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Why are agroholdings so pervasive in Russia's Belgorod oblast '? Evidence from case studies and farm-level data

2013; Taylor & Francis; Volume: 25; Issue: 1 Linguagem: Inglês

10.1080/14631377.2013.756673

1465-3958

David Epshtein, Konstantin Hahlbrock, Jürgen Wandel,

Land Rights and Reforms

Abstract This article analyses the reasons for the prevalence of agroholdings in Russia's Belgorod oblast', focusing on the forces driving their emergence and persistence. It draws on both case study evidence and a unique farm-level dataset for 2001–07. It argues that, despite notable evidence for government support, political economy factors alone cannot explain the emergence of agroholdings in this region. Instead a complex mix of political and pure economic factors favoured agroholding creation. Likewise, it is shown that the persistence of agroholdings in Belgorod cannot easily be reduced to rent seeking. Rather much evidence is found that it is caused by good economic performance of agroholding farms, in particular by improvements in total factor productivity resulting from large investments in modern technology. However, since these investments were mostly credit financed, agroholding farms are exposed to a higher risk of default than independent farms. Acknowledgements We gratefully acknowledge the financial support of the German Research Foundation (DFG). Notes 1. So far the only articles in English that deal exclusively with agroholdings are Rylko and Jolly (Citation2005), Gataulina et al. (Citation2006), Serova (Citation2007) and Rylko et al. (Citation2008). They provide tentative overviews on the emergence and operation of agroholdings drawing on small surveys and a few case studies from 2002. These studies partly share and repeat the same information. Other papers that mention agroholdings in other contexts (e.g. Koester Citation2005, Liefert and Liefert Citation2012) are not based on original research but usually also refer to these studies. 2. The Russian–German research project is titled 'Agroholdings in Russia: Emergence, Functioning and Prospects' and is financially supported by the German Research Foundation (DFG). It is carried out by the Leibniz Institute of Agricultural Development in Central and Eastern Europe (IAMO) in Halle (Germany) in cooperation with the Moscow-based All-Russian Institute of Agricultural Economics (VNIIESKh). 3. As Roe (Citation1994) has shown in great detail, the typical governance structure of large American firms with fragmented ownership is more than has been acknowledged a political outcome, rather than one of unhampered market forces. 4. The system of subsidised credits was introduced in 2001. Commercial banks provide these credits to farms but the federal government compensates two-thirds of Russia's central bank refinance rate. The regional governments can compensate the remaining one-third and have a say in selecting which enterprises shall receive subsidised credits. The subsidised rate has been about one-half the market interest rate since 2007 (Wegren Citation2011, p. 10). 5. It did so even before the National Priority Programme of the Federal government was passed in September 2005 with its own regional programme, Strategic Development of Agriculture in Belgorod Oblast' until 2010, which was extended in early 2011 until 2015 (Gubernator i pravitel'stvo Belgorodskoi oblasti 2012). 6. Regulation of the government of Belgorod oblast' (Postanovlenie pravitel'stva Belgorodskoi oblasti), 26 September 2011, No. 351-pp, On confirmation of the long-term target programme "Development of poultry production in Belgorod oblast' for 2011–2015" (Ob utverzhdenii dolgosrochnoi tselevoi programmy "Razvitie ptitsevodstva v Belgorodskoi oblasti na 2011–2015 gody) (online, available from http://www.garant.ru/hotlaw/belgorod/355405/) and Regulation of the government of Belgorod oblast', 26 September 2011, No. 352-pp, 'On confirmation of the long-term target programme "Development of pork production in Belgorod oblast' for 2011–2015" (Ob utverzhdenii dolgosrochnoyi tselevoi programmy 'Razvitie svinovodstva v Belgorodskoi oblasti na 2011 − 2015 gody) [online, available from http://www.garant.ru/hotlaw/belgorod/355404/] (both documents accessed 13 March 2012). 7. Regulation of the government of Belgorod oblast', 18 June 2007, No. 134-pp, 'On the oblast' target programme "Family farms in Belgorod" (Ob oblastnoi tselevoi programme 'Semeinye fermy Belogor'ya'), [online]. Available from http://www.belregion.ru/file/docs/programmy_1_10_2011.doc and http://www.belferma.ru/about/ (Accessed 4 April 2012). 8. These advantages are seen in better mechanisation, more rapid adoption of technological progress, and the ability to achieve significant economies of scale (Pryor Citation1992, p. 46). 9. Belgorod's climate is temperate continental with relatively mild winters and long summers. More than 70% of the 2.7 million hectares of the agricultural land is fertile black earth (Sotsial'nyi atlas rossiiskikh regionov Citation2008). 10. For example, Rusagro group increased its landholdings from 166,000 ha in 2008 to roughly 400,000 ha in 2010 and Razgulai group from 400,000 to nearly 500,000 (Bokova Citation2011, p. 20). 11. Since 2003 floating import tariffs on raw sugar and a prohibitive tariff on white sugar protect the sugar market and import quotas the meat market. In addition, since 2005 the federal government has supported investment in livestock production with subsidised credit interest rates and tax reliefs. 12. Recently the general director of Agro-Belogor'e group, in an article published in a Russian journal, emphasised the importance of skilled labour for the agroholding's success and at the same time expressed concerns about future access to qualified labour. This caused the group to support actively the plans of the oblast' government to improve vocational training of agricultural workers (Korol'kova Citation2012 p. 80). 13. The ROS is calculated as a farm's net profit divided by its total revenue, expressed as a percentage, and measures how much the farm is profiting from its sales. A high return on sales indicates that the farm is selling its products well and its profits are likely to the sustainable; a low ROS indicates the opposite and could signal looming financial troubles. ROA is calculated by dividing a farm's net profit by its total assets. It indicates what profits were generated from its assets. The higher the ROA the better, because the company is earning more money on less investment. Common benchmarks are 5% for ROS and 10% for ROA. 14. See also Wegren (Citation2011). According to him (p. 10) the volume of capital investment in agriculture rose from 12 billion rubles in 1998 to a high of 235 billion rubles in 2008 prior to Russia's financial crisis, before declining to 182.9 billion rubles in 2010 (in current rubles).