Govt Can Continue Ag Support after WTO Accession

RUSSIA - Under the terms agreed, Russia's accession to the World Trade Organization (WTO) is not expected to impact the agricultural sector adversely.
calendar icon 8 December 2011
clock icon 4 minute read

In the first in a series about the effects of WTO accession on different sectors of the economy, Moscow Times reports that Russian farmers will not have to go on a painful fiscal diet under the accession terms that the World Trade Organization (WTO) approved for the country.

The entry conditions stipulate that the government can spend no more than US$9 billion in 'trade-distorting agricultural support' next year and in 2013 – an amount that is close to double what Russia spent to support the sector this year.

According to the terms, the government will gradually reduce the 'distorting' support – the kind that has a direct influence on the price or quantity of products – to $4.4 billion in 2018.

This year's federal budget earmarked 168 billion rubles (RUB: $5.4 billion) for agricultural subsidies and other support measures, Agriculture Minister, Yelena Skrynnik, said recently. The larger share of the subsidies went to partially cover interest rate payments.

The high ceiling in the WTO agreement is what negotiators arrived at after taking the massive Soviet-era subsidies as a starting point, said Sergei Prikhodko, executive director of the Gaidar Institute, an economic think tank.

"I don't think this has any sense," he said of the $9 billion figure.

Subsidies also help buy motor fuel, insure harvests, breed cattle, facilitate deer farming in the Far North and produce seeds, among other things.

In addition to subsidies, the support measures included RUB25 billion ($800 million) allocated to farmers in zero per cent budgetary loans this year, according to Moscow Times.

Much of the subsidies aimed to support the sector after a devastating drought that decimated a large portion of the harvest in the summer of last year – and the need for them may disappear over the next few years anyway. These additional subsidies included RUB5 billion for preserving breeding stock and RUB9 billion to cover a portion of the cost of feed for pig and poultry farms, Ms Skrynnik said.

Under the WTO rules, some government funding for the sector will remain outside the organisation's limitations. It will include money for research, disease control, infrastructure and food security. Payments to assist farmers to restructure their business and programs to encourage agricultural and rural development will also stay unaffected.

The WTO conditions that Russia committed to, in fact, allow it to increase subsidies that reimburse farmers on a portion of their interest rate payments of bank loans, said Sergei Voznesensky, an expert at the engineering company 2K that deals with agriculture.

In other agricultural support restrictions, the WTO required that Russia slash its export subsidies to zero. Russia, however, has none, Mr Voznesensky said.

The Moscow Times report adds that the WTO terms for Russia also say the country committed to eliminate, upon accession, the value-added tax exemptions applied to 'certain domestic agricultural products'. Mr Prikhodko said he was unaware of any such exemptions.

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