25 march 2013

Meeting on spring sowing

Transcript of the beginning of the meeting:

Dmitry Medvedev: The area under ​​winter crops in Russia is slightly under16 million hectares. To date, the condition of 90% of these crops is good or satisfactory. Agricultural workers expect a good harvest, even though the weather in some regions is unstable. The spring sowing area is projected at 51 million hectares (100.5% compared to 2012), including about 30 million hectares under grains and legumes (which is slightly less than in 2012). For obvious reasons, particular attention should be paid to forage crops. Areas under sugar beets and sunflowers will be streamlined. 

This year, 137 billion roubles have been allocated as part of the state agricultural development programme, including over 41 billion to support crop production. A significant portion of this money will pass through a new institution, the so-called unrelated or per-hectare support (15 billion roubles). In general, we are making the first steps in this area. We will need to weigh everything, see how it works, and assess the upsides and downsides, because this was severely criticised during my conversations with governors. And let me add that no matter how it’s related to our obligations under the WTO or anything else, our support of the agricultural production is of paramount importance for us. Therefore, we need to see how it all works.

In accordance with the requests, 21.5 billion roubles have already been sent to the regions, including about 5.5 billion for per-hectare support. Another 5 billion roubles have been set aside to offset a portion of crop insurance premiums. I would like everyone to seriously focus on this mechanism. It’s a civilised way to do this work. The law On State Support for Agricultural Insurance has been in effect for one year now. It was adopted back in July 2011, but the results are fairly modest. As of January 1, 2013, the insured crop area stands at ​​13 million hectares, which is 18.5% of the total acreage in 2012. Yes, it's better than what we had two or three years ago when the insured area was 5%-8% of the total acreage. Nevertheless, the increase is still very modest. That includes the insurance of 4.4 million hectares of winter crops. I issued directives to this effect last year and this year as well. If you believe that the system needs further refinement, then make your proposals, but the insured areas should be expanded. This is the responsibility of the Ministry of Agriculture, regional authorities, and, of course, insurers.

With regard to seeds, all the seed needs of agricultural enterprises are 98% filled. Minimal amounts of fertilisers are being purchased at a fairly fast pace.

Fuel requirements are estimated at almost 2 million tonnes of diesel fuel and 360,000 tonnes of petrol. Last time, we talked about the need to build up reserves to offset volatility in the prices of fuel and lubricants. I would like heads of the regions to report to me on the fuel situation in your respective territories.

Financial support for the sowing campaign is another important point. The total need for financial resources is estimated at 268 billion roubles. The need for credit resources is estimated at nearly 154 billion roubles. We have heads of specialised banks – the Russian Agricultural Bank, and other major banks – in the audience. Please update us on lending arrangements for the sowing season.

Some time ago, during a Government meeting, we spoke about allocating requisite additional resources for agriculture. This year, as we are readying ourselves to become WTO members, we must take all decisions with regard to providing additional support to the agricultural sector, based on existing rules. I would like to hear the Government report on this issue. I want the Ministry of Finance to focus on it particularly. Appropriate decisions must be taken.

My last point today is that we have a lot of complex things to do and I wish every success to Russian agricultural workers. Your work is very important to our country – not only to consumers. The entire economic development closely depends on agriculture, which has become one of the most important factors in the development of the country. It never had such prominence in Soviet times. Our agro-industrial complex has huge potential, and should not merely supply Russia with food but also help other countries and increase exports. We always need to keep this in mind.

Mr Fyodorov (to Nikolai Fyodorov, Minister of Agriculture), you are welcome to give a brief statement.

Nikolai Fyodorov: Thank you. Mr Medvedev, colleagues, we provided information for this meeting as far back as March 21. Some figures have been verified since, and I want to…

Dmitry Medvedev: Tell us the new figures please.

Nikolai Fyodorov: I will quote this morning’s statistics, among others, because the situation changes with each day that passes and even each hour during the spring sowing season. Summer crops are being sown on a large scale, and winter crops have been fertilised on 4.3 million hectares as of today, that is, March 25. This is 3 million hectares more than the area fertilised by March 25 last year. This is not to anyone’s credit – it’s simply because the sowing campaign started a week earlier than last year. The seed stock is the same as last year’s, as you said, Mr Medvedev, and the percentage of select seed is 2% higher. That’s a modest achievement but it shows that we are doing something to improve our grain.

As for mineral fertilisers, close on 900,000 tonnes of conventional fertilisers have been purchased as of today – 120,000 tonnes more than last year, and the total stock is 1.064 million tonnes of conventional fertiliser – 162,000 tonnes more than in 2012. We have achieved all these improvements due to the cooperation and monitoring set out in the agreement signed by the Russian Agro-Industrial Union and the Russian Association of Fertiliser Producers in your presence at the Golden Autumn Exhibition on October 12.

The phytosanitary situation also requires the utmost vigilance after winter. According to last autumn’s forecast, locusts will spread over 1.6 million hectares and sod webworms over 915,000 hectares. We are searching for funds to protect federal land – areas at the disposal of military units, borders and coasts, because the Agriculture Ministry has not earmarked a single rouble for such territories since they are not within the ministry’s jurisdiction – but then, these areas must also be protected. The funding of the efforts against locusts remains disputable though, on the whole, the existing legislation regards the fight against pests as being in the remit of the regions. Mr Medvedev, I think we should return to this problem because pests don’t recognise borders.

Dmitry Medvedev: I think you’re right: we need to think about how to promote these efforts. Meanwhile, I suspect the problem used to have been shifted to the regions simply to ease the burden on the federal authorities. There are many such instances and we must think on how to help the regions.

Nikolai Fyodorov: The arrangement must be improved.

Dmitry Medvedev: Pests don’t recognise borders, and when they invade an area, it is pointless to justify inaction by distinguishing between the duties of particular regions.

Nikolai Fyodorov: Some regions can’t afford to fight the locusts, and we must not leave them to deal with the pests on their own.

Dmitry Medvedev: Make the relevant proposals. We should not free regional authorities from this duty altogether but still we will think how to help them.

Nikolai Fyodorov: Thank you very much.

Regarding farming equipment, agricultural producers presently possess a total of 480,000 tractors – 1,300 less than last year, while power supplies have increased slightly and equipment has been upgraded. The number of seeding machines has increased by 1,200 and of cultivators by 3,400. The equipment is better prepared for the spring sowing season than at the same time last year, as you can see on Slide 12. Admittedly, it shows only a small improvement, just 1.5% – but that actually entails several thousand machines. Mr Medvedev, I think we should think it over all together, at the federal and regional levels.

I remember you visited farms in the Volgograd Region during the drought last year. Farmers reported that they were beginning the harvest and expected 1.8 to 2 tonnes per hectare but their worn-out equipment kept breaking down, so the actual yield was 1 tonne to 1.2 tonnes a hectare, and harvesting took twice as long than standard times, or even 2.5 times longer. We can see that outdated and worn-out equipment reduces yields by 10%-30%. So the upgrading of farm machinery is among our priorities. We have applied for an extra two or three billion roubles to be added to the five billion already earmarked for this purpose. Mr Dvorkovich and I discussed these proposals and submitted them to the Government.

The Energy Ministry has established an intersectoral working group to monitor fuel and lubricant supplies. As of today, farmers have 334,000 tonnes of diesel fuel and 46,000 tonnes of petrol – 137.5% of the amount of diesel fuel and 90% of petrol available as of March 25, 2012.

Diesel fuel prices have fallen by 2.1% and petrol prices have risen by 3% since January 1, while compared to March 25, 2012, diesel fuel prices have increased by 6.6% and petrol prices by 1.3%. Farmers find these actual figures depressing because they purchased fuel at a 30% discount last year. I quote all these figures to demonstrate that the price rises are reasonable and predictable, and have nothing to do with any crisis.

Dmitry Medvedev: That might be the case, and farmers may eventually realise it. However, we must evaluate the effectiveness of the system, the way we are formulating it. It is too early for a final analysis now but we must address all the problems that may arise because harvests always proceed in a hurry and we will have no time to correct our blunders during them. So what we have to do we have to do immediately, right now. I have already said as much to you, to the relevant Deputy Prime Minister and the Finance Minister. This is a separate issue. We will discuss it after your report. Go on please.

Nikolai Fyodorov: Okay. Moving on to loans. Bankers may confirm or deny the latest statistics you have quoted. As far as we know, the total loans lent out for March 19, 2012 amounted to 36 billion roubles out of 154 billion roubles you mentioned,  it’s 27% more than the same day last year. In particular, Rosselkhozbank had lent out 26.2 billion roubles (according to our data, it’s 60% more than by March 19, 2012),  and Sberbank  lent out 9.8 billion  roubles, it’s 83% .

Dmitry Medvedev: What’s this increase against?

Nikolai Fyodorov: March 19 last year.

Dmitry Medvedev:  And what about Rosselkhozbank?  

Nikolai Fyodorov: It has increased its loans by almost 60%. Representatives of Sberbank are present here, perhaps we can get a firsthand account from them.

Dmitry Medvedev: Let them speak.

Nikolai Fyodorov: It may be telling that Mr Gref (German Gref, Sberbank CEO) began his career as lawyer of the Irtyshsky district’s agricultural board in the Pavlodar Territory [in Kazakhstan].

Dmitry Medvedev: But that was a long time ago, and we are concerned about current events now.

Nikolai Fyodorov: On the whole, as you said, over 41 billion roubles have been earmarked for federal subsidies to support plant growing. Of this amount, 23.4 billion is going to seasonal farm work, against 22.3 billion last year. These are objective figures which we should not regard as a compliment to us because we will not subsidise fuel and lubricant purchases while mineral fertiliser and pesticide subsidies are token – less than 6 and 2 billion roubles, respectively. So these are not flattering statistics. They show the situation the way it really is.

As we summarised the teleconference of February 5 about the grain market situation and preparations for spring sowing, we submitted feasibility studies and a draft directive to the Government. I think I should submit them again even though the Government staff are already discussing them. Maybe we should reassess the relevance of these issues after regional representatives have spoken.

To distribute the money more smoothly, we suggest guaranteeing extra allocations with the very first readjustment of this year’s budget. Meanwhile, if there is even the slightest chance for additional support, we should partly compensate the snowballing prices of livestock feed out of budget balance allocations. That will cost roughly 12 billion roubles (we have submitted these figures). We can also use economically important regional programmes – it will not exacerbate the crisis. We should remove 5 billion roubles from the second half of the year to be used up in the first half to compensate the federal budget debt on short term loan subsidies – I mean the 2009-2010 loans’ prolongation in compliance with Government resolutions.

Dmitry Medvedev: We don't need to have a discussion. I can tell you my decision here and now. I order all allocations that can be squeezed out of available resources to be made, and we will see what to do about them later on because this is not the time to sidestep decisions as in other industries – we have to fund everything in November. I want everyone to understand this, and I call on the Ministry of Finance to do everything as soon as possible.

Nikolai Fyodorov: Thank you.

Let's move on to insurance. According to the latest figures, winter crops for this year’s harvest have been insured on 4.4 million hectares – that is, 28% of the total 15.85 million hectares, and 2.2 million hectares more than the insurance of last year’s harvest. So insurers are making progress, as you said, Mr Medvedev.

Dmitry Medvedev: We didn’t expect it to be so modest.

Nikolai Fyodorov: Certainly 27% of winter crops is not enough. We set 40% as the goal.

Dmitry Medvedev: Have another try, then.

Nikolai Fyodorov: We have a working team now. We have regular meetings and consultations with State Duma and Federation Council members and agricultural producers on the implementation of your instruction to streamline the law. We made a decision on this score and should now summarise the year because the law [on crop insurance] only came into effect on January 1, 2012.

To improve the law, we should most probably reduce the crop destruction index from the current 30% to 25% or even 20%, and specify the insurance sum in the contract. At present, the law sets it as no less than at 80%. Experts advise that this should be a fixed amount at 70% or 80% – not “no less than” but a fixed sum, which is more acceptable to farmers.

There are currently ongoing discussions on the prospect of bringing together insurers under a single organisation in order to unify the rules, like there are for compulsory motor insurance. This matter was actively discussed as the bill was being passed, and opinions were polarised, a 50-50 split. Now we come to the conclusion that…

Dmitry Medvedev: Unity is always good, especially in professional organisations. Unity makes it easier to get rid of swindlers, of which there are a high enough number among farming insurers. Farmers don’t believe them. They say as much in every conversation with them. These insurers avoid big risks and go all out to avoid paying out compensation when losses occur. They resort to all kinds of subterfuges to dodge responsibility. That is why agricultural insurance has to be brought into order.

Nikolai Fyodorov: Before the new law came into force in 2012 they were accustomed to acting with the utmost arbitrariness, that’s where the present problems have their roots.

Dmitry Medvedev: Okay, sort it out.

Nikolai Fyodorov: Mr Medvedev, we are monitoring on a daily basis the fertiliser and fuel markets, and hold teleconferences almost every day in Moscow and elsewhere. We have had such conferences with the Southern and North Caucasus federal districts. Now it is the turn of the Volga and Central districts. So we are doing what we can.

Dmitry Medvedev: Yes, you have a hard job. Please, Mr Dvorkovich and Mr Fyodorov – this also concerns your deputies – convene meetings on a daily basis. You yourselves probably needn’t attend them every day. Twice a week will be quite enough, but your deputies must closely monitor the situation and hold meetings in particular regions and federal districts every day. When anything is unclear, they need to report to you as a matter of urgency and then you should report to me because we are reforming the system of support for agriculture, and we can’t afford to miss the right moment. I call on the Government and all governors once again to understand this point.


* * *

Arkady Dvorkovich's briefing following the meeting


Question: What was the outcome of the meeting?

Arkady Dvorkovich: We have agreed on three main issues. First, the funds allocated under the state agricultural programme will be redistributed from those areas that will require money later this year to the areas that require money now and until July. This will be done to support the spring sowing campaign and livestock breeding. The latter is now under extra financial pressure because of the higher fodder prices caused by an increase in grain prices since late last year. The exact amount of redistributed funds is subject to confirmation. In any case, it will be billions of roubles. According to the Prime Minister (and I hope the State Duma will uphold his decision), the funds for the state programme will be restored later this year in order to fully support the areas that the money was initially intended for. The total funding for the state programme will therefore be increased by the respective amount.

As mentioned earlier, the funding may be increased by up to 42 billion roubles including 30 billion roubles for the purposes I just reviewed. Again, this is an increase in funding for the spring sowing campaign per hectare and compensation for increasing fodder prices. The Ministry of Agriculture has other suggestions as well. For example, further funds to subsidise interest payments for investment loans and short-term loans, or supporting the upgrade of farming equipment. These proposals are still subject to approval by the Economic Development Ministry and the Ministry of Finance.

Secondly, the livestock breeding support programme requires reconsidering in the light of Russia's acceding to the WTO. The issue will be raised for discussion by the Prime Minister within the next two weeks.

Thirdly, there is a recommendation for banks, the regional authorities and those involved in providing fodder, fertilisers and fuels and lubricants to farming producers. We recommend that they pay more attention to each of the issues I mentioned and promptly address any problems that arise, keep a close eye on any imbalance that occurs at the regional level and with any company. Problems must be immediately discussed and resolved before they lead to further complications. These were the instructions from the Government and the Ministry of Agriculture. Other ministries are also willing to cooperate promptly.

Question: What can you tell us about import duties on grain? Have you dismissed the idea of slashing it to zero?

Arkady Dvorkovich: No, we have listened to all the proposals regarding the import duty. However, the discussions within the Customs Union are not finished yet. But we expect that First Deputy Prime Minister Shuvalov and his colleagues will come up with a decision.

Question: Did you discuss a system of farming insurance?

Arkady Dvorkovich: The Ministry of Agriculture and the Ministry of Finance are working on the most important aspect of this, which is a single regulation for insurers. It is important to make sure that, whether there is one or many insurers, they operate under the same rules. If we reach an agreement on a single regulation soon enough, we can move forward to amending the law that will authorise the establishment of an association of insurers. The first step, however, is to agree on the rules that will regulate all the insurers. This will eliminate uncertainty in the market where convenient terms for those insuring their farming businesses and harvests allow less responsibility for insurers. Equal responsibility for all parties and same rules are preferable.

Question: I’m sorry but I have another question about import duties. Please explain. You said that…

Arkady Dvorkovich: Import duties have a lot to do with the laws of the Customs Union. First Deputy Prime Minister Shuvalov is discussing this issue with his foreign counterparts and within the relevant commission of the Customs Union.

Question: Correct me if I’m wrong but his working group will make an agreement with a governing body within the Customs Union. What do you mean by “they will come up with a decision”?

Arkady Dvorkovich: We expect these governing bodies to agree on this issue.

Question: With a Customs Union governing body?

Arkady Dvorkovich: With the competent bodies handling the protective measures in foreign trade.

Question: When do you expect the decision to come into force? Is there a particular date?

Arkady Dvorkovich: As I said, we expect the decision to come into force in the second quarter of the year. Otherwise it doesn’t make any sense. I mean it must be done in April but not necessarily on the 1st of April, so that we have two months ahead.

Thank you.