BOFIT Viikkokatsaus / BOFIT Weekly 2017/26

Russia, which has long sought to reduce its dependence on food imports, has increased its efforts in recent years with the heightening of geopolitical tensions. Russia's agricultural ministry estimates that self-sufficiency targets have been met in production of e.g. grains, potatoes, meat and sugar, but are still lagging in production of e.g. milk and salt.

The government has actively used trade policy to support domestic producers. Food imports have been restricted by e.g. public procurement rules and import bans imposed on Western countries and Turkey. Most of the sanctions imposed on Turkey were ended as the countries mended relations, but the ban on tomato imports remains in force. In addition, food imports are hampered by technical barriers to trade such as phytosanitary and veterinary measures which are sometimes applied in a discriminatory way.

Various other policy measures like production and interest subsidies and tax breaks have also been used to boost agricultural production. The OECD estimates that the total value of Russian agricultural support measures has averaged around 13 billion dollars a year (about 1 % of GDP) in recent years. The corresponding figures are 0.5 % of GDP for the US, 0.7 % for the EU and 2.4 % for China. The biggest subsidies in Russia go to production of sugar, milk and pork.

Most Russian agricultural subsidies are supplied under the State Development Programme. In recent years, annual spending from public sector budget funds has averaged around 300 billion rubles (4.5 billion dollars). Researchers at the Gaidar Institute assess that at least the subsidized investment credit is mainly directed to a few select large corporations. Last year, for example, 90 % of the subsidized investment credit in beef cattle production went to a single project of Miratorg, Russia's largest pork producer.

In addition to support measures, agricultural firms benefited from the sharp drop in the ruble's external value. In 2015, the total profits of farm firms rose by nearly 50 %. One of the fastest growing agricultural firms in Russia has been Agrocomplex, which is owned by the family of agriculture minister Alexander Tkachev. In recent years, it has become one of Russia's largest producers of e.g. pork and sugar, as well as one of the country's largest holders of farmland. After examining the issue last year, a government commission stated that this does not constitute a conflict of interest.

Consumer food prices rose by over a third in 2014–16. 38 % of Russian household spending presently goes to food.