23 may 2012

Prime Minister Dmitry Medvedev chairs a meeting on the future of livestock farming at Kotlyakovo Farm

“We see that much has been done and the results are impressive. The situation in the countryside is changing for the better. Livestock breeding has finally received serious investors, largely owing to state support and business initiatives."

Transcript of the beginning of the meeting:

Dmitry Medvedev: This is the perfect venue for this meeting. You have invited me, Mr Denin (Governor of the Bryansk Region) and our other colleagues. As we agreed, today I’ve arrived in a region that is implementing a unique project on livestock farming. And, as we also agreed, this meeting is devoted to beef farming, which is probably the most difficult area in agriculture. We are all following the implementation of projects in this sphere. The Bryansk Region is carrying out Miratorg, the biggest project. There has already been huge investment in this project, but I think my colleagues will talk about this later. I understand that further investment in this project will also be substantial. Many people work at this enterprise, and receive good wages. Let’s listen to the presentation later on – they will probably tell us about this in more detail.

I must admit that when we started dealing with a national project in agriculture – I remember this was in 2006 – there were many skeptics. There were many skeptics in the government, not to mention some independent economists. They thought it was useless to invest in Russian agriculture. But today we see that we have come a long way to achieve positive results in the rural sector. The situation is changing. The industry has finally attracted sound investors – largely due to state support, on the one hand, and business initiatives, on the other. However, some sectors are in a far poorer state, including beef farming or red-meat production. This is what I would like to discuss.

Global beef farming has grown 12% in the past 15 years. In comparison, pork production has grown 30% – or by nearly one-third. Poultry production has seen a considerable growth of 85%. Regrettably, the national cattle stock continues to drop despite measures taken to prevent this from occurring, although the pace of the decline is dramatically less than before. The situation is better in our country than, say, in neighbouring Ukraine or other countries. Still, the cattle stock has been decreasing. For the sake of objectivity, we should note that it has also decreased in other countries, including in the United States. The EU has reduced exports by 85.7% and become a net importer. Generally speaking, this is not just our problem. It is worsened by the fact that – to put it bluntly– we have never had proper beef production. Whatever some political forces say, we have never had a developed livestock industry. Thus, we are creating this industry from scratch.

The strictly economic reasons are also obvious to everyone – long pay-off periods, the current reduction of accessible land and water resources and the re-orientation of agricultural producers – both small farm holders and big companies – to more profitable directions of agriculture, and last but not least, the excess number of regulations in all areas.

The world’s population is increasing; the global middle class, as those who have substantially increased the amount of meat in their diets are sometimes called, have a growing purchasing capacity. Needless to say, in these conditions, the supply cannot meet the demand. If this trend persists, Russian beef importers will have to compete for contracts against their counterparts from other countries, which will place our market and prices too dependent on the world situation.

I know this is common knowledge, but let me remind you that the price of beef has practically tripled in various countries over the last few years. This is a very serious increase. Russia must develop its own effective beef farming, reduce its dependence on imports, fill its own market with quality and affordable meat and occupy a befitting place on the world market.

Our main asset – not counting all those present (enthusiasts and entrepreneurs) and state support – are the natural conditions that very few other countries have. Their resources are very limited. We have the biggest croplands and we should capitalise on this. We have territories where the climate makes traditional agriculture (I’m referring to plant growing and grain production) virtually pointless. There are many regions like Bryansk. In principle, projects like Miratorg may be launched in other regions too. We have just discussed this issue. It is crucial that these projects be as big or even bigger than the one in the Bryansk Region.

According to expert estimates, our agribusiness is capable of increasing production. Competition in the poultry and pork markets is already prompting those who want to make a future for themselves to occupy the still available niches in beef farming. This is primarily cattle, of course.

Over 10 medium and large scale projects with a total investment of more than 20 billion roubles have been put on the table since the start of 2012. In this respect, a well-worked out system of state support for livestock farmers is of utmost importance. I have chaired a conference call on this which was attended by many, some in person and some in absentia. I gave a whole range of instructions following the conclusions of this conference call. The government has begun to work on the issue of subsidising interest rates on long-term investment loans (for up to 15 years) for the construction of livestock farms, as well as working on an option to extend subsidies to partially compensate the construction expenses for engineering infrastructure in large livestock farming projects. We are forming a decision on the extension of the period available for a VAT discount on pedigree livestock imports, as well as extending a favourable profit tax rate for agricultural organisations. I expect that a reasonable use of these measures can provide an additional incentive for launching and implementing livestock farming projects.

In the end, this branch may be able to become the backbone of the domestic agricultural sector. According to an expert assessment (we discussed this during the presentation), every new job in the livestock production generates some seven or eight jobs in crop farming, fodder production, processing, transport, logistics, veterinary clinics, and of course, in agrarian sciences. It produces a very strong cumulative effect.  

There is yet another positive aspect – the introduction or the return to farming of unused or deserted farmland, which still accounts for a very large proportion in this country - about 30%. We flew here by helicopter. We saw how it all looks. I am being totally honest here: everything looks so much better than it did just a short while ago. I mean, the deserted fields have now turned back into toiled land. It’s quite a contrast; especially if you look at some of the neighbouring farms: the numbers of their livestock are substantially decreasing, while ours are not decreasing so substantially. But most importantly, there are such large projects in place. For this reason, the return of unused and deserted agricultural lands is a very important task.

We have achieved a certain amount in recent years. I myself issued many orders and came back to this matter on repeated occasions. However, my colleagues are again telling me that these measures are not very effective. I would like the heads of the farms and holdings that are present here to say what else can be done to use farmland more economically, even down to the most severe measures because, even though we have a lot of farmland, we ought to be using it rationally.

And finally the development of beef farming can stimulate an additional demand for regional agricultural produce, for large-scale crop producers that are currently facing logistics and infrastructure restrictions hindering exports. In the future, we will not only be able to provide for the security of our food production in this area, but also to occupy a good niche on the global markets. A number of potential consumers are located in close vicinity of our borders: that is the European Union here, and further on eastwards there is Japan, South Korea, naturally, China and the Middle East. I want to hear your proposals, to speak about the problems involved, to discuss the tasks that we are to resolve in the context of Russia’s accession to the World Trade Organisation, because I realise that this is a test for this sector. Let us speak about it openly and we will work on your proposals.  

This is the agenda, in essence. It may not be not very broad, but these are the major issues for this sub-branch of livestock farming. Let us speak on all these matters and everything related to them. Present here are representatives of some regions who also have their own experience and, of course, their own vision of what should be done. I also want to hear your ideas and proposals.

Please, who will start? Anyone? Mr Denin (to Nikolai Denin), as the hosting governor, please go ahead.

Nikolai Denin (Governor of the Bryansk Region): Thank you, Mr Medvedev. First of all, I want to thank you for your decision to hold this conference here. What you have seen is just the start of this project.

Dmitry Medvedev: Honestly, it is impressive. I think my colleagues have had a look as well. 

Nikolai Denin: Without exaggerating, this is the future of agricultural farming in the Bryansk Region. This is linked primarily to the successful implementation of this project, supported by the government of the Russian Federation. As for the cost of this project, it is estimated at over 24 billion roubles. Just for comparison, the Bryansk Region’s entire budget is 40 billion. In 2005, the consolidated regional budget was 9 billion roubles. This is only one project and 14 billion roubles have already been invested in it. Breeding stock should reach 100,000 by 2014 and 80,000 by the end of this year. Currently, the Bryansk Region has a milk herd of 60,000.

Dmitry Medvedev: What about meat cattle? How large was the region’s stock before the project?

Nikolai Denin: You know Mr Medvedev… The Bryansk Region actually tried to implement this project during the Soviet era. They had a total of 600 animals, including 300 breeding stock…

Dmitry Medvedev: What happened?

Nikolai Denin: Nothing whatsoever. We had what we had. But now as many as 16 farms like this one have been built and they have been stocked with animals in 15 districts of the region (the Bryansk Region has a total of 27 districts).

By the end of 2013, a processing facility, commonly known as a slaughter house, will be completed with a capacity of 400,000 animals per year. This project can already supply 100,000.

Dmitry Medvedev: A facility which is commonly known as a slaughter house.

Nikolai Denin: Yes. Right now we are working on ways of cooperating with farmers. We are trying to develop the most efficient project so as to implement it throughout the Bryansk Region.

Miratorg has spurred on the development of livestock farming. It is also promoting crop farming. Today, 160,000 hectares of arable land are either private property or rented long-term. As I’ve already said, only cows will compel us to engage in land cultivation and this is what is happening now.

Mr Medvedev, I must mention one more investment project that Miratorg is implementing in the Bryansk Region. This is chicken farming. Next year it will sell 100,000 tonnes of poultry. In Soviet times, in our best years, as we call 1990 and 1991, the Bryansk Region produced 17,000 tonnes of poultry, whereas last year we produced 80,000. Once this project is completed, we will increase the annual poultry production tenfold.

These projects are also producing social benefits. Miratorg employs 1,400 people. Their average salary is 22,000 roubles. Regrettably, the average salary in the region’s agro-industrial complex is 10,200 roubles, whereas the economic average is 16,000 roubles.

In addition, we are seeing the return of the breadwinner, so to speak, in rural families. We have looked into the marriage and divorce statistics of the three districts where we are, the Trubchevsky, Pochepsky and Pogarsky districts. I do not know how this investment project works, however the number of divorces in these areas is lower than the average in the Bryansk Region. Probably it is due to the return of those who had left for work in Moscow and other regions. They have come back and keep their families together. 

Dmitry Medvedev: The cows bring back not only the land but the people as well, right?

Nikolai Denin: Yes, they do improve the demographic situation. There is also something being done… As far as personnel training is concerned, Mr Medvedev, all of us should work together on this. To date the Miratorg company has concluded an agreement with the Bryansk State Agricultural Academy to train a series of teachers. First they need to learn how to work with various types of livestock, farm machines, technologies and then they will be able to teach students. Currently, for teaching purposes they use a fodder unit taken on in the Soviet times, one kilogramme of oats, which is mostly… You know, what it has inside, it is good, but the outer layer is fibre. We continue to teach our students on this basis. So as to implement these projects effectively, these aspects should be drastically reviewed. This is what we are doing with Miratorg. To date we have leased out a college to them. They already cover scholarships and they have started on renovation work and providing equipment supplies in order to have the skilled personnel who will work there.  

I’d like to say a few words about our relationship. Not everything happened as we would have hoped, I mean, what we have today. And the biggest reason is probably a lack of discipline, including among farm directors and the local authorities, who don’t care for these assets as if they were their own. When Miratorg came to the region and started to restore order, it turned out that the directors who were regarded as the best managers in this area actually ended up digging the project’s grave... No wonder they tried to hinder the project. We had to take local activists, directors and the heads of rural areas – we have 289 municipalities, including 225 rural ones – on tours of the Belgorod Region, where the company has pig breeding farms, to show them the company’s value and what it can offer them.

It’s good that Miratorg’s key priority is people, so there are absolutely no negative aspects in the operations of this company. This is why I would like to thank you, Mr Medvedev, once again for the government’s support of this project. If not for that, the project would not have been launched. Thank you.

Dmitry Medvedev: Let’s listen to what they have to say. Thank you, Mr Denin.

Please, Mr Linnik (Viktor Linnik, president of the Miratorg agricultural holding company), tell us how it all began. Oh, it’s started raining; that’s a good omen.

Viktor Linnik: Mr Medvedev, colleagues. Mr Medvedev, thank you for the attention you are giving to this project. In fact, Russia has a huge potential for the development of beef cattle breeding. We launched our project three years ago. Special thanks to Vnesheconombank, which at that time started promoting itself as a bank for development. Two years ago, Vladimir Putin signed a loan agreement for 11 years, which opened the door for many major investments.

I would like to speak about several issues which, we believe, could boost not only large projects such as the Miratorg project, but also small and medium-sized projects which would greatly improve the situation in this sphere.

First, the priority task in the first stage of development of beef cattle breeding in Russia is to create a commercial pedigree stock as the foundation for the development of beef cattle breeding. This cannot be achieved quickly without large-scale imports of high quality genetic material for specific beef cattle breeds, such as Aberdeen Angus, Hereford and the like.

One of the support tools which has proved its worth in the past two or three years are major economic programmes, which didn’t disperse funds but directed them to the regions where a technological, qualitative and quantitative breakthrough was possible in various areas, including beef cattle breeding. These programmes will end in 2012. We propose that, considering the importance, scale and prospects for the development of beef cattle breeding, it should be formulated as a separate sub-programme in the agricultural development programme for 2013–2020. At present, dairy and beef cattle breeding are being developed as one sector, which is not the best approach because they are widely different in essence, technology and objectives. In our view, this would help make assistance more transparent and would also help in analysing the results of government investment in this sector.

Second, I would like to ask you to consider increasing the funding of economically significant programmes this year, in particular on beef cattle breeding, if this is possible at all, from 12 billion roubles sealed for this year to, say, 16 billion roubles. This would help other companies aside from Miratorg by creating conditions for the continued rapid development of meat livestock breeding.

There is one more issue to which I would like to draw your attention. The production cycle in meat livestock breeding lasts 3-4 years, when the pedigree stock is created, which means that the period from insemination to slaughter is longer than two years. Investors view this as a considerable hindrance. This explains the long payback period in meat and dairy livestock breeding, including cattle breeding. We know that the government is discussing the possibility of subsidising loans with a maturity date of up to 15 years in beef cattle breeding. We would like it also to subsidise short-term loans with maturity of up to three years. The current limit for pig breeders’ loans is one year. We would like to ask you to increase the term of subsidising loans to three years in meat livestock breeding, if possible.

Mr Medvedev, you said correctly that the development of meat livestock breeding is an important tool for redirecting farmland back into the production process. Large areas of farmland are needed for high volume agricultural production. We often see that farmland goes unused, but unfortunately, some nominal owners use the privileges approved for agricultural producers without using the land for farming purposes, and as a result fertile land becomes overgrown. In some cases, equity interest remains undistributed and it is difficult to consolidate large areas of farmland for building a modern enterprise.

We know that land related legislation has been amended, but we believe that the timeframe for determining that the land has been lying unused is too long. The current deadline is three years. We propose cutting it to 18 months. Since the deadline for beginning to use the land for agricultural purposes is two years, the overall deadline is five years. Given that businesses can only be inspected once every three years, this mechanism is not effective.

Dmitry Medvedev: Mr Linnik, what do you suggest? I want a clear answer.

Viktor Linnik: We are working with the Ministry of Agriculture to develop a system of measures in this sphere and could submit our proposals within a week.

Dmitry Medvedev: Just say it as simply as you can. This is a complex issue, so no matter how long you may work on it, you must already have some practical proposals.

Viktor Linnik: The practical solution is to cut the deadline for the non-use of land from three years to 18 months.

Dmitry Medvedev: And then what?

Viktor Linnik: And then file lawsuits to confiscate the farmland that goes unused from its owners.

Dmitry Medvedev: Should we take it away or approve other measures, such as higher fines?

Viktor Linnik: Well, that might be more appropriate… Taking away land from owners is a last resort. It would be better to take an economic measure, that is, raise property taxes, which are currently 0.3% of the land’s cadastral value for agricultural producers, by tenfold so that it would be economically unprofitable to allow land to go unused.

And second, we could conduct comprehensive inspections in the regions, involving the regional administrations and the Federal Service for Veterinary and Phytosanitary Supervision (Rosselkhoznadzor) to determine the size of the problem. This would help determine the amount of unused farmland in the central non-black soil area and to gauge our potential, for example in meat livestock breeding.

Dmitry Medvedev: I see.

Viktor Linnik: Third, I would like to draw your attention to assistance for infrastructure projects. These are two poultry and beef projects with allocations totalling 44 billion roubles, which we started using last year and will continue to use this year and in 2013. They will create over 6,000 jobs and provide for using over 200,000 hectares of farmland. However, we have several problems. This will increase the impact on roads and other infrastructure considerably. The impact on roads will grow in two years when cargo turnover will increase by 2 million tonnes per year. We would like to ask you to consider the possibility… that the Ministry of Regional Development or the Ministry of Transport find a way to support the region by allocating funds for improving and building new roads at the regional level. Otherwise we risk facing major social problems because conditions will become uncomfortable for people in the Bryansk Region.

Mr Medvedev, we have also received requests from the leaders of the nearby Kursk, Oryol, Kaluga and Smolensk Regions. We are ready to build cattle breeding farms in these regions. They have sufficient land areas that are not being used. This could help us shorten the payback period of the main project, provided we receive assistance from you as chairman of the supervisory board of Vnesheconombank as the bank for development in terms of additional allocations for building another 33 farms and developing over 200,000 hectares of land under the project.

In general, good conditions have been created for developing poultry and pig breeding. It has become clear to everyone that Russia has a huge potential for the development of meat livestock breeding. If the government and the Ministry of Agriculture carry on the strategy that was launched five or six years ago, we will reduce our dependence on imports dramatically in six to eight years. We will achieve the goal stipulated in the national food security concept, cutting imports to 15% of total consumption. In the future, we could export our products to the countries you mentioned. Thank you.

* * *

Following a meeting on the future of livestock farming, Dmitry Medvedev spoke with US cowboys who train Russian herdsmen on the Kotlyakovo farm.

Medvedev asked the cowboys how they are getting on. They said they had moved to this area together with their families. They like it there, even though everything is a bit different to how it is at home, but this is good for the kids; they will learn about a new country and meet new people.

“Where are you from?” the prime minister asked the cowboys in English. “From Idaho,” one of them replied. “Our climate is dry and here you have more rain; that is good for the grass and the cows will grow big and fat.”

Medvedev also asked them if they had picked up any Russian. One said he has learned a few important phrases. These are really vital for an American cowboy in Russia – “open the gates” and “close the gates.”