
depreciation in 1999 reached 47.2 per cent.  The maximum permissible wear rate is 30 
per cent.  To replace the worn-out of the fixed assets in 1999 it was needed 1,028∗ 
(47.2-30)=RUB177 billion or US$7 billion. 
The investment subsidies should be allocated to replace the depreciated assets.  One of 
the ways is to compensate partially the investment project costs, the direct capital 
investment, including new target programmes, "soft" long-term lending.  All this 
support should be through the tenders for private companies. 
Out of the federal target programmes there have been selected only those measures 
which fall under the "amber box" criteria.  In particular, these are seed production increase, handling and storage costs reduction, etc.  The selected target programmes are those operational in the recent years, which are considered as priorities for extension in 
2001-2010.  Investment subsidies will permit to revitalise and to upgrade production 
technologies. 
8. Agricultural producer subsidies
.  Plant production and livestock subsidies are fixed per 
ton of products.  Breeding livestock is supported by subsidising the purchase of breeding herd and keeping a pedigree livestock head.  The elite seed growing is stimulated by 
compensations calculated per ton of elite seeds.  The livestock products subsidies 
                                                     
 
∗ 1,028 is the initial value of fixed assets at the end of 1999.  WT/ACC/SPEC/RUS/16 
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 requirements are based on the actual 1992 data.  The plant protection estimates are 
based on 1997 data and equal to about US$2 billion. 
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