Import Substitution Has More Limiting Than Stimulating Factors in the Agriculture

11 august 2015 | Boss

If we consider upward trends in the agricultural production, we can say that the embargo promoted import substitution in some sectors, but just through strengthening pre-existing trends towards a growing share of domestic products, according to Elena Razumova, the Deputy Head of the Department for Expert Analytics of the Analytical Center. This relates to the piggery, poultry, cheese and butter production and to a certain extent to the herring production

Elena Razumova
Elena Razumova
Department for Expert Analytics

“However, the current trends towards a higher share of domestic products may be reversed due to decreasing consumer demand and more expensive loan resources,” said Elena Razumova to Boss magazine. From this point of view, the most risky sectors include the dairy farming due to lower prices for raw milk, the poultry due to effects caused by more expensive grain crops in early 2015, and the sausage production owing to growing sale prices for pork and imported ingredients.

“Unfortunately, the import substitution is more about limiting than stimulating factors,” considers the expert. “First of all, Russia depends on imports for most agricultural products with respect to seeds and genetic materials. There are many causes of such situation, but an excessive and inefficient governmental regulation system in such high-tech markets and limited solvent demand for selection products on the part of farmers should be considered the key ones. As a result, there is a handful of those who want to invest in the development of genetics.”

The expert mentioned falling incomes among other important factors. This fact results in very different consequences. Firstly, people switch to products of a lower price which, in its turn, creates risks of counterfeit and falsified products. The most remarkable example is cheese where even the most approximate calculations show that falsified cheese accounts for around 30% of an increase in the cheese production. Secondly, the investment attractiveness of agricultural sectors and food industry decreases due to “squeezing” markets, thus slowing down import replacement processes.

Finally, the most serious point is the agricultural infrastructure, utility lines and communications, roads, veterinarian support, human resources, and equipment.

According to Elena Razumova, since the mid-2000s, the government has been providing financial support directly to setting up production facilities, while now the focus is shifting towards infrastructural projects and support to allied industries. However, apart from money, we need significant changes in the regulatory, control, supervisory and tax environment and there is still very little being done in this area.