8 february 2013

Meeting of the Government Commission on the socio-economic development of the North Caucasus Federal District


Dmitry Medvedev: Good afternoon! This is the first meeting of our commission on the socio-economic development of the North Caucasus Federal District. Today we will summarise the results of our work and plan concrete steps for the period 2013-2014. Today our main theme will be the development of agriculture and the related industries. Of course, this is not the only item on our agenda today. But as over half of the district’s population reside in rural areas, discussion of this matter is urgent. Not long ago I convened a special meeting on the overall situation in the agricultural sector. Now a few words on recent events.

In December of last year, the Government approved the State Programme for the Development of the North Caucasus Federal District to 2025. We have relevant regional programmes, and systemic work is being done with investors, coordinated by the North Caucasus Development Corporation. In the past two years, the corporation has analysed 100 investment projects, of which it has approved 16. Projected total investment amounts to some 100 billion roubles including the corporation’s proportioned participation. The combined effect will create 35,000 jobs. These are good figures but not sufficient considering the level of unemployment and the need to address social challenges. The main idea is to produce a positive effect for people as quick as possible. I expect that the head of the corporation will report on the work that’s been done. But we understand – and we’ve repeatedly discussed this with colleagues and regional governors – that it is impossible to improve the economic situation in the district with government investment alone. We must create favourable conditions for investors. They should be informed on the development of North Caucasus itself, on new business opportunities, on the region’s unique natural and geographic conditions, on the support that we can currently extend, by which I mean both federal and regional authorities, on whatever we can do for investors. Hopefully I’ll hear some specific proposals on this today.   

Development has picked up in several sectors in recent years. A tourist cluster has started to take shape. The founding of North Caucasus Federal University, which opened in 2012, is very important for the district. The annual festival of ethnic sports and traditional culture, the Caucasian Games, has been held since 2010. So we have a foundation for development. That said, there are many problems to tackle.

Now, regarding the main theme of our meeting – the development of the agro-industrial complex. Agriculture and related industries are the backbone of the economy in the North Caucasus Federal District.

In contrast to the situation in most regions, the local economy is dominated by farms – both individual entrepreneurial farmers and other minor business farms. In 2012, the district had over 68,000 farms and individual entrepreneurs, which produce two-thirds of the local agricultural output.

Additionally, due to naturally occurring circumstances and traditions, the North Caucasus has a special orientation both in crop-raising and cattle-breeding. These features must be considered while planning and developing the agricultural sector's growth points. The North Caucasus Federal District accounts for half of Russia’s grape harvest, as well as 10% of the country’s grain, fruit, vegetable, and berry volume. This showcases the district’s agricultural potential overall. 

Over the past five years, the state's support for the local agricultural sector has been implemented under a special governmental programme for agricultural development and agricultural market regulation. Some 38 billion roubles were allocated to this end from the federal budget alone. This resulted in 23% growth in agricultural production against 2007. The level of unemployment in rural areas has continued to drop, falling almost two-fold from 30% to 15%, although this is still considerably higher than the country’s average. The average salary in the sector has increased to 12,000 roubles, which is less than Russia’s average of about 15,000 roubles. What efforts should be made? The positive trends need to be solidified through the new state agricultural development programme for 2013-2020. The estimated financing from the federal budget is 80 billion roubles. The programme is expected to result in 45% growth in the district’s agricultural produce. I would like our colleagues to report on what has been planned to improve these figures.

Considering the experience gained in past years, efforts should focus on developing beef and dairy cattle-breeding, gardening, and grape-growing, and setting up logistic centres to process and distribute agricultural industry products.  

You know our agricultural industry's increasing competitiveness is a major activity of the Government. After Russia’s WTO accession, we need to improve our methods for supporting agricultural manufacturers.

As I mentioned, several days ago I chaired a meeting with regional officials on the grain market situation and the preparations for the spring sowing season.  

The weather here in Karachayevo-Circassia is like in the spring. An order was made to develop and submit coordinated proposals on allocating an extra 40 billion roubles from the federal budget for agricultural development and mainly for spring sowing works, as well as the proposal to nullify the import tax on grain until mid-summer. I would like all of the regional governors in the North Caucasus Federal District to report on the situation, traditional problems and current issues, if there are any.

It is quite clear that the district’s agricultural potential is sufficiently large for us to expect quality organic products for both the region and a large part of the country, and thus to win a position on the global food market. This means that the products you manufacture must bear an attractive brand. We should think about how this can be developed and introduced. However, this is only one of the issues that I would like to propose for discussion.   

Let's do it this way... First, I would like to listen to the Minister of Agriculture and his report, and then give the floor to the general director of the North Caucasus Development Corporation. Afterwards, I would like to give the floor to our colleagues – regional governors and ministers who are members of our commission. Mr Fyodorov (addressing Minister of Agriculture Nikolai Fyodorov), please go ahead.

Nikolai Fyodorov: Thank you very much. 

Mr Medvedev, ladies and gentlemen. I would like to note – as this is probably important – that over 20 years ago I was sent here as the chairman of the Government commission handling the ethnic conflicts in the Karachayevo-Circassian Republic. At the time, five republics were proclaimed on this territory – Karachayevo, Circassian, Abazin, Nogay, and Zelencyuk-Urup.

Dmitry Medvedev: I have just spoken about this period and what happened shortly thereafter with Mr Temrezov (Rashid Temrezov, Head of Karachayevo-Circassia) – these were difficult times!

Nikolai Fyodorov: Compared to the past, the current agenda is positive and allows us to look many years ahead and to be more responsible before those…

Dmitry Medvedev: And now you are not a Minister of Justice with a vengeful sword of justice, but rather a peaceful Minister of Agriculture. Aren’t you lucky?

Nikolai Fyodorov: Thank you for your confidence.

Ladies and gentlemen, the North Caucasus Federal District is a wonderful example of the fact that agriculture is not simply a branch of the economy in Russia, but rather a way of life, as Mr Medvedev frequently says. Over half of the district’s population lives in rural areas and the share of agriculture in the GDP is about 15%. This is four times the national average of 4%. A high share of small commodity production is a typical feature of the agrarian sector.

 However, as we all know, good things come in small packages. This is confirmed by the high performance of small companies. On the whole, their performance indicators are much higher than the national average, as Mr Medvedev has already said in his opening remarks. Apart from the federal investments in the agrarian sector, about 17 billion roubles from the federal budget were spent on the rural social development programme in the past five years – from 2008 to 2012. More than 40 billion roubles were invested from all sources on land improvement, which is important in this district. Large loans and leasing funds were also attracted to the district during this period. The heads of Rosagroleasing, Rosselkhozbank and Sberbank can speak about this. Their organisations are active in many regions in the district.

The state programme's implementation over the past five years has allowed us to increase agricultural production in many areas, and the production index is fairly high. You said that this amounts to 23% in the district, compared to the national average of 16.8%. Maybe it is premature to say this, but the contribution towards the development of the North Caucasus has been much more effective than the contribution towards the development of the entire country. These are the average figures, but they also matter – at least for those of us who work in  agriculture.

In the food industry, the district showed a 2.2-fold increase in the production of meat and by-products, a 2.8-fold growth in prefabricated meat production, a 63% growth in the production of whole-milk products, a 32% increase in the production of confectionary products, and a 14% growth in the production of cheese and cheese products. As a result of the “Social Development in Rural Areas” federal targeted programme and the Gazprom-sponsored programme, the level of gas supply provision in the district has considerably increased over the past five years and totals 77% – whereas the average figure for Russia is still only 55%. Drinking water provision has increased to over 67%, whereas this stands at 58% for the country overall. The state programme has also led to increased salaries and to reduced unemployment in rural areas. Mr Medvedev, you were talking about the increase in the average salary in Russia. Well, whereas the average salary in Russia has grown twofold, here it has increased almost threefold over the past five years.

As of January 1 2013, the number of individual businessmen’s peasant farms totaled 68,000, which is 25% of the district’s farming sector.

The “Support for Start-Up Farmers” and “Development of Family Livestock Farms based at Peasant Farming Enterprises” departmental targeted programmes, which have been implemented since 2012, have provided support to almost 1,000 start-up farmers in the distrcit. The programme has been in effect for one year, and over this period, 2,859 start-up farmers in Russia have received assistance, of whom 989 people are peasants of the North Caucasus Federal District. 259 local family livestock farms have also received support (in Russia, a total of 750 farms of this kind received assistance) – that is, one third of the country’s active peasants are ready to take a risk and engage in farming, a hard and high-impact type of labour. For me, as the Minister of Agriculture, these are very important and fundamental values, which we have to consider on both federal and regional levels. Last year 3,700 new jobs were provided in this area alone - 355 million roubles were sent from the federal budget to assist family livestock farms, and 613 million roubles were allocated for the support of start-up farmers – and the return has been very high.

Now, as regards prospective areas for developing the agro-industrial sector up to 2020, as assessed by the ministry. We suggest implementing the  following set of priority measures, which have been discussed with the heads of regions, who are familiar with them: developing logistic centres designed to store, pre-process and market farm and fish products; raising stock for milk, beef and sheep breeding industries in order to form regional meat and dairy clusters; drafting, jointly with the Ministry of Industry and Trade, a programme for introducing a high-quality food product brand, with an emphasis on the environmental aspect, as the Prime Minister instructed us to do. We recommend that the executive authorities develop regional targeted programmes to implement the relevant priorities in the fields I’ve mentioned, plus fruit and wine growing, a modern agricultural cooperation system, and the development of the food processing industry.

Please note that the Government will now provide state support under a new industry-specific state programme that has been adapted to comply with WTO requirements. Planned until 2020, the state programme is a co-financing arrangement: an estimated 80.7 billion roubles in federal investment will be channeled to the regions to co-finance expenditures under the regional programmes. To receive more than 80 billion roubles, the regions need to raise a total of 25 billion roubles by 2020. Please note that it is absolutely realistic, given an efficient work effort, to increase the farm output in the district by 45% by 2020, as compared with an estimated 19.6% in Russia as a whole. The amount of investment into fixed assets should increase by 55% relative to 2012 by 2020, and average monthly pay by 85%. During this year alone, if we follow this programme, as many as 7,000 new jobs will be created in the district and this figure will only rise in the future.

It is planned to plant almost 26,000 hectares of new vineyards by 2020 or 70% of the national figure and double the area the district has now. This will increase the number of jobs by 10,000 by the same date, while additional tax payments will add up to about 2 billion roubles.

As our talks with the regional heads indicate, it’s an ambitious but absolutely realistic task to increase the area of vineyards to 100,000 hectares, or the historical maximum recorded in 1985 before the start of the famous anti-drinking campaign. Among the district’s regions, the Republic of Dagestan is the leader in vine planting, accounting for 63% of the national figure. There are plans to plant 27,700 hectares of orchards by 2020, which is 51% of the total area of orchard-planting nationwide. This will provide more than 8,000 new jobs, which will increase to 28,000 during harvesting and bring in 550 million roubles in additional tax revenues. According to the plans, the introduction of new industrial capacities will boost the production of fruit and vegetable preserves by 200% and sugar by 150% by 2020.

What are the regions’ priorities in agriculture? Let me give you some examples. Livestock is the number one priority for the district as a whole. It will amount to at least 80% of gross output in the Chechen Republic, over 70% in Ingushetia, 65% in Karachayevo-Circassia, and over 60% in North Ossetia. There are plans to increase the share of meat and milk as a proportion of the total output of livestock products to 45% and 40% respectively in the Chechen Republic, 35% and 25% in Karachayevo-Circassia, 30% and 23% in North Ossetia, and 23% and 50% in Ingushetia. The plans for sheep breeding are as follows: fine-fleece and meat-and-wool in the Stavropol Territory, meat-and-wool in Dagestan, and meat in Karachayevo-Circassia and the Chechen Republic.

Aquaculture, or pond fish culture and agricultural fish farming, can and must be promoted in the district, considering its favourable climatic conditions. In piedmont areas, non-delicatessen fish (trout) can be grown and table fish (carp and others), on the plain. We recommend that the executive authorities in the constituent entities take into account the need to support aquaculture as they draft their regional agricultural programmes.

According to our estimates, crop-growing, mostly grain-growing, will remain the dominant industry (65%) in the Stavropol Territory. The same industry will account for more than 65% in Kabardino-Balkaria, and 58% in Dagestan. High-quality grain production is guaranteed in the Stavropol Territory, as well as in the steppe lands of Dagestan and the Chechen Republic. Maize growing is expedient in the piedmonts of Kabardino-Balkaria and North Ossetia, Dagestan, and on the irrigated lands in the Stavropol Territory. To promote efficient horticulture, we need to build new refrigerators to store fruit and berries over long periods without any loss of consumer properties. We also have to supply modern agricultural machinery and equipment to horticultural farms. Boosting indoor vegetable growing is an important component of agricultural development. Currently a mere one-third of the national demand for Russian indoor-grown vegetables is satisfied at 4-4.5 kg per capita as compared with 12 kg per capita recommended by the medical standards.

So the prospects for the development of greenhouse farming are great because there is huge demand for this. We plan to support the development of greenhouse farming by subsidising the interest rate on investment loans for up to eight years for the construction, renovation and modernisation of greenhouse farms. We recommend developing regional programmes for this. Experts say that climatic conditions allow at least 100,000 hectares of greenhouse farms to be built in the district. Mr Medvedev, there is currently twice as much land used for greenhouse farming in Russia. Here, we can add one third to Russia’s total, creating an additional 25,000 jobs in the district and increasing tax revenues to nearly two billion roubles. In this case, the further increase in agricultural production will require an increase in processing capacity. Here, too, starting in 2013, thanks to your support, we will grant subsidised loans to the eligible processors that are in demand on the market, enabling companies to secure additional loans for investment purposes and modernising equipment. The administrations of district’s regions can provide additional support for the industry without even providing funding, but by submitting projects to the Ministry of Agriculture y as economically important regional programmes. Then, in addition to the resources that we provide directly, we will add funding from the federal budget for such items as economically important regional programmes.

In conclusion, a very important, or a fundamental factor.  In order to ensure a more effective implementation of state support measures, the Ministry of Agriculture together with the Finance Ministry, with the Prime Minister’s repeated and formal approval at meetings in Saratov, Volgograd, Bryansk and Rostov regions, in order to draw local attention to the problems of agriculture, we are focusing on the principles of project financing in the implementation of the state programme. We want the state programme and regional programmes to become a single instrument for mobilising resources to ensure food self-sufficiency in both the regions and nationwide. And now I can probably say, Mr Medvedev, that this is the aim of our requirements, the Government’s requirements, for comprehensive and balanced solutions to the economic, social, environmental and infrastructure problems of rural development.

The development of rural infrastructure, the improvement of living conditions, the reclamation and environmental programmes to improve soil fertility are particularly important for agriculture. These measures, as well as others, qualify for the “green box” category under WTO rules, meaning measures that are not directly related to agriculture, but fundamentally support it. You can invest unlimited funds in this kind of “green box.” Practice shows that these measures are even more efficient than direct subsidies in the long term and are directly related to both the efficiency of agriculture and the preservation and prosperity of our rural areas, meaning the very foundation of the Russian civilisation, so to speak. Thank you for your attention.

Dmitry Medvedev: Thank you, Mr Fyodorov. And now please, Mr Pak, Director General of the Development Corporation of the Northern Caucasus. But please be brief, colleagues.

Anton Pak (CEO, North Caucasus Development Corporation): Thank you. Mr Medvedev, colleagues, last December marked the second anniversary of the North Caucasus Development Corporation (NCDC), and I would like to brief you on our experience in attracting investments to the North Caucasus during those two years.

The company works in several directions to attract investors and to develop an investment environment in the North Caucasus Federal District. First, we have our own investment block, which is used to fund selected projects in the North Caucasus Federal District. Second, as a support measure, we render consultative assistance to project launchers in terms of attracting funding, getting government support and other administrative issues. The third aspect is enhancing the image of the North Caucasus as an investment-attractive region and providing relevant support for humanitarian projects.

The key elements of our strategy are targeting maximum effectiveness of the activities within those directions. I would like to primarily emphasise that the corporation’s investment policy is systemic, i.e. we do not just support any project that meets certain requirements, but we try to focus on the sectors and projects that are crucial for the region and are capable of laying a foundation for attracting other investors, including investors for small and medium businesses. Our anchor commercial projects should turn into examples of successful investments for private entrepreneurs.

The social component of the investment projects is also significant. First, this comprises a number of new jobs; second, a tax potential for the budgets, and the environmental safety of the projects pursued. Third, at the stage of selecting investment projects we bear in mind that the corporation will have to switch over to self-funding upon reaching a basic portfolio of around 15 billion roubles, that is, new projects will be funded by our investment returns and by attracting non-government co-investors to join the capital. This sets special requirements to commercial effectiveness and liquidity of the projects in the corporation’s portfolio. Slide Four demonstrates the key projects of the NCDC in each of the North Caucasus regions. As you can see on the map, currently the corporation’s portfolio has two infrastructure and two anchor commercial projects at various implementation stages. These investments involve agriculture, industry, tourism and business infrastructure.

Let me now elaborate on some projects that are the best illustrations of our activity. The corporation’s key agriculture project, the IRRICO, aims at intensive crop growing.  When implemented, the project will create one of Russia’s largest corn and soy growing companies using irrigation. The project has become a forerunner in terms of attracting international investment funds to the North Caucasus. I’d like to put a special emphasis on the fact that we managed to attract six roubles of private investments to every rouble invested by the NCDC. It was due both to the efficiency of the employed irrigation technology that doubles the crop yields and also with an extraordinary project team made up of the best Russian and foreign experts in the field. The project will create over 600 new jobs. We hope it will become an example for other agricultural companies in the region on how to use modern technologies and attract co-investors. The start of the company’s operation is slated for May 2013.

The corporation’s key project in business infrastructure is the construction of a 30,000 square metre exhibition compound and congress centre in Mineralnye Vody. The project is vital for developing business tourism and also for overall boosting of investment activities in the North Caucasus. The compound is to be commissioned in January 2014.  A centre of this kind will considerably increase the load on the region’s tourist infrastructure especially in the low season. We also expect to greatly improve the image of the North Caucasus Federal District by increasing the number of people attending exhibitions, conferences and meetings; this will serve to promote the region among the Russian and international business community.

The North Caucasus Mountain Club, our project in active and eco tourism, also aims at attracting new categories of tourists. The project envisions, apart from offering active tours and constructing high-altitude hotels for mountaineers on Mount Elbrus and Mount Kazbek, also launching a comprehensive tourist information portal.  The project starts in April, and in June we will open the first hotel on Elbrus.

A cluster based on Russia’s largest spray manufacturer Arnest is one of the examples of our industrial projects. The idea is to create conditions for manufacturing imported elements locally, in the Caucasus. The cluster is designed to fit the existing projects of our Greek and Italian partners, who have already agreed to the conditions for coming to the District. A building is currently being constructed and equipment installed for import-substituting aluminium slug manufacturing to be launched this summer. The project is a successful example of attracting foreign investors to the North Caucasus.

Slide Nine shows the most promising projects to be financed by the corporation shortly. I’d like to specially note the projects aimed at high-tech deep processing of agricultural products and the project on restoring the exploration of Russia’s largest Tyrnauz tungsten deposit. We have found an investor for this ambitious project that has enormous significance for Kabardino-Balkaria. The investor is Canada’s Almonty, which is now finishing surveying operations in the pit. It is to become a 49%- shareholder in the project alongside the corporation and Russian private investors.

The NCDC’s humanitarian projects deserve a special mention as they are vital for the region’s development. First of all, it is an international music festival WOMAD Russia (World of Music, Art and Dance) to be held in Kislovodsk in September. It will become an annual event hosted by the Marapark ethnic village and active holiday park currently under construction. The festival was founded by Peter Gabriel and has been held in the UK and 26 other countries since 1982. The second humanitarian project is the Turistica international investment forum and expo of tourism infrastructure to be held in April 2014. Government and other federal agencies’ support for these projects is vitally important for us.

We also present the outcome of our efforts to create an information system for monitoring investment activities in the North Caucasus designed in line with the Government’s commission’s instructions. The system comprises two inter-connected parts. The first one is a public online resource, an investment portal of the North Caucasus Federal District and its mobile version for iPads that can also operate offline. Its task is to inform investors and the public on the region’s investment opportunities and venues, on the existing government support and investment projects currently underway in the North Caucasus. The second part of the system is a closed information monitoring system designed for informing the Russian Government and federal agencies on the real situation with regard to the preparation and implementation of investment projects, government support measures, and the strategy and the North Caucasus Federal District Development Programme. Government-supported projects will have passports that will become a basis for monitoring. The passports will make it possible to track all project parameters in real time, its implementation schedule and deadlines.

To sum up, the corporation has analysed over 100 projects in the past two years and its board of directors has approved 16 of them totalling 100 billion roubles. These projects are expected to bring in 6.5 billion roubles tax revenues and will significantly reduce the North Caucasus regions’ budget deficit. In fact, funding has begun for seven projects with a total cost of 28 billion roubles including projects worth 5 billion roubles with NCDC participation. The projects are to create about 2,000 jobs and 6,000 more jobs will appear in related small and medium-size enterprises. By the year’s end four of our projects will be completed and will be fully operational. I am confident they will embody the statement that the North Caucasus is one of Russia’s most promising and investment-attractive regions.

At present the corporation is completing recapitalisation with funds from Vnesheconombank. As a result, our capital will amount to 7.5 billion roubles. For further activities we would like to propose, if possible, considering the issue of targeted recapitalisation of Vnesheconombank and the NCDC. Thank you very much.


More Information