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Production
Estimates and Crop Assessment Division |
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Production
Estimates and Crop Assessment Division |
July 12, 2002
Analysts from the USDA's Foreign Agricultural Service traveled to Russia’s Volga Valley in June to meet with agricultural officials, farm managers, and independent commodity analysts to assess 2002/03 grain-production prospects. The team also conducted interviews with officials and analysts in Moscow to assess the current situation in Russia’s agricultural sector regarding farm credit, availability and application of fertilizer and other inputs, and the chronic shortage of agricultural machinery. USDA forecasts Russia’s total grain production for 2002/03 at 74.2 million tons (against 85.0 million in 2001/02), including 41.0 (46.9) million wheat, and 16.0 (19.5) million barley. Total grain area is forecast at 47.5 million hectares, nearly the same as last year, and yield at 1.56 tons per hectare, roughly 10 percent higher than the average of the past five years. In general, production prospects remain fairly good despite late-April and early-May dryness in the key winter-wheat region, due in part to an estimated 15-percent year-to-year increase in winter wheat area, and timely rains which reversed the earlier dryness and considerably improved crop conditions in most areas.
The Volga Valley is frequently described as a zone of risky agriculture, capable of producing a substantial grain crop in years of generous precipitation (such as 1997/98, when output reached 21.6 million tons), but subject to frequent drought (as occurred the following year, when production fell to 6.3 million). Average annual precipitation in Saratov oblast, for example, is about 400 millimeters, but only 120 to 150 millimeters fall during the growing season, and there is high variability from year to year. The moisture deficit is typically most intense in June, when the wheat crop is advancing through the heat- and moisture-sensitive flowering stage. The major factor influencing crop production in the Volga Valley is limited rainfall, and since farmers cannot avoid drought they have adopted measures to deal with it. Although researchers have developed spring wheat varieties that can produce higher yield and higher quality than winter wheat under suitable conditions, Volga Valley farmers continue to plant mostly winter wheat. Yields are more consistent because winter grains can benefit from fall and winter moisture. Farmers also maintain higher levels of fallow area than in other Russian grain-production regions. In Volgograd oblast, for example, roughly 1.5 million hectares remains under fallow each year – nearly the same area as is sown to grain – in order to conserve moisture for the subsequent winter-wheat crop.
Grains in the central Volga Valley, especially Saratov and Volgograd oblasts, were affected by persistent dryness during April and May. The drought had a negative
effect on winter wheat tillering. In a year with adequate moisture, two to four tillers (secondary shoots) may be formed, in addition to the primary shoot. Because of the spring dryness, however, only one or two tillers developed, and the tillers that did form were unable to establish an adequate root system. As result, many farmers expected that only the primary shoots will produce grain this year. When rain finally arrived in June, it likely provided some benefit to the main shoot, but by this time the tillers were essentially lost.
In 2001, Russia's district boundaries were redrawn. The boundaries of the country's oblasts (administrative units similar to U.S. states) remained unchanged, but the grouping of oblasts into districts was changed. Prior to
2001, Volgograd oblast was included in the Volga Region. Under the new
system, Volgograd is included in the Southern District. In order to show the
effect of drought in the Volga Valley over the past fifteen years, the
grain-production graph in the preceding paragraph is based on regional data, for
which a longer time series is available, rather than on district data.
Roughly 60 percent of the arable land in the Volga Valley is sown to grain (mostly winter wheat, spring barley, and spring wheat), 25 percent to forage crops, 15 percent to technical crops (chiefly sunflowers), and 5 percent to potatoes and vegetables. Despite the ever-present threat of drought, grain crops in the Volga Valley are almost never irrigated (except for seed production and sometimes corn for grain). Only about 5 percent of the Volga Valley’s arable land is under irrigation – about the same percentage as in the rest of Russia – and irrigation is used chiefly on vegetables and forage crops.
The past several years have seen increasing productivity in the Russian agricultural sector, concurrent with the breakup of the country’s State and collective farms and their restructuring as private agricultural enterprises. Among the driving forces behind the improved efficiency has been an infusion of investment capital from large, cash-rich, and traditionally non-agricultural Russian companies (including energy and resource-extraction enterprises). Although these companies in fact control a relatively small percentage of the country’s agricultural land – only 5 to 10 percent, according to some observers – their involvement already has resulted in an increase in long-term investment which likely will continue and expand. Furthermore, it indicates a movement away from government control of agriculture toward a system in which private enterprises control large tracts of agricultural land. Consolidation of small, independent farms is the prevailing trend and the future of agriculture will be based on large-scale land ownership.
Farmers are growing more confident in their "market sense," but are showing some signs of frustration. For example, farms gathered a good harvest last year but prices plummeted. Also, domestic grain consumption is growing slowly. Although herds are increasing on small farms, overall cattle inventories are still dropping.
Credit has always been a problem for farms in Russia, and interviews with agricultural officials, farmers, and other observers indicate that acquiring loans from banks remains difficult for most farms. Many farms are struggling with heavy debt, poor credit history (or no credit history), and a lack of collateral. The situation was somewhat more favorable this year following an excellent harvest in 2001 that enabled farmers to repay their loans despite a sharp drop in grain prices. With the loan repayment level near 100 percent, banks were more willing to lend to farms. Despite the increased willingness of banks to provide credit, only a small portion of farmers’ needs are covered by bank loans. The biggest source of loans is commodity traders and other companies who provide advance capital, fuel, and other inputs against future crop.
Most farm loans are short-term, seasonal loans used chiefly for the purchase of fertilizer and plant-protection chemicals. There is adequate availability of fertilizer and plant-protection chemicals; the only constraint on input use is a farm’s ability to purchase the material. The input situation has been improving modestly for several years, but application rates are still far below the recommended rates. Rates are higher in some oblasts, like Krasnodar in the North Caucasus region or Tatarstan in the Volga Valley, where the regional administrations provide solid support for agricultural enterprises. All of the agricultural officials, farmers, and commodity analysts that the team met with agreed that the use of mineral fertilizers and pesticides will continue to increase, but that the improvement will be gradual.
Most farm directors prefer to use imported plant-protection chemicals, if they can afford them, because the quality is typically higher than that of domestically-produced products. Domestic products, however, can be significantly cheaper, and farmers carefully examine all available weed-control options. One Volgograd farmer, for example, described the cost comparison between Tornado, a domestic non-selective glyphosate-based herbicide, and Roundup, a similar American product. (This farmer applies non-selective herbicides during the fallow year of the crop rotation to destroy all active vegetation prior to the sowing of the winter-grain crop.) The initial price of Tornado is roughly ten percent lower than the price of Roundup. The farmer can get an additional reduction off the price of Tornado, because the government provides to Russian chemical companies a 30-percent subsidy (transferred to the farmer) for any products that they sell to Russian agricultural enterprises. He can save yet another 30 percent if he buys Tornado directly from the manufacturer in Voronezh, about 350 miles away. This farmer was weighing the proven effectiveness of Roundup, which he had used in previous years with good results, against the considerably cheaper but yet-untried
Tornado.
The two largest constraints to a rapid increase in Russian grain production and grain quality are low-quality planting seed and a chronic shortage of efficient and operational machinery, particularly harvesting machinery. Nearly three-quarters of Russia’s arable land is sown with four-year-old seed, with significant deterioration in yield potential. Given the current quality of planting seed, increased nitrogen fertilization could actually have negative results, by stimulating excessive vegetative growth but no increase in grain yield. Also, lodging can result from the combination of weak stems and increased vegetative growth. Many farmers sow the cheapest seed they can, and the share of area sown with high-quality seed is not increasing.
Since land cannot be used as collateral, it is difficult for farms to purchase high-cost items like agricultural machinery. Most new machinery is obtained through leasing arrangements, chiefly the federal government’s 2.7-billion-ruble ($90 million) program. This year, funds for leasing are slated to increase to 5 billion rubles ($165 million), according to a Ministry of Agriculture official. Some observers indicated that the federal leasing plan is inadequate, but others maintain that the program was not designed to meet all the machinery needs of Russia’s agricultural sector. One analyst said that it’s like trying to feed an elephant: regardless of how much food you give it, it still won’t be enough. The leasing fund will compensate in part for the machinery shortage, but resources must come also from other sources.
Some individual oblasts have their own leasing plans. Nizhniy Novgorod oblast, in the Volga Valley, has purchased 100 combines from Rostselmash (one of Russia’s largest equipment manufacturing plants), against its requirement of 1,200, and Saratov oblast also has its own leasing program. In Krasnodar, a favorite region for foreign investors, foreign companies often initiate leasing arrangements. The Siberian Machinery Holding Company is a regional machinery-leasing fund that supports all of Siberia (chiefly Altay, Novosibirsk, and Krasnoyarsk oblasts). There are alliances between local administrations and large industrial companies that operate in the region, such as Siberian Aluminum and the Krasnoyarsk combine factory. Significant funds are allocated by big companies, which benefit by creating a market for their own products. A Ministry of Agriculture official estimated that the total amount of funds available for machinery leasing this year, including both federal and regional funds, is roughly 9 billion rubles, more than twice last year’s level
