The Government - the Ministry of Agriculture and the Finance Ministry - have been instructed to make access to loans easier for agricultural companies. Statistics suggest that subsidizing the interest rate is one of the most popular and widely used tools that has been in use for over 10 years. Why are changes called for today and how is subsidized lending going to change the agricultural sector? Those are the questions the Analytical Center's expert Elena Razumova answered live on RBC-TV.
The proposed measures will improve the financial situation in the agricultural sector
“We are pursuing an import substitution policy, including in sectors that require significant investments such as dairy and meat production, genetics, selection, vegetable production, i.e. sectors where investments normally have very long payback periods. In the kind of tough economic situation, we have now it is no easy task raising significant amounts of money for risky projects so the Ministry of Agriculture is trying to help agricultural businesses by subsidizing interest rates for long term loans,” Ms. Razumova explained. The expert noted that because of the depreciation of the ruble interest rates rose across the board and that means there should be a new approach to calculations, and the subsidized portion of the interest rate should be increased to make sure investments in agriculture do not dry up.
At the moment it is mostly large companies that are taking advantage of the subsidized rates to take out new loans. “Those are mostly pork and chicken producers that started their investment cycles 7-9 years ago and are now seeing their investments pay back,” Ms. Razumova noted. Smaller producers are also getting engaged with the system: for example, in the dairy production sector, but there are not many small companies using the mechanism and for the most part it is being used by large corporations.
As far as the creation of specialized tools to support various sectors is concerned, for example to create production and processing facilities, Ms. Razumova does not think such a measure would be advisable. “Pork and poultry production have closed production cycles, they both produce and process their products,” she said, ‘and it would be wrong not to support processing companies because they are the ones that generate demand for agricultural products.” In her opinion, specialized tools should only be introduced in some markets such as collection of milk and cooperative farming.
The proposed measures give a chance for an improvement in the financial situation in the agricultural sector, the expert concluded.