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Konstantin Y. Smolentsev
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Associations for Russian agrarian sector entrepreneurs

Konstantin Y. Smolentsev
 Ph.D., the Academician of IIA, ÑÌÑ
Chairman of Board of directors
IC “SMOLENTSEV & Partners”

Agrarian sector is a major component of a country’s economy, priority of which is defined by indispensability and a special role of the foodstuffs in a financial system of a state, functional value of agriculture, – one of the most vital, system-creating branches[1]. Agro-Industrial Union of Russia plays a significant role in agrarian sector, uniting representatives of multimillion peasant population, workers of processing and food-processing industries, fish and forestry, enterprises of service spheres of agricultural complex of state, scientists. One of the main problems of the Union is financial improvement of village, technology providence to agro-producers, preservation of large agricultural production, state regulation of the food market, also solving social problems in villages as Chairman of the State Duma of Federal Assembly of the Russian Federation G.N. Seleznev [2] has marked in the greeting to VI (extraordinary) congress of the Agro-Industrial Union of Russia.

Efforts of the Union are focused, first of all, on solving economic problems of AIC, improving the financial and credit systems, pricing and taxation. On sessions of Central council and Presidium such important questions as federal budget formation for 2001 and 2002 have been discussed; improvement of price policies in agro-industrial sector of economy; project of Land Codex of Russian Federation; increasing role of branch unions, associations and other unions of AIC in the development of manufacture. Special place took questions concerning the consequences for agriculture and AIC of Russia entering WTO. In the centre of attention remained problems of strengthening organizational structure of regional agricultural unions.

Proceeding from that, the Union concentrates its efforts on development of collective sector, basics for which have to become diversified agro-enterprises (agro-combines, agro-firms, agro-holdings, financial-industrial groups) with modern organization of manufacture and resource-saving technologies. Simultaneously, problems of creating agricultural unions, large holdings in AIC, where in one work cycle are united manufacture, processing and realization of agricultural products, demand more profound study and legislative fastening.

The major problem is carrying out purposeful work on financial improvement of agricultural enterprises, removal of weight of non-payments and debts from goods producers of AIC, which have occurred not by their fault. Unlimited import of food products (often the lowest quality) has led to replacement of domestic agricultural goods producers from the inner market.

Having the world’s largest land, labor and energetic potential, Russia on a consumption level of the foodstuffs has per capita appeared on 71 place in the world, practically having lost own food safety. By calculations of scientists of Rusagricultureacademy, the held external economic policy annually damages agriculture up to 12 billion US dollars which corresponds to more than 350 billion rbl., or to 12 budgets on support of AIC [3].

The Union constantly studies experience of Western European countries and USA, where agriculture is supported by the state government: nearly 47 billion dollars goes on these purposes in USA, in Japan – 49 billion. Counting upon one full-time worker this support makes 19 thousand dollars in the European Union, in Japan – 21, in USA – 19 thousand dollars. In Russia it was reduced in more than 10 times, and the state assignments for agriculture are practically annually reduced [4].

Speaking about agrarian Unions’ activity, it should be noted that Agro-industrial complex of Russia is going through a crisis, caused by pilled up problems from the Soviet time. February and October revolutions of 1917 have cardinally changed development process of agrarian system in Russia and have laid the basics of a period, within the limits of which, two stages can be allocated: 1) rise of a new system (1917-1940) and 2) its domination (1940-1990).
Two decades which have followed after the October revolution of 1917, have been very contradicting in terms of character and results in agrarian development sphere of the country. Distinctive features of the 1917-1920 period have become civil war and economic policy of “military communism”. In agrarian sphere the beginning of given period was marked by acceptance of a decree about nationalization of land (October 1917) and its socialization (February 1918). Nationalization of all territories was the result and lands of large proprietors were confiscated; leveling distribution of the land between "labor" facilities was held, wage labor was forbidden, the privately owned agricultural stock was transferred from "unearned" facilities in the order of local and central authorities; formation and development of collective forms of managing land was encouraged. Major part of land (232 million hectares) was given to peasants, which earlier belonged to large ground proprietors and "kulak" facilities. The quantity of country facilities has increased in 1928 up to 24,8 million units [5].

Reform period of 1990-2000 was characterized by dramatic events: collapse of the USSR, formation of Russia as an independent state, democratization of state and political systems, beginning of country’s economy to transform into market relations. Privatization and property introduction on a few means of production, liberation of prices and trade have become the basics for market mechanism formation in agrarian sphere.

The greatest distribution was received by agricultural cooperatives, which relative density for last 5 years has raised from 21,5 up to 46,2%. They have been recognized as a perspective form of organization of an agricultural production in the last years. Joint-stock companies (in dynamics tend to decrease), companies of all kinds and collective farms (similar tendencies) are widespread enough in an agriculture. Last three forms share 37,4% of total amount of agricultural enterprises. All other kinds of agricultural enterprises take in aggregate 16,4%[6].

In 2000 approximately 50% of village population has been under the poverty line, 15% had their income levels lower that minimum living wage by 2 times or more. Death rate of village population in the most capable reproductive age is growing.  Natural loss of village population in the 90s has reached almost 2 million people. The main cause of poverty of village population is full depreciation of agricultural work. Since 1994 the agricultural level of payment is on the last place among all branches of economy.

Labor potential of village degrades. The number of unemployed in countryside has reached 2 million people, or 16% of entire labor force. By UN estimations, level of unemployment that equals to 10%, is considered to be critical[7].

In the Concept of agrarian policy for the time period till 2010, which was developed with participation of RAACS and agrarian unions of Russia, the priorities of agro-industrial development are first of all investment (creation of a favorable investment climate for managing subjects of AIC with a goal to restoration and further development of it’s investment activity both by means of market levers of regulation, and on the basis of strengthening a role of the state – grants and subventions, indirect mechanisms – price relations, the size of credit percent rate of banks, taxation, acts on protection of Russian and foreign investors, etc.; defining concrete prioritized federal and regional development programs of AIC, with the realization of which, they have to be supported from the government)[8]. With this purpose, it is offered to create, on the base of Rusagriculbank, government credit-financial system of serving commodity producers of AIC.

To prevent further destruction of domestic machinery and creation of corresponding conditions for reanimation of the branch, a Union of manufacturers of agricultural machinery and equipment for AIC– "Unionagromach " has been organized in Russia. This Union represents a non-commercial organization, main function of which is coordination of activity of more than 150 joint-stock associations, enterprises and institutions of tractor and agricultural machinery, and also representation of their interests in federal organizations of management of AIC[9].

In developed and large developing countries participation of the government in problem solving of agrarian sector of economy and creation of large agro-industrial complexes is necessary and mandatory. For the development of agrarian sector in 15 countries of European Union in 1998, there has been allocated 130 billion dollars, equivalent of 45% of cost of realized AIC production. Subsidies to agriculture commodity producers for 1 ha have reached 3500 doll. In Norway, 1600 in Finland, USA – 200, Russia – 15 doll. A line of agreements about partnership, concentrating in machinery production, have occurred. As a typical example, one can name “AGCO Corp”, which united 16 firms. In Europe, on a base of four companies: “Sama” (Italy), “Lamborghini” (Italy), “Hurpiman” (Switzerland), “Foid-Far” (Germany), a company “SAMZ-Doic-Far” was formed. The most sensational event of 1999 and the largest transaction in the history of tractor and agricultural machinery development was Fiat’s purchase of “Case” and its further merge with “New Holland”. Again created company “New Holland Global” is one of the largest agricultural machinery producer (10 billion doll.), second after “Deere and Co” (13 billion doll.). For Russian conditions it is necessary to solve the question about coordination centre for agricultural machinery production, about creating a Federal corporation on technological maintenance of AIC[10].

Positive use of foreign experience of crediting agriculture is especially important in conditions of modern Russia. In the salvation of this problem, a major part play agrarian cooperative credit organizations (ACCO). Now in AIC of Russia 98 agrarian credit cooperatives have been formed, which include about 4 thousand shareholders. Cooperative societies embrace 29 subjects of the Russian Federation with its activity. Leader in the credit cooperative movement is considered to be Volgogradsk region, which had 40-45% of activity of agrarian cooperatives on the basic parameters (amount of cooperatives, number of members, volume of the share capital and given credits)[11].

Agro-industrial companies and corporations are created in AIC of RF with the purpose of realization of economic interests of every participant of integration via leading their united forces and resources for creation of conditions for increasing manufacture of agricultural goods and high quality articles of food on the basis of using results of innovation activity in AIC, formation of new production-financial relations.

The agro-industrial company (the open joint-stock company) represents a branch association of enterprises integrated in it on manufacture, preparations, processing and realizations of production, created on an administrative-territorial principle, as a rule, in borders of administrative areas with centralization of functions of management and regulation of productive and economic attitudes between the enterprises-participants. Inside each agro-industrial company mutual relation of facilities are under construction on principle "sale and purchase", joint investments, financial support, and partnership.

The regional agro-industrial corporation (the open joint-stock company) acts as interbranch association of all agro-companies of one or several administrative areas, created for integration of efforts of subjects of the market, perfection of management and regulation of production-financial relations at a regional (interdistrict) level.

The regional agro-industrial corporation (open joint-stock company) unites all regional and interdistrict corporations and manages their activity at a regional level on the basis of centralization of management and industrial-financial regulation. The regional agro-industrial corporation provides controllability of the market in system of AIC.

Agro-Industrial Complex, being a part of country’s economy, follows general laws of economy development and simultaneously differs by specific features, caused by high social importance of produced goods.

Transformation of economy’s agrarian sector, lead without a deep scientific background and during reasonably compressed period, has caused occurrence of some problems of permanent character both on macro-, and at a micro-level of functioning of AIC and agrarian associations.

Besides common economic problems (instability finances, absence of legislative guarantees in various spheres of activity, etc.), AIC tend to have special, specific problems caused by imperfection of production-economic relations in agro-food sphere, necessity of strengthening the Agrarian party of Russia and the agrarian unions.

Now, despite of separate attributes of stabilization, as a whole the agriculture of Russia and its unions are in a condition of deep system crisis caused by saved up problems of their functioning during the pre-reform period: availability of structural disproportions between various areas and branches of agro-industrial manufacture, infringement of coordination communications between managing subjects, a high degree of physical and an obsolescence of a fixed capital, irrational specialization of agricultural production (territorial, grocery and technological), insufficient use in manufacture of achievements of agrarian science, etc. Specified problems have caused an objective indispensability of reforming of agrarian sector and the agrarian unions with a view to increase efficiency of their functioning. As the most significant problems of updating of productive and economic relations between economic subjects, changes of ground attitudes, formations of specialized system of crediting for AIC and agrarian unions, a legal regulation were allocated[12]

[1] Popov À.À., Yah’yaev Ì.À. Agro-Industrial complex of Russia. Ì.: Economics, 2003. p 3.
[2] Materials VI (Extraordinary congress) of Agro-Industrial Union of Russia (on May, 17th, 2002, Moscow). Ì.: Rusinformagrotech, 2002.
[3] Materials VI (Extraordinary congress ) of Agro-Industrial Union of Russia …p. 29.
[4] Same material.
[5] Popov À.À., Yah’yaev Ì.À. Agro-Industrial complex of Russia  . p. 9.
[6] Agro-Industrial complex of Russia. p. 14.
[7] United Nations Development Program. New York, United Nations Organization, 2002. P. 23.
[8] Sm.: Conception of agrarian policy of the Russian Federation . Ì.: RAAIS, 2000.
[9] Nechitaylov S.N. Integration processes with the use of technology// Achievements in science and technology  of AIC. 2001. ¹ 9.p. 24.
[10] Sm.: Balabanov V.S., Borisenko E.N. Food safety: (international and internal aspects). Ì.: Economics, 2002.
[11] Agro-Industrial complex of Russia. p. 329.
[12] Sm.: Demyanenko V. Agriculture in Russia and USA // World economy and international relations. 2001. ¹ 8.

April, 2006 ã., Russian School of Management

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