VZCZCXYZ0000
PP RUEHWEB

DE RUEHMO #3151/01 3011426
ZNR UUUUU ZZH
P 271426Z OCT 08
FM AMEMBASSY MOSCOW
TO RUEHRC/USDA FAS WASHDC PRIORITY 5392
RUEHC/SECSTATE WASHDC PRIORITY 0523
INFO RUEHGV/USMISSION GENEVA 5222

UNCLAS MOSCOW 003151 
 
SENSITIVE 
SIPDIS 
 
USDA FAS FOR OCRA/ KUYPERS; OSTA/HAMILTON, BEAN; 
ONA/SALLYARDS, MURPHY 
STATE FOR EUR/RUS 
STATE PASS USTR FOR PORTER, HAFNER, KLEIN 
 
E.O. 12958: N/A 
TAGS: EAGR ETRD ECON WTO RS
SUBJECT: RUSSIAN AGRICULTURE JOLTED BY FINANCIAL 
CRISIS AND ECONOMIC SLOWDOWN 
 
REF A: GAIN RS8078 
 
SENSITIVE BUT UNCLASSIFIED 
 
¶1. (SUB) SUMMARY. Russia's agriculture sector has 
begun to feel the impacts of the global economic 
crisis.  With some 40 percent of investments in 
Russian agriculture financed by loans, many 
observers believe that as many as 20 percent of 
Russian agricultural enterprises may go bankrupt 
by June 2009.  Those most vulnerable to the 
credit crunch are small producers of crops and 
dairy products.  The Ministry of Agriculture has 
vowed to continue to support priority projects 
and fund production.  However, inflation in foodstuffs, 
production costs and an expected decline in 
agricultural imports in 2009 will continue to 
exert economic pressure on the Russian Ministry 
of Agriculture,consumers,farmers,and importers.  END 
SUMMARY. 
 
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EFFECTS ON PRODUCERS AND IMPORTS 
---------------------------------- 
 
¶2. (SBU) In the wake of the global financial 
crisis, Viktor N.Khlystun, Deputy Head of 
Rosselkhozbank, and the Chairman of the 
Agribusiness Club, recently stated that the 
shrinking availability of credit is the main 
existential threat to the development of Russian 
agriculture and the Russian food industry. 
Russian bakers are complaining that they cannot 
receive short term loans for working capital. 
Many producer groups have reported that Russian 
farmers have stopped buying equipment.  For 
instance, Arkadiy Zlochevskiy, the head of 
Russia's Grain Union, told us on October 24 that 
wheat farmers have been unable to buy 
agricultural equipment, because of a lack of 
credit. 
 
¶3. (SBU) The crisis has already affected the 
financial plans of some big agricultural holdings. 
"Agroholding", one of the biggest poultry 
producers, after a technical default, declared 
that the company will freeze 5 billion rubles 
($188 million) worth of investment projects that 
are less than 90 percent complete.  Another 
agroholding "Razgulay" (grain processing and 
trade, sugar production and refining, and land 
ownership businesses) has declared that it will 
freeze 5 billion rubles worth of investments in 
the construction of 5 regional elevators and 
grain export terminals.  Rosselkhozbank has 
stopped financing new projects.  Sberbank has 
also stopped all loans to agricultural producers, 
according to the rumors circulating in the 
Russian agribusiness community. 
 
¶4. (SBU) Importers, who receive one third of all 
Russian agricultural credits, are also suffering 
from the financial crisis.  Euroservice, a large 
poultry importer and local poultry producer, 
declared bankruptcy due to the inability to pay 
back $646 million in government subsidized 
loans.  This company held 130,000 MT of the U.S. 
poultry quota for 2008, but managed to import 
only 30,000 MT before filing for 
bankruptcy.  Cargill representatives in Moscow 
recently reported that the majority of their 
poultry, pork and beef contracts for October, 
November and December have been canceled due the 
tight credit market.  In contrast, both Tysons 
and Smithfield report that business continues as 
usual, although they are concerned about the 
impact that the financial crisis may have on 
their 2009 sales to Russia. 
 
---------------------------------- 
MINISTRY OF AGRICULTURE'S REACTION 
---------------------------------- 
 
¶5. (SBU) Russian politicians recognize that the 
disruption in the supply of agricultural or food 
 
products will have a dramatic effect on the 
economic and social stability of the country.  In 
efforts to restore confidence, on October 18, 
Agriculture Minister Aleksey Gordeyev took charge 
of a working group consisting of the six largest 
banks that finance the agriculture sector.  The 
working group agreed that banks will reduce 
funding, but priority projects and funds to 
support production will continue.  The group is 
continuing to identify anti-crisis measures to 
stabilize the funding of agricultural producers. 
First Deputy Prime Minister Viktor Zubkov has 
pledged, "In case of failures, the government 
will intervene.  We have to prevent failures on 
the foodstuffs market, as any failure means 
increased consumer demand and tension in 
society." 
 
¶6. (SBU) Russia intends to continue to subsidize 
the interest rate that financial institutions 
charge for agricultural loans.  In September, the 
government issued legislation providing for feed 
subsidies to swine and poultry breeders.  As a 
result, 10 billion rubles (approximately $376 
million) will be allocated to compensate for the 
increased costs of feed from the fall 2007 
through spring 2008 (Ref A).  The government also 
intends to provide up to 21 billion rubles ($790 
million) for diesel subsides to farmers. 
Subsidies for fertilizer have not yet been 
announced, but have also been promised for this 
year. 
 
¶7.  (SBU) The personal opinion of one Ministry of 
Economic Development official is that the GOR's 
stabilization measures, including the Central 
Bank's injection of liquidity into Russia's 
banking system, have not yet reached the Russian 
economy, and the declared funds are lower than 
what is needed to support Russian banks, and to 
stimulate the continued financing of short term 
debts and obligations. 
 
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COMMENT 
------- 
 
¶8. (SBU) Despite the recent effects of the 
financial crisis on agricultural financing in 
Russia and the recent weakening of the Russian 
ruble by 5-10% versus the Euro and dollar, we 
still believe that 2008 will be a record year for 
U.S. agricultural exports to Russia.  Agriculture 
will likely remain a priority sector for Russia, 
and the food industry and importers will 
continued to receive support from the GOR budget 
to meet the industry's short-term debts and 
obligations.  Still, financial pressures mean 
that investment in agriculture will be lower in 
2009 than in 2008.  We believe that the financial 
crisis  and further ruble depreciation will 
result in inflation and a decline in overall 
agricultural and food imports in 2009. 
 
BEYRLE