Russian agricultural credit and subsidy policies in the early 1990s

In high income countries, the agricultural sector, like the telecommunications sector, includes well established interests and complex government subsidy and credit policies. Reform in the telecommunications sector greatly affects the leading edge of the economy, and thus job creation, income growth, and technological development. The agricultural sector is typically much less important. Even very bad agricultural policies have not prevented considerable macroeconomic success. In light of real policy alternatives, the most important aspect of agricultural policy today may be the lessons it offers for telecommunications policy. The Russian Federation provides an important example of an attempt to change dramatically agricultural policy. The first section considers the role of government subsidies in the effort to promote private farms. The second considers the impact of state procurement and state procurement subsidies on the development of marketing and distribution channels. The third section looks at subsidies that cover part of the cost of agricultural inputs. The final section examines general producer subsidies and their relationship to agricultural output adjustment. Overall, the attempts to support agriculture through subsidies and credits have limited rural development and contributed to weak, inefficient agriculture. Credits for individual farmers have not been structured to promote the success of efficient farmers. Input and procurement subsidies have strengthened the privileged position of enterprises with connections to the government, and producer subsidies have encouraged high-cost producers who can claim a more pressing need for additional funds. Such outcomes are not unexpected or distinctive to Russia. They are consistent with outcomes observed in a considerable body of world-wide experience.