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AGRICULTURE:
FIRST GROWTH, THEN MONEY
Konstantin Skuratovich
Summary
In 2012, Belarusian agriculture and its food-processing sector managed to exceed the production targets for the year and boosted foreign trade volumes by increasing export amid a relatively slow growth in import-the sector reported a surplus in foreign food trade last year.
Russia accounted for most of the growth in foreign trade in food. The increase in supplies to the Russian market removed the problem of export diversification (which the government prefers not to mention at all) from the agenda. In the domestic consumer market, retail prices were growing faster than European food prices. The sector made marked progress in building up the financial health of many agricultural organizations; however, the situation remains unsatisfactory.
Trends:
• Sales of foods are limited to the domestic and Russian markets;
• No organizational, personnel and technological prerequisites and lack of resources for radical improvements in the financial standing of agriculture;
• Agribusiness remains the largest non-payer in the national economy;
• Stimuli created by the two devaluation moves were exhausted in 2012; agricultural producers expect another initiative to have resources redistributed in their favor.
Introduction
Despite insignificant volumes of foreign trade, agriculture remains the fundamental component of Belarusian agribusiness, accounting for 4.1% of the country's gross domestic product. The sector comprises crop production and animal breeding. According to official sources, there are about 1,300 agricultural organizations in Belarus, 2,000 private farms, 1,100 subsistence farms; the sector employs 438,400 people (9.5% of the country's workforce1).
When analyzing the 2012 performance of agriculture and agribusiness as a whole we should factor in the dual nature of
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the tasks that are set for the sector. On the one hand, agriculture is supposed to increase production in volume terms, but on the other hand, it is set a task to improve the financial health of agricultural organizations. In the medium term (2015), Belarusian agriculture must attain self-financing and self-sufficiency. President Alexander Lukashenko believes that the state program for the restoration and development of the rural areas has made impressive progress; however, many problems have been unresolved, specifically the efficiency of economic management.
Judging by Lukashenko's remarks, the results of the program are unsatisfactory when it comes to organizational and management patterns. It appears that the government that was originally formed to address the challenge of a "new economic policy" failed to have any major improvements in 2012. The long-standing negative trends remained in place, while new approaches remained on paper. The same tasks have been set for agribusiness for years, and the command-and-control administration has employed the same instruments to tackle them, failing to encourage agricultural enterprises to develop.
The mechanism was established long ago as a result of collectivization. It has been preserved as a valuable tool to stabilize the economic and political systems. Liberalization attempts were made in the early 1990s, when private farms were set up; however, efforts to promote their development were discontinued. Furthermore, they additionally require agriculture to perform ideological functions. This must be the reason why milk yields averaged 4,712 kilograms per cow in 2012, an increase by 190 kilograms compared with 2011. If this trend continues, in two or three years, the average yield will amount to 5,000 kilograms, which back in the Soviet times was considered a benchmark of a successful communist agricultural model. The sector currently needs to attain average European indicators; however, they must be achieved with the use of century-old technologies.
Export/import
Food export in volume terms went up by 25.7% year-on-year in 2012, and import increased 22%. At the same time, average export prices fell by 5.9%, and import prices decreased by 3%. Meat
export in volume terms rose by 21.9%, and dairy export increased by 33.4%. Average prices of meat dropped by 3%, and of dairy products, by 18.2.2
There were some problems with sugar supplies, as deliveries in volume terms rose by 13.4%, while prices fell by 19.5%.
Import of cereal crops soared by 220% year-on-year in 2012, and of animal nutrition products rose by 30.9%. In 2012, the average prices of cereal crops fell by 38.7%, and vegetable oil prices dropped by 11.3%.
Food export went up in 2012 due to the increase in supplies of sausage and other meat products in value terms (by USD 171.7 million), of vegetable oil (by USD 92.2 million), of meat and poultry byproducts (by USD 86.9 million), of milk and noncondensed cream (by USD 67.8 million), and of ready-to-eat or canned meat products (by USD 64.1 million). At the same time, import of pork rose by USD 101.2 million in value terms, of chocolate and other cocoa-containing products by USD 37.4 million, of fish fillet by USD 19.1 million, of beer by USD 18.1 million, and of bananas by USD 17.8 million.
Belarus recorded a surplus of foreign trade in food amounting to USD 2,114.2 million, which compares to USD 1,788.7 million in 2011. The surplus expanded by USD 325.5 million in 2012 due to the faster increase in export.
Agriculture, hunting and forestry industry exported USD 419.9 million worth of products in 2012 and imported USD 439.9 million worth of commodities, hence a trade deficit of USD 13 million (based on the statistics "foreign trade in commodities broken down by economic activities"). However, processing enterprises (which trade foods, beverages and tobacco goods) exported USD 3,870 million worth of goods and imported USD 2,133.6 million worth of products, which resulted in a surplus of USD 1,736.7 million.
Production
Under the forecast for 2012 (Decree of the President of the Republic of Belarus No.590 of December 23, 2011), farm output
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was expected to grow by 4 — 5% in 2012. Gross output by all categories of agricultural organizations amounted to BYR 100.8 trillion in current prices, an increase in 6.1% in comparable prices from the level reported in 2011. Of the total increase, 2.9 points were contributed by cattle breeding, and the remaining 3.2 points, by crop production.
Agricultural organizations, including private farms, logged a 7.4% increase in output. Cattle breeding output went up by 7.7%, and crop production rose by 6.9%.
In 2012, gross grain output reached 9.2 million tons (in bunker weight after initial processing), an increase by 1 million tons, or 11.5% compared with 2011. Potato harvest edged down by 3.3% to 6.9 million tons. Vegetable harvest reached 1.6 million tons, down 12.9% year-on-year.
As of January 1, 2013, there were 4.2 million heads of cattle in Belarus, an increase by 3.3% compared with 2011, including 1.4 million cows, up 4.3%. The number of pigs went up by 8.2% to 3.3 million.
In 2012, sales of fattened cattle and poultry (in live weight) amounted to 1,558.3 million tons, up 6.4% year-on-year, milk output totaled 6,767.3 million tons, up 4.1%, and egg output reached 3,832 million units, up 4.8%.
Procurement organizations purchased 75,900 heads of cattle from private farms, down 2.7% compared with 2011. Milk procurement from private farms went down by 1.1% to 313,600 tons.
Reincarnation of the late 1980s "reforms"
Officials at the Agriculture and Food Ministry admit that the financial situation at most of the country's agricultural organizations remains complicated and unstable, despite improvements in some major indicators. In 2012, the government continued making efforts to "deepen the packaged approach to large-scale production programs," to "overcome the practice of providing excessive care and tutorship for agricultural organizations and encourage their self-sufficiency and ambition."
This policy looks a lot like efforts to facilitate transfer to self-financing, self-sufficiency and self-support in the late 1980s.
The Three-S concept underlay the economic reform of the USSR in 1987. It was planned that if they succeeded, agricultural organizations would be able to use their own finances and resources to ensure simple and expanded reproduction. After Lukashenko came to power in Belarus, the economic reform was officially condemned, while the objectives formulated back when the reform was launched have remained in place and are currently treated as binding. Therefore, there was no change of track to an all-new economic course. According to Deputy Economy Minister Vasil Kazakevich, "there are still reserves that can be used to cut costs and improve quality, but they remain unwanted; technological discipline is lax, and as a result, production falls because of shortages of commodity output. This work is poorly organized and in some cases we see no efforts whatsoever."3 This opinion confirms the evaluation of the status of Belarusian agribusiness provided by Mikhail Myasnikovich when he assumed office of the prime minister. He called the situation in agriculture "horrific." It was horrific during the first post-Soviet period of market reforms and after the state program for the restoration and development of rural areas was adopted.
We should agree with critics, who claim that the reform component of the program was reduced to "new signposts" and primitive imitations. For instance, the government referred to the initiative to transfer bankrupt agricultural organizations to "effective owners," such as banks, industrial companies and penitentiaries, as a "market" move.
At the same time, official statistics proves that the sector makes consistent progress. According to Belstat, sales profits amounted to BYR 8.4 trillion in 2012, and net profits totaled BYR 4.3 trillion; return on sales reached 13.8% (and 15% based on full year performance), while the target had been set at 4 — 4.5%. The number of organizations that reported losses in 2012 fell to 19 from 21 in 2011. Without state support, the profitability of agricultural organizations increased to 9.3% in 2012 from 6.9% in 2011.
However, as of January 1, 2013, agricultural organizations accounted for 29.2% of all overdue payables. Their overdue
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payables were 6.5 times the amount of overdue receivables. Agricultural enterprises also accounted for 36.5% of the total volume of arrears of taxes, budget payments, and social insurance payments and 46.8% of the country's total loan debt. It is noteworthy that combined net profits of all agricultural organizations, at BYR 9.02 trillion rubles in 2012, is 33% below the total amount of financing of agriculture from budgets of all levels (at BYR 14.7 trillion; BYR 1.9 million per hectare (equivalent to USD 227)).
Conclusion
The kolkhozes, which were formally transformed into production cooperatives, have never been given any economic independence. On the contrary, the command and administration system remains in place and has been consolidated.
The sector remains heavily subsidized, despite demands to attain self-sufficiency. Subsidies keep growing, and so do overdue payments, which are eventually written off.
Harvest has always been high on the agenda for the government, which believes that no money should be saved on agriculture. The situation is determined by the stereotypes resulting from outdated management schemes — they are still perceived as reliable tools to ensure the stability of the social and economic system. It seems that agriculture will be the last sector to see changes.
