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Agriculture in Russia

Agriculture in Russia
The development of agriculture in Russia.

From the XIX century Russia was a leader in the agriculture sector on the world market. However the productivity of agriculture technologies and agriculture techniques was quite low, the peasant households supplied the main part of the grains on the world’s market. In 1895 there were over 26.6 million horses and 31.6 millions of livestock.
From 1917 Lenin introduced a new agriculture policy. The policy of implementing collective farms- state farms (sovhoz) and collective farms (kolhoz). The main aim was to reconstruct the socialist agriculture policy. In the result of collectivization and development of collective farms, the number of small farms was decreasing.
In the period of Stalin’s governing, the exploitation of peasantry increased. Instead of giving the salary to the peasants the government imposed “workdays”. This gave to peasant an amount of products, but it was less than the minimum of subsistence. Other part of produced goods came to the government. So in order to survive, the kolkhoz member used to work on his own farm, besides the work on the collective farm.
However a lot of people started to leave their farms and moved to the city, in order to find a work. So the government implemented a new restriction: the member of the kolkhoz used to give his passport in order to stay on the collective farm and not to leave it.
Moreover started a new campaign directed against dispossession of kulaks. The peasants who were repressed composed a free work force, which was used in the interest of industrialization. So that sooner the farming and relations in the market were annihilated.
In the epoch of Khrushiev’s governing the growth of agriculture started to develop due to the mastering of virgin lands. The members of collective farms (kolhozniki) had a stimulus to work, because of the increasing of their salary. The government decided to sell the agriculture equipment to collective farms, although it wasn’t allowed before to sell agriculture technologies to collective farmers.
In 1957 Khrushiev decided to apply American agriculture tendency –to grow the corn. The sown areas of crops were gigantic, up to the Archangelsk territories. However in comparison with America, the results were poor. That experiment failed, and lead to the decline of average productivity and the rise in costs of produced grains on these territories. The agriculture was on the verge of crisis. The policy of Khrusiev brought losses to the agriculture o Russia.
In the beginning of 70s Russia became one of the main importers of grain. In the 90s instead of importing the forages, Russia started to import finished livestock products, because Russian livestock wasn’t as competitive, as crop sector. Moreover the import of meat, and especially chicken became too big.
In the period of 1991-1997 the social structure of agriculture landowners has changed in the result of denationalization. The share of the government in agriculture sector has decreased from 56% in 1991 to 13.4% in 1997, while the share of private ownership in agriculture sector has increased from 40.3% to 70.9%.

Agriculture Today
Agriculture is one of the economic sectors to have made the least recovery from the economic turmoil of the 1990s. According to the Russian Ministry of Agriculture sixty-three percent of the agricultural land in use in 1993 is dormant today. So having 10% of the World’s plough-land and 50% of the World’s chernozem, Russia still imports half of agricultural products from abroad.
Poor development of agriculture in Russia is determined by the following reasons:
• slowing temps of technological modernization of the industry
• undeveloped logistics and infrastructure
• insufficient inflow of private capital investment
• deficit of qualified labour force
• low subsidy levels
Now government try to stimulate the development of rural area and agricultural production by increasing subsidies. In recent years Russia's farming has seen a decade of strong growth. Last year agricultural production grew at a rate of 10%. Still it represents only 4 % of Russia's GDP – compared with up to 14% in developed countries.
Structure of the Russian Agriculture


Change in Production of Agricultural Goods


Why it is important to develop agricultural sector of the economy in Russia?
Russia's agriculture is among the most promising sectors of the Russian economy today. Russia has a great deal of what can be considered "unused capacity" in agriculture. Russia is endowed with tremendous resources in terms of land and water to boost agricultural production.
If the government managers to find the solution of problems, Russia will be able to become a major agricultural power boosting Russia's GDP and export potential.
Potential importers of Russian agricultural products can be European countries and developing countries, such as Iran and China, which because of the rapid grow of population and lack of agricultural area will soon have to import agricultural products from abroad. In the «OECD-FAO Agricultural Outlook 2006-2015» Russia is viewed as potential exporter to the countries of Middle East and North Africa.
Growth of production and export of agricultural products will have a positive effect on the economic and social development of the whole country, on the demographic situation in the country, formation of the middle class. Agriculture would also push money into rural areas – where it is needed most. It would also create labour-intensive industries to compete with construction in Moscow, which for now is the target of nearly every immigrant to Russia and nearly all migration within Russia.
Moreover Agrarian countries have "a certain buffer that softens the effects of the global financial and economic crisis".

Russia agriculture vs american agriculture.
Almost 21mln.people or about 17 % of all population works in the agriculture of USA. Nearly 3 millions independent farms deliver feed products to the American consumers. The area of an average farm in the USA makes about 400 acres.
Specific feature of financing of USA economy, is that the means from the federal budget are primary allocated for the target programs having national importance.
In the USA the agriculture is based on farming. The main aim of agriculture is to make it competitive on the market. The agriculture gets all the support from the side of government, which also protect the farming from inflation on the market. Besides a farmer has a right to leave as deposit his produced products in the period of the decrease of prices, so that it could help to maintain the production level. However if the state on the market improves, the producer (a farmer) has a right to take back his products and gave the money from his earnings to the government.
The US agricultural policies provide minimal and steady prices for agricultural products. The price support frequently results in huge surpluses of agricultural products. There is therefore some concentrations of agricultural production in hands of the largest manufacturers in the USA. But even largest agricultural manufacturers accept the established prices for production.
So, one of major functions in agriculture is to stimulate scientific and technical development, accelerate realization of technical novelties, which, as a rule, require large additional capital investments.
We have recently visited one of the states of America -Iowa, which concentrates on agriculture. There are a lot of farms, which grow the crops, grain, and livestock. Moreover all the farms are well-equipped.

Thus the agriculture in USA is highly developed, and one of the main points in achieving such good results-is the protection from interfering foreign companies and their subsidiaries.
However in Russia we can see a different situation. There are a big amount of agriculture holding companies with dominated share in foreign capital. Foreign companies buy the land and allocate their farms, so that it made a big competition for households.
Another reason for poor development of farming is corruption. It is better to attract foreign companies and give them for rent the lands, than to sell it to the farmer.
Finally, Russia is willing to import more production , than to produce it.

Investment in Agriculture
It may sound strange, but wheat and potatoes could be worth their weight in gold.
Potatoes, Cattle and Wheat – These could be the surprise winning investments for 2009. Unlike the stock market, agriculture could be a safe bet in the unfolding crisis.
The world financial crisis in contrast to other fields of economy can only contribute to the development of agriculture. Economists advise in such times to invest money in everlasting values like golden bullions. But grain and potatoes are the same bullions. They will be on one same level, while currencies can go up and down. So with high levels of volatility on the stock markets and the possibility of a second wave of crisis hitting the economy, many are turning to the land for a better return on their investment. The agricultural sector has a lot of promise. Industrial production of potatoes, growing of sabadilla and cattle breeding are the most attractive ideas for investors in hard times. Agriculture has three great advantages – steady demand, falling land prices, and growing government support for the sector. And people will always eat and drink, not depending on crisis.

The most profitable businesses to invest in Russia:
• Potatoes
Industrial production of potatoes starts from 100 hectares
Initial investment - $0.5mln
Operational costs - $2000 per hectare
Gross Profit - $6000 per hectare
Investment repay in 2 years
But it is a specific market. 80% of potatoes are grown by individual farms, which can damp the market. That is why large producers try to make their product premium and sell washed branded potatoes in supermarkets twice the market price.

• Wheat – gross profit $740per hectare
• Sunflower – gross profit $690 per hectare
Gross profitability of wheat and sunflower is 35-40%, initial investment - $1mln.
• Cattle breeding is considered to be the most profitable.
Minimum capital - $10mln.
• Production of pork and broilers has the quickest turnover – at about half a year. But it is difficult for a beginner to enter the market – competition is very high.
• Another idea – cows. Cow gives beef, milk and calves.
Initial investment - $10000 plus $2000 operational costs per cow.
Repayment period of one animal is 5-7 years.
• More interesting idea – an ostrich farm.
Gross profit – 50%,
Repayment period – one year.
Entrepreneurs don't seem to be spooked anymore by the long payback period in agriculture. In livestock, it takes 10 years. With Ostrich farms, it’s just one year.

A conclusion can be made that the development agriculture is as important as the development of other sectors of the Russian economy. And not only government, but also private investors can find it profitable to invest money in agriculture.




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