President of Russia Dmitry Medvedev: Good afternoon, colleagues. Today’s meeting is very important, and it takes place at a very important time for the country’s rural life – the harvest period. This is a busy and difficult time, and it is the best time to examine the situation on the country’s grain market and take a general look at our agricultural policy’s effectiveness. We will also analyse the preliminary results of this year’s harvest.
As you know, this year has been difficult for everyone, difficult for all the different sectors of our economy. The crisis has substantially limited access to credit resources, and this has hit all of our producers, in the agriculture sector too, unfortunately. A number of investment projects were put on hold and problems arose with sales, management and profitability. The difficult weather conditions we have experienced this year have also had an impact on the agriculture sector, of course. In any event, this year has been considerably more difficult than last year.
But the package of anti-crisis measures has helped to stabilise the overall situation. Federal budget allocations for carrying out state agricultural development programs increased to 180 billion rubles [around USD 6 billion] this year. This is approximately a third more than last year and almost twice as much as in 2007.
The question of providing agricultural producers with fuel and lubricants and mineral fertilisers on preferential terms has been settled for the most part, and this turned out to be a timely step, as I discussed just before with Governor of Orel Region Alexander Kozlov. The Government informed me that on March 17, a special memorandum was signed setting fuel and lubricant prices at the level they were on January 15 for the period from March to May. Agricultural producers made a total saving of 2.5 billion rubles as a result of these fixed prices, and this is not bad in a crisis year. An agreement on recommended discounts for fuel and lubricant supplies and on supply volumes during the harvest period was signed at the end of May. The discount came to around 10 percent, and this is not bad either, I think, though of course we always want conditions to be even better.
Overall then, the harvest is producing quite decent results around the country, with the experts predicting a yield of 90 million tons of grain. I remind you that we had a particularly big harvest last year – 108 million tons, and the year before last brought in 82 million tons. This is sufficient to cover domestic demand and maintain decent export potential. The harvest of potatoes and vegetables is expected to be at least as big as last year.
But the problems do not end here of course. In our country, as usual, this is only the beginning. As you know, one of the biggest problems in our country is that of storing and processing the harvest. We have a lot of problems to address in this area.
We just visited one of the modern grain silos built in Orel Region. It represents a new level in this kind of facility. But the problem is that we have too few such grain silos. We estimated how many we need to build and came up with the rather large figure of around 300 such silos around the country. This represents investment of from USD 1.5 billion to 2 billion dollars. We could feel assured if we had this amount of silo capacity. This is what we need to aim for then, and this is the goal that the regional leaders and heads of the federal agencies responsible for this area should keep in mind.
What are the obstacles in our way? First, there are infrastructure bottlenecks, and not just the lack of grain silos, of course. Second, we are not making sufficient use of the potential domestic demand offers, and third, we are lagging behind technologically.
Today we saw how crops are harvested using modern equipment – Russian-made, jointly produced, and foreign – and modern agricultural technology. This includes the use of satellite technology. Of course, these technologies are not in use everywhere around the country, to speak frankly, but it is already not such a rare thing. Things are no longer as they were, say, 10 years ago, when a new combine harvester would be the talk of the entire region. This new equipment and technology is everywhere today, but not yet in the quantities we would like.
Russia has regained its status as one of the world’s major grain producers and is now one of the biggest grain exporters alongside the United States, Canada, and the European Union. We hosted the Grain Forum this year. The event was a success and we declared our ambitions – big ambitions. Just to remind you of our goals, we plan to increase our grain export capacity to around 50 million tons over the coming eight or ten years, making our country a world leader in this sector. Despite our difficult climate, we have all the right conditions to achieve this goal. We only need to speed up the process. This year, Russia should be able to export an estimated 20 million tons, perhaps slightly less or slightly more, time will tell. But this is all tied into the logistics issue as well. I said before that our storage facilities need modernisation and that we have insufficient transport capacity. In the Central Federal District alone existing capacity is sufficient for long-term storage of no more than 40 percent of the harvest collected.
I spoke with the Governor of Kursk Region Alexander Mikhailov yesterday, while I was in Kursk. Last year saw a good harvest, and the grain was sold in April. The money for it has already been paid, but the grain is still in the silos. What do we do in this situation? Where will we store this year’s harvest? This year’s harvest is also quite big.
We have infrastructure bottlenecks throughout the whole chain, from the silos to the port facilities. Total grain handling capacity at our ports currently comes to around 20 million tons, but if we want to reach export level we need to increase capacity to 50 million tons. We should aim at bringing capacity up to 30 million-40 million tons over the next few years. In other words, we need to double grain handling capacity in the ports over the coming years. This is not an easy undertaking. The main export route at the moment is via the Black Sea, with half of our grain exports going through the deep water port of Novorossiysk. But we want to diversify our grain exports, and this includes developing exports to the Asia-Pacific region countries.
The problem here is that our three ports in the Far East, Nakhodka, Vladivostok and Vanino, have combined capacity of just 2 million tons. This is nothing, and so decisions are needed. We need to build new grain handling facilities and new silos, and we also need specialised transport vehicles and need to develop the approach roads. I hope that the recently created United Grain Company will help in this work. One of its tasks is to develop the grain market’s infrastructure, including by raising private investment. Of course, state funding alone cannot resolve all of these problems.
Another problem is that of developing the foodstuff and processing industries. We have not seen much progress in this sector yet. We began working more actively on this issue when the national project got underway, but we still do not have full agricultural processing. Unfortunately, it is the farmers themselves who end up bearing a large share of the costs in the processing and sales sectors, and this is slowing down farm development and agricultural production development in general. We need to encourage competition in order to change this situation. The crisis period makes this particularly important, and this is the task now before the regions and the responsible agencies. We need to develop a modern foodstuff and processing industry, and only then will be able to really tackle the employment problem. We all know that a third of the country’s population works in the countryside. This is the result of our country’s historical development. This creates a number of problems, but it also gives us a number of advantages. It creates a particular hard-working way of life, a difficult life, especially given the insufficient mechanisation and backwardness in many areas of agriculture. This is something we all need to work on together then, all the more so as the experts calculate that one agricultural worker creates jobs for ten people in processing and sales. This creates a multiplication effect then that benefits other people.
It is hard to compete against foreign traders with access to cheap credit resources. Lending to the agriculture sector is therefore still one of our priorities. I expect that you will share your views on the current situation today and on the opportunities we have, including through the state support programmes that will remain in place in a number of areas.
Introducing modern information technology to the agriculture sector is another issue we need to examine. We are only just starting work in this area, but introducing advanced technology and modern production management practise is very important. We need precise information about the state of land, the crops planted and harvested, the situation on the markets, and the agricultural products consumption and production balance. Lack of quality and timely information creates serious problems, causes losses and makes our producers less competitive, and we end up not obtaining all we could have. At the moment, unfortunately, we are using data obtained from foreign countries, including satellite monitoring data, despite the fact that we are one of the biggest space powers. But we should not forget that we obtain all sorts of data from abroad, and often it comes from our direct competitors. If we had our own modern technology and equipment we would be able to evaluate the situation better and more rapidly and use this as a basis for taking the right decisions.
Finally, another issue we spoke about while visiting the fields today, we need to establish a full-fledged seed production industry. Currently, we buy most of our seeds abroad. The reason for this is that we have practically no seed production of our own to speak of now. Production of sugar beet and corn (which we saw out in the fields today) depend almost entirely on imported seeds. This is a disgrace for our country.
We therefore have the urgent task of organising production of at least three quarters of the demand for seeds for all of Russia’s main agricultural crops. Otherwise we will not be able to guarantee our country’s food security over the coming years, not to mention guarantee that we will succeed in reaching our ambitious goals of substantially increasing grain exports and earning money through exports of agricultural goods. We therefore need to get the scientific community involved in this work too, for we still have potential in this area, and we need to mobilise our production resources and make use of private business’ possibilities — for business should also invest in this area — and of state possibilities too, of course.
Colleagues, I would like to conclude our meeting. I feel it is important because every once in a while, the President needs to hear the Government’s reports on work in agriculture, as well as governors’ accounts on this issue. This is an extremely important area in our lives, and although we do generally take necessary decisions here, we still need to make adjustments.
So, based on today’s work, I will give a wide range of instructions related to infrastructure problems, particularly, in regard to grain silos and the possibility of subsidising interest rates on agriculture-related loans. We will also need to look into the legal problems I spoke about, draft a law on withdrawal of unused farmlands, and increase the tax rates on them. We will need to look into land share related problems over the course of this month, or perhaps, over a longer period of time.
We must continue the work we are already doing regarding loans. I hope that interest rates will continue to go down. In any case, our official bank rate is currently at its historical lowest historical. It’s true that this does not directly correspond to actual interest rates applied by the banks. The problem of long-term money is particularly important and complicated, not just for our agriculture, but for the entire national economy. To resolve it, we will need to use internal resources, since long-term lending remains a global problem. But the market is nevertheless beginning to breathe. I hope that we will see some progress here too.
We must consider using new, non-traditional forms of financing, developing the lending sector, and encouraging not only major state and private banks, but medium-sized banks as well, particularly private banks, to work with agriculture sector. I think that it might be a good idea to prepare such instructions to the Central Bank, because currently, loan requirements are the same in all sectors, while working conditions in agriculture are different from those in other sectors. We need to create additional incentives for the banks so that they can feel safe working in rural areas. This will mitigate the problem of providing loans for research and development, although I don’t know how things stand in regard to goodwill loans, as our colleagues said. This is a difficult topic because for the moment, we do not have criteria for measuring that goodwill. Too often it means fraud or swindling, and the banks are apprehensive about accepting such collateral to secure loans. That does not mean, however, that we shouldn’t work on this issue; we need to think about the future.
I also want to talk about the specialists being trained at our higher learning institutions. It is true that the assessment here was very pessimistic. Clearly, there are problems with training specialists, and we must work to improve the quality of our graduates’ knowledge and skills; our agricultural universities need to adopt a normal, modern operational scheme. This does not mean that we should toss out everything that was done in the past; we just need to train modern specialists. They need to be familiar with modern technologies, they need to do internships in other nations, and they need to be familiar with modern financial institutions and ways to arrange financing. For the moment, it is obvious that they are lacking some of this knowledge.
I will certainly give instructions regarding other issues that were brought up today. Our colleagues here said that some of our current problems in agriculture have to do with how successful we’ve been. It’s true, we have come a long way, but we cannot delude ourselves about where we stand now. We all know about what went on during the Soviet years; many colleagues mentioned that time. Naturally, in comparison to that period, we have improved by leaps and bounds. I personally did not deal with agricultural issues during my student years and after getting my university degree, but I do remember the state of agriculture in the northwest. Even then, during the Soviet years, I was absolutely horrified. If we compare that to what we have now – the development of lending institutions, ways to organise work, the state of our fields, the new facilities, and the new technologies – clearly, the two eras have nothing in common. But that is no reason to be overly proud of ourselves. We are still just at the beginning of our path. For perspective, we need only to visit the leading agricultural nations, in order to understand that we still have an enormous number of problems.
But at the same time, our own experience over the past ten years has proven that, contrary to the views of some economists, agriculture in our nation is not a black hole that just sucks in money without giving anything back to the state; nor is it an albatross, hanging on the neck of our economy – something we should just get rid of, and start importing all of our food products from abroad. Today, we have a completely different view on these matters. We understand that agriculture is a way of life for one third of our population. It is a perfectly modern and competitive sector, one that holds up even during the economic crisis. Regardless of what is happening in other industry sectors, there will always be a demand for food. This means that agriculture will always be in business; meanwhile, it is unclear whether other types of business will still be around 20 or 30 years from now. As a result, we have great opportunities to turn our agriculture sector into one of the global leaders in this field.
In order to do so, we need three things, which I think everyone present will agree with. First of all, we need new technologies, in the widest sense of the word – equipment and new technologies that should be implemented everywhere, from private farm holdings and all the way to the largest agricultural holding companies, which are already working to improve their technological foundations. Second, we must work on improving the economy of the sector and its companies. To put it more simply, we must work to reduce costs, which are already quite high in our nation. And third, we need to provide government assistance. The agriculture sector does not survive anywhere in the world without the help of the government, which should include the creation of legal and economic mechanisms. And this is an important task for everyone present: federal and regional leaders. Let’s work on this problem together.