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Chapter 1: Economic analysis of the AIC RF 5
1.1 Structure of agro-industrial complex of the Russian Federation 6
1.2 The impact of crisis on the agro industrial complex of Russian Federation 11
1.3 Problems and threats of AIC after Russia joining the WTO 18
Chapter 2: Mathematical methods of studying RF AIC 29
2.1 Methodology for the selection of significant factors 30
2.2 Methods of estimating the coefficients of the model 32
2.3 Validation of the model 39
Chapter 3: Identification of key performance indicators of the Russian agro-industrial complex by econometric methods 48
3.1 Correlation analysis of AIC indicators of development 49
3.2 Selection of key variables and developing a model of AIC development 55
3.3 Analysis of the obtained results 60
Used material 66
This report focuses on the construction of the economic model in order to make a full comprehensive analysis of the current state of the agricultural industry of the Russian Federation, in particular small-scale agriculture, in order to identify its trends and prospects, as well as government or investor’s support. In particular, the goal is to determine which variables and in which degree influence on the farmers income mostly.
The work examined the overall condition of small agriculture in Russia, revealed the production parameters, the size of agricultural land and arable land, studied the material base of main economic activity of farmers, as well as discusses on the influence of the state. During this observation the main attention was aimed at the volume of revenue, prospects of it incensement and mathematical modeling of main economic indicators. Also the work examined finished econometrical model, future prospects of farmers market in Russia and ways of its developing.The report also includes such sections as forecasting and conclusion.
State of Russian agriculture in the period 2000-2010 is characterized by two stages: the first five years of the rise of public funding, the remaining time - recession because of its lack. Speaking about previous conditions of Russian agriculture it should be mentioned that it was reformed and in an overall result didn’t changed the situation, or in concrete case of small farmers made it even worse.
During the years of the reform in the agricultural sector production and acquisition of holdings of agricultural machinery and mineral fertilizers has fallen sharply.
Since the 90s of the last century Russian agriculture has undergone two stages. The first lasted for almost ten years (until 1999) and was characterized by a very significant recession. By2000, our country has slightly recovered after a period of crisis and seriously concerned about the sad state in which agriculture was.
However, funding from the state was not enough and by 2008, when the situation worsened by the world crisis, about 234,000 small farmers were eliminated from the market. T only ones that remained in the business activity were those that attracted interest from Russian and foreign investors. In general, investment in agriculture in the period from 2000 to 2011 by investors from other countries amounted approximately 10 billion U.S. $. This led to a change in the shares of profitable and unprofitable businesses, but the situation is not fundamentally solved for now.
There have been some changes in the structure of agricultural organizations. Thus, the number of large agricultural associations decreased from 73.7% to 45%. But there was a rise in the number of farms from 2% to 7.5% and farms of the population - from 33% to 47.1%. Private household farms have become leaders in the production of agricultural not by accident. This is because of the demand for meat, milk, wool, fruit, vegetables and cereals remained high and existing agricultural enterprises have been unable to provide the necessary volume to Russian consumers. As a result, this has led to the fact that about 50% of agricultural products Russia has to import. For now farmers do not play a significant role in providing the country's food supply. However, this is mostly not the fault of farmers.
Manufactured products mainly provides personal farmers needs and small profit received goes on maintaining farms to exist at the farmers market.
Another cause of our relatively high dependence on imports is the fact that the farms, which were in high expectations in terms of Russian agriculture, fell short.
Productivity of almost all crops in farms is lower than in agriculture. One of the important reasons is that farmers at a high production cost are not able to perform fertility improvement of poor soils.
Serious problem that still remains for farmers is the provision of machinery, which can be explained by the high, almost unaffordable prices for it that most of them cannot afford.
With the development of market relations structure of realization of the farmers products also changed. Noted decrease in the share of the production supplied to the food banks for state needs, and increase share of products sold by other channels (in the market through its own sales network and catering, with vehicles in the order of payment in kind, barter, etc.). As a result, many farmers refused to sign contracts.
And while the government policy on agriculture will not be based on the principle of providing food independence from other countries, concerning massive liquidity injections provided, situation is unlikely to change at all.
Problem of agriculture stays one of the most unsolved problems of Russia since collapse of USSR. During last 20 years the situation is just getting worse. Government uses a lot of subsidies on agricultural sector that in overall don’t change the situation, just giving one more year of economical agony. Actuality of the research is also reasoned by the current involvement of Russia in WTO. This means that now Russian products can find consumer abroad, if they are good enough. For now Russia has some limitationson exporting goods, but later they would be overcomed. For the period of solving limitation problems Russian agriculture sector should be well prepared to meet foreign consumer demand, and to begin with first of all it should meet the demand of local consumer, bringing in overall situation from import to export.
The data used for the construction of economic model is acquired from the online database available via FederalState Statistics Service. In identifying the relationships were examined twenty independent variables such: actual number of the operating farmers(X1 in1000 people), production of Agriculture(X2 in million rubles), cultivated areas(X3 in 1000hectares), gross collection of grain(X4 in 1000 tons), cattle and a bird on slaughter(X5 in lethal weight), average size of the ground(X6 in 1000 hectares), the average prices for the gasolineacquired by the agricultural organizations(X7 rubles for ton), gross collection of sugar beet(X8 in 1000 tons), gross collection of sunflower seeds(X9 in 1000 tons), milk production(X10 in 1000 tons), actual amount of cattle(X11 in 1000 heads), cows(X12 in 1000 heads), pigs(X13 in 1000 heads), sheep and goats(X14 in 1000 heads), horses(X15 in 1000 heads), fowls(X16 in 1000 heads), production of eggs(X17 in million pieces), production of wool(X18, yearly collected data), GDP(X19 in billion $), inflation(X20, yearly).They are selected in order to determine the factor which has the biggest impact on the Farmers income.
The time period for the analysis is set as year 1995 – year 2010 thus giving the economic model 16 observations which in turn can be conveniently divided in two equal groups of 8 years each while performing the Goldfeld–Quandt (GQ) test during the construction of the regression model. The data before year 1995 is not taken into consideration due to the absence of information in the GKS database for certain variables. The latest year available for all variables – year 2011 – is not included in the primary analysis as it is taken as a control sample for the adequacy check of the whole model performed closer to the end of the report.
Also it is important to mention that such type of econometrical investigation and the model of farmers’ income has been checked and had been published in the international conference journal. The link to that publication will be included to the list of resourses used.
Chapter 1: Economic analysis of the AIC RF
In this Chapter will be investigating the overall structure of Russian AIC complex, key definitions and factors that has significant influence on AIC. Moreover this chapter will clarify the modern situation of the agro-industrial sector of the economy of the Russian Federation.5 Main attention will be given to the problems of the AIC. Also great importance will be devoted to the crisis influence on complex, the current programs that define and help to overcome threats and find the solution to that impact. Further on this chapter will be identified current position of AIC of RF in WTO. Several key aspects will reveal the WTO rules and their implementation to Russian AIC. Moreover in this chapter several important strategies and monetary injections into agro-industrial sector will be observed. This chapter in overall relevantly will show the importance of AIC, the way how it operates and faces modern economic conditions.
1.1 Structure of agro-industrial complex of the Russian Federation
For the clear understanding the definition of agrarian and industrial complex it is important to mention its actual sense. Modern agricultural production is largely dependent on the successful operation of a number of other sectors of the economy. It conducts many different sectors and fields of economy thus making them work jointly.
Agro-industrial complex, or abbreviated as AIC, is a set of economic sectors related to agriculture, maintenance and adjusting its production of agricultural products to the consumer. Russia's agriculture industry is the largest national economic complex. It concerns about 4,4% of all GDP by sector formation.
The term "agro industrial complex" went into circulation in the mid-seventies, by the time it had formed into a single unit. Historically the formation of agribusiness caused by scientific and technological revolution and the penetration of its achievements in agriculture. As a result it made significant influence on AIC by strengthening linkages of agriculture with industry.
In creation the final agricultural goods in various stages of production and circulation participates directly or indirectly more than 70 industries. The composition includes not only AIC industry but also several technologically and economically interconnected sectors of Russian economy that are directly involved in the production process, and in the process of bringing the final product to the consumer. Comparison of industries involved in the production of food and non-food consumer goods is forming sector structure of agriculture.
The main socio-economic development objectives of AIC are:
Achieving sustainable growth in agricultural production;
Solution to the food problems of the country and the approximation of food consumption to government base standards;
Satisfaction of consumer demand for non-food products from agricultural raw materials;
Restructuring of agricultural production mainly on intensive form of development
Provision of the growth of production of the final product;
Improvement of resource potential and on this basis the efficiency of production;
Changing the structure of foreign trade in order to gradually transform the country into an exporter of food products.
The ultimate goal of the AIC can be briefly stated as follows: the complete satisfaction of the population's needs for food and other products produced from agricultural raw materials at the lowest cost of labor and means of production.
Agribusiness includes three main areas:
The first area consists of industries that provide agribusiness by all means of production as well as production and employment maintenance of agriculture.
The second sphere includes agribusiness companies and organizations that are directly involved in agricultural production.
In the third sphere AIC includes industries and enterprises that provide procurement and processing of agricultural products and bringing it to the final consumer.
Firstly agribusiness includes tractor and agricultural machinery, machinery for cattle and poultry breeding, food machinery, special vehicles, reclamation machinery, production of fertilizers and plant protection chemicals, microbiological industry, capital construction in agriculture, agricultural machinery repairs systems. Industries included in the first sphere of agriculture are very resource intended, so to ensure the production process and create a base for the industrialization of agriculture and contribute to the normal functioning of all parts of the complex it should be clear provided with such resources. Their activity reflects general rhythm of mass production of agricultural products and the level of output of the final goods.
The share of the agro-industry accounts for nearly 15% of total production, 13% of productive assets and 22% of all number of employees.
The main components of the second sphere of agribusiness and agricultural production are crops and livestock. Also within crop and livestock there exists sectoral division. In plant sector they are: gardening, horticulture, grain production, cotton, flax, etc. As a part of the livestock industry there also exists separation by animal species: cattle, pigs, sheep and poultry. Along with this we can easily separate livestock industry by naturalized products: dairy cattle, sheep meat-wool production etc.
Agriculture provides 95-96 % of food produced in the country, the remaining 4-5% are the products of the seas, rivers, lakes and forests. In addition to this agriculture supplies natural raw materials such as wool, flax, oil - seeds of various crops, sugar beets, etc.
Agricultural production cannot be replicated in other areas, or replaced by other types of products. Thus it makes it the most important one.
The second sphere of agro industrial complex produces nearly 48 % of the final products. It involves over 68% of productive assets and 60% of the number of employees.
As a result of the agrarian reform in accordance with the Civil Code of the Russian Federation19 and other legislative acts, the main economic agents in the country and in the agricultural sector, in particular case, are those new formations as companies, associations, cooperatives and other enterprises. The proportion of state-owned enterprises significantly decreased.
One of the main areas of agrarian reform is the restructuring of agriculture to develop farming. The most active creation of peasant farms is typical for the mid -1990s. On January 1, 2013 there were 227.8 thousands farmers with an area of land granted 14.4 million hectares, an average of 63 hectares per household throughout the land, including 52 hectares of agricultural land, of which 39 hectares of arable land.
Moreover, the area of agricultural farmer land increased as well as citizen’s land of personal use. The share of farms in the area of farmland has increased over the period from 5.2 to 6.9% households - from 4.8 to 6%.
In the agricultural production in the transition to market has significant increase of the proportion of the farmers. So, if in 1991 they produced 31.2 % of the total agricultural production, in 2012 it increased to 60.2%.
Farms occupy 8.6% of the total arable land, producing only 2.5% of total production, but still it is very productive and important sector with high chance of developing itself.
Households produced more than 90 % of potato, about 80 % of vegetables, meat 59 %, 50 % milk, 29 % and 57 % eggs.
In the third sector of AIC are concentrated flavoring, meat and dairy, fish, flour, cereal, feed mill industries. This area partially includes light industry for processing the agricultural raw materials. Branches of the third sphere of agribusiness provide primary industrial revision of agricultural raw materials, its harvesting and storage, as well as recycling materials and caring them until they are ready for sale to the public. They carry out and deliver the finished products to storage and sale. Standards of life of the population depend on the state of development of agriculture, and especially of the third sphere witch is food processing industry. The share of industries and enterprises of the third sphere agribusiness accounts for 38 % of the total production, 19 % of all productive assets and 18% of the workers.
Thus, in addition to agriculture in the AIC includes industries that either supply with the means of production or provide services of harvesting, processing its products to ready-to-consume food and non-food products from agricultural raw materials and bring them to the consumer.
The final product produced by agro-industrial complex can be divided into food complex and non-food complex products. The food industry complex includes agriculture and processing, which supply food to the population, as well as companies that supply the means of production first involved harvesting and transporting food products.
On sectoral basis a food complex identifies a number of products to sub complexes. They represent a set of enterprises and organizations as the production of raw materials and finished products, as well as serving sub complex. In the country such products of sub complex, as corn, sugar beet, potato, fruit and vegetables, meat, milk, fat, fish and other grocery of sub complex have their own specifics, and at the same time they are closely interconnected, interdependent from one another. For example, there is interdependence in the production of milk and meat cattle, and the products of these industries included two grocery sub complex: beef and dairy. The largest sub complexes in Russia are grain products, meat and milk.
Improvement of the structure of AIC should be aimed at ensuring balanced development of its fields and industries to increase production of the final product. For example let me introduce comparison and briefly description of the U.S. agribusiness. U.S. agribusiness now produces products worth more than $ 1.4 trillion USD. Moreover, the agricultural sector does not exceed 8%. But the scope of processing, storage, transportation and marketing creates a 62% cost of production. That's why every dollar that the consumer pays for the products, the farmer comes to less than 20 cents. There is a famous myth that two million American farmers feed the country. Really the amount of people working on farms is 2.6 million farmers, including their families and employees. But in their agribusiness production of work and bringing a product to final consumer counts about 21 million people. On the whole their complex employs about a fifth of all workers in the country.
The modern level of scientific and technological progress allows one person directly be engaged in agricultural production which could produce products for 60-70 people. In Russia, the average level of annual per employee agriculture index accounts for 15 inhabitants of the country. It is a consequence of relatively low labor productivity in agriculture, and the lack of development of the third sector and agribusiness infrastructure.
1.2 The impact of crisis on the agro industrial complex of Russian Federation.
Modern agriculture is a high-tech industry which is closely related to science and technology. Problems of the industry are solving by individual colleges and universities. Research in the field of plant breeding and genetics can create a more productive plant varieties and animal breeds that are resistant to various diseases and other adverse factors. Engineering creates a new high-performance agricultural machinery to automate labor
-intensive operations such as plowing and harvesting. Application of information technology in agriculture, particularly in livestock allows real-time monitoring of vital signs and animals in the early stages to identify the disease.
Fledged financial crisis that has lopped from monetary sector to the real economy is a negative phenomenon. However, the economic crisis brings not only loses, but also the possibility of new acquisitions. For the economy, especially for the market one, things are arranged so that in most cases the "bad" one is "good" for another. For example, the fall in house prices, cars, fuel, fertilizers and. etc. carrying decline in revenues to their owners can wrap out benefit for buyers.
The liquidity crisis has a negative impact on the banks' financial performance of farms, leading to stagnation in agriculture, and the continuous cancellation of modernization program, stimulates inflation and reduces the purchasing power of the population on food.
In the most difficult situation are many leading manufacturers of meat, milk and grain, which were actively involved in the implementation of the State program of agricultural development in 2008-2012. They have invested heavy including raised funds in the creation of modern industrial AIC, so now they are forced to freeze the implementation of previously planned investment programs. Thus, the group of companies "Agroholding" because of the financial crisis was forced to "freeze" the implementation of investment projects totaling 5 billion rubles, which has already invested 1.7 billion rubles. GC " Russkie fermy " postponed the construction of a dairy farm for 10 thousand heads; " Mosselprom " also rejected the construction of dairy farm projects on 1.2 million heads and pig farm of 4.8 thousand heads; "Miratorg" refused the construction of logistics centers for 6-8 thousand tons of storage, feeding mills and grain project and the project for the industrial production of beef cattle. Also financial performance of agricultural holdings "Razguliay", " Cherkizovo", " Stavropol Broiler", "SV- Volga " Ulyanovsk megafarm "October" deteriorated. For SPK "Elgan" in the Kirov region the volumes of prepay loans equaled the volume of sales of milk, the price of which fell during the year twice. Quite a lot of companies cannot pay for electricity to fulfill its obligations on bonds.
Total borrowings of working capital required agribusiness companies in the fourth quarter of 2008, more than 850 billion rubles, including 300 billion rubles for agricultural enterprises and 550 billion rubles to the food industry. In addition, payments of agricultural enterprises on long-term bank loans and bond issues in the October-December 2008 were at quite an approximate estimate, more than 100 billion rubles. For example, only GC "Siberian Agrarian Holding" for the implementation of specific program which began in 2007 which was aimed to increase grain production and the construction of a federal network of bakeries needed 5.5 billion rubles. "Prodimex" for the completion the process of modernization of sugar factories in the next two years requires 2.2 billion rubles.
Crisis often causes confusion, loss of confidence, and sometimes panic, thereby allowed irrational actions. To mitigate its negative effects, and if possible wrap crisis manifestations of good, sober calculation needed and deep scientific analysis should be implemented.
Methodologically it is possible to identify a number of basic principles.
- AIC in Russia, especially agriculture, for almost two decades, actually operates in a crisis. On the one hand it leads to a high degree of deterioration of the basic means of production, including land (in particular, soil fertility), and a number of other negative consequences which naturally reduces the efficiency and competitiveness of Russian farmers, but on the other hand it contributes to the adaptation to their working conditions in a stressful situation. You can regret missed opportunities in case timing provisions of appropriate assistance to agriculture by the state, but at the same time it must be recognized that the Russian peasants received good training and has learned to survive in precarious economic conditions.
- Agriculture in Russia, by definition, can not disappear, as for example, almost ruined and almost no operating chemical industry, aerospace and many other industries. Even in the worst conditions of production of agricultural products on our lands will still be those who will own land. Vast of our agricultural areas is the same strategic resource as gas, oil, minerals or fresh water. But they can not be used on a mass scale, as food in the world trade. Currently only Russia, Canada and to some extent Brazil have the opportunity for substantial increase in agricultural production without compromising the environment. In all other countries, these possibilities have been exhausted. Therefore the Russian land will always be in demand regardless of any crisis which can not be playable on other products of the domestic economy (with the exception of weapons and space industry products partly).
- Russian agriculture has certain competitive advantages. The main of them is a large landholding preserved relic shade. Although in recent decades we have been mistreated with the ground as evidenced by the widespread decline of natural fertility and development of erosion processes, but poor use of agrochemicals (by orders of magnitude less than in developed countries) and other areas of agricultural intensification helped preserve the Russian land mainly in its original form. These lands are in many cases suitable for the production of environmentally friendly products. This circumstance makes agriculture as a single branch of the national economy, capable of producing renewable competitive goods and favorably distinguishes it from the branches, bringing the country income (oil, gas, mining), but chances are that in the near future are exhausted by rural agro –food.
- Agriculture and agribusiness as a whole during the crisis have a chance to realize their competitive advantage, taking its rightful place in the structure of the Russian economy, and reach the world level. Over the past years, the structure of Russian exports deteriorated, shifting in favor of energy resources. In 1998, the share accounted for 12 % Energy merchandise exports in the first half of 2008 - already 70%. Such one-sided foreign trade largely in Russia attracted more serious consequences of the global crisis than in most other countries. Being extremely dependent on energy prices, the domestic economy first felt all the "charms" of financial instability. If Russia's economy will be diversified, including through the development of agriculture, agro-effects will provide the ability to work in a highly competitive and generally in extreme conditions, that is not inherent in an oil or gas industry, high prices and spoiled pampered monopoly position in the domestic and plague markets will collapse. An important advantage of external domestic agriculture is immense possibilities to increase production quality and relatively cheap products. It should be noted that agriculture generally in crisis takes precedence over the other branches of the economy, as against the background of the total drop in consumer demand for goods. That fact that people will need food will not change. Constant demand for food entails stable production, and if the number of purchased cars, household items, clothing, etc. in a crisis is reduced, which causes companies to stop their production, almost unchanged volume of the food consumed does not create the objective conditions for alleviating agriculture.
- Crisis conditions can be and should be used to start a new stage of development of the country's agriculture. I recall that developed in Russia in 1998 Defaulted allowed our farmers to gradually increase production, and improve work efficiency. Today is also a situation that has the opportunity to give benefits to domestic agribusiness. Appreciation of the dollar and the euro makes imported goods more expensive and thus less competitive in the Russian market. Thus this fact can create the prerequisites for the gradual replacement of foreign to domestic food. The state should only create resource opportunities for realization of competitive advantages in agriculture. I want to emphasize that budget support for farmers is beneficial not only for them but also for the economy as a whole. It suffices to compare the relatively small funds for the implementation of the priority national project "Development of agriculture" with a multiplier effect when every budget ruble has caused a revival of agriculture and increase of production. It seems that the funds accumulated in the period of high oil prices, which the government had to spend quickly to support banks and protect the ruble during the stock panic with no less impact could be directed to agriculture. Unlike many other secrets of the economy, agriculture is the backbone sector that creates jobs for producers, processors, retailers. Food sector expansion also effects the tax base exponentially during the passage of agricultural commodities on a long chain process of turning it into food products or to store shelves. Government (in the form of budget support) and agriculture should use the crisis to the active introduction of resource savings and technologies of management methods to the extent of which is now clearly insufficient. Critical situation creates a chance to overcome technological backwardness of the industry, to get rid of outdated methods of production.
- During the crisis worsens the economic situation and possible risks are exacerbated by including it at the macro level. Increase the threat to the national security of various kinds, among which a special place is occupied by food sovereignty. Its growth can only be achieved through the dev
elopment of domestic agriculture but therefore a key component of the Doctrine of Russia's food security is the production of majority of food products in the required quantities in the country. This requires first saturation of the domestic agro cash. In a monetary crisis is not enough just to solve the sectoral problems especially in Russia where a significant importance are gained to credit resources which are attracted from abroad. Solve the problem of financing agriculture is currently harder than two years ago. Besides AIC burdened by chronic underfunding in the past twenty years. We can only guess what might have been the peak of the development of our agriculture, involving adequate state support. It is likely that the domestic AIC could be a bastion of order of which undoubtedly would have crashed the wave of the crisis. Therefore, given the underfunding at the present stage of the national economy by sterilization of resources in budget surpluses we should implement external funding sources to replace internal. Agriculture should be a in a first priority.
Based on data from the fundamental principles of the functioning of the Russian agricultural sector in crisis situations, we should built today agricultural policy at the macro and micro levels. At the federal level, in addition to the provision of adequate government support is required to focus on "cleaning" production in agriculture. Initial product from excessive and unreasonable "markups" is numerous intermediaries influence. Russian Ministry statistics suggest that the main foodstuffs (meat, milk, bread) share all kinds of extra charges and in the cost structure of the final product reaches 60-80%, which is not developed in relation to the agricultural states. This bias in the Russian economy has spawned a market phenomenon. A mediator as a reseller becomes larger due to the connivance of the authorities influential figure. Worldwide, the mediator plays a secondary role, playing an auxiliary against the manufacturer function. Therefore, in the classical analysis a customary is to distinguish three key players in the market - producers, consumers and government (power). Does not matter if as a result of any economic strain do not exist between them same as ideal balance relationship. In any case, society will be the loser. If the relationship is in favor of the manufacturer, it is ultimately discharged more products, thereby reducing costs. This increases the demand of the population, stimulating production, and government able to receive more taxes. And if the government gets richer, it can invest more in the development of the real sector of the6 economy, and improving the welfare of the people.
It is very detrimentally when these funds accrue unreasonably speculators as it happens in modern Russia. After all they spend them in most cases unproductive, directing wrongfully received money anywhere but not in the economy. If we were talking about relatively small amounts that do not play a decisive role in the market turnover, this diversion of funds from the financial treatment would have great value. But with the increasing number of speculative funds received and withdrawn from the economy, it becomes a qualitative transformation of class players that were independent intermediaries in defining a rule of conduct in the market but not in favor of the economy and society as a whole.6 In fact now in the marketplace are not Russian players. They create not a stable triangle as in other countries, but four. At the same time one of the sides of the quadrilateral is inadequate that also makes the entire figure to be not very stable. The State should use the crisis in order to normalize the market exchange, to cleanse it from "growths" speculation and then the agriculture will create significant advantages for its development. It is also necessary to shorten the appetites of monopolists that supply agricultural sector with fuel, electricity and other means of production by shortening the unreasonably high prices.
Given the strategic competitiveness of agriculture it still remains largely unfulfilled, it is appropriate in a crisis to declare a tax holiday. Currently, taxes are collected from agribusiness in the revenue of the state constitute by negligible share. Recall that this measure has already been used in the recent history of Russia, when thrown into the market forces peasants did not actually pay taxes for the maintenance of personal subsidiary farms. This is largely allowed them to survive and still promotes the production of more than half the country's agricultural production. Russia - a self-sufficient country that can provide themselves with all necessary stuff. Solution to the problem of food self-sufficiency lies primarily in the regulatory mechanisms of the market, primarily at the state level. Effective measure to mitigate the effects of the crisis is more intense purchase of agricultural products.
During a crisis period a lot of farmers stopped their activity due to inability to pay the bills even more to make ends meet. During the years 2000-2005 government granted for farmers a lot of subsidies, but after 2005 it stopped doing a charity for farmers, as a result many of them have to take a loan from bank in order to survive in a farmers market. Obviously, during crisis farmers couldn’t pay the bills in time, in most cases they don’t have any money to cover their debts, as a result a lot of them have to sell their farms to pay off debts. On the other 30.1 thousand small farmers appeared to be prepared to crisis times, and to their fortune have overcamed their income in particular by almost 2 times. This strange on the first glance situation can be simply explained by lack of market competition an awareness of consumers to spent more. Farmers that stayed in the market during crisis period had lowered or stabled the prices for their agricultural goods, leading consumers to buy products of their production. They gradually increased the amount of meat produced, may be animals were kept during several years to be sold, and during crisis period of time they crossed the demand of consumers. Also farmers on overall produced more, due to lack of competitors, production costs also failed. Post crisis periods of recovering the farmers market is characterized by huge rise in products they had produce and slight increase in the amount of farmers which means that many businessmen tried to overcome this market again. So in my opinion, in the newest future the situation will stabilize and will turn to the situation of pre-crisis periods.
1.3 Problems and threats of AIC after Russia joining the WTO
In general, the accession to the WTO means that in the coming years, Russia must do everything necessary to modernize production in agriculture, improve the competitiveness of products, as well as increase participation in foreign trade.
The Conference recommended Presidential Experts' Directorate Russia, the Federation Council and the State Duma of the Federal Assembly of the Russian Federation, the Government of the Russian Federation,5 the5 relevant ministries and agencies have to consider the following proposals aimed at the optimal transition to the Russian agricultural sector for membership in the WTO:
- Support and provide the State Agriculture Development Programme and the regulation of agricultural products, raw materials and food for 2013-2020.5Sufficient funding for adaptation of agriculture and other agricultural industries to the conditions of entry into the WTO is needed.
- Include to State program following additional measures:
- Improvement of land legislation on the establishment of sustainable land management in the conditions of accession to the WTO;
- Establishing a system of sustainable land use and efficiency are used, as well as involvement unused farmland in agricultural use.
- Harmonize sanitary legislation of the Russian Federation to the International Convention on Plant Protection, international and regional sanitary standards.
- Establish an effective system for pest risk analysis in accordance with international and regional standards.
- Improve the involvement of Russian experts in the activities of the International Convention on Plant Protection, as well as the European and Mediterranean Organization for Plant Protection, particularly in the development of new international and regional sanitary standards.
- Given that Russia today is the only country among the largest producers of grain, which actually have declined state control of quality and safety of grain, intensify the development and adoption of the new law "About grain and processed products" with regard to domestic experience legislation and the United States and Canada.
- Develop a set of measures to adapt the most sensitive sectors of agriculture, especially meat and meat products (at both the farmer and the processor level), to the new terms of trade.
Subject to the terms of Russia's accession to the WTO to6 increase support for animal breeding, seed production, and encourage the use of animal feed protein and vitamin supplements.
7 Implement the constant monitoring of the production and trade in the most sensitive areas and promptly implement measures to support and protect it under the rules of the WTO.
- Develop a program to improve the competitiveness of Russian food in foreign markets in accordance with WTO rules and with the participation of all stakeholders including industry associations.
Provide for the establishment of the corresponding section within the State Agriculture Development Programme 2020
- Intensify cooperation with relevant international organizations on training - retraining Russian specialists and domestic business - structures to work in the new environment to adapt to WTO rules.
Agriculture is the most important sector of our economy, but also one of the most difficult, given the number of disputes and problems that arises when discussing the prospects for the development of agriculture and its place in the economic sector. To date, the development of globalization and integration processes in the world economy essential for effective economic policy is the equal participation of the country's trade and economic relations with foreign partners. A huge role in solving this problem is given by WTO which determines the effectiveness of country's trade policies benefiting the organization and trying to avoid the negative consequences of joining. Membership in this organization is a necessary condition for the inclusion of any country in the world economy. Given the urgency of the problem, it is necessary to consider the situation in the Russian agricultural sector today and to understand all the negative and positive aspects of the development of the industrial complex of the country to increase its effectiveness as part of the integration into the world economy.
WTO is an international organization created in 1995 with the aim of liberalizing international trade and regulation of trade and political relations among its members. It is responsible for the implementation and development of new trade agreements, as well as enforces the members of the organization of all agreements to be signed by most countries and ratified by their parliaments. The most important task of the WTO is not only the achievements of any purpose but to establish the general principles of international trade. It consists of 153 member countries, which accounted for 97% of world trade. The basic principles of the WTO are:
- Equal rights. All members of the organization provide to other Members MFN trade (NBT). NBT mode means that the preferences granted to one of its members, and are automatically propagated to the other members.
- Reciprocity. All concessions in easing bilateral trade restrictions must be mutual.
- Transparency. WTO members are obliged to publish their trading rules and have the authorities responsible for the provision of information to other members of the organization.
Negotiations on Russia's accession to the WTO, which lasted about eighteen years have come to its logical conclusion - August 22, 2012, our country became a full member of this organization. It becomes clear that Russia's accession to the WTO will determine the dynamics of agribusiness development in the coming years. In my view, this event means, above all, a new stage of development and the need to modernize the economy, which can not be achieved without increasing the competitiveness and investment attractiveness of the industry.
Presently very topical issue for Russia is a need to analyze and evaluate the state support measures to reduce AIC possible risks in terms of membership in the WTO. When drafting the State Agriculture Development Programme until 2020 many of the requirements of relevant international organizations were taken into account. To implement the new program areas, promoting innovation and investment attraction, in some subjects have already been approved several programs. Also a hot issue at the time of Russia's WTO accession is the problem of improving the living standards and regulation of income. All forms and measures of state regulation of foreign trade activities in the food market should be aimed at increasing the incomes of the total population, the development of social activity and support entrepreneurial activity, because the level of income of the majority of the population remains extremely low. Currently low level of infrastructure and development seeks for the protection of the domestic sale competitiveness of domestic food on the world market. Almost all WTO member countries, the activity are regulated by state legislation, and not the rules of an international organization.
Taking into account the fact that the measures of direct state support to agribusiness is limited by WTO rules, improving food market infrastructure is one of the great importance. Also to lower costs as the WTO rules in this area restriction did not exist for now and in our country the level of infrastructure development is still low in comparison with other countries with developed market economy.
Obviously, the deterioration of the market infrastructure, particularly wholesale markets mark deterioration and recovery will require large investments. Another issue that our country has joined the WTO remains a disparity in prices for industrial and agricultural products, which prevents the increase of competitiveness of domestic goods in the domestic and foreign market. Price disparity is a violation of the ratio of prices of various goods and the lack of correspondence between the costs of socially necessary labor. Practice has shown that the deepening disparity in prices leads to low profitability or even loss of production of most products. This is due to the faster growth of its cost in relation to the selling price. As a result, the price disparity becomes a mean of withdrawal from the agricultural surplus and of all desired product.
By joining the WTO, our state is forced to urgently address the problems of those sectors that it actively protects against imports in recent years. The biggest problem is that necessary volume of investments may arise from farmers. Reduction of duties on imported agricultural products has led to what is now the state support. Agriculture needs to constantly increase its funds because the entire system of food security and social stability of the country is in an unstable position.
One of the biggest threats in Russia's WTO accession is the loss of food security. Russia could become even more dependent on food imports. Without increasing import duties displace imports from the domestic market will be extremely difficult. Although it should be noted that the wholesale services are excluded from the list of services subject to the rules of the WTO, which allows you to create conditions for marketing products of domestic manufacturers.
Thus, the main issues facing the agro-industrial complex of Russia and the entire economy today, and we clearly need to understand the prospects for future development.
According to the chairman of the Commission of the RSPP AIC Ivan Obolentsev actually AIC does not lose anything from the accession to the WTO, since long before the manufacturers have voluntarily started to execute the standards stipulated by the organization. But he did not deny the existence of difficulties. Experts predict that in the short term domestic agribusiness will suffer due to lack of finance and inefficiency of production and management. However, the authorities intend to make every effort to ensure that the agro-industrial complex continued to develop. Recently Dmitry Medvedev submitted to the State Duma the draft amendments to the Federal Law "28 About the development of agriculture,"28 which aim is to adapt the individual sectors of the economy to the conditions of Russia's WTO membership. The bill provides for new measures of state support, planned to develop the rural areas, to support domestic producers, especially in disadvantaged agricultural regions.
Since the XIV Russian agro industrial exhibition "Golden Autumn" in Moscow, Prime Minister Dmitry Medvedev said that the government allocates money from the budget to support agriculture and intends to continue doing that. State support includes various payments and subsidies from the federal budget and the subjects of the federation as a profitable lending. According to experts, the greatest need for farmers will be innovation. Thus, the president of the group “AVIS” Natalia Yakovleva, noted that without innovation cost of agricultural output can not be competitive compared to imported products. The consumer will be in the same very favorable terms because he will fight for all domestic and import manufacturers. Innovative solutions and programs in Russia in many fields are ready but adaptations of them in agriculture are not prepared. Such innovations exist abroad and as shown by analysis they are successful experience for other countries. According to experts, it is necessary to introduce the best technology in the world with which we are ready to help both American and European companies. Perhaps the use of innovative methods of complex question are not only forms an economic point of view but more psychological. Much of the success of the WTO and the development of cooperation depends on the readiness of Russian agribusiness professionals to new methods of work, from a clear expert opinion on the trust managers of foreign companies, from market analysis and consumer preferences. Many progressive innovation projects without which it would be difficult to do now in the framework of the WTO accession, are in progress, but they compete with conservative methods. For example, following the requirements of the international market, agriculture will have to abandon feed of antibiotics, electric slaughter of animals are needed to automate labor-intensive production sites. Paying attention to the popular West gas method killing animals and birds we also can afford so. For the industry it will be a qualitative leap, and for Russian consumers it would be better products and lower prices.
Thus, the domestic business in the WTO will have to reduce costs and improve quality. Future benefits from the accession of our country to the WTO depend primarily on how effective will be made public policy support for entrepreneurs and export-oriented agricultural industries. Opportunity to enter the world markets will those manufacturers of AIC which intelligently take advantage of market information and business activity and will show perseverance in promoting domestic products. An important advantage of joining the WTO is equal participation in the international division of labor, and in the future, improving the competitiveness of Russian products and the integration of agriculture to the world e conomy. Also, our country will be able to discuss and adjust the rules of the WTO, together with other member states, fully eliminating discrimination.
Manufacturers AIC stand aside and take an active part in solving the issue and overcome difficulties. For example, they proposed a series of measures that will improve the country's agro-industrial complex:
- write off due to the state not previously written off outstanding at government loans;
- written off by the state and penalties on overdue lease contracts;
- extend until 2017 a zero tax rate on income for farmers;
- reimburse the cost of acquisition of material resources for seasonal agricultural work, the cost of water, electricity, gas.
Thus, in my view, to reduce the impact, addressing underlying problems and successful cooperation with the WTO needs to improve legislation, the regulatory framework, to develop and implement national programs on agriculture, market infrastructure, improve the living standards of the population, to conduct an effective tax and customs policy, since before our state faces a serious challenge as not just financial assistance, handing out loans and grants, but also assist in the development of the competitiveness of agricultural industries as well as the entire economy as a whole.
The Ministry of Agriculture has recognized 63 of the 83 subjects of the Russian Federation5 unfavorable for agriculture. About this newspaper "RBC daily» wrote with reference to the draft regulation department. List of unfavorable areas
Note that the WTO rules restrict the ability of the state to support agriculture. However, they are allowed to help farmers and agricultural companies operating in unfavorable for farming regions.
USDA estimated the geographic and climatic characteristics, soil quality, as well as social and demographic characteristics of the regions. As a result, completely unsuitable for agriculture were recognized Kamchatka Kray, Magadan and Murmansk region, Chukotka, Yamal- Nenets Autonomous District. Most of these regions lie in the zone of the Far North. The remaining 58 subjects for one reason or another were considered unfavorable for agriculture - including the entire North Caucasus, the Amur region ( the largest producer of soybeans in the Far East ), and Kalmykia, Volgograd, Orenburg, Voronezh, Saratov Oblast and Altai region, which one of the largest grain producers in the east of Russia. Favorable were recognized only Rostov region, Krasnodar and Stavropol territories, as well as some regions of Central Russia.
Also it is important here to mention grain industry of Russia in WTO. Surely it is the main source to raise arguments, because the output of that sector is the most developing and has many opportunities for redevelopment
Benefits from WTO accession for Russia's grain industry:
- Getting the best in comparison with existing and non-discriminatory conditions for access of Russian grain and its products to foreign markets;
- Access to the international mechanism for resolving trade disputes;
- Creating a more favorable climate for foreign investment as a result of bringing the legal system into conformity with WTO rules;
- Increased opportunities for Russian investors in member countries of the WTO;
- Participation in the development of international trade rules, according to their national interests;
- Improving the image of Russia in the world as a full participant in the international trade.
Tests for Russian grain industry from WTO accession:
- Reduction of customs duties on imported agricultural products. The average value for all categories of products is 5%. Reductions of customs duties will lead to lower profitability due to producers corresponding fall in the price in the domestic market. In recent years, the profitability of agriculture including subsidies in recent years is 9-11% decline, according to rough estimates, the mean drop in profitability to 5%;
- Growth rates. The trend of recent years will not change. The rising cost of means of production will outpace growth in the dynamics of prices for agricultural products. Russia has no obligations to raise domestic energy prices to world levels, but at the request of the WTO, they will all be sold to consumers at a profit. This means rising prices, according to the government, at least 10-11 % per year. Energy prices will "pull" substantially all other prices of the means of agricultural production;
- Cancellation of preferential tariffs for railway transportation of Russian agricultural products;
- Less stringent health requirements applicable to the WTO, in comparison with Russian requirements, which creates great risk for import growth of harmful foods.
Obligations relating to agribusiness combined Russia’s WTO accession, commitments are grouped into three categories:
- Measures and the level of state support for agricultural producers;
- Providing access to the market of agricultural products;
- Export subsidies.
For becoming a member of the WTO Russia had followed the rules of subsidizing the industry, certain WTO Agreement on Agriculture, as well as obligations under subsidies agreed upon in the course of negotiations.
Internal support for farmers in the WTO is divided into three types, called "baskets" depending on the degree of distort trade: yellow, green and blue.
In the "green box" includes support measures, not distorting effect on trade that is on the market or have a minimal impact, such as support for infrastructure development; for research; for training; crop insurance programs; regional assistance programs; and not associated with the production of income support for farmers. Measures of 'green box' can be used without restrictions.
In the "amber box" measures includes several distortions of the market. Their initial and final size and the rate of reduction to an agreed level are discussed in the negotiations. To the "amber box" are also included the price support; subsidizing interest rates on loans; Compensation costs for fuel and lubricants, fertilizers, and other logistical resources; debt relief; others not included in the "green box" support measures. Commitments to Action 'amber box' fixed for each member of the WTO in the list in the form of aggregate measures of support.
'Blue box' subsidies include measures aimed at limiting agricultural production. These measures are not subject to mandatory reductions if payments are tied to a fixed area and yield or fixed number of head. However, there is an exception to this rule regulation, which allows not to include limited support measures of subsidies that are not exceeding 5 % of the value of agricultural produce.
In provision of the access to the market of agricultural products the most important measure is the change in customs and tariff regulation. List of commitments on access to agro-food market in Russia covers about 2.5 thousand tariff lines. For each tariff line exists limits and fixed rates - the initial and final periods by transitional period, during which the reduction in marginal rates.
In general, the rate of agricultural products and food is consequence weighted average interest rate that will be reduced by one-third of its current level.
Export subsidies of Russia after it joined the WTO on special conditions, so-called " WTO - plus", provide additional constraints, especially hard towards developed countries. Among these additional conditions is reducing support for farmers in 2 times for the implementation period and a total ban on the use of subsidies exported.
The level of support to the grain industry also has several restrictions. Formally, Russia can establish direct support for producers already in 2012, at 9 bln. with a consequent reduction of its equal shares to 4.4 billion by 2018. Today, the level of support is just these $ 4.5 billion and it is necessary to consider also that it is only the direct support of farmers (the so -called " yellow basket "), which is limited by the regulation support for an authorized support measures (" Green Box ") may be provided without restriction.
For example, support will be increased at the expense of measures that do not directly affect the price of products and resources, for example, by providing subsidies per hectare of crops (so-called payment per hectare) or head of cattle, fixing their amount. There is no restriction to increase support for science, education, support of infrastructure development.
At the same time, the permitted level of support to category "amber box" for a number of previously joined the WTO countries are not investigated; even taking into account the scale of agricultural production that greatly exceeds the level that are allowed in Russia. For example, the total support from national budgets and the overall EU budget is about U.S. $ 100 billion. It should be understood that the "yellow basket" is not a major regulator of funding for agriculture in developed countries. For example, in the United States out of a total support to the " amber box " accounts for only 4% and 90% of the green cart.
In this Chapter had been investigated the overall structure of Russian AIC complex, key definitions and factors that has significant influence on AIC. Moreover this chapter has clarified the modern situation of the agro-industrial sector of the economy of the Russian Federation.5 Main attention had been given to the problems of the AIC. Also great importance had been devoted to the crisis influence on complex, the current programs that defines and helps to overcome the solution of that impact. Further on this chapter had been identified current position of AIC of RF in WTO. Several key aspects had been revealed into WTO rules and their implementation to Russian AIC. Moreover in this chapter several important strategies and monetary injections into agro-industrial sector were observed. This chapter in overall relevantly shows importance of AIC, the way how it operates and face modern economic conditions.
Chapter 2: Mathematical methods of studying RF AIC
In this chapter will be examined key specifics, rules and verifications in econometrics model constructions. Moreover in this chapter will be clarified all necessary laws and theories of econometrics that will be used in further analysis. This chapter also studies the structure of the econometric relations, the way how the model should be constructed. It observes several methods and theories of selection the important factors, the method of their fitting to the final model. Further in this chapter will be observed several methods of adjusting of the model, clarifying the interdependence of the factors and investigation of their significance to the final model. The general attention is driven to the process of identification of coefficients of the factors. The main principals that will be observed are t-statistics and f-statistics methods of approach. Such methods of adjusting the model are the accurate ones, so their importance in constructing the model is obvious. Also in this chapter will be examined the way how the model should be verified and checked. The great importance is given to the least square root technique and the Durbin-Watson tests. They have the significant level of the information about the structure of residuals. That also gives the model the opportunity to be adequate and can show the mistakes in it. All in all this chapter represents general knowledge of econometric theory that is extremely important in correct construction and verification of an economic model. By the methods which will be observed in this chapter we can construct an econometric model and make forecasting for the given parameters.
2.1 Methodology for the selection of significant factors
Econometrics is one of the basic disciplines of economic education worldwide. However it has not been recognized in the USSR and Russia. This was due to the fact that of the three main components of econometrics is economic theory, economic statistics and mathematics and the first two were presented in our country as unsatisfactory. But now the situation has changed radically.
There are different versions of the definition of econometrics but main principles are:
1) Extension under which econometrics rules to include is that everything associated with the measurements in the economy;
2) Narrowly instrumental orientation in which a certain set of mathematical and statistical tools are to verify the model relations between the analyzing economic indicators.
Econometric method was formed in overcoming these difficulties; distorting the results of applying to classical statistics we can get the set of standardized rules and features of econometrics:
- Asymmetry relations;
- Multicollinearity relations;
- Heteroscedasticity effect;
- Spurious correlation;
- Availability lags.
To describe the nature of the econometric model it is convenient to divide the whole simulation process into six basic steps:
1st stage (staging) - determination of the ultimate goals of the simulation, a set of models involved in the factors and indicators of the
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