The significance of credits and subsidies in Russian agricultural reform

The author analyzes the role of federal agricultural credits and subsidies in Russia since the Gaidar reforms of January 1992. Pressure on the budget has led to a significant reduction in federal transfers to the agro-industrial complex. Transfers fell from 10 percent of gross domestic product (GDP) in 1992 to 3 percent of GDP in 1993, and budget transfers for 1994 are only about 2 percent of GDP. But the nature of federal transfers to the agro-industrial complex has not changed significantly since 1992, and federal transfers have tended to impede market-oriented reform rather than enhance it. So, reform in the agriculture sector has been driven largely by a budget squeeze on the implementation of policies that hinder the development of market-oriented agriculture. The author provides an overview of federal agro-industrial programs, describing four types of support in detail: 1) credits and subsidies to promote private farms; 2) credits associated with state procurement of agricultural products; 3) subsidies for agricultural inputs; and 4) general subsidies to agricultural producers. He shows the difficulty of using federal transfers to support agriculture when institutions are unstable, the government's administrative and regulatory capabilities are weak, and information needed for effective credit allocation is unavailable. The author also shows the extent to which the framework for agricultural policy has not changed since the Soviet era.