Sea of vegetables in the Middle Urals
30.08.2013 — Analysis
The task of the agrarians is to swim out.
There is an odd thing about the Russian agro-industrial complex: a poor harvest is a misfortune; a good harvest is even worse. Excessive production drives prices down and below the production cost, and agrarians start clutching at their heads. The Sverdlovsk vegetable growers have not recovered from the losses they incurred in 2011, when the ample harvest left the fields for peanuts. Agriculture is not the industry that can sail by itself in the market economy. Such sailing will send the national food security to bottom.
Russia lives in vegetable dependence on Europe where all seeds are purchased. The Federal Service for Veterinarian and Vegetation Sanitary Supervision (Rosselkhoznadzor) repeatedly threatened the European Union with the ban on import of seed grains. In fact, it means digging its own grave. "Without seed potato coming from foreign countries we can pull through only for one year, then everything that involves vegetables will come to a halt," Vitaly Dunin, the chairman of the Sverdlovsk Union of Producers and Processors of Potatoes and Vegetables, told RusBusinessNews.
According to Dunin, the domestic seed industry was destroyed in the 1990s-2000s and now is in the embryonic state. The Belorechensky Agro-Industrial Complex, CJSC, headed by Dunin, purchases high yielding potato hybrids from the Netherlands. The Dutch grow their seed potatoes in the most agriculturally favorable areas in Italy, Africa and Spain, sorting them by color, quality grade and size.
"We use precision seed drills; seeds should be like tennis balls – identical in size. The producer guarantees the germinating ability of 99.9%. In our case, every other seed does not sprout..," V. Dunin says.
The Sverdlovsk Region is ready and willing to get out of the European bondage. The Belorechensky Agro-Industrial Complex, together with Kartofel, LLC, and the Agriculture Research Institute of the Russian Academy of Agriculture, prepared a business plan for the breeding center that will allow farmers to reduce their potato seed import by 50% or more. The cost of this center is 300 million rubles. The initiators of the project expect that the federal and regional government authorities will chip in together and allocate 100 million from each side. The Sredneuralsk government gave the go-ahead to the idea, which is now being scrutinized at the RF Ministry of Agriculture. If everything works out, the breeding center will start operating in 2014.
The authorities of the Sverdlovsk Region promised their help with the construction of the refrigerated vegetable stores, so that agricultural products could be stored safely till the new harvest. Prime Minister Denis Pasler offered participation of the Ministry for Industry and Construction in solving the problem and looking for prospective investors. The heads of the municipalities with developed vegetable farming must prepare documents for participation in target programs for construction of vegetable stores.
The agrarians are ready to contribute to new initiatives with their efforts and available resources, but they need government support. Farmers pointed repeatedly at Europe where subsidies given to agrarians reach 45-50% of the price of the marketable products produced by them. Russia followed the example of Europe, but the outcome can be best described as "we wanted the best, but it turned out as always."
After Russia joined the World Trade Organization, the agrarian sector received green box subsidies of 450 rubles per hectare of the farmland, regardless of crop types. The one size fits all policy left many farmers at disadvantage. Previously, vegetable growers received subsidies for purchasing of pedigree seeds, fertilizers, protection, fuel, oil and lubricants, while now everything is linked together.
"For example, we need 600 kilograms of fertilizers per hectare – and they cost 20 thousand a ton. The grain producers need 200 kilograms of fertilizers per hectare at the price of 7 thousand a ton … They receive the same financial support. We have the similar situation with plant protection products – the vegetable fields must be treated 6-7 times during one season, while the corn fields must be protected only against weeds," V. Dunin complains.
According to him, in the European Union the amount of green box subsidies is 10 times as large. At the same time, Dutch farmers can harvest potatoes from August to November, whereas Ural farmers must do their harvesting work before the rain season, which can start any time in August.
Technical subsidies from the budget of the Sverdlovsk Region are very helpful to vegetable growers; the amount allocated this year is 250 million rubles. "The compensation can reach 40% of the costs, but if there are many applicants, the amount is split so that everyone could receive compensation – for example, this year it will be 20%, if all of the applications are approved," V. Dunin explains. "To recover the sector, the amount of subsidies must total 1 billion rubles."
For greenhouse facilities, partial compensation of interest on investment loans is the only substantial measure of support. Tomatoes and cucumbers in the Middle Urals are grown by Teplichnoye, CJSC. At present, it is producing more than 3,500 tons of vegetables under glass annually; by 2016 the output is expected to reach 6,800 tons. Cucumbers are delivered to consumers already in February; tomatoes – at the end of March. Due to the Dutch technology and computerization, farmers grow vegetables of Premium Class (the highest category of quality and environmental compatibility).
"By and large, the products are supplied to Ekaterinburg; however, customers from remote areas like Yugra also purchase Ural vegetables," the representatives of the company told RusBusinessNews. In the meantime, it is the only greenhouse farm of this category in the Sverdlovsk Region. The power-consuming production is very costly. Green box subsidies do not apply to under-glass farming, though compensation of part of the energy costs would be very handy for Teplichnoye.
The most knotty problem of agrarians is disparity of prices. The unchangeable comparison between the prices of a kilogram of potatoes and a liter of diesel fuel is still not in their favor. In the opinion of producers, when vegetables are sold below their cost, the government must compensate the producers for the difference so that the farms could keep operating at the break-even point. They have such practices in foreign countries; the Tyumen Region opted for the same policy in 2011, having compensated direct costs of the agrarians.
Hedge purchases are a good strategy for protection against price leaps in the years of poor harvest. Even in drought-afflicted 2010, the Middle Urals grew enough potatoes to sell them at reasonable prices in autumn, though after the bulk purchases made by other regions, the price of a "second bread" increased by times.
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