Microeconomic Analysis of Russian Agricultural Enterprises with Special Reference to Subsidies and Debts

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Microeconomic Analysis of Russian Agricultural Enterprises with Special Reference to Subsidies and Debts Microeconomic analysis of Russian agricultural enterprises with special reference to subsidies and debts Promotoren Prof. Dr. Ir. A.J. Oskam Hoogleraar Agrarische Economie en Platte- landsbeleid Prof. Dr. Ir. A.G.J.M. Oude Lansink Hoogleraar Bedrijfseconomie Co-promotor Prof. Dr. Ir. R.B.M. Huirne Hoogleraar Agrarische Bedrijfseconomie Samenstelling promotiecommissie Prof. Dr. N.M. Svetlov Moscow Timiryazev Agricultural Academy, Russia Dr. M. Spoor Institute of Social Studies, Den Haag, Nederland Prof. Dr. A. Kuyvenhoven Wageningen Universiteit, Nederland Dr. S. Davidova Imperial College, University of London, UK Dit onderzoek is uitgevoerd binnen de Mansholt Graduate School of Social Sciences Irina V. Bezlepkina Microeconomic analysis of Russian agricultural enterprises with special reference to subsidies and debts Proefschrift ter verkrijging van de graad van doctor op gezag van de rector magnificus van Wageningen Universiteit, prof.dr.ir. L. Speelman, in het openbaar te verdedigen op vrijdag 29 oktober 2004 des namiddags te 16.00 uur in de Aula Microeconomic analysis of Russian agricultural enterprises with special reference to subsidies and debts PhD-thesis Wageningen University – With references – With summaries in English, Dutch and Russian Bezlepkina, I.V., 2004 ISBN 90-8504-097-3 Abstract Bezlepkina, I.V., 2004. Microeconomic analysis of Russian agricultural enterprises with special reference to subsidies and debts. PhD Thesis, Wageningen University, The Nether- lands, 184 pp. This thesis provides a microeconomic analysis of the impact of debts and subsidies on input-output allocation and performance of agricultural enterprises in Russia in the past dec- ade. The study uses descriptive methods, non-parametric method such as Data Envelopment Analysis, parametric regression analysis of production and profit functions and cluster analy- sis. The data source contains annual records of 20,000 Russian agricultural enterprises and 150 dairy enterprises in the Moscow region mainly from the period 1995-2001. During 1990- 2001, agricultural enterprises kept their leading role in supplying 79.4% of agricultural output (data of 1999), accumulating 69% of labour and 85% of land recourses in agriculture and re- ceiving most state support, thereby determining the performance of the agricultural sector. The analysis showed that subsidy policies distorted producer incentives and caused misalloca- tion of inputs and outputs. However subsidies contributed to more efficient performance by relieving financial constraints. Although total debts in the Russian agricultural sector ex- ceeded the profits tenfold, debts and in particular debts payable positively influenced per- formance of agricultural enterprises through the financing provided by input suppliers. How- ever soft budget constraints, as excessive debt and subsidies to loss-making enterprises, dis- played a negative impact on the performance. Oversized agricultural enterprises and lack of response of dairy producers to milk prices suggested that their structure and behaviour were adjusting too slowly to the new market environment. On well-performing dairy farms, higher wages, milk prices, dairy productivity and subsidies signalled better management practices in place since pre-reform times. Appropriate financing forms a crucial factor in Russian farming. The efficiency of large-scale farming in Russia could be improved by government programs focusing on coordination of subsidy programs, promotion of labour, land and credit markets and facilitating improvement in farm management and wage increases. Keywords: Russia, agricultural enterprises, transition, performance, debts, subsidies, soft budget constraints, efficiency, productivity. Preface and acknowledgements This project would not have been possible had several factors not coincided. My in- terest in studying the financial problems of Russian agriculture was cultivated by Prof. Dr. Nikolai M. Svetlov while I was writing my final thesis at Moscow Timiryazev Agricultural Academy (MTAA). The economic background needed to carry out the research ″in western style″ was enriched while studying in the Master's Program in Agricultural Economics at Wageningen University (WU). My joining this program was made possible through the Tem- pus project co-ordinated in Russia by Dr. Valery M. Koshelev. The enthusiasm and profes- sionalism of Dr. Geert Thijssen, who supervised my MSc thesis, helped me to prepare the PhD project proposal, accepted for the ″Sandwich PhD program″. All my supervisors, Prof. Dr. Ir. Arie Oskam, Prof. Dr. Ir. Ruud Huirne and Prof. Dr. Ir. Alfons Oude Lansink, to whom I express my sincere gratitude, greatly contributed to this study and my professional development. Arie, thank you for accepting me as a PhD student, offering valuable criticism and bringing me back from laborious data work to thinking about the research question. Ruud, thank you for welcoming me into your group as AIO and later as postdoctoral researcher, for your enormous enthusiasm and valuable advice. Alfons, thank you for your day-to-day support, for inspiring me with always new ideas, for being the first in interpreting my compound sentences and accommodating my postdoctoral research. I was not alone during my troublesome moments of insecurity with the research direction and mental strain in coping with RSI. And I am very glad to acknowledge this other side of my profes- sional relations with supervisors. In the course of this doctoral study several institutions and individuals have contrib- uted to its successful completion. I wish to express my special thanks to the Agricultural Eco- nomics and Rural Policy Group and Business Economics Group at WU for offering me a scholarship for PhD study. Special thanks also go to MTAA for the institutional support pro- vided during my 14-month stay in Russia for the fieldwork. My special thanks go also to Prof. Dr. Nikolai M. Svetlov from MTAA for valuable discussions about developments in Russian agriculture. I also thank Prof. Dr. Eugenia V. Serova for facilitating my research work during my stay in Russia and helping to go through research grant applications at the Economic Edu- cation and Research Consortium. I also wish to thank the fellows of the Institute of Agricul- ture Development in Central and Eastern Europe in Halle (Germany) and the Center for Eco- nomic and Financial Research in Moscow (Russia) for welcoming me in their conferences and for assisting me in acquiring of additional data for this research. I would like to thank my colleagues at the both Groups for getting me acquainted with the environment, for letting me share in various activities like presentations and discus- sions, and not the least important – excursions, coffee breaks, sport days, dinners and parties – I had them double sometime! A special word of thanks for Marian Jonker, who next to all kinds of administrative assistance provided support in my daily life. I highly appreciate the support from Wilbert and Martin in computer work and secretarial assistance of Dineke, Anne and Karin. A special thank you Esther, Marie-Josee, Christien, Miranda, Ron, Paul, Ger, Gerard, Maria, Daan, Jack, Koos and Tassew for your attentive listening, comments and ad- vice, cheerful jokes en gezellige tijden. Thank you Rien for helping with my first steps as education coordinator. I am also thankful to all the PhD students that have been there together with me. I would like to express my gratitude to all my friends whom I met in Wageningen and to all my friends in Russia for their support. A big word of thanks goes to my friends and paranimfen of this defence Tanya and Natasha. I would like to thank Chris for contributing to the cover. Anne and Kuralay, thank you for your support through all these years. I would not be able to list on this page all the names of those to whom I am very grateful for contributing to my work during these years by giving advice, listening, and show- ing interest in my work. The contribution of my family has been colossal. My parents Lyud- mila Anatolievna and Viktor Georgievitch have always been there for me. Мама и папа, ва- ши теплые чувства и мудрые советы вдохновляли меня, даже будучи на расстоянии. I wish to thank my husband Igor for his constant encouragement, lots of computer work for me and personal sacrifices during the course of this work. THANK YOU! Irina Bezlepkina Wageningen, July, 2004 Table of contents CHAPTER 1. General introduction 11 1.1 Background 11 1.2 Research objective and questions 12 1.3 Data used in the thesis 13 1.4 General approach and outline of the thesis 14 CHAPTER 2. Developments and performance in agricultural enterprises in Russia, 1990-2001 17 2.1 Introduction 18 2.2 The importance of agricultural enterprises in Russian agriculture 19 2.3 Development of agricultural enterprises in 1990-2001 25 2.3.1 Structure and organisation 25 2.3.1.1 Structure 25 2.3.1.2 Organisation 26 2.3.2 Policies 28 2.3.2.1 Price policy and terms of trade 28 2.3.2.2 Subsidy programs 29 2.3.2.3 Credit policy 32 2.3.3 Economic and financial performance 33 2.4 Discussion and conclusions 36 Appendix 2.1 40 CHAPTER 3. Impact of debts and subsidies on agricultural production: farm-data evidence 41 3.1 Introduction 42 3.2 Subsidies, indebtedness and performance in Russian agriculture 43 3.3 Theoretical and empirical model 47 3.4 Data and estimation 49 3.5 Results 52 3.6 Conclusions and discussion 58 Appendix 3.1 61 Appendix 3.2 65 CHAPTER 4. Effects of subsidies in Russian dairy farming 69 4.1 Introduction 70
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