Nonpayments, bankruptcy and government support in Russian agriculture.

In this article, we examine some government policies that have a bearing on the main financial issues of the farm sector. These include policies relating to debt rescheduling, subsidised credit, and investment support. Debt rescheduling and writeoff policies are 'reactive' measures reflecting

the government's response to the problem of mounting overdue debt and looming bankruptcies in agriculture. Subsidised credit and investment support programmes, on the other hand, are 'proactive' programmes intended to improve the access of farms to the formal financial institutions and mitigate the observed shortage of agricultural investments. A different set of proactive programmes--input cost reimbursement programmes--are discussed by Serova and Shick (2005).

OVERDUE DEBT

Russian agriculture is characterised by low profitability and high frequency of farms reporting losses. (1) While the economy as a whole registered profitability rates of 10%-15% of sales between 1995 and 2002, agriculture reported losses of up to 25% of sales during 1996-98 and then recovered to positive profit margins of about 5%-10% of sales. Despite the recovery after 1998, the profit margins in agriculture have remained consistently below the average for the economy. The low profitability has led to an increase in the level of indebtedness. Farm indebteduess, as measured by the debt-to-sales ratio, increased dramatically from 0.8 in 1995 to a peak of 1.6 in 1998, and then declined stabilising at a level of about 1 between 1999 and 2002. Another measure of indebtedness--the ratio of debt to current assets--shows a generally similar pattern. It rose from 82% in 1995 to 122% in 1999 and then dropped to 110% in 2002. The situation since 1999 constitutes a significant improvement by both measures. Today, total liabilities run at about the level of annual sales and exceed by only 10% the highly liquid cushion of current assets (before bringing in the liquidation value of fixed assets).

Russian farms do not appear to suffer from a crushing debt burden, and yet nonpayments and overdue liabilities are perceived as a serious problem in Russian agriculture. Indeed, overdue liabilities increased from 40% of total debt to more than 70% in 1998-1999, and declined thereafter to about 60% (the black curve in Figure 1). Most of the overdue liabilities come from accounts payable, and the nonpayment rates for bank credit are substantially lower (compare grey and black bars in Figure 1). Banks apparently manage to impose a much stricter payment discipline on corporate farms than other creditors, which are included in accounts payable. This conclusion is reinforced by the structure of accounts payable shown in Table 1. Here the proportion of overdue supplier credit is less than the proportion of supplier credit in general, whereas the proportion of overdue debt to the state (overdue taxes and social deductions) is higher than the proportion of the state in total payables. These findings suggest that commercial structures (both banks and suppliers) command greater compliance than state creditors.

[FIGURE 1 OMITTED]

DEALING WITH NONPAYMENTS

Penalties and fines

Nonpayments to the state (mainly taxes and social security deductions) invoke severe penalties and fines, which are automatically added to liabilities. Accrued penalties and fines as of the end of 2002 were estimated by the Russian Ministry of Agriculture at 60 billion rubles, or 25% of all payables (this estimate was the basis for the July 2003 writeoff of 57 billion rubles in fines and penalties--see below). The Ministry of Agriculture further estimated the level of penalties and fines at 30% of the amounts reported as due for social insurance and 50% of the amounts due for other deductions.

Since the early 1990s, the Russian government has imposed a draconian penalty mechanism for nonpayment of taxes and social deductions. Penalties are calculated at the fantastically high rate of 0.3% of overdue amounts per day, which is equivalent to 200% annually (until 1996 the rate was much higher: 1% per day or 3,600% annualised). The deadline for payroll taxes and deductions is calculated from the date when the payroll is accrued, and not from the date of actual payment to workers. Thus, farms that do not have cash to pay wages (including payroll taxes and deductions) on time find themselves in the paradoxical situation of accumulating fines on the deductions component of the unpaid payroll. These fines must be paid in cash, or else continue to grow at 0.3% per day. Finally, the authorities have the power to freeze the bank accounts of the delinquent farms and automatically confiscate all incoming deposits in partial payment of the amounts owing for taxes, deductions, and fines. Needless to say, the draconian penalty procedures encourage a shift to payment systems with both suppliers and customers that bypass the banking system altogether. Cash-poor farms are being pushed into a 'shadow' economy, probably with increasing reliance on barter transactions.

Bankruptcy

The next step after assessing fines and penalties is the threat of bankruptcy. In the 2002 Bankruptcy Law, the debt threshold that allows a creditor to initiate bankruptcy proceedings is 100,000 rubles or about $3,500. According to judicial authorities in charge of bankruptcy proceedings (arbitrazhnyi sud--arbitrage court), 82% of all corporate farms were above this legal bankruptcy threshold in 2002 because of their arrears for taxes and social deductions. Given these dramatic figures, the bankruptcy law has been enforced fairly leniently. Nevertheless, there were 5,500 farm bankruptcy cases pending in 2003, or 22% of all corporate farms in Russia (up from 2,100, or 8%, in 2001 and only 100 in the late 1990s). Nationally, farm bankruptcy cases account for 20% of all bankruptcy cases in Russia (and that for a sector that produces 6% of GDP). Bankruptcy proceedings are usually initiated by tax authorities (for overdue taxes and deductions) and by major suppliers, such as fuel and power companies. In 2001, each of these two groups of creditors accounted for 50% of applications for bankruptcy (all data from arbitrage court).

Bankruptcy, which for many years had been regarded as a remote abstract possibility in agriculture, recently became a tangible threat for financially insolvent farms. The intensification of bankruptcy proceedings is a reflection of a change in government policy, or at least in the signals that regional authorities receive from the center. Previously, the central government was clearly indicating that agriculture should be left alone despite the growing farm debt. In recent years, however, the policy appears to have changed, probably due to improvements in farm profitability since 1998 as well as the expressed interest of nonagricultural entities to enter agriculture (Rylko and Jolly, 2005). Farm bankruptcies are no longer taboo, especially in cases when liquidation of deeply indebted farms opens the road for large-scale takeovers by nonagricultural companies willing to enter agricultural production. Farm bankruptcy in Russia is thus beginning to assume its theoretical role of an asset redistribution mechanism in agriculture.

The problem of nonpayments and overdue debt more generally appears to be one of the factors driving the creation of vertically integrated agroholdings--a new phenomenon in Russian agriculture that began to emerge in the second half of the 1990s (Rylko and Jolly, 2005). In principle, an agroholding is a corporate structure in which a nonagricultural entity assumes control of an existing agricultural producer and, among other things, guarantees its financing requirements. Farms can thus solve their solvency problems and avoid bankruptcy by joining an agroholding. Nonagricultural companies, such as input suppliers, power utilities, and even banks, in turn may be motivated to acquire their agricultural debtors as a strategy for salvaging at least some of their overdue receivables without going through lengthy and costly bankruptcy proceedings. Indeed, according to a recent survey in Rostov Oblast, six of the 14 agroholdings surveyed identified debt recovery from farms as the main reason for acquiring an agricultural producer (Khramova, 2003).

Rescheduling and writeoff

Implementing massive bankruptcies in agriculture is a very painful political decision, especially in a country such as Russia, where a high percentage of the population relies on agriculture for its living. Government policies over the years have been aimed to allow negotiated restructuring of farm debt rather than enforce the bankruptcy law. The legal bankruptcy mechanism accordingly starts with debt restructuring intended to restore the debtor's solvency, and total liquidation is invoked only if all else fails. The entire process is allowed a maximum of 5 years. Experience so far shows, however, that most farms entering bankruptcy proceedings are unable to restore their solvency and eventually go into liquidation. According to MinAg, only 16% of farms in bankruptcy proceedings in 2001 managed to restore their financial health, and the remaining 84% were liquidated.

Much of the debt overhang in the farm sector is attributable to arrears for taxes and social deductions, which are continuously inflated by accruing penalties and fines. (2) Recognising this situation, the government made repeated attempts over the years to write off the accrued penalties and reschedule the outstanding liabilities of the corporate farms to the state, thus allowing the frozen bank accounts to be unblocked. However, to be eligible for writeoff of penalties and rescheduling of old debt, the farms had to start paying all their current liabilities to the state from a certain point in time (which was reset in each succeeding resolution). Most farms found this an impossible condition, or simply chose not to bother with the bureaucratic requirements, which stipulated signing separate debt-restructuring agreements with each government agency (ie, the pension fund, the medical insurance fund, etc). As a result, only a very small proportion of farms among those entitled to debt restructuring according to the 1998 programme actually joined the programme.

One of the most recent attempts to restructure farm debt--the 2002 law 'On financial recovery of agricultural producers'--introduced uniform rescheduling requirements for both state and commercial debt. Yet the main intent of the law was to resolve the growing indebtedness of farms for taxes, social deductions, and obligations to state-owned energy suppliers (Gazprom, Electric Power System). For this reason, the law explicitly specified the writeoff of fines and penalties as one of the instruments of debt rescheduling. The new law stipulated that agreement of creditors with claims to at least 75% of accounts payable was a precondition for debt rescheduling. Based on this condition alone, the large state creditors in most cases could negotiate debt rescheduling without the agreement of the commercial creditors. However, the law did not introduce any protection against initiation of bankruptcy proceedings by dissenting creditors, that is, those who do not joint the debt rescheduling agreement. Once the large state creditors had reached the required agreement and dropped out of the circle of outstanding claims, the remaining commercial creditors could start bankruptcy proceedings in the hope of recovering their (much smaller, but now 'senior') debt through a distress sale of assets. This legal loophole constitutes a serious disincentive for the large creditors to reach a debt rescheduling agreement without the participation of virtually all the commercial creditors (with claims in excess of 300,000 rubles)--a consensus that is very hard to reach. In addition, the new law retained the previous controversial condition that farms would be eligible for debt restructuring only if they met all their current obligations to the state, that is, taxes and social deductions.

These various requirements have virtually precluded the implementation of the debt rescheduling principles proposed by this law. As the next step towards possible resolution of the problem, a presidential decree of July 2003 promised 18,000 farms an unconditional writeoff of 57 billion rubles in penalties and fines accumulated to January 1, 2002. To receive the writeoff, the farms were 'only' required to submit their fully substantiated applications before January 2004. According to MinAg, 30% of the eligible farms had submitted their applications by this deadline. The total outstanding debt of these farms to the state was 47 billion rubles, including 24.5 billion rubles in penalties and fines to be written off, that is, just over 50% of the total writeoff envisaged by the presidential decree.

Regional authorities also tried in some cases to help farms dig themselves out of the 'debt trap'. Thus, according to a 2002 programme developed in Nizhnii Novgorod Oblast for 392 corporate farms, the oblast budget would repay the old debt to the state as long as the farms could meet all current payments in full.

FINANCIAL SUPPORT PROGRAMMES

Subsidised credit

Credit subsidies to Russian farms are based on partial reimbursement of the actual interest expense paid monthly to the lending banks. Two-thirds of bank interest charges are reimbursed, provided the bank rate does not exceed the Central Bank refinancing rate, which sets the ceiling on the subsidy. (3) This scheme has been in operation since 2000, when the government finally abandoned the traditional programmes of allocating discretionary loans to 'deserving' farms through regional authorities.

Table 2 shows the amounts allocated in the state budget to interest-rate subsidies for agriculture (primary producers and processors). Each ruble of budget subsidies generated 10-15 rubles in loans from commercial banks. While most of the subsidies were directed to support short-term working-capital financing, about one-third was intended for medium-term investment loans (up to 3 years). In general, all Russian banks tend to lend short-term to agriculture and provide very little medium- and long-term finance for investments.

Table 3 describes the institutional framework for subsidised credit to agriculture. There is no formal discrimination between producers of different organisational forms. Thus, in theory, peasant farmers are eligible for all credit programmes alongside corporate farms. However, only one bank--the state-owned agriculturally oriented Rossel'khozbank--services the financing needs of household plots. The programme emphasises repayment capacity (ie, absence of overdue liabilities to the state) as a criterion of eligibility. This precondition, while perfectly understandable, seriously restricts the scope of eligible producers.

A striking negative feature of the whole institutional framework is the decisive role that the Ministry of Agriculture and regional authorities continue to play in the allocation of subsidy budgets and the actual disbursement of monthly subsidy payments--a feature that creates multiple opportunities for corruption and favouritism. According to the existing procedure, the total budget allocation for interest rate subsidies is divided by the Ministry of Agriculture to regions, and regional governments then distribute their quota to local borrowers in the order of the amounts claimed for reimbursement.

This means that the largest borrowers get most of the regional subsidy quota. In some regions, the entire amount is paid to a single giant entity, while all other farms end up with nothing.

After passing through the fine sieve of government eligibility requirements, the potential borrowers have to win the approval of the commercial banks, which generally impose fairly strict conditionalities of their own before approving a loan in the framework of state support programmes (Table 4). This is understandable, as the banks assume the actual risk of default, even though the funds come from government sources. As a result of this double screening, the access to government credit programmes is less than universal. Judging by the numbers in Table 2, we can roughly estimate that less than 7,000 farms received subsidised loans, which is about 25% of the total number of corporate farms in Russia.

Machinery leasing programmes

On the micro-level, corporate farms continue to invest in fixed assets despite their financial difficulties. This is true for farms in Leningrad Oblast (Epshtein, 2005) and also nationally. Policy makers are convinced, however, that, on the macro-level, low farm profitability, increasing burden of overdue debt, and lack of bankable collateral have had a damping effect on investment activity in agriculture. Indeed, the share of agriculture in total investment decreased from about 10% in the early 1990s to 3% in 1995-2002. This is about one-half of agriculture's share in GDP, which runs at 6%-7% (also down from 10% in the early 1990s).

These facts reflect a clear shortage of investment funds, which cannot but have a negative effect on long-term sectoral performance. Already now we are witnessing severe ageing of the machinery park in agriculture and a persistent decrease in the availability of farm machinery per unit of arable land (Serova and Shick, 2005). The Ministry of Agriculture is on record claiming that Russian farms have only 50% of the tractors and harvesters 'they need' (whatever that means), that 8 million tons of grain (10% of total harvest) were lost in 2003 because of machinery shortages, and that agriculture must get 20,000 new harvesters each year to function properly (Rosagrolizing, 2004a, b, c). The Russian government is therefore actively looking for ways to stimulate agricultural investment without returning to the old command methods of allocating machinery to farms according to plans and targets.

Financial leasing is regarded in Russia as the preferred way to inject new machinery into agriculture due to lack of ready investment funds. Financial leasing involves three parties: the equipment supplier or manufacturer, the leasing company, and the lessee. The leasing company is a financial intermediary: it purchases the equipment from the supplier and delivers it to the lessee--the farm. The equipment remains the property of the leasing company for as long as the farm uses it under lease and its value in principle provides collateral to the loan implicit in the lease contract. (4) Eventually, the farm may buy the equipment from the leasing company or return it when the lease contract is terminated.

The government took upon itself to develop and introduce various leasing schemes that would be financed on the same principles as the subsidised interest-rate programme and would provide an administrative channel allowing farms to access dedicated investment funds. Government intervention in investment was judged to be unavoidable, as many officials held the view that commercial companies would not be willing to finance leasing of machinery and equipment for low-profitability agriculture. In line with the prevailing privatisation strategy, the Russian government opted for a strictly centralised monopolistic solution: since 2001 the entire leasing programme has been run by a parastatal monopolist, Rosagrolizing, which uses its equity as a pool of capital to finance lease contracts. Between 2001 and 2004, Rosagrolizing's equity rose from 5 billion rubles to 14.3 billion as the state poured nearly 10 billion rubles into the agency--about 5% of the total volume of physical investments in agriculture during this period and comparable to the total amount allocated to the interest-rate subsidy programme (see Table 2).

State-funded Rosagrolizing acts as the central banker of the agricultural leasing system. It distributes the available funds to regional leasing companies, which are responsible for arranging the lease contracts and collecting the lease payments from the farms on behalf of Rosagrolizing. These leasing agents are usually regional monopolists, although in some regions (eg, Vologda, Kursk, Ivanovo) commercial competition is allowed. The tranche allocated by Rosagrolizing to a particular region is fully guaranteed by the regional government, and local authorities accordingly take a very active role in screening and approving the applications from their farms. Needless to say, this process is rife with favouritism and potential corruption. The list of machinery and equipment eligible for leasing is drawn up by the Ministry of Agriculture in Moscow, and it is generally restricted to tractors and combines manufactured in Russia or Belarus. In principle, livestock also can be leased within this programme.

The typical lease term is 5-7 years and lease payments are made quarterly. Rosagrolizing funds are loaned at 4% annually (down from 7% in 2002); in addition, the lessee pays an annual charge of 1.5% of residual asset value to Rosagrolizing and 1.5% to the regional leasing company. The farms are required to make a downpayment calculated at 7%-15% of equipment cost (which includes compulsory insurance charges). The total cost to the lessee farm over the entire term of the lease contract ranges from 18% of asset value for an ordinary tractor to 26% for advanced machinery (including combines) and 33% for breeding livestock (Rosagrolizing, 2004b).

According to Rosagrolizing sources, the leasing scheme is fully operational in 60 of the 80 Russian regions and between January 2002 and April 2004 Rosagrolizing actually delivered 10,000 pieces of machinery worth 11 billion rubles, including 5,800 harvesters, 3,100 tractors, and two fishing boats (RV, 2003-2004). MinAg estimates that the leasing programme was responsible for one-third of the total volume of machinery and equipment acquired by farms in 2002 and the first half of 2003. This estimate is confirmed by the 2003 BASIS survey, in which machinery leasing in 2002 was 33% of the value of all new machinery acquisitions for corporate farms and 36% for individual farms.

Rosagrolizing, like the rest of the agricultural establishment in Russia, is heavily biased toward corporate farms. Yet the federal leasing programme is open to all agricultural producers, both corporate and individual alike, and Rosagrolizing tries to publicise its contracts with peasant farmers. It was recently announced that in 2003 Rosagrolizing had delivered 430 pieces of machinery to peasant farmers (KV, 2004). To put this announcement in context, we should note that 240,000 peasant farmers received 430 pieces of machinery while 24,000 corporate farms received 10,000 pieces of machinery. In the 2003 BASIS survey, the frequency of lease transactions is also much higher among corporate farms than among individual farms. Thus, leasing accounted for 29% of new machinery transactions among corporate farms and only 16% among individual farmers.

Farms apparently reserve the leasing option for relatively high-cost machinery and equipment, such as heavy-duty tractors, harvesters, and feed combines, purchasing less costly equipment (seeders, cultivators, plows) with funds from other sources. In the 2003 BASIS survey, one piece of leased equipment on average cost more than one piece of equipment purchased through other channels (the difference is statistically significant for both corporate farms and individual farmers). This does not mean that leased combines cost more than purchased combines: it simply means that farms lease combines (expensive) and buy seeders (less expensive).

Unlike the subsidised interest-rate programme, the leasing programme does not require the applicants to prove a positive record history. Moreover, leasing approval relies on projection of future cash flows, not on collateral value as in bank loans. These features may substantially increase the accessibility of the leasing programme, as the credit history and solvency requirements limit the scope of farms eligible for subsidised interest credit to 10%-15% of the total number of farms. There is no clear-cut evidence to show which of the two investment financing options--subsidised credit or Rosagrolizing--is cheaper. It would appear that leasing is more expensive than subsidised credit, as in addition to paying a (subsidised) interest on state funds, the farm is required to pay the costs of at least two levels of intermediaries (central and regional) and provide a certain (albeit minimal) downpayment from its own resources. Rosagrolizing publishes various calculations that attempt to prove the huge cost advantages of the leasing programme (more than 25%), but a closer look at these calculations shows that the advantage relies on two highly contentious factors: an allegedly greater VAT refund and lower tax payments due to greater depreciation (Rosagrolizing, 2004c).

As noted above, the regional authorities are actively involved in the federal leasing programme: they approve the regional leasing agencies, screen the applications, and most importantly guarantee the federal funds allotted to their region. The operational involvement of some regions in encouragement of farm investments through leasing started in 1997-98, before the creation of Rosagrolizing. The regional support programmes mostly supplement the federal leasing and subsidised interest rate programmes, (5) but some regions have introduced quite novel techniques of agricultural support. Some regions, instead of supplementing the federal leasing programme, simply provide bank loans that allow farms to buy any equipment that they need from any supplier of their choice: under these 'competitive' regional programmes (operating mainly in Vologda, Kursk, and Ivanovo oblasts) the farms are not limited to a centrally approved list or a monopolistic leasing agent. Other regions (eg, Perm) have done away with state leasing, and instead subsidise equipment purchases by providing outright grants and partial reimbursement of lease payments. Rostov introduced a perverse twist into the system: it does not officially restrict equipment leasing to a list of approved suppliers and does not allocate funds to the federal leasing programme, but only equipment purchased from the local machinery manufacturer (Rostsel'mash) is entitled to grants and loans from regional sources.

Although Rosagrolizing has an impressive record in promoting agricultural asset leasing, its opponents argue that the monopolistic nature of the contractual arrangements suppresses private initiative and competition. Thus, agricultural machinery represented a mere 2% of transaction volume among Russia's 30 largest leasing companies in 2003. When Rosagrolizing's monopoly was lifted in Perm Oblast, six commercial leasing companies started supplying agricultural machinery and equipment during the first year. In Ivanovo Oblast, where competitive leasing is allowed, commercial transactions accounted for 10 of the 16 leasing contracts reported by corporate farms in the 2003 BASIS survey.

CONCLUSION

The general improvement in the financial situation of Russian farms since 1999 is attributable to overall agricultural recovery, not to government support measures. Continuing government interventions in farm finances, often replicating the old centralised models, do not appear to have had a significant impact on agriculture.

Although subsidised interest-rate programmes reduce the cost of borrowing and thus increase the demand for credit, administrative barriers (the regional quota system, the precondition of zero overdue debt) severely restrict the actual volumes of credit used under these programmes. The commercial banks are clearly showing an increased interest in agricultural lending in the light of the post-1998 recovery, yet they adopt similarly restrictive criteria for loan approval.

Government-sponsored machinery leasing programmes appear to be unfolding on a substantial scale across the country. Yet they are seriously hampered by administrative regulations that limit the choice of suppliers and models to a centrally approved list. They furthermore show a strong bias toward large producers, neglecting the huge mass of peasant farms that on the whole have much less capital stock than the established corporate farms. Moreover, the cost advantages of government leasing programmes are not clear because of nontransparent charges and calculations.

The marginal impact of government support programmes requires careful rethinking of the role of government in agricultural finance. To be successful, Russian farms probably need less barriers to the proper functioning of market channels, not necessarily more support.

Table 1: Structure of payables and overdue payables 1998-2001

                     Total payables    Overdue payables

Suppliers                  38                 34
Taxes                      13                 14
Social deductions          39                 43
Other                      10                  9

Total                     100                100

Source: Goskomstat (2002)

Table 2: Amounts budgeted for interest-rate subsidies (million rubles)

                                          2001      2002      2003

Allocated in the state budget (a)        1,300     2,200     3,200
  1-year credits                         1,300     1,400     2,000
  3-year credits                          --         800     1,200
Bank loans received (b)                 18,400    25,600    38,800
  Primary agricultural producers (%)     46.7      51.1      51.1
  Processors (%)                         51.1      48.8      47.1
Number of agricultural borrowers (b)      NA      10,100    12,200

                                        2004 (projected)

Allocated in the state budget (a)             4,150
  1-year credits                                NA
  3-year credits                                NA
Bank loans received (b)                      50,000
  Primary agricultural producers (%)            NA
  Processors (%)                                NA
Number of agricultural borrowers (b)        13,500

(a) Federal budget law.

(b) Ministry of Agriculture estimates.

Table 3: Government conditions of eligibility for interest-rate
subsidies in agriculture

Characteristics                 Description

EligibiLity                     All agricultural producers provided no
                                overdue debt for taxes and social
                                deductions
Purpose                         Purchase of farm inputs and farm
                                machinery according to MinAg approved
                                lists
Subsidy rate                    Two-thirds of actual interest expense,
                                but not more than two-thirds of the
                                Central Bank refinancing rate
Subsidy payment                 Monthly against bank statements
Required documentation          Loan agreement
                                Interest calculation
                                Proof of loan use for eligible purposes
                                Proof of monthly interest payment
                                Loan repayment schedule (excl. short-
                                term loans)
MinAg role                      Allocation of total budget to regions
                                Organisation of subsidy disbursement
                                through local organs
                                Determination of list of eligible
                                machinery and equipment (for 3-year
                                loans)
Role of regional authorities    Collection of applications from
                                producers
                                Disbursement of subsidies
                                Reporting to MinAg

Table 4: Requirements to be satisfied by agricultural borrowers in
commercial banks

Characteristics              Description

Interest payment             Monthly
Collateral value             1.3-2.0 times the loan amount
Type of collateral           Livestock, machinery, stored commodities,
                             real estate
General conditions           Good credit history
                             No overdue debt or participation in debt
                             rescheduling program
Additional conditions for    Business plan
medium-term loans            Guarantee of local administration in
                             difficult cases

(1) The statistical data in this section are based on official Goskomstat publications and represent only the financial situation of corporate farms. There is no systematic official information on the finances of individual farms.

(2) A curious remnant of the centralist bureaucratic system is observed in the procedure for collection of agricultural debt to the state: a single state-owned bank--Rossel'khozbank--is responsible for collecting outstanding taxes and social deductions from all farms in Russia.

(3) The Central Bank refinancing rate has been steadily decreasing over time, following the decrease in annual inflation rates. It dropped from about 20% in the late 2002-early 2003 to less than 15% in the first half of 2004.

(4) In Russia, however, the leased asset is put from the start on the lessee's balance sheet because agricultural producers, but not vendors, enjoy exemption from property tax.

(5) Comparing the regional allocation of 1.8 billion rubles in a sample of 12 regions with the total amount of 7-8 billion rubles that Rosagrolizing spends annually in 60 regions, we conclude that the average allocation per region is around 150 million rubles in both cases and regional support to leasing practically matches the national programme.

REFERENCES

Epshtein, D. 2005: Financial performance and efficiency of corporate farms in northwest Russia. Conzparatiue Economic Studies 47(1): 188-199.

Goskomstat. 2002: Finansy Rossii 2002. Goskomstat: Moscow.

Khramova, I. 2003: Activity of agroholdings in Russia's agri-food sector: the results of a survey. In: Gaidar Ye (ed). Ekonomika perekthodnogo perioda 1999 2002. IET, Izd. 'Delo': Moscow. pp. 675-714. [in Russian].

KV. 2003-2004: Krest'yanskie vedomosti. Dec. 22, 2003; June 16, 2004.

KV. 2004: Krest'yanskie vedomosti. July 14, 2004.

Rosagrolizing. 2004a: www.rosagroleasing.ru/news/.

Rosagrolizing. 2004b: www.rosagroleasing.ru.

Rosagrolizing. 2004c: www.rosagroleasing.ru/conditions/.

Rylko, D and Jolly, R. 2005: Russia's new agricultural operators: their emergence, growth, and impact. Comparative Economic Studies 47(1): 115-126.

Serova, E and Shick, O. 2005: Markets for purchased farm inputs in Russia. Comparative Economic Studies 47(1): 154-166.

OLGA YASTREBOVA

NEI--Netherlands Economic Institute and Lomonosov State University, Moscow, Russia. E-mail: yastrebova@nei.ru