VZCZCXRO0943
RR RUEHAG RUEHAST RUEHCHI RUEHDA RUEHDF RUEHDT RUEHFL RUEHHM RUEHIK
RUEHKW RUEHLA RUEHLN RUEHLZ RUEHNH RUEHPOD RUEHROV RUEHSR RUEHYG
DE RUEHVK #0120/01 2960448
ZNR UUUUU ZZH
R 220448Z OCT 08
FM AMCONSUL VLADIVOSTOK
TO RUEHC/SECSTATE WASHDC 1029
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHVK/AMCONSUL VLADIVOSTOK 1126

UNCLAS SECTION 01 OF 02 VLADIVOSTOK 000120 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAGR ECON PGOV RS
SUBJECT: THE PROBLEM WITH THE RUSSIAN FAR EAST'S MORIBUND AGRICULTURE 
SECTOR 
 
VLADIVOSTO 00000120  001.2 OF 002 
 
 
Summary 
------- 
 
¶1.  Primorye is no longer the prosperous and productive 
agricultural region it was during Soviet times.  In hopes of 
improving the region's stagnant rural economy, Moscow announced 
a new regional agriculture promotion plan last March.  The new 
plan replaces the largely unsuccessful national plan that Moscow 
implemented just two years ago.  While keeping the same goals, 
the new plan shifts the burden of funding from Moscow to the 
regions.  Farmers in Primorye continue to face a plethora of 
problems, outlined below, only some of which the plan addresses. 
 
Back in the Good Old Kolhoz Days 
-------------------------------- 
 
¶2.  Primorye had traditionally been the most productive 
agricultural region in the Russian Far East.  In Soviet times, 
Primorye's produce output met the demand of its 1.5 million 
residents, and 60 percent of meat and milk was produced locally. 
 Primorye lead Russian Far East rice production with 70,000 
hectares yielding 113,000 tons annually. 
 
¶3.  Following the breakup of the Soviet Union in 1991, however, 
large collective and state farms suddenly lost heavy government 
subsidies.  Livestock inventories declined, demand for feed 
grains plummeted, and cultivated land area dropped by half. 
Most farms could no longer afford to purchase new machinery and 
inputs, drastically reducing production.  All thirteen Primorye 
rice producers folded.  Between 1991 and 2007, land area for 
grain cultivation dropped by 59 percent, the livestock 
population decreased by 85 percent, poultry production declined 
by 58 percent, and overall agricultural productivity decreased 
by 66 percent. 
 
Post-Soviet Case Study 
---------------------- 
 
¶4.  One illustrative example of the sudden downfall of Far 
Eastern agriculture is the rice growing area around Lake Hanka 
in Southwestern Primorye.  During Soviet times, the area 
produced abundant rice crops.  After federal support declined in 
the 1990's, the irrigation system pumping water from the lake to 
the rice paddies deteriorated.  Residents who suddenly found 
themselves in difficult economic times stole the pipes from the 
system to sell as scrap metal.  An area that once produced a 
rice surplus began importing rice from farms just across Lake 
Hanka in China.  According to Yuriy Nekras, the Director of 
Primorye's Agency for Irrigation and Agricultural Water Supply, 
restoring even just a single rice farm would cost several 
million dollars -- an amount that would be impossible without 
government support. 
 
National Program, or Maybe Regional Plan? 
----------------------------------------- 
 
¶5.  The federal government launched a national program in 2006 
to promote agricultural development and help farmers modernize 
through favorable machinery leasing terms, low-interest bank 
loans, and investment in infrastructure.  Under the program so 
far, agriculture in Primorye has shown little improvement other 
than a slight increase in overall cultivated land area. 
 
¶6.  Two years into the program, the federal government changed 
tack, replacing the national program with a series of regional 
agricultural plans.  The goals remain the same, but Moscow 
shifted the burden for funding projects to the regional 
governments.  According to the Primorye Regional Agricultural 
Department, if implemented as planned, the project will cost 
14.75 billion rubles (USD 600 million), of which 4.28 billion 
rubles will come from the regional budget.  Bank loans and 
farmers' own funds would cover the rest. 
 
¶7.  Consulate contacts have expressed doubt about the 
effectiveness of the plan.  A quick calculation shows that each 
of 200 agricultural enterprises, 1,900 small farms, and 155,000 
private farmers currently registered in Primorye would be able 
to spend on average 94,000 rubles to invest over the course of 
four years.  The average cost of a combine harvester, however, 
is over 500,000 rubles. 
 
The Problems with Primorye's Agricultural Sector 
--------------------------------------------- --- 
 
¶8.  Electricity Rates.  The cost of electricity, currently at 
3.2 rubles per kW, is a significant financial issue for farmers. 
 The regional power company in 2007 implemented a new contract 
system that obligates farmers to a pre-set monthly power 
consumption amount.  Thus, similar to old cell phone pricing 
plans, the farmer pays the set amount whether or not actual 
consumption reached that level, and pays triple for each kW over 
 
VLADIVOSTO 00000120  002.2 OF 002 
 
 
the limit.  The price has proven excessive for farmers, who 
consider the new system unfair. 
 
¶9.  Chinese Agricultural Imports.  Though total agricultural 
output in Primorye has increased modestly in recent years, local 
agriculture only supplies about half of the area's consumption 
needs.  Some food products come from other Russian regions, but 
China remains the main source of produce for Primorye.  Produce 
from China is available year round, while local fruits and 
vegetables are available only in summer.  Supermarkets tend to 
sell only meat imported from China -- locally produced meat can 
be found only at markets.  Sixty percent of meat and forty per 
cent of milk used in food manufacturing was imported from China 
last year. 
 
¶10.  Insufficient Labor Force.  Out-migration from Primorye 
rural areas continues to increase despite efforts by the Kray 
administration to attract newcomers.  Only one fourth of 
Primorye residents currently live in rural areas.  Lack of 
economic opportunity, health services, and educational 
facilities leads many inhabitants to seek better opportunities 
elsewhere.  Most migrants from rural Primorye areas resettle in 
Vladivostok, often leaving their rural homes unattended. 
 
¶11.  As a result, agricultural production in Primorye depends 
heavily on foreign labor.   According to statistics provided by 
the Primorye Migration service, there were about 4,500 Chinese 
agricultural workers at local farms in 2007.  In that year, one 
quarter of the 6,000 hectares of rice fields in Primorye were 
cultivated by Chinese workers, which, tellingly, produced twice 
the average regional yield. 
 
¶12.  Bureaucratic obstacles.  Consulate contacts have stated 
that the biggest obstacle for farmers is not nature or the 
markets, but the mighty Russian bureaucracy.  Procuring 
agricultural loans or subsidies takes a burdensome amount of 
time to prepare and requires literally reams of documentation. 
Large agricultural companies are able to hire lawyers to 
facilitate the process, but small, private farmers do not have 
the means to.  They must not only prepare the paperwork 
themselves, but take time from their farms to make the several 
hundred-kilometer trek to Vladivostok in order to submit the 
documents to the regional government offices. 
 
¶13.  Lack of Funding Sources.  Though federal subsidies are 
intended to be available for all farmers, in practice most 
available funds are divided between a few large businesses such 
as Ussuriisk Poultry and Mikhailovskiy Chicken Broilers.  Only 
five percent of the 175,000 small farms and individual 
entrepreneurs received financial support from the regional 
government last year.  Low-interest agricultural loans of 15 
percent are also supposedly available, but banks require 
collateral and do not accept the obsolete farm machinery that 
the farmers have to offer. 
 
¶14.  The twenty or so private agricultural cooperatives set up 
in Primorye over two last years under the national agriculture 
program have proven ineffective at raising sufficient funds to 
help farmers.  Rosselkhozbank, the bank established under the 
plan to finance farmers, largely ignores small-scale farmers in 
favor of larger producers.  As a result, small farms have little 
leverage and must rely their meager profits to fund investment 
in modernization. 
 
Comment 
------- 
 
¶15.  Providing farmers easy credit, establishing agricultural 
cooperatives, and developing leasing schemes may be effective 
measures to increase agricultural productivity and profitability 
in Primorye.  Though the new plan does address some of these 
issues, bureaucratic impediments will likely remain.  Tax 
incentives and power subsidies, issues not addressed in the 
plan, would also help Primorye farmers increase profitability. 
The fact that Moscow has shifted the funding burden to the 
regions, however, shows that the Kremlin is not sufficiently 
committed to solving the Russian Far East's agriculture problems. 
ROTERING