Agricultural Policy Issues for Russia
Csaba Csaki, ECSSD, The World Bank
Vera A. Matusevich, ECSSD, The World Bank
John D. Nash, ECSSD, The World Bank*
The Russian agricultural sector has fared poorly in the transition period of the
1990s. Whether it is judged to have fared more or less poorly than the rest of the
economy depends on what indicators one looks at, but it appears that in constant prices
gross agricultural output has fallen about 35% since 1991. 1 According to official
statistics, the share of agriculture in GDP has fallen from 16.4% in 1990 to 7.5% in 1997,
but the sector’s share in employment rose from 12.9% to 13.3% over the same period. 2
The harvests of 1998 and 1999 were poor partially because of bad weather, but the effects
were exacerbated by the overall state of agriculture. The total agricultural area shrunk
from 213.8 mln. ha in 1990 to 195.2 mln. ha in 1998.3 The government received massive
food aid packages from the US and EU last year, and has requested another round this
year, raising the serious possibility of a vicious cycle that will lead Russia to a permanent
state of aid dependency.
Some of this sectoral contraction was explicable-- and even desirable—due to the
highly subsidized nature of Russian agriculture in the pre-reform period. Official OECD
estimates show a net PSE of 75% in 1989-91, compared to the (quite high) OECD
average of about 41% in this period.4 Much of the support was delivered via cheap
inputs, especially fertilizer and fuel, leading to its ineffective use (often over-use and
waste) that did not translate into proportionate growth of production. As such subsidies
declined dramatically after 1991, the use of these inputs (and productivity) plummeted.
But while input use should have declined, it clearly fell too much. Gasoline use in
agriculture declined from 11.3 mln. t. in 1990 to 2.4 mln. t in 1998, diesel use from 20 to
5.9 mln. t., mineral fertilizer use from 11.1 to 1.6 mln. t. By now, after almost a decade of
very low fertilizer use, there is widespread agreement that soil fertility is at dangerously
low levels. Successive governments have responded with attempts to reinstate input
subsidies in various forms, but these efforts have been constrained by budget pressures,
and have never come close to previous subsidy levels. They have also been available
almost exclusively to large cooperative enterprises, not to the few private farmers.
*
The findings, interpretations, and conclusions expressed in this paper are entirely those of the author and
should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of
its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the
accuracy of the data included in this paper and accepts no responsibility for any consequence of their use.
1
See Valdes, ed., , “Chapter 5: Russia”
2
Agriculture in Russia. Official issue. Goskomstat. Moscow, 1998, pp.16, 17.
3
Russian Statistical Year-Book, Moscow, Goskomstat, 1999, p.349
4
See V. Vitalis, “Background Paper: Russian Agriculture Support, Base Periods”, mimeo., New Zealand
Embassy, Moscow, December 1998. As he recognizes, the pre-reform figures must be taken with a grain
of salt, not least because they were calculated at the dis-equilibrium official exchange rates. Still, the
general point is valid.
Some of the other reasons for agriculture’s decline, apart from the reduction of
subsidies, mirrored the problems in other sectors: low aggregate demand (which hit the
livestock sector hard because of the high income elasticity of demand for these products),
collapse of the rural social infrastructure, an over-valued exchange rate before the August
1998 crisis (which made local production uncompetitive in domestic and foreign
markets), regionalization of power and policy, disruption of trading relations, poor tax
policy, and reluctance of the financial sector to lend to productive sectors. Other causes
were more sector-specific and reflected the slow pace and inconsistency of reform in the
sector: failure to meaningfully restructure large farms, continued grid-lock over land
ownership and use rights, inappropriate treatment of private farming, failure to improve
market relations and create market infrastructure, and imposition of trade barriers and
administrative price controls (mostly on a regional level). The devaluation has made
agroindustrial products more competitive, but it appears that this has produced a very
limited supply response. Food industry production increased in 1999 compared to 1997
only by 5.6%. Agricultural output in 1999 (in current prices) was a bit higher than the
very poor harvest of 1998, but was 11 percent lower than the more normal harvest of
1997 (in constant prices).
The agricultural sector has also remained mired in the non-cash economy. A major
part of personal consumption comes from either household plot production or from
payment of wages in kind by farm enterprises. In 1998 farm enterprises allocated 27.8%
of their marketable grain to pay salaries. In addition to wages in kind, barter
arrangements are also widely used to dispose of outputs through other channels. As a
result, cash payments in 1998 accounted for only an estimated 40% of the marketable
agricultural production. Many farm enterprises lack cash resources to cover their
operating costs, let alone expand their production.
Despite its problems, by the end of the 1990s Russia had achieved the basic
elements of a market-based agricultural sector. A pluralistic economy was established in
the countryside. Private farms emerged, and the role of private household plots became
more important. The state monopoly on land was eliminated, leading to emergence of the
beginnings of a land market. About 90% of processing and farm servicing enterprises
were privatized. The pricing policy in the market of agricultural and food products was
recognized to be less dependent on the state than in other sectors of the economy.
Positive irreversible processes took place in the mentality of agricultural workers of
various ranks. Reforms resulted in a situation where the role of the state as a basic buyer
of farm products and as an agricultural input supplier has considerably diminished. While
in 1993 the government procured 63% of all the cereals sold by agricultural enterprises,
in 1998 this was reduced to 12%. The share of public procurement of vegetables dropped
from 71% in 1993 down to 37% in 1998; of livestock and poultry – from 79% down to
41%. The inputs market also saw the emergence of numerous trade agents.
The pace of agricultural reforms has been characterized by a continuous struggle
between pro-reform and conservative forces since the early nineties. The fast-changing
governments have been unable to implement a consistent set of policies required to
properly address the most critical reform issues. The overall performance of the sector
indicates that reforms have not yet succeeded in improving efficiency and productivity.
In fact, sectoral outputs, investments and the level of technology continue to deteriorate.
Poverty reduction has not happened in rural area, and social conditions have also
deteriorated. Attempts to revitalize state-paternalism ideology and policy are getting
more and more pressing recent months. They are mostly reflected in the measures aimed
at increasing the budget financing and various privileges; state regulation of domestic
agrobusiness market; introduction of protectionist policy in foreign trade; creation of new
bureaucratic managerial structures. If these approaches triumph, recovery of agriculture
will be considerably delayed.
To reverse the sectoral decline will require action on many fronts. Much depends
on re-vitalization of aggregate demand in the overall economy. In sectoral policy, the
priority issues for the reform program are the following:
Improve Subsidy and Taxation Policies
The amount of state support to the sector has always been a focal point of heated
discussions. It is difficult to see a real picture because of the considerable indirect and
non-transparent support, including tax privileges and debt write-offs; the large part of the
sector that is in the informal economy 2; and the generally poor statistics. According to
some assessments, general (direct and indirect) support to agriculture amounted to Rub.
37 billion in 1999. Minister A. Gordeev states that in 1998 agribusinesses contributed
about Rub. 45 billion to the consolidated budget, including Rub. 15.8 billion to the
federal budget, while receiving Rub. 3.3 billion from it. According to the official
statistics, in January-October 1999 consolidated budget expenditures in the agricultural
and fishing sectors amounted to Rub. 23.8 billion (2.7% of the total expenditures) while
tax collections and payments by the agrarian sector equaled Rub. 7.4 billion (1.1% of
total revenues).
A major share of agricultural expenditures (about 2/3 of the consolidated budget in
1999) was allocated to regional budgets. Because of this, and their control over domestic
trade policy, the regional authorities determine, in effect, the agrarian policy in the
country.
However it is measured, the amount of state support during the years of reforms has
been declining. According to the MOAF, aggregate support calculated on the basis of
WTO methodology experienced almost a 9-fold decrease over the period from 1991 –
1992 to 1993 – 1995. Goskomstat figures show a drop in the share of agricultural
expenditures in the consolidated budget from 13.2% in 1992 and 9% in 1993 to 2.9% in
1998 and 2.8% in 1999 (Jan.-Nov.). This trend continued through 1999, as agricultural
support fell to 2.8 percent of the consolidated budget (Jan.- Nov. 1999).
In 1999, the federal budget allocated Rub. 7 billion for agricultural development
(out of Rub. 8.1 billion planned), including Rub. 1.85 billion for directed subsidies, Rub.
675 million for a leasing fund, Rub. 500 million for a soft lending fund. The amount of
2
According to the optimistic estimate of the State Statistics Committee (SSC), the informal hidden
economy accounted for 25% of the domestic product in 1998. Most household plot production is in the
informal sector. And according to SSC, “informal activities were growing more intensively in agriculture in
1999, almost half of this economic sector is “in the shadow”. (Newspaper “Izvestija”, January 6, 2000).
capital investment was limited to Rub. 233 million, and allocations for raising of soil
fertility – Rub. 1.7 billion. The 2000 federal budget envisages allocation of Rub. 11.5
billion for agricultural production, including Rub. 2.3 billion for affiliated entities
(salaries of bureaucrats, rent of the buildings) and expenditures of local agricultural
organizations, like regional seed and vet inspections; Rub. 200 million for capital
investment; Rub. 2.8 billion for raising soil fertility; and about Rub. 3.6 billion for
directed subsidies3. Thus, the volume of directed subsidies is planned to be almost
doubled in 2000 as compared with 1999, and their growth is the highest among all items
of the 2000 budget.
More important than the volume or the trend of transfers to agriculture is the fact
that the existing system of subsidizing the sector remains inefficient. Rather than being
designed to create linkages between farmers and the private sector providers of credit,
inputs, and services, the subsidies crowd out the private sector and preserve the old
network of reliance on the state.
For example, bureaucrats decide how and where the funds to raise soil fertility are
used. They are not administered in a way that takes advantage of farmers’ knowledge of
their own needs or gives them a choice. As a result, much of the fertilizer (as in the past)
is wasted or in some cases actually counterproductive.
The Soft Lending Fund, as another example, provides credits to agriculture at a
hugely subsidized rate—1/4 of the Central Bank’s rate—and with little discrimination
based on sound lending principles. The resources of this Fund are a basic source for
seasonal lending to the agricultural sector. Despite the attempts to introduce economic
criteria in allocating the funds of the Soft Lending Fund (to tie the credit to economic and
financial performances of the producers) and conduct this work through the commercial
banks, this mechanism remains a non-transparent administrative measure, with a
significant portion of the credit in default.
Agricultural debt write-offs have been a large—but unbudgeted—source of
support. Sometimes this measure has been “interpreted” as a provision of assistance to
the regions that suffered from drought and other natural calamities, but this is actually a
process of writing off old debts. The last time the debts written off amounted to Rub. 3.5
billion. This was implemented in accordance with Directive of the Government dated
November 29, 1999 and used to write off the debts on: (i) the 1995 commodity credit
(Rub. 1.3 bn.); (ii) budget loans (Rub. 1.1 bn.); (iii) centralized credits received in 1992-
1994 (Rub. 730 mln.); (iv) regional bonds (Rub.415 mln.). The process of debt writing-
off worsens financial discipline in the sector, undermines market principles for enterprise
relations with the state and discourages the development of agricultural commercial
lending. In a recent positive development, Acting President Putin refused to sign a
resolution for a huge debt write-off that was prepared before an agricultural strategy
3
These are items such as (i) Subsidies to pedigree stock-breeding (Ru.289.5mln), support to domestic
sheep breeding (Ru.140 mln.), subsidies to purchase mixed fodder for poultry factories and livestock
conglomerates (Ru.150 mln.), subsidies for flax and hemp production (Ru. 70 mln.), elite seeds (Ru. 65
mln.), partial compensation of crop insurance expenditures (Ru. 80 mln.)] and (ii) Partial compensation of
expenditures for mineral fertilizers and crop protection chemicals (Ru. 2.65 bln.) which are hidden under
another item of expenditures, though in the previous years they were treated as “directed subsidies” .
meeting in Krasnodar (Feb. 11, 2000). In his speech in Krasnodar he said that he is
against this practice.
Agricultural production is subject to a wide array of about 10 local and federal
taxes. The profit and property taxes are the main taxes at the federal level, but there are
special breaks for agricultural producers. The present system, with markedly different
effective rates of taxation of enterprises of various legal forms (joint stock companies,
cooperatives, household plots, etc.) distorts the evolution of changes in farm
organization and encourages tax evasion, thereby increasing barter transactions and
weakening commercial marketing channels. The owners of household plots do not pay
taxes (except land tax), and as a result, sometimes production of agricultural enterprises
is “shifted” in the records to this household sector. Of special concern is that private
commercial farmers are not eligible for some preferential treatment afforded others.
This is reportedly an important disincentive for individuals to withdraw from the
collectives and begin to farm privately. Tax legislation is cumbersome and frequently
changed, and the system of tax payment to the budget is extremely complicated. In
summary, the current taxation system of the agricultural sector is not transparent,
efficient, or equitable relative to the treatment of other sectors of the economy.
To improve the efficiency of the system of subsidies and fiscal policy as a whole
requires the following steps:
• Change the principles for identifying the amounts and areas of support. Programs
financed through the federal budget should have social objectives or address clearly
identified market failures or externalities. This could include development of rural
social infrastructure, to reduce the burden of maintaining social infrastructure by
agricultural enterprises. State support could also be aimed at expanding the sales of
agribusiness production, including exports [exports credits] and Food Stamps
Programs to help low income groups of people. Other subsidies should be designed to
resolve externalities or market imperfections and targeted/channeled to viable
agricultural enterprises.
• Revisit the mechanism of the Leasing and the Soft Loan Funds (since at this stage it is
not possible to eliminate altogether the soft lending or state leasing), in order to
develop private sector credit and service providers, rather than crowding them out;
• Increase substantially federal budget allocations to support private farms, and ensure
that they are eligible for any subsidies accorded to other farms;
• Design a system of measures to legalize the revenues received from the informal
economy by both cutting the tax rates and the number of different taxes, and by more
clear and accurate identification of the household plots.
• Limit tax exemptions and privileges, and ensure that they do not discriminate against
private farmers.
Reduce State Interventions and Encourage Competition in Input and Output
Markets
The state monopoly has been replaced with the monopolistic behavior of local
processing entities and dictate of regional officials. Russia’s regions have in place a
number of measures aimed at controlling food trade and prices, which are expressly
forbidden under WTO rules. These include price controls, additional standards and
certification requirements, re-establishment of monopoly purchasing, uneven
enforcement of customs regulations, and other direct or indirect non-tariff barriers to
trade, either among regions or with the outside world 4. Sales of cereals in many regions
are controlled by oblast administrations through “commodity credits”. In the spring, they
allocate financial resources from their local budgets for sowing purposes (in most cases,
providing inputs in kind through barter deals) and in the fall they demand debt repayment
using cereals and ban free sales outside the oblast. Regional (and, in fact, federal) food
corporations set up as a vehicle for market regulations have, in effect, turned into some
sort of oblast administration offices used for signature of the contracts that are hard
bargains for the peasants. There are also attempts to revitalize the commodity credit
system on the Federal level5.
In the sale of many other farm products, since alternative sale options are not
available, the producer is forced to sell meat, milk, vegetables, and other perishables to
the nearest processing enterprise at unfavorable prices. Only a small number of the large
farm enterprises have been able to expand the scope of their operation, improve their
production efficiency through the construction of their own warehouse, refrigeration and
processing facilities or integrate their production and business with those of the
agroprocessing and trade enterprises.
Policy here should be aimed at development of new private channels for supplying
farm products and inputs (wholesale markets, exchanges, fairs, marketing and supplying
cooperatives, revival of the procurement function of the consumers’ cooperatives);
liquidation of the local monopolies and regional food separatism; expansion of agri-
industrial integration; improvements in operation of market information services; and a
cardinal change in the line of activities of the food corporations by making them a tool
for regulation of —not intervention in-- the agricultural market. These changes,
combined with improvements in the general business environment and reduction of
barriers to entry, should increase competition in these markets.
The law “On Parity of Prices for Agricultural and Industrial Products (Services)
Used in Agriculture and Compensation of Losses Caused by Its Offense” approved by the
Duma (but not yet signed by President) should be revoked. This Law authorizes annual
calculations of the difference between growth of agricultural input and output prices, and
mandates that agriculture’s “losses” from this be transferred back from the state budget.
4
See V. Vitalis, “Second Level Regional Policies in the Russia Federation and the Multilateral Trade Rules
Affecting Such Policies”, mimeo., New Zealand Embassy, Moscow, September, 1999.
5
A governmental Resolution dated January 27, 2000 (“On measures to regulate grain market by the state”)
envisages introduction of a commodity credit mechanism.
This law also authorizes reduced prices for agricultural inputs (fuel, energy, fertilizers)
and various forms of state control over prices in agribusiness.
New regulations should be a aimed at state regulation of agribusiness consistent with
the conditions of the market economy. This new system needs to include:
• A new system for government procurement and sale interventions under clearly
delineated conditions (e.g., emergencies);
• Mechanisms to pledge or provide advance payments to procure farm products;
• Prohibition of the establishment by federal or local governments of ultimate
consumer prices or a level for trade mark-ups or indicative coefficients for
wholesale/procurement, retail/procurement price ratios;
• Liquidation of any trade barriers; liquidation of the monopoly of RosAgrosnab and
other state companies dominating some product markets;
• Establishment of conditions to improve leasing operations by attracting credits of the
commercial banks, investment companies, other private investors, and to use modern
guarantee arrangements.
Accelerate Land Reform and the Development of an Agricultural Land Market
Land reform is under way, but far from complete. There are now nearly 12 million
owners of land shares. About 10 per cent of agricultural lands are clear private property
of physical or legal bodies, with another 56 percent in collective enterprises in which
workers own land shares6. Every owner of a land share is also entitled to get a household
plot on a free basis, thus becoming an owner of this plot. Land registration and cadastre
is progressing. A land market comprising mainly urban land and household plots has
appeared, with about 420,000 transactions in 1998, but very few of these are sales of
private agricultural land. These household plots have played a very positive role under
the economic crisis environment, when they have become the main suppliers of food for
a significant part of the population and for some even the main source of income.
According to the Russian Constitution (1993), the right for private land ownership
is one of the main constitutional rights of citizens. Subjects of FR (regions) have no right
to turn down or vote down this right from their local legislature. Land relations are
recognized as property relations. Nevertheless, only a few regions (among them Saratov,
Samara, Tatarstan) have introduced progressive Land Codes. A new Federal Land Code
has been discussed in the parliament since 1994 (the old Land Code was approved in
1991). Though sale is permitted by Presidential Decrees (and by law in some oblasts), it
has no firm legal basis. Federal law directly bans mortgage of agricultural lands and even
6
Currently the structure of land ownership is as follows: state land – 34% (reserves – 9%, state land used
by population – 9%, state land used by agricultural enterprises – 16%); private land – 10% (private farmers
– 6%, household plots – 3%, other – 1%); collective ownership – 56%.
of household plots. Leasing based on the general articles of the Civil Code or on the laws
of the subjects of Federation is extremely limited.
Under these circumstances, the priorities should be:
• Pass a federal land law affirming rights to buy , sell and mortgage agricultural land ;
• Evaluate state farms remaining on ‘the federal property” list (unprivatized
agricultural enterprises). Reduce the number remaining in public sector;
• Include registration of land shares in the system of land registration, and elaborate a
legal basis for land share leasing;
• Speed up land survey, registration and titling service as a priority to developing a
fully functional land market. (Law on Land Cadastre recently passed.)
• Establish and disseminate procedures for land transactions, including leasing as well
as purchase and sale.
• Improve the system of land taxation;
• Establish a framework for the dissemination of land market information.
Implement a New Approach in the Reorganization of Agricultural Enterprises
In the process of agrarian restructuring the majority of agricultural enterprises have
faced the problem of insolvency. As of November 1, 1999, 24.3 thousand agricultural
enterprises (out of 27.3 thous. large and middle farms) had outstanding arrears (not
including defaults on bank loans) totalling Ru. 117.8 bln. Many enterprises have debts
which exceed their annual sales volume. In the agribusiness sector, as of beginning of
2000, the total debt was Ru. 189 bln.; this amount exceeds the sector’s annual sales
value. This situation has actually paralyzed the system of payments for some agricultural
enterprises, and resulted in the chaotic process of creating new legal entities which inherit
the old debts. Although these procedures are contrary to the legislation, local
administrations in practice ignore this. From 5 to 10 percent of agricultural enterprises
are in the process of self liquidation without having appropriate legal successors or
processing legal documents. The problem is complicated by the fact that these enterprises
own many social assets and provide the corresponding social services for employees.
(The total estimated expenditures of agricultural enterprises for social infrastructure are
Ru. 10 bln.). The passage of the Federal law on insolvency (bankruptcy) as of January
1998 has provided a serious basis to solve this problem. However, the mechanisms
proposed in the law do not consider the specific character of an agricultural enterprise
and relations of land and property owners. There is a need for a comprehensive treatment
of farm debt linked to the restructuring of farms and the real liquidation of the worst
components of the system. So far, only about 10 percent of the agricultural enterprises
have been truly re-organized, though many more have changed their formal title.
The main task here is to establish implementable procedures for restructuring
and/or liquidation of insolvent farm enterprises, so that resulting enterprises have
incentives and capacity to engage in commercial activities. Debt work-out procedures
should split off legitimate social services and place them with the public sector.
Develop a Working Rural Finance System
Problems in rural financial markets have become even more acute following the
financial crisis. As a result of reforms, the state has stopped providing “direct credits”
(centralized disbursement of budget funds) to agriculture; specialized financial
institutions are now used for this work, but the credit volumes are only a fraction of
previous levels. At the same time, credit through normal commercial channels has not
increased. This has resulted in a severe liquidity crunch.
The issue of agricultural credit in Russia has some particularities determined by the
current economic situation in agriculture and the banking sector. On the agricultural side,
these include low profitability and creditworthiness of agricultural enterprises; collapse of
agricultural financial institutions, including “SBS-Agro” bank; high loan delinquency;
and poor and corrupt management of some enterprises. The Russian banking sector
remains unreformed. At the beginning of 2000 there were 1,349 credit institutions out of
which only 295 (21.9%) had more than $1.4 million in share capital. Massive closures of
weak banks did not happen, and little was done by the ARKO, the agency created March
1999 to oversee the banking restructuring. ARKO failed to restructure the biggest
agricultural bank SBS-Agro, which is being kept afloat through various artificial means.
Some regional banks remained viable during the August crisis and show considerable
growth of activity now. Nevertheless, in spite of a slow recovery of the banking sector,
regular loans are not available to agriculture and will not be available on large scale in
near future.
A draft Governmental Resolution on creation of “Rossel’khozbank” (a former part of
the SBS-Agro) is being submitted for the final approval in the government, and a draft
law has been prepared in the Duma. Some 51% of this bank’s shares would be owned by
the Government. It would serve as the main channel of providing budget money—all
funds from the Soft Loan Fund and the Leasing Fund-- to agriculture. If adopted and
funded, this would represent a huge step backward, as it would more or less permanently
cement the state’s role as virtually the only provider of credit to the sector and would
ensure that lending is done on non-economic criteria.
Use of subsidized credit through the Soft Loan Fund is inevitable at this point, but
it should be done in such a way as to attract commercial lending and to facilitate its
phase-out in the future. The efforts should be focused at elimination of three major
factors associated with the commercial banks reluctance to lend to agricultural
enterprises: high risk, lack of adequate collateral; and high transactional costs. Reduction
of these deterrents is crucial.
To begin to develop a functioning rural financial market, the main tasks are the
following:
• Introduce a new mechanism for the Soft Loan Fund. This would include stopping the
practice of administrative distribution of credits (by which the MOAF identifies the
amount for each region and regional authorities clear the bank’s selection of
borrowers ) and using only a small number of authorized commercial banks to
disburse low-interest farm credits; this work should be done through a system of open
and comprehensive competition of all interested banks (subject only to prudential
requirements) and borrowers. An independent Banking Board (not the MOAF) should
manage the activity, including audit (to assure appropriate use of loan proceeds).
Funds of the Soft Loan Fund should be used to provide partial guarantees and partial
coverage of the regular interest rate. Under these conditions, any agricultural
producer would have a chance to apply to any commercial bank using the normal
interest rate. ;
• Abandon the idea of creating a state agricultural bank. This would monopolize
financial flows to agriculture and crowd out private lenders.;
• Phase in requirements by the Loan Fund for risk sharing by participating
commercial banks. This could include various schemes, including: (i) a partial credit
guarantee scheme to cover business loans for working or fixed capital investment
(this scheme was designed for bankable Nizhny Novgorod agricultural producers who
lack sufficient collateral to assist them to get credit from commercial banks); (ii) a
partial export credit guarantee which covers pre-shipment risks on a transaction; (iii)
a crop insurance program which deals with agricultural risks such as adverse climate7;
and also (iv) “non-commercial” loan guarantees which protect lenders against
political risks;
• Pass a law on mortgage crediting in agriculture and use of land as collateral;
• Develop the system of non-bank agricultural credit unions, cooperatives and
collective borrowing organizations to help small agricultural producers; support
various mutual lending and leasing arrangements. The law on credit cooperatives
should be finally approved by the Parliament. Creation of credit cooperatives should
be initiated through the Special Governmental Program for Cooperation in this area.
Ideas of cooperative credit should be widely discussed among rural population to
explain the benefits of their application for private farmers and household plots
owners; and
• Widely introduce the system of warehouse receipts and grain mortgage transactions.
The specific normative basis for using warehouse receipts should be approved.
7
Such a scheme should be based on sound insurance principles to avoid adverse selection and moral
hazard, including payments determined by objectively measurable variables outside the control of
individual producers, such as area rainfall or hail.
