Having squandered the competitive advantages of the 1998 financial crisis, Russia's agricultural sector is again calling on the authorities to introduce protectionist measures. And, once again, President Vladimir Putin is attempting an agricultural balancing act between playing state nanny and laying down the laws of the market.

This was most in evidence last week when the State Council held a meeting in Orenburg to discuss agricultural issues. The agrarians lamented their miserable situation, while economists lamented the spending of state money to keep afloat a sector that had proved itself unable to adapt to the market.

Putin attempted to please both sides, promising the agrarians some kind of protectionist measures and at the same time saying that it wasn't the state's job to ensure one particular group had an easy life.

Supporting producers

A high-placed official in the presidential administration said that by protectionism, Putin meant "rational protectionism" based on world experience where "everyone finds ways of supporting their own producers," but where at the same time "the main thing is that prices don't rise."

"The president said he wants to give some support to agriculture, but he also emphasized that we mustn't forget that the state includes not just producers, but also consumers," the Kremlin spokesman said. "In other words, we can't just ‘kill off' imports so that Russian producers will be able to dictate their conditions on the market and not worry about competition."

During visits in Orenburg to agro-business companies, the agricultural university and a grain plant, Putin was treated to sorrowful tales about the hard lives of Russian farmers. Agriculture Minister Alexei Gordeyev particularly excelled as spokesman for Russia's rural toilers.

"New Zealand butter producers have taken over not just the Russian market, but the European market, too," Gordeyev said, complaining that some imports are so cheap they are lower than the cost-value of similar Russian products. He neglected to mention, though, that New Zealand's agricultural sector receives no subsidies or protection.

But Gordeyev had to work hard to wring benefits out of Putin – agricultural output is up this year and tales of the hard life don't sound quite as convincing as before. In addition, experts say, the agricultural sector wasted the opportunities it received after the 1998 crisis, and that Gordeyev should be reporting on why this was so, rather than demanding extra support.

"In the wake of 1998, these pleas for protectionism are just indecent," said Yevgenia Serova, president of the Agroprodovolstvennaya Ekonomika Analytical Center. "Back then, thanks to the ruble devaluation, imports fell dramatically and this gave the Russian agriculture sector a window of opportunity during which they could benefit from unique ‘protectionist' conditions without having to introduce any import tariffs."

Serova said it shouldn't be forgotten that consumers always end up paying for protectionist measures, either through higher prices, as imports are restricted, or through their taxes if state subsidies are used. Protectionist measures should only be temporary, she said.

Deputy Chairman of the Duma agricultural committee Alexander Podgursky said that support is necessary because the sector let slip the post-crisis opportunities not just out of laziness, but also because of a number of factors beyond its control.

Podgursky, who spent 14 years running the Omsk pig farm, Omsky Bekon, one of the rare examples of a successful agricultural company in Russia, said that unless it received state support, the agricultural sector would be put in a losing position because it was still trying to deal with the problems left over from past years.

"Our agricultural producers have enormous debts accumulated over the post-reform period," Podgursky said. "They have obsolete facilities and equipment. You need serious investment to modernize the sector, but that money isn't around.

"And then, Western countries, above all the EU, didn't let us make use of the [post-crisis] situation. When the ruble fell, taking imports with it, the EU countries decided to support their exporters with substantial subsidies."

Flexible subsidies

Podgursky said that the solution would be a flexible system of subsidies that would enable agricultural companies to benefit from support without penalizing consumers.

But agriculture specialist Serova warned against putting too much hope in subsidies, citing a targeted support program for the Perm Oblast as an example of how the state could help the agricultural sector develop.

"We looked at how we could increase sales, at what could be possible export opportunities for grain, sunflower seeds and potatoes. Then we looked at the barriers: port turnover capacity, dual railways tariffs and differences between our standards and European standards. The state's role should be to help remove these barriers."

Bankruptcy wave

Serova also said she supports the recent wave of bankruptcy procedures launched against loss-making agricultural companies, and added the government should take a more responsible attitude towards this process.

"For a start, it could help set up retraining programs for the people who will lose their jobs as agricultural businesses go bankrupt," she said. "It could also allocate more financing to the bankruptcy procedures; as, with the financial and human resources they have at the moment, the state agencies dealing with the bankruptcies could take years to get through the whole process."