Dmitry Medvedev holds a meeting on supporting agricultural producers affected by the abnormal weather, in Ilovlya, Volgograd Region
Dmitry Medvedev: Colleagues, we are meeting here in the Volgograd Region for a reason. We could meet in one of several other places, for example Kalmykia, or some other region affected by the abnormal weather, or to put it bluntly, the drought. In short, the situation is very complex. We have barely recovered from the severe drought and forest fires of 2010, when our agriculture sector is again faced with new problems in 2012, at least in some areas in central and southern Russia and Siberia.
I have already held a video conference on providing support for agricultural producers and on fighting the fires. As we agreed, I have decided to continue this policy and hold a conference on location here. We have just returned from the fields, which is why we are meeting in the Ilovlya District. It’s a sorry sight: everything is dried up and the new shoots are very small. We therefore need to consider how to translate the measures which we have started discussing into practical assistance for agricultural producers and how to solve the problems the country is facing.
The harvest is underway across the country, crops have already been gathered on 11 million hectares harvested about 26 million tonnes of grain on an area of 11 million hectares. The forecast for the year is 80 million tonnes, if I understand correctly. Is that right, Mr Fyodorov? (addressing Minister of Agriculture Nikolai Fyodorov). These numbers are quite acceptable for our agriculture and our country; we will even have some export potential. But we still need to maintain these numbers. I mean, of course, the carryover in the amount of 16-17 million tonnes to cover own needs. There doesn’t seem to be any indication of potential grain shortages, but we still need to keep up the harvest numbers. The situation is particularly difficult here in the south, some regions of Siberia and the Volga Region.
The average yield is much lower than last year, down almost one-third. It currently stands at 2.3 tonnes per hectare; last year it was 3.3. In some regions, the yield is even lower. A state of emergency was introduced in ten regions: the Orenburg, Volgograd, Saratov, Kurgan, Chelyabinsk and Rostov regions, the Stavropol and the Altai territories, and the republics of Bashkortostan and Kalmykia.
Last year, we exported over 27 million tonnes of grain, which was an all-time high for Russia. We should strive to maintain our positions in global competition. It’s income for our farmers, but the situation on the domestic market is of no less importance to us.
The state created a set of necessary tools that can be used to stabilise prices on the grain market, including commodity interventions. We will talk about it today. We have about 5 million tonnes of grain in the intervention fund. Of course, we need to look into pricing, because there are attempts to manipulate prices, which affect the overall situation. I would like to hear proposals with respect to these issues as well.
Grain and livestock fodder supplies are a very important issue as well. We will need to provide targeted support here. It is critical that the livestock headcount not decrease.
Another issue that I just talked about with my colleagues in the field has to do with insurance arrangements. The situation is complicated. There have been certain changes: in 2010, 4% of crops were insured, if I remember correctly; this year it is 10%. However, the real problem is, of course, in the need to prove the extent of actual damage during damage estimates and subsequent decisions by insurance companies. Insurance companies should focus on agricultural producers, and it is very important that farmers insure substantial portions of their crops. The sides should meet each other halfway. Some ideas have been proposed. I would like the government to look into them. I am referring to changes to insurance legislation and independent expert analysis of existing problems. In other words, we need damage estimates that would be different from damage estimates conducted by insurance companies that are invariably interested in minimising the extent of the damage or even proving that there was no damage at all. We need to think about ways to build such an institution in practice.
I hope that the new system of agricultural insurance will be applied in a much different scope this year than before, where the state will cover up to 50% of the premium. The average figure for Russia is 10%. For spring sowing, the numbers are better at about 20%. Still, this is very little, because in 30 out of 68 regions less than 10% of areas are insured. The percentage of insured farmers in the Volgograd Region is low as well. We are talking about areas where droughts are not uncommon. Not a single insurance contract has been signed in 16 regions. That’s not the right way to do things, because it means that farmers are either relying exclusively on themselves or on state subsidies. Yes, the agricultural business is a special and complex business, but it's still a business. We need to think about this. I hope we will talk about this. I would like financial oversight authorities to join in addressing this issue in addition to the government. I am referring to the Federal Financial Markets Service and the Ministry of Finance.
Speaking about prospects for winter sowing, you may be aware that on June 30 I extended until December 1 the government resolution on reduced prices for fuel and lubricants for agricultural producers. These prices are 80% of the average wholesale price across the region, so this issue has been resolved for this year. Now we need to resolve lending issues, make seeds and fertilisers available and assist drought-stricken regions, so that they can buy all that is required for sowing.
We will allocate an additional 14 billion roubles to support agriculture this year. I have already taken these decisions. They relate to Russia’s accession to the World Trade Organisation and specific support measures with respect to problems across several regions. I propose using a portion of these funds to purchase seeds for sowing and fodder. The Ministry of Agriculture should determine the amounts.
I would like the regions and volumes of grain interventions to be identified as soon as possible. I hope you already have proposals. I would like our colleagues to speak about this at our meeting. Of course, we need to discuss the agricultural equipment, including in connection with what’s happening today. In fact, even loans pose problems, but I hope that heads of agricultural enterprises present here will report about their proposals.
Let's get to work. Let’s first listen to a brief statement by the minister about the situation. Then we will hear from heads of the regions that have been seriously affected, and then farm managers and heads of financial and development institutions. Please, Mr Fyodorov, the floor is yours.
Nikolai Fyodorov (Minister of Agriculture): Thank you, Mr Medvedev. Allow me to report that according to the regions the losses today are 5.3 million hectares of grain crops. To compare, there were 13.3 million in 2010. Preliminary losses submitted by the regions exceed 30 billion roubles. This figure needs to be clarified as usual. I can give you another example when in 2010 the preliminary damage was estimated at about 65 billion roubles by 43 regions. However, after the damage had been assessed by experts from the Ministry of Agriculture, Ministry of Emergencies and other experts, the figure was revised down to 41 billion roubles.
Dmitry Medvedev: Mr Fyodorov, what is the preliminary figure now?
Nikolai Fyodorov: 33 billion roubles.
Dmitry Medvedev: Meaning that it can be revised?
Nikolai Fyodorov: Yes, by experts.
Dmitry Medvedev: But it’s still going to be at least one-third of what we lost in 2010, correct?
Nikolai Fyodorov: Yes, that’s what I show in papers.
Dmitry Medvedev: All right, then.
Nikolai Fyodorov: Shortages of grain may amount to 12 million tonnes in these 20 drought-stricken regions, and we expect about 14 million tonnes for all of Russia. Even with the minimum grain harvest forecast of 80 million tonnes or less, we will have 93.3 million tonnes with 70.3 million tonnes going to domestic consumption. What I mean to say is I can confirm what was said by experts from the Ministry of Agriculture and elsewhere: domestic demand will be 100% covered and we will still have some grain to export.
Dmitry Medvedev: In other words we are not on the brink of a disaster as in 2010?
Nikolai Fyodorov: No, that’s not even an option. Drought also affects fodder, which is natural. In turn, this will affect livestock productivity and headcount. Your proposal to support fodder supplies from these resources is quite timely and was expected by our agricultural producers.
There is a very serious insurance-related problem. No matter what we say about insurers, or legislation for that matter, insurance level last year was not any better than now, because all of it was limited to the amounts allocated by the government. In fact, they were using criminal or quasi-criminal schemes...
Dmitry Medvedev: You headed a fairly well-to-do region for a long time. Did you use insurance in your region?
Nikolai Fyodorov: Yes, we did.
Dmitry Medvedev: You did?
Nikolai Fyodorov: We did, because we knew that all that is insured will be covered exclusively from the federal budget. Therefore, there was no risk for you, if you were honest. If you were not honest, though, there was a risk that this scheme would turn criminal, which actually was largely the case across Russia. This is also why they decided to amend the law.
However, today there’s no need to be afraid of this legislation. We should get used to working within the law, improve this law, including in the ways mentioned by the prime minister. We need uniform requirements that will simplify relationships between producers and insurers, on the one hand, and toughen penalties for violating the rules, on the other.
There are many odd provisions because we are just starting to use this new legislation. Technical violations are presented as violations on the part of producers. We have instances when claims adjusters tell us that we should have used Caterpillar instead of Minsk tractor to avoid damages. Things like that. The drought is the problem, not the choice of the tractor. We are seeing this increasingly on behalf of claims adjusters, so we need to agree with the association of insurers, the Federal Financial Markets Service, and the Ministry of Economic Development about harmonising these rules and developing the ones that will be clear to everyone. We have relevant proposals and even have a dedicated working group. We will submit requisite materials on improving regulations and rules of contracts signed between producers and insurers within a few weeks.
We will have to resolve the problem of seed quality in connection with the drought, and we are ready to offer 14 billion roubles and provide additional support measures with regard to seeds for the regions affected by drought.
Mineral fertilisers are a significant problem for autumn sowing in these regions. They need about 15 billion roubles. Unfortunately, the need for fertilisers is only 7.5% met, and some regions have not bought a single tonne, as far as we know. We are ready to provide certain amounts to support the regions affected by drought. They have also had a negative impact on amelioration. Several regions, including Kalmykia, Stavropol and Volgograd, will also need our assistance to at least maintain the current water supply [to the fields]… Some regions, in particular Kalmykia, have problems with fresh water. We are asking for support to them.
Dmitry Medvedev: Mr Fyodorov, what volumes are we talking about? Because we cannot achieve the Soviet-era volumes now; this is almost impossible.
Nikolai Fyodorov: No, we are only asking to close the debt gap that has developed this year. There are also last year’s debts. We need approximately 500 million roubles to deal with current problems.
Dmitry Medvedev: I see.
Nikolai Fyodorov: And then we will be implementing the targeted federal amelioration programme, which is why 14 billion roubles seems to be a realistic figure.
Dmitry Medvedev: We should develop this programme for the long term, considering rational approaches to amelioration, because there were amelioration programmes here, in the south, in the Soviet period, yet frankly speaking, the harvests were poor. That is, some years were better than others, but on the whole the harvests were smaller than they could have been. Now, we can use new technologies and develop amelioration systems.
Nikolai Fyodorov: We have come across many problems in the past. As for the recent period, I’m sorry to say that inspections are being conducted, and criminal cases have been opened regarding the fulfilment of plans to enhance soil fertility in some regions. There are many things that we should change, and the Ministry of Agriculture should tighten budget discipline to prevent this noble and potentially very effective idea from being discredited. In short, that's all I have to say. The last thing I’d like to mention is that regional leaders should know – even though they have considerable experience in this matter – that according to experts, harvesting of the winter crops has been stable in recent years across the country, despite droughts, though the figures differ from region to region. Therefore, the Ministry of Agriculture plans to draft a package of long-term measures aimed at increasing, at encouraging farms to increase the areas sown with winter crops to 20 million hectares, because this is a reliable investment. Seeking to stabilise grain prices on the market, we are prepared to submit proposals on the volume, deadlines and terms of pinpointed commercial interventions for individual sectors in individual regions within a matter of days, including the milling and fodder sectors. We can do this within a matter of days.
Dmitry Medvedev: Thank you, Mr Fyodorov. I would like to hear reports from our other colleagues now. Let’s start with Mr Bozhenov. In principle, I know the facts, so please, try to keep your reports brief. Please, proceed.
Sergei Bozhenov (Governor of the Volgograd Region): Thank you. Mr Medvedev, colleagues, farms in the Volgograd Region have harvested crops on more than 80% of the sown area and have gathered 2.1 million tonnes of grain. The average crop yield is about 1,760 kilograms per hectare. Food grain accounts for 86% of the total, and third class wheat makes up 51% of food grain. These figures could have been larger if not for one of our perennial problems, which Mr Medvedev has mentioned – the droughts. Our region suffers from droughts every year, but some years are worse than others. This is the fourth year running we have suffered from a severe drought, which began already in April or May this year and a quarter of the crops have been destroyed. In some areas across the Volga, in the region’s south and centre, the yield is 60%-70% below the average. Summer and winter crops have perished on 660,000 hectares. Almost a third of crops have been destroyed on the farm of Alexander Yegorov, who is present here.
We declared a state of emergency on June 27. We had forecast a 3.3 million tonne yield while now we expect just 2.3 million tonnes, so we lost a million tonnes, and farmers will receive five billion less roubles in profit, while spending 2.2 billion on tending the crops destroyed by drought.
We know that other regions are in a similar situation, and we are thinking about how to get out of it. Irrigation would rescue our vegetables and fodder crops. Irrigation had been developing in our region on a large scale since the mid-1970s. Our region was a national vegetable garden. The whole country knew our tomatoes and melons. However, the irrigation network was neglected in the 1990s, and the irrigated crop area shrank by almost a third. It survives in 11 out of a total of 22 municipal districts.
We are working on it, and thanks to the national government, relevant federal targeted programmes were adopted in the early 2000s. There were also regional programmes. Funding for the region’s irrigation reached a high last year: federal allocations amounted to 200 million roubles, and regional ones to 190 million. So we could afford, after a break of many years, to upgrade available facilities and build new ones. Nine thousand five hundred hectares were newly irrigated, and we purchased 21 state-of-the-art sprinkler units. At present, 295.5 million roubles out of the regional budget have been earmarked to maintain irrigation, and we intend to increase allocations to 404 million roubles a year in 2013-2015, while the federal budget will allocate 200-250 million a year, as planned.
Mr Medvedev, we realise that these are sizeable sums. However, it is not enough to fully restore our irrigation system, and we need this to rescue our vegetables and fodder crops. They are perishing, and we will have to conduct resowing, which would mean skyrocketing prices. Livestock breeders acutely need fodder, as animal husbandry is developing apace in the region. Now, the drought has made us purchase fodder, while irrigation promises decent yields in all weather.
There is no escaping from the drought, and people are leaving the countryside: they are not sure they’ll make any profit at all. We are losing our population and workforce. Mr Medvedev, please speed up the adoption of the new state programme on irrigation.
I would also like to speak about crop insurance. Mr Medvedev, you have often said that it should be developed. The federal budget has allocated 506 million roubles this year to promote insurance, and the regional budget 37.5 million. However, only 3.3% of summer crops are insured, and there are only 47 contracts for annual crops. The reasons include farmers’ money shortages and insurers’ reluctance to make deals during a drought. However, I think the main reason is farmers’ distrust of insurers, who go to all ends not to pay indemnities. At present, 80% of insured farmers in the Volgograd Region have problems proving their claims. Only the three strongest farms, which employ legal teams, are able to bring their case to court, and only one, in the Dubovka District, has won the litigation.
Vladimir Voronin’s story is typical. Mr Voronin is here.
Dmitry Medvedev: When did this happen – in 2010 or 2011?
Sergei Bozhenov: Last year. His 600 hectare barley plantation dried up entirely in 2007, causing him six million roubles of damage. His insurers demanded a weather service certificate about an anomalous heat wave, but his farm is in the Novonikolayevsky District, where there is no weather station. The nearest one is in Uryupinsk. So the farmer could not submit the paper and lost his case. He has not insured his crops in the four years since then. He has insured them again this year, however, and now his insurers have at least partially acknowledged the crop damage. Have I got your story right, Mr Voronin?
Vladimir Voronin (GelioPaks CEO, Volgograd Region): Yes.
Sergei Bozhenov: So they acknowledged it. More than that, it turned out this year that the insurers’ association proceeded in crop insurance from regulations that did not comply with the Agriculture Ministry’s order in calculating actual yields and the amount of crop destruction: insurers use a method that reduces the indemnity and robs their clients of their right for state support.
As for insurance, we need an extensive educational campaign, and all interested agencies should coordinate their positions. We are willing to do that. In fact, we are doing it even now.
The situation with sowing in the neighbouring area helps our region to purchase 58,000 tonnes of diesel fuel at reduced prices. We have also added 120 million roubles to the fixed budget allocation of 1.3 billion to partly compensate expenditures on electricity used for irrigation.
I don’t think we can manage without support from the federal government, and I expect my governor's colleagues agree with my point. I mean prospects for full reimbursement of farmers’ expenditures on the crops destroyed by drought. This amounts to 2.2 billion roubles in the Volgograd Region. All our proposals have firm grounds and are based on thorough calculations. Farmers who have not lost heart despite the drought need assistance – not only to display solidarity but to invest in their future success.
Thank you for your attention.
Dmitry Medvedev: Thank you, Mr Bozhenov.
Rustem Khamitov (President of the Republic of Bashkortostan): May I?
Dmitry Medvedev: Certainly, Mr Khamitov. Go ahead.
Rustem Khamitov: Thank you. I’ll be brief. There have been droughts three out of the four past years – 2009, 2010 and this year. Luckily, there was a bumper harvest in 2011 and we laid in 50% more grain and fodder than average. That’s why we are not starving now.
Rural communities account for 40% of the population in Bashkortostan, so natural disasters are not only an economic but also a major social problem, because tensions brew in the countryside as soon as disaster sets in. People feel frustrated because they do not achieve the expected results. Our republic will have a harvest of about 40% less than last year – about two million tonnes compared to last year’s 3.3.
Dmitry Medvedev: So, Mr Khamitov, how do you estimate your losses? Above 40%, right?
Rustem Khamitov: Close to 40%.
Dmitry Medvedev: That’s a lot.
Rustem Khamitov: Really – it will be 1.1 to 1.2 million tonnes.
Dmitry Medvedev: Very much indeed.
Rustem Khamitov: The grain we have now will last us through winter – I mean domestic consumption, but we’ll have no stock for next year. You have mentioned grain interventions, and we intend to apply for one so as to have at least the smallest necessary amount of bread grain.
The prices are exorbitant. We are in a paradoxical situation: the season’s rye price last year was 2,100-2,200 roubles [a tonne], and now it’s 5,000. That’s the price farmers set as they bring grain to town but we have prohibited grain sales because we need grain for domestic consumption to last through winter. We might have the same profit but we prefer not to take risks.
Dmitry Medvedev: The same profit for a far smaller amount of grain, you mean.
Rustem Khamitov: Yes, 1.5 times smaller, but we have banned sales, we say that we have to stock grain in. We have established a pledge fund to buy grain at 4,000 roubles a tonne from our farmers. So far, we have managed to keep grain in the republic, but the problem is looming.
Drought or no drought, we must harvest quickly – in fact, a drought requires even faster harvesting, because the grain is dry and sheds from the ears, so we have large losses. We need special equipment. I went to the Rosselmash farm machine plant last week. We will buy the entire stock of equipment that it manufactures – 10 or 15 sets. We’ll examine and test everything they offer. As it appears on the surface, we are doing rather well, but we are short of equipment. Our republic needs 6,000 combine harvesters, while we have only 4,000 in working order, so we have to purchase about a quarter of the necessary amount. And we also need government aid to purchase this equipment. We subsidise 40% of all purchased harvesters, tractors and other equipment. It is going well, actually. This year, we will buy 250 to 300 harvesters. If the federal authorities help existing programmes in the regions by 10% or, even better, by 20%, I am sure sales will reach a very good level. I am certain of that. This is not a great sum for Russia. The amount is considerable, it is true, but not excessively large, so we could look at this programme as well.
Now about debts. Everything has been said on this that can be said. Our farmers took out 6.5 billion roubles in loans, with one billion now overdue, very overdue. Of course, we need aid to extend our loans. We borrowed 3.5 billion against the 2010 drought. If we were given a couple of years in addition to what we have today, then we could get ourselves out of this situation and things this year wouldn’t be so tight.
We have covered insurance as well. I’d just like to add that the 2010 drought… There was a final court ruling on one farmer. He spent two years fighting for his rights. And he came out on top. The insurer was initially going to pay him two million roubles, but he proved it should be 14 million. And good for him, he won his case and an extra 12 million. But he is a strong, tough guy and could deal with this kind of thing.
Dmitry Medvedev: How much did he spend on lawyers?
Rustem Khamitov: I don’t know, but I believe a lot. I can say that we will get through the winter. The more difficult the situation is the harder our folk work. We will stick it out, but we need, of course, to have stocks available for 2013.
Thank you very much.
Dmitry Medvedev: Thank you.
Regarding loan extensions and additional subsidies I would like to hear heads of lending agencies speak on this matter. Mr Dvorkovich, you can comment on this later. It is going to be a complex situation. We can’t just blame it on the drought across Russia. On the one hand, we realise that a drought reduces our crop yield. On the other hand, as you know, food prices have been growing rapidly across the world, which is a good thing for farmers. But we have an overall balance to maintain in our country, because some farmers are doing well, while others not so well. Plant growers stand to gain, while livestock breeders are worse off. We should keep an eye on this situation and be ready to take prompt decisions even though we have joined the WTO.
Mr Orlov, I believe you have something to say as well. Your situation is difficult too. Take the floor please.
Alexei Orlov (head of the Republic of Kalmykia): Thank you, Mr Medvedev. I would like to say a few words on the current grain and fodder harvest. And, if you allow me, also to mention several serious problems which affect not only Kalmykia but also our neighbours.
Mr Medvedev, to date we have lost almost 57% of all our sown areas….
Dmitry Medvedev: I believe these are perhaps some of the biggest losses across the country this year.
Alexei Orlov: Yes. And the worst thing is that the crops that suffered most were fodder: we lost over 50% of it. Since livestock breeding is our region’s main line of business and we cannot survive without it, this is a very painful subject for us. You were right when you said that plant growers gathered what they could. The prices which have risen lately will to some extent make up for the shortfall. But our livestock breeding will suffer because this was fodder grain for them, which we planned in principle to buy for the current autumn-winter period. It cuts both ways.
Mr Medvedev, I wish to say that the amount you mentioned in your remarks to subsidise the farmers, or state aid in seeds and fodder, would be very useful for us. Why? I will explain. Today’s losses in our case total 896 million roubles, with 0.5 billion critical. A similar request is already sent to the Ministry of Agriculture, and if the government meets us half-way and supports us as it did last year, I am sure animal breeding will stay in positive figures. We have not lost a single per cent of cattle head (anything below one per cent is nothing serious). I am sure that our farm producers will not fail this year either. Why? Because we were very lucky with the beginning of July: there was a lot of rain, the steppe recovered, and perennial grasses grew healthily. I am confident that our cattle will be well fattened when the winter arrives, though the problem of fodder procurement and purchasing remains. We could see even at the start of spring that we could not expect anything good from nature this year. We experienced practically what all southern Russia experienced: we skipped spring and went straight into a devastating summer …
Dmitry Medvedev: Like in other regions, there was practically no spring.
Alexei Orlov: Yes, it has been a dry, hot summer. That was why in May we set up a crisis management centre, clamped a state of emergency on six districts of the republic early in June, and are now monitoring the situation closely.
At the moment we have about 50% of rough feed in stock, but that, as you understand, is not enough. I repeat: fine and favourable weather in July makes us hope we will obtain an additional 15% to 20%, thanks to dry farming and the grass growth. We are mowing it, but that will not be enough. If the winter is as hard as last year, with lots of snow and very long lasting, then without government aid we will have it hard. Therefore, I would like to ask you, Mr Medvedev, to consider the possibility of subsidising fodder compensation this year, just as was done last year when your assistance helped us to keep and save the cattle. I’m sure that such assistance this year would help us achieve good results.
I’m not talking about insurance but about water supply. This issue concerns not only Kalmykia, because water from the Volga goes to agricultural water distributers in three regions – Astrakhan, Volgograd and Kalmykia. We have major problems with debt owed to electricity utilities – I won’t cite any figures so as not to offend anyone. Thanks to the personal intervention of Agriculture Minister Nikolai Fyodorov three weeks ago, we have resolved the issue of rice for this summer and the coming autumn. We reached the limit by July 20, but the matter has been settled and now everything is fine. However, our debt to electricity suppliers prevents us from preparing for the autumn and winter season, filling the canals and having enough water to replenish the estuaries and bays at the end of the winter. Hence I would like to ask you to seriously consider our request for assistance. Again, it is not only us who need assistance, but also the Volgograd, Astrakhan and Kalmykia agricultural water distributors, whose debt should be restructured. That’s all I have to say. Thank you.
Dmitry Medvedev: Thank you, Mr Orlov. Mr Zerenkov, do you have anything to add?
Valery Zerenkov (Governor of the Stavropol Territory): Yes, thank you, Mr Medvedev. We are finished harvesting at this point. Of course, we have suffered from the drought and from winter cold like everyone else and so we have harvested only 4.2 million tonnes, which is only 65% of last year’s figure – we gathered 8 million tonnes by this time last year. We have not yet harvested the corn – we expect to harvest approximately 500,000 tonnes. In all, I think we’ll harvest about 5 million tonnes of crops, including buckwheat. Yes, about 5 million.
Mr Medvedev, we have many problems, but I think that the territorial government has been working hard to resolve some of them. This year we have also suffered from locusts and faced some other problems… Thank you for signing the orders on the distribution of diesel fuel to the Stavropol Territory: 56,000 and 120,000 tonnes. We allocated funds from the territorial budget to fight the locusts and extended the credit agreements for the affected farms and lease payments under territorial programmes, and are also taking measures to co-finance irrigation projects. Of the 443,000 hectares [of our irrigated land], we have saved 330,000 but will need to repair 110,000. If possible, we would like to ask for assistance to implement these projects.
As for insurance, the situation seems to be quite positive: 32% [of our farmland] has been insured.
Dmitry Medvedev: This is indeed good compared to the average situation in the country. This is top performance!
Valery Zerenkov: Yes, although I have a question about credit… to extend it for three years.
Dmitry Medvedev: Credit for whom?
Valery Zerenkov: I am referring to Order No. 90 on the distribution of subsidies, including from the federal budget for compensating the losses of agricultural producers. We have submitted a letter for 600 million [roubles], but it appears that the Ministry of Finance has reached a negative conclusion. Still, we have a request… We – the Stavropol Territory – have sustained direct losses of over 2.5 billion roubles. So we would be very pleased if you sign an order for the allocation of 600 million roubles.
This would help us resolve all of our problems... As for harvesting hay, we are proceeding with it though it has started to rain. We have not lost any cattle, not a single cow, so the situation seems stable, with the only exception being that the crop harvest is so far 35% below [last year’s].
Dmitry Medvedev: Yes, we have lost nearly one-third of the harvest. Well, now… Thank you, Mr Zerenkov. I suggest that we listen to reports by the heads of farms, that is, if they want to speak. Please, colleagues, anyone?
Valery Voronin: Good afternoon, Mr Medvedev. I am the director of a regional agribusiness, and I’d like to say a few words about insurance, crop insurance. The thing is that it does not work (this is my opinion as the manager of an agribusiness). The law is clear and viable, and I do not even mind the 30 percent franchise (which means we can break even sort of). The only problem is that while the law is viable, the insurance rules are no good. These are the rules the insurance companies offer us. I have personally found five loopholes that allow them to avoid liability in case of an insured event. One would have thought that it is very simple: there is the average crop yield over five years, there is the technology the company uses and the business is conservative with no sudden changes in technology. So, the key parameters are the average crop yield over five years and the kind of technology used which can be agreed upon, or the subject of a three-way agreement (insurance company, producers and the expert who assesses the technology). And that’s it, no confirmations of some dangerous natural phenomena or a lot of other parameters that are contained in the rules. Comes harvest time, the crop is brought in and the gross weight is determined, because today there are so many things one can latch on to… As Sergei Bozhenov said, in 2007 we went all the way to the Supreme Commercial Court but we couldn’t prove our case. The court was right, formally right, because we could not produce proof, that is, a confirmation from the Hydro-Meteorological Centre that we had a drought because the municipal entity where we work has no weather centre. It’s elementary. There are 12 weather posts for 33 districts in the Volgograd Region.
Dmitry Medvedev: Just a second, pardon me. Do I get you right?
Vladimir Voronin: Yes.
Dmitry Medvedev: Doesn’t another weather centre have the right to issue this confirmation?
Vladimir Voronin: First of all, the insurance company would not settle for a simple confirmation. Second, the other weather centre would not provide written confirmation because it does not assess the situation in other municipal entities. It kept no record.
Dmitry Medvedev: So, it was not authorized to issue confirmation because it was not conducting observations in your area?
Vladimir Voronin: No, it was not.
Dmitry Medvedev: I see.
Vladimir Voronin: And that’s the problem. We have been talking with some of our colleagues, from Bashkiria for one, while we were here and they have the same situation in terms of recording threatening natural phenomenon. We are well aware that there is a list of 15 or 16 natural phenomena in the rules. But a low yield might result from several factors, each contributing a little bit: a sparsely sown field has been touched by frost, or there was rain in some places and not enough rain in others, in some places the temperatures were higher than normal and all this may combine to reduce the harvest and produce losses (I’m not talking about a situation where a standing crop perishes).
I think a loss should be based on the average yield over five years and on the technology being used over those years, and also perhaps some other adjustments. But the main thing is to simplify the rules, make them transparent for both a large company and a small farmer, to deny an insurance company any loopholes. As things stand today, when insurance is paid it is either the result of the insurance company’s good will or a PR exercise that seems to say, look how good we are, come to us for insurance again. This is what I wanted to say about insurance companies, based on my experience.
As for support, I agree with Mr Bozhenov that of course farmers everywhere are doing all they can to raise a good crop. But because of the nature of the business, i.e., the dependence on climate and weather, in the last four years we have been seriously affected during three of these years, with only 2011 more or less normal.
Support is vital, and of course direct compensation for damages today is necessary. I think we could consider the option of extending the contracts payable in 2012. The debt burden, the burden of credit, is growing. In 2010 we prolonged the contracts for three years, I think that was a timely thing to do, otherwise we would have gone bust. But the three years have passed, the weather conditions are not good, and in 2013 we are due to payoff our extended credit. We are to pay in 2012, and next year we are to payoff the 2010 loans which we extended, the financial burden is snowballing. Therefore I think current market prices, which are due partly to world market conditions, must be maintained, that is 8 to 8.5 roubles per kilogram of grain. This is the price today in Volgograd. This would make it possible not only to make up for part of the losses we will sustain due to adverse weather conditions, but also perhaps to prepare to pay down our loans in 2013, the ones that were taken out three or four years ago. We understand that the state supports agriculture; we understand that there is a social responsibility, shared by agrarians, but it so happens that the burden of financial obligations to be met in 2012 and 2013 is high.
Dmitry Medvedev: All right, Thank you. Would any other farm directors like to say anything? Yes, please.
Pavel Skurikhin (President of the National Union of Russian Grain Producers): My name is Pavel Skurikhin and I represent Siberian Agrarian Holding and the National Union of Grain Producers. I would like to subscribe to what our colleagues said about everything having been done for a good harvest. We could count on 94 million tonnes nationwide, but the weather introduced variables. We will meet our needs. And I would like to say that we are not alone in experiencing these problems. In the United States, 29 states have been declared disaster areas, and they are discussing similar measures: granting emergency loans, financial support, in other words, even in the most developed countries agriculture is exposed to the same risks.
As regards maintaining prices at 8-8.5 roubles, I support my colleague because we have made our estimates and calculations. The consumer will pay, even if the price goes up 50%, which has already happened, for him a 50% increase in the price of gain would mean just an 11% increase in a loaf of bread. That is, grain will go up 50% and that would enable grain producers to cut their losses substantially, and the price of bread would go up only 11.5%, poultry meat 3% and pork, 5%. These are not catastrophic numbers and in roubles it is still less, that is, a loaf will cost three roubles more.
As regards the recent difficult years, in fact the problems began in 2008 when the financial crisis broke out. At the time they set up a commission to monitor the state of companies and perhaps that practice should be resumed because heavy debt has piled up during the past five years. In my opinion, the problem should be approached in a comprehensive manner because deferring it by another year is hardly the way to deal with debt that has piled up over five years. Perhaps we should conduct a review and consider a long-term restructuring of the current debt. While that analysis is being carried out, for example over six months, because many enterprises (3,000 companies face bankruptcy, which is more than 15% of the total), and perhaps the transfer of collateral could be suspended for that period, so as not to damage the production capacity? In other words, nobody's saying that they must not be transferred at all, but perhaps this should not be done while the farms’ performance is being analysed, in order to give them a second wind, so to speak? Also, the replenishment of working capital for financing the winter sowing campaign could present a problem. Farmers can barely find the money for harvesting, let alone winter sowing or tillage, in the Altai territory, for example, which has had forest fires for the fourth year in a row – they will be hard put to find the money for that.
As for state support, I don't think it is any secret that only the strongest farms receive state assistance, that is, those that have no tax or wage arrears and in general do better than others in all other respects. No other companies can receive state assistance, because their regions will be taken off these programmes even though they may need these funds more than others at the moment. On the other hand, I’d like to point out that Russia has become a major grain power in recent years, and I am sure that it will maintain this position, and the measures which I intend to propose now are aimed at maintaining and even strengthening this status. Thank you.
Dmitry Medvedev: Thank you. We will comment on your speech later.
Alexander Yegorov (Director of the Krestyanskoye Khozyaistvo farm, Chairman of the Ilovlya District Duma, Volgograd Region): Mr Medvedev, may I say a few words?
Dmitry Medvedev: Please, go ahead.
Alexander Yegorov: I’d like to contribute to this constructive dialogue without repeating what our colleagues have said. I am Alexander Yegorov, and I’d like to welcome you to our land, the historical area of the Don Cossacks. The River Ilovlya – many of you may have seen it – is the river of Stepan Razin and Yemelyan Pugachev.
As for climate, the drought officially began on May 10, when the federal weather service said…
Dmitry Medvedev: I take the mention of Razin and Pugachev to be an attack on the Ministry of Finance and the Ministry of Economic Development. You know who is present at this meeting. Please, proceed.
Alexander Yegorov: The drought officially began on May 10. You know that every ten days the weather service takes soil samples at different depths near its authorised monitoring stations. On May 10, the station nearest to us reported that the water content at a depth of one metre was less than 50 mm, which qualifies as a drought. In fact, it has not ended to this day. There was a short period of rains, which slightly alleviated the situation, but we are currently living in extreme conditions. The area of risk farming includes nearly the whole of the Volgograd Region. Kalmykia, Volgograd, Saratov, Zavolzhye, Orenburg, Kurgan and the Altai area will never compare to the Krasnodar Territory and the Rostov Region in terms of weather. We are now talking about state interests, because agricultural producers are often the last instance regarding people, and so when people in villages lose their jobs for any reason, whether due to economic reasons or because of drought… And they have neither hay nor fodder, nor any common stock or jobs, and there are only old people and small children, sparrows and crows in some villages, this is when we need state assistance for such areas of risk farming.
We are rapidly moving towards the WTO, we are almost there, and this is the time when we should say that insurance conditions should be different for areas of risk farming. People refuse to take out insurance, and they have no money for it, for a variety of reasons. Therefore, I suggest considering the possibility of compensating 75% rather than 50% of insurance in these zones of risk farming. Allocations for the Volgograd Region are estimated at 500 million roubles, but they will not be used, for the above reason. But people would [take out insurance] if the government were to cover 75% of their risks.
A few words more about insurance. We launched an insurance programme three years ago and will continue it; we have accumulated substantial experience in the area of insurance. But I also want to speak about some systemic drawbacks of insurance. Mr Bizhdov (Kornei Bizhdov, Managing Director of the National Union of Agricultural Insurers), the National Union of Agricultural Insurers is a good organisation and we would be happy to have it as a partner. But what is the current situation? They collect insurance companies under the banner of the National Union of Agricultural Insurers, write a standard insurance contract, register it with the Federal Financial Markets Service, submit the documents to the Finance Ministry and say: “This is the insurance contract that all insurance companies provide.”
The Agriculture Ministry is busy trying to deal with current problems, and it has no time for other issues. They write an order and then it turns out they have not even read this “standard” contract of agricultural insurance, which stipulates biological and actual yields. The biological yield is very difficult to calculate, first of all, and besides, we use accounting standards based on actual yield. The regional heads never use the term biological yield; they only use real figures, real produce, tonnes, and actual shortfall. This is why when we received the order from the Finance Ministry, the employees of the Agriculture Ministry read it and concluded that the insurance contract, which the Finance Ministry and the Federal Service for Financial Markets have examined, does not correspond to our data, and therefore we need a venue [for expressing our opinion]. This venue could be the National Union of Agricultural Insurers. Agriculture Minister Alexander Tarasov has proposed that I should be included so that I could make a positive contribution to this work. I believe that Mr Bizhdov has agreed that several representatives of agricultural producers should be included in this body. Unfortunately, we cannot find a common language; something should be done to reduce the distance between us. We are ready to work with insurers, and I can say from my own experience that this could be a great help. Even if they don’t pay for everything, at least they have paid part of the agreed-upon sums: 3.5 million roubles in 2010 and 4 million in the last year. This year, our losses from [damage] to winter crops have been estimated at 7.5 million roubles. We will try to find an acceptable style and methods of working with insurance companies. We even agree that their reserves should be increased by raising the insurance rate, but we will never accept a situation in which an insurance company tries to find drawbacks in the information of the weather service, and failing to do that, some imaginable technological failures. Unfortunately, failures of technology are easy to find anywhere, and our colleagues know that this is...
And then, the government should provide real assistance to producers, whereas today even the courts do not protect us. When we sued a respected insurance company, they even transferred our case from our commercial court to Moscow, which is a gross violation of procedure… These areas of risk agriculture exist, and they require a special approach. This is where we live, where the Russians live, that is our country, our motherland. Thank you.
Dmitry Medvedev: Thank you very much. Regarding bringing the insurers and the insured closer… There is no one closer to the leaders of the National Union of Agricultural Insurers than you: you are sitting here close by. What will the insurers say in their justification?
Kornei Bizhdov (Executive Director of the National Union of Agricultural Insurers): Mr Medvedev, if we stay away from details and some other important points, we get the impression in this meeting that agribusiness is challenged by two things – drought and insurers. Most importantly, Russian law had not regulated agricultural insurance before July 25, 2011. I want to underscore that Russia adopted this law for the first time in post-Soviet history. Formerly all this was governed by by-laws. This law has been in place for only six months. Therefore it would be premature to make principled conclusions that this law is either bad, or is inefficient, or has had catastrophic consequences. This is first.
Second – on insurance practice. I have just discussed it with Mr Yegorov – the existing statistics provide a good example. Statistics are a stubborn thing. Despite their peculiarities, the Volgograd Region, the Stavropol Territory and the Rostov Region have a basically similar climate and nature. According to our official statistics from the National Union of Agricultural Insurers for July 5, the Volgograd Region has 30,000 hectares insured and 21 farms that have concluded insurance contracts. The relevant figures in the Stavropol Territory are at least four or six times higher, and in Rostov Region these indicators are three or four times higher.
The third point that I want to highlight: Mr Fyodorov and his deputies have already held several meetings on agricultural insurance. Mr Dvorkovich was among the organisers of these meetings. No party involved in this process has said or can say that the law is perfect and there is nothing to improve in it. Moreover, insurance companies, agricultural producers and the Ministry of Agriculture similarly assess the major shortcomings of the law. The solutions are basically similar too. There is some difference, there are various approaches in technological aspects. These are working issues requiring further elaboration. Mr Fyodorov stressed that the Ministry of Agriculture is intensively developing consolidated ideas to be discussed at the level of Mr Dvorkovich on August 9 as I remember. We will discuss our consolidated proposals on changes.
The next point that I’d like to underscore: Not only insurance companies are suffering from bureaucratic idiocy. The cited examples on the need for one certificate, then another certificate and so on – I cannot either affirm or deny this because each case should be examined separately. We have other examples where, for instance, the bodies of the regional agricultural sector demanded a certificate on an average salary in the farm. What should I call this? That is an absurdity, it is permeating, both sides have it. But I ask you not to forget the main point: why an insurance company has to be so meticulous… I mean honest insurers. Unfortunately some insurance companies or subsidiaries of big companies exploit the aforementioned situations. The insurer must confirm with documents any insurance compensation at least because the insurance compensation is not taxed. The next inspecting body is the tax inspectorate, and if the latter detects a lack of some document in the insurance case or in the claim report or in the payment voucher, it launches the next stage of examination into an insurance company. So the meticulous and even excessive requirements of an underwriter have this explanation.
And the last point I want to make on the situation with drought. The insurers – members of the National Union of Agricultural Insurers – have already started to examine the insured events for which claims were filed. To date, following the drought of this period, major insurance companies (they submitted this data) have claimed losses of 510 million roubles on an insured area of over 63,000 hectares. Rosgosstrakh is claiming large losses (not only due to drought, but other natural disasters too), Ingosstrakh, the Soglasiye insurance company and others are also claiming large losses. I will not comment on these figures, because they will be defined more precisely later.
And finally the last point where I want to put the emphasis: If our joint task is to encourage agricultural producers (I underscore – encourage them) to get insurance, this task should be implemented with several instruments, and the main instrument is creating economic conditions providing advantages to the insured. We are submitting these consolidated proposals to an authorised body, the Ministry of Agriculture and to the Ministry of Finance; and we are firmly convinced that we will solve these problems given the goodwill and the wish to resolve these problems, and in the short-term the system will change.
Dmitry Medvedev: Thank you for your comments. As far as I understand what the farm heads present here have said, they have rather fewer questions on the law, and rather more questions on the rules adopted following the law. And the devil is always in detail. I used to be a practicing lawyer and I can say that based on any legal act that is fair to commodity producers it is possible to write such rules that will prevent any work. Formerly the banks had the following procedure: You sign a loan contract on one page with a remark that everything else is regulated under the rules adopted by the bank. And here they have 50 pages in small print and people who sign do not even pay attention to this. This is a so-called unsecured loan, an adhesion loan contract, when initially you undertake obligations which you don’t even see. But these contracts are at least governed by the law on consumer rights protection if consumer loans are concerned. Of course, this law does not govern commercial activities and agribusiness. So the issue of developing rules is as important as the issue of law improvement. Following this meeting I’ll sign an executive order to uncover cases of unjustified refusals to pay insurance compensation to farmers, as well executive orders to the Federal Service for Financial Markets, the Ministry of Finance and the Ministry of Agriculture. And naturally it has been proposed to introduce similar proposals on improving the rules and requirements to the agricultural insurance contract conditions. Let me emphasise, the issue here is rules.
Now concerning the matter in which I would like to agree with the head of the National Union of Agricultural Insurers. Mr Bizhdov has rightly said here that the situation regarding contracts in relatively similar regions in terms of climate, nature and even entrepreneurial conditions is very different. In other words, in some regions agricultural producers sign insurance contracts while in other regions they don’t. I am sorry, colleagues, I am addressing the governors now, this is an issue of primary importance – how you conduct relevant activities among heads of agricultural enterprises and farmers. We will likely reach a more advanced level in these relations – a loan contract will not be concluded in the absence of agricultural insurance contract, just as it is impossible in a number of other cases to sign a mortgage contract, for example, if the residence is not insured, or some other contracts. And this is something that needs to be done on both ends, both agriculture insurers and agricultural producers.
We also have heads of financial institutions and development institutions here. Do you have anything to say? I mean Rosagroleasing and Rosselkhozbank.
Valery Nazarov (Rosagroleasing CEO): Mr Medvedev, esteemed colleagues, the client base of Rosagroleasing now comprises 13,700 customers – legal entities who actually use our services, and quite successfully, especially the programme adopted in May which is aimed at agricultural equipment renovation. All those present here know that tractors and combine harvesters working in the fields are 70 percent worn out. This indeed represents big losses for agricultural producers. Why? Because it means major repairs (ranging between 20 and 60 billion roubles according to different estimates), fuel costs (up to 40% increase), and the basic thing – the cost of the farm produce. We have made unprecedented terms for that programme in accordance with the government’s instructions – no advance payment, six month grace period, which is in fact until the crops are harvested and sold, and collateral-free. And I can report that today we have already supplied 3,640 units of equipment and we plan to exceed four thousand by the year’s end. But what’s troubling is that we had expected that equipment over ten years old would be replaced, but the analysis shows that 63% of the equipment is between 20 and 30 years old. We were replacing equipment in the Tambov Region that had been in service since 1972-74 and is still in a working condition. So we have to continue this work and we shall do that. We plan to spend around 9.1 billion roubles on that programme alone.
In addition, financial leasing remains in place and we have already leased in excess of 3,700 units of equipment. I think by the end of the year we will supply about 12,500 units of equipment, all in all. In 2011, Rosagroleasing accounted for 25% of the tractor equipment market. I think we will be more active there in future.
The only thing that raises concerns… We supply equipment for both cooperative and private farms, and of course, purchasing combine harvesters that work for them for a little bit over a week, two weeks at the most, 240 total operating hours, while this sort of equipment should have at least two thousand machine hours a year... And the idea that we have put into practice involving two pilot Machine Technological Stations (MTS) in Samara and Tatarstan. As of today, Mr Medvedev, we can say for Tatarstan (it is managed by Ak Bars) that 450 thousand hectares of land is tilled, and they have tilled 20 thousand hectares of fallow land alone while losses decreased by 60 to 70%. This number is really impressive. And I think this by no means should be confined to that region, we should follow the harvest so that those MTS can offer services to many regions that need that equipment.
The next issue is, of course, payments. Indeed, we had placed a certain requirement on agricultural producers, but now we are changing that and we have transitioned to seasonal lease payments, which is essentially after the harvests are sold. That is, we conclude virtually all contracts today for agricultural producers to choose a payment option, season-wise. Agricultural equipment manufacturers’ interests are also important because today a demand is emerging for Russian-made equipment. Why? Because while negotiating with them, we tried to extend the warranty term, and today we can state that some agricultural equipment manufacturers are offering 36-month warranties. No imported equipment manufacturer offers that, and it definitely gives certain advantages. As to payment instalment plans, I can report that we have provided instalment for 6.9 billion roubles in 2010-12. As the Volgograd Region, I have already received a letter from the governor, we shall discuss it shortly with the loan committee and will provide such an instalment plan. Thank you.
Dmitry Medvedev: Thank you, Mr Nazarov. Now for Rosselkhozbank.
Dmitry Patrushev (Rosselkhozbank chairman of the board): Mr Medvedev, I would like first to say a few words about how the bank finances farming season work in general. As of the end of July, the bank has financed them in the amount of 65 billion roubles. Outstanding loans on farming season work in 2012 have been prolonged in the amount of 40 billion roubles. Thus in 2012 the bank’s loan support to agricultural producers totalled 104 billion roubles. Respectively, about 90% of applications to the bank have been approved, and this corresponds to last year’s numbers.
According to our estimates, lenders will need approximately 110 billion roubles this year, and taking into account the extensions we have calculated that the number will reach about 150 billion roubles.
Next I would like to speak briefly about the 2009-2010 droughts. They damaged the financial health of agricultural producers in 43 Russian regions. The bank prolonged credits to over two thousand borrowers in the amount of around 25 billion roubles, including the repeated prolongations of the 2009 credits. I would like to note separately that credits were prolonged to up to three years, while the interest rate remained the same and no commission was charged for the extension.
Concerning the 2012 drought, I would like to say that as of early June the bank received applications totalling 300 million roubles for extensions related to the ongoing drought; extensions were granted for loans totalling 180 million. And in our view it seems impossible to estimate the exact volume of prolonged credits by the end of 2012, as many farms, we think, do not know how much they are going to lose. When the damage is calculated they will be able to apply to the bank, and we shall consider the possibility of prolongation on an individual basis.
But I would like to note here that as of today we can prolong credits to six months, so if we extend them for six months, agricultural producers do not lose the right to receive subsidies. A special government resolution is needed for us to increase that term so that they do not lose subsidies.
I think the efforts that the bank is making cannot provide the necessary recovery of the financial and economic activities of the farms affected by the drought. They need assistance at the federal and regional levels.
Actually, extending loans is a way out of this difficult financial situation, but the bank may face an overall aggravation of the credit portfolio, which will inevitably lead to a worsening of its financial indicators and standards.
We have drawn up our proposals in the letter we have submitted to the government, specifying the ways this situation can be handled. The letter contains overall proposals as mandatory insurance and crop insurance, with the latter being the necessary condition for granting loans in case there is no loss insurance. Also, as I have already mentioned, we would like to request the government to take measures of state support that would promote the financial recovery of agricultural producers – possibly in the form of budget subsidies or budget loans.
Our proposals also include specific banking support measures, such as considering the possibility of introducing a special procedure for loan reservation during the extension of loans granted to agricultural enterprises due to the drought, as related to assigning such loans to a higher class. This would also include increasing the period of loan continuous instalment liabilities up to 90 calendar days, this period being the basis for revising the debt service and the reserve specification. These two proposals are for the Central Bank for the most part. But with your help, I think the Central Bank will agree to this.
Dmitry Medvedev: I will help in this, Mr Patrushev.
Dmitry Patrushev: Thank you.
Dmitry Medvedev: Thank you. As for the small number of extension requests – I believe that those agricultural producers present here at the meeting will submit their requests if they are forced to. At least this is what our colleagues told me during our open-air meeting, saying they would like to make an extension. Am I getting this right? Sure I am – as this is what the chief of the biggest agricultural bank is saying. Let them submit their requests for consideration. I would like all regional governors to make this information available to their agricultural producers to force them to take action instead of lamenting.
As regards the government’s resolution on the extension period for over six months – if necessary, I am ready to give orders for the government, the Ministry of Finance and other bodies to consider this and I will support the corresponding decision.
Dmitry Patrushev: Can it be done?
Dmitry Medvedev: Sure.
Dmitry Patrushev: But six months is not enough. We will extend the period for six months and next time they will fail to harvest the crops.
Dmitry Medvedev: I mean, the period of over six months.
Dmitry Patrushev: It has to be done.
Dmitry Medvedev: I understand. I am saying that this extension rule must work for a longer period. I hear what you are saying.
As for the institution of crop insurance – sure, the harvest insurance itself cannot be a compulsory kind of insurance in the form stipulated by the law. We have practically no mandatory insurance today – although I gave an order to study the possibility of restoring compulsory property insurance against fire and other natural disasters, as it was in the Soviet era. Actually, it was a kind of tax assessment. Naturally, crop insurance will be voluntary – however, as I have mentioned, and this was proved by the bank, most modern systems of crop insurance and agricultural business financing have such relations that make receiving a loan impossible without an insurance agreement. We have to use the model where it is profitable to provide insurance and you receive a compensation as well, and at the same time loans are granted in case when there exists a crop insurance agreement.
As for the special procedure of reservation, drought-related loans and the period exceeding 90 days, I will give an order and would like to ask my staff employees to include the corresponding items in my instruction. That is settled then. Mr Dvorkovich, will you say a few words…
Arkady Dvorkovich (Deputy Prime Minister): Thank you, Mr Medvedev. Ladies and gentlemen, I’d like to say a few words on the issues that have been raised today and that we have discussed in the last few days.
First, the balance between production and consumption is not disastrous this year. We are in good shape in the sense that we will have enough grain for consumption and can even afford moderate exports. Thus, we won’t exert a very negative influence on the world market but the general adverse effect is still there. However, if we do not support the future sowing campaign, our leftovers after this year may not be enough for the next one. If we are hit by another drought, risks will be serious.
Dmitry Medvedev: And nobody can rule it out for obvious reasons.
Arkady Dvorkovich: Therefore, we should not only do our best to compensate for the losses. We must also support production, sowing and further activities of agricultural producers next year in the areas that have been mentioned: seeds, fertiliser, fuel and lubricants, agricultural equipment and other things they may need. In line with your instruction we will submit our proposals on all these issues to the Finance Ministry. The Ministry of Agriculture will draft them and we will submit coordinated proposals in order to increase financial support for agricultural producers either by redistributing funds or in the process of making amendments to the budget next autumn. Apparently, we’ll have to both redistribute and increase funds.
Second, the debt load is one of the most serious issues and this is only natural. In the past few years we used the loan model to boost our agriculture and this was the right thing to do – we supported the growth of production. But if we fail to extend or restructure these loans for a longer term in some cases, no new loans will be issued. All support will be spent on the extension or restructuring the former loans and there will be no further growth. So we will use the mechanisms I mentioned for resolving this issue. I think that in addition the capital of banks will have to be increased. This is most likely.
Dmitry Medvedev: They haven’t even made a hint.
Arkady Dvorkovich: Not yet, but I assure you that this issue will arise next year if we follow the road of long-term restructuring and not only…
Dmitry Medvedev: Are you talking about both organisations represented here or just one of them?
Arkady Dvorkovich: I’m talking about both. We will probably take some targeted measures even this year. But next year we can take a more systemic look at this issue following the results of work this year. Needless to say, this year we are not going to ask additional sums on top of what we requested. What we are asking is within the established limits.
As for the Central Bank, it is of course possible to take some targeted changes, but it is impossible to say that bad loans are good. We can ease the requirements a bit, but money must be reserved for repaying the loans even though the borrowers haven’t paid them back for years. Money must be reserved for the loans by all means.
Now a few words about support for agricultural producers. Mr Skurikhin (Pavel Skurikhin) said we must support not only the strongest and the best but also those that are not doing so well. I think we must be very careful about this. We must support those who work well rather than those who are doing a poor job. We must help those who work well but fail to achieve the desired effect or run out of time (sometimes it takes several years for a farm to reach its goals). But we must not help those who are not doing anything, those who are doing a poor job or violating the law. We must separate these two categories and follow this principle.
As for risk farming, this is an absolutely correct approach. It is being used in all countries that are actively involved in agriculture. In line with recent instructions, the Ministry of Agriculture has now submitted a draft law on the regions with bad weather conditions for farming. We expect this law to be adopted during a session in autumn.
Dmitry Medvedev: How many regions are covered by this law?
Arkady Dvorkovich: About half of those that are actively involved in agriculture… There are regions with bad weather conditions, but they are not covered because they are small in agriculture.
Dmitry Medvedev: So, Chukotka is not counted.
Arkady Dvorkovich: No, Chukotka is not on the list. The law covers those regions with risk farming that are nevertheless actively involved in agriculture And our food security and our general balance depend on them.
Remark: This is true of all.
Arkady Dvorkovich: Not of all, the extent differs.
Dmitry Medvedev: Starting from Stavropolye and Kuban and ending with those that are doing even better.
Arkady Dvorkovich: Of course, these regions will enjoy special support. Moreover, as distinct from regions with favourable conditions, these regions can be offered WTO-allowed support. The WTO has special terms for these regions and this support will not be counted as part of the Yellow Basket with its restricted subsidies.
And the last issue – insurance. We had a meeting at my office and I will hold another one on the 9th of August. We have agreed on ways of changing legislation and insurance rules. In particular, we discussed the 30% criterion that must be subject to change.
Dmitry Medvedev: Are you referring to the so-called franchise?
Arkady Dvorkovich: Yes, the so-called franchise. Indeed, let’s say that the 30% is not always the correct assessment of average losses, far from it.
Remark: Catastrophic losses.
Arkady Dvorkovich: Yes, catastrophic losses. It is necessary to differentiate this figure. Should we renounce the assessment of unfavourable weather impact? This is a disputable issue. May we just simply proceed from “the average temperature in the hospital” as they say, proceeding from the last five years’ results and a certain set of agro technologies used? In any event, we must discuss this issue. There are also different crop rotation norms. Different crops are grown on one and the same areas and many farms start working on undeveloped lands. It will be impossible to apply this norm in the first year of insurance in this case. We must look into all this. I cannot give you the final answer and with your permission we’ll discuss this issue again. But we will improve the insurance rules in the next six months. I think that next year we will be able to do what you said – make the issue of state loans fully dependent on the certificate or agreement of insurance.
Dmitry Medvedev: Thank you, Mr Dvorkovich. To conclude our meeting I’d like to make three remarks. First, I think that the government is simply obliged to pay special attention to agriculture not only when it is hit by abnormal weather but also throughout Russia’s accession to the WTO. Life in the countryside concerns one third of our population. We must cover an uphill road in the next few years and I’d like all government members, the Finance Ministry, the Ministry of Economic Development and not just the Ministry of Agriculture to understand that we must take special care of agriculture now.
And I’d like to make two points on monitoring. One is about hydrometeorology. We’ve spoken about it several times today. This is ridiculous! There is a station in one place but none in another and without a station you are not going to be reimbursed for anything. We must put this right. I will give instructions to Roshydromet and the regions to deal with this issue. Let them find some premises, put up thermometers there – they are not sophisticated equipment – it doesn’t take a rocket scientist to do that! It is necessary to produce some document based on this monitoring, average temperatures… Say, this is a drought by our criteria, so an insurance company must get this document, sign and confirm receipt.
And the last point. I’d like our governors to monitor the food markets, of course with the Ministry of Economic Development, Ministry of Agriculture and the Anti-Monopoly Service. They should pay attention not only to the problems of agricultural producers but also to unjustified price hikes. There are always people who try to make unjustified profits on disasters and this affects the entire population of our country.
I will sign instructions following the results of our meeting. Thank you very much.