THE INCREASE OF AGRICULTURE INVESTMENT ATTRACTION FOR BANKING ENVIRONMENT 

Kuleshov, VP, Associate Professor 
Rytseva AV assistant 



Establishing of market relations, the fundamental changes in the forms of ownership and management, and other factors have created a new situation in the formation and use of the investment potential of agriculture in the Russian society.

During the period of reform from 1990 to 2012, the proportion of profitable agricultural enterprises decreased from 97.9% to 78% and the share of loss-making - has increased  from 2.5 to 22%. Over the last decade, from 2000 to 2012, we can see a sharp reduction of unprofitable farms (Figure 1).

Figure 1 Percentage of profitable and unprofitable farms RB%

One of the factors that hold back the movement to market conditions is insufficient equipment of fixed assets, depreciation of it is about 40%. Although over the past 4 years the level of depreciation is reduced, that is, there is a process of renovation funds in agriculture. The main sources of acquisition of fixed assets are leasing and attraction of bank loans. In consequence of analysis that presented in Table 1 data we can see the tendency of decline renewal of funds in agriculture, with high rates of eradication.

Table 1: The level of Depreciation of fixed assets by economic activity (at the end of the year, as a percentage of the total account value by net activities) with a refresh rate and liquidation of assets by economic activity (average prices)

 

2000

2005

2006

2007

2008

2009

2010

All fixed assets total

40,1

45,1

43,2

43,9

43,3

43,6

45,4

Including types of activities:

 

 

Agriculture, hunting and forestry

 

49,1

42

41,7

39,8

34,9

34,4

36,6

Refresh rate of fixed assets, as a percentage of the presence of the end of the year

 

 

All fixed assets total

2,7

4,3

4,2

4,7

5,9

5,4

3,4

Including types of activities:

 

 

Agriculture, hunting and forestry

1,3

2,8

3,5

5,9

7,1

6,7

7,7

Liquidation of assets ratio, percentage of availability at the beginning of the year

 

 

All fixed assets total

1,0

1,4

1,1

0,8

1,0

0,8

1,1

Including types of activities:

 

 

Agriculture, hunting and forestry

1,7

3,4

5,4

3,3

5,8

3,7

7,9

 

For enhancing the agriculture investment attractiveness it’s necessary to make a target policy of reducing receivable and payable accounts. 

Table 2 Debt for obligations agricultural organizations (end of year, million)

 

2000

2005

2006

2007

2008

2009

2010

2011

Total debt obligations

12064

14563

16120

16643

14655

15837

18466

13961

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9817

8697

7058

4606

1879

1396

641

1130

Of total debt:

 

payables

11675

11938

11439

9410

6857

7348

6285

7350

including overdue

9618

8479

6953

4500

1809

1220

517

814

payable on bank loans and borrowings

389

2625

4681

7233

7798

8489

12181

8528

including overdue

199

218

105

106

70

176

124

244

receivables

2816

3865

4213

3904

4119

4917

4936

6611

including overdue

2006

1931

1517

1017

637

539

330

316

 

Basing on the analysis (Table 2) we can come to the following conclusions: The total amount of creditor debts from 2000 to 2011 has a slight tendency to decrease by 1.6 times, while there was a significant reduction of overdue - 6 times. A total debt obligation tends to increase. Over the past 11 years it has increased by 1.5 times, while the share of overdue loans in total debt declined from 9817 in 2000 to 1130 million rubles in 2011., ie 9 times. Creditor debt decreased over the last 10 years in 2 times., It includes the reduction of arrears amounted in 2000 – 2011 from 9618 to 814 million rubles., i.e. 19 times, and at the same time, there is a tendency of increasing the debt on bank loans and loans in 31 times.

In order to study the effect of investment on the efficiency of agricultural production   a correlation regression analysis was made. As a result  there is a relationship between factors such as gross output per hectare of agricultural land, the investment resources of one ruble of gross output and the load of farmland per worker employed in agriculture (r = 0,98), this figure was accounted because at the current demographic situation in the countryside and the steady decrease of the population of working age, and thus reducing the number of agricultural workers there is a need to offset the shortfall of resources mechanization of agricultural production. The change in the gross output per hectare of farmland by 31% in the dynamics of the past 10 years, depending on the investment resources of one ruble of gross output and the load of farmland per worker employed in agriculture.

Table 3: Efficiency of investment in agriculture of the Republic of Bashkortostan (with leveled cost factors)

Item

2000 ã.

2002 ã.

2004 ã.

2006 ã.

2008 ã.

2010 ã.

2011 ã.

2011 ã. ê 2000 ã. â %

Investment resources to the ruble of gross c / s., Rub.

0,105

0,059

0,042

0,058

0,056

0,044

0,073

69,976

Gross output per ruble of investment resources in the s / s., Rub.

9,567

16,882

23,887

17,280

17,797

22,624

13,610

142,261

Gross output per capita of rural population, thousand rubles.

65,010

162,924

152,526

230,772

386,888

320,196

12,570

19,336

Investment resources on one s / s. organization, th.

370,755

424,151

335,740

708,289

1136,52

893,935

1257

339,039

Investment resources per hectare / x. land, thou.

0,345

0,403

0,276

0,551

0,804

0,560

0,499

144,665

Gross output per hectare / x. land, thou.

3,303

6,809

6,597

9,523

14,315

12,674

67,927

2056,53

Investment resources per capita in rural areas, th.

6,795

9,650

6,385

13,355

21,739

14,153

9,236

135,921

 

It should be noted that the investment resources to the ruble of gross output (including graded the cost factor) declined from 10 cents in 2000 to 7 cents in 2011 Although per hectare of crop area the investment funds increased from 345 rubles in 2000 to 499 rubles in 2011, Investment resources per hectare of agricultural land increased from 2000 to 2011 by 162%. With it gross production per hectare of agricultural land has increased by 384%. This indicates to inefficient use of investment resources.

these indicators are shown in Table 3.

The dynamics volume of government support of agriculture and allocated credits sources by banks from 1998-2011

Figure 2: The dynamics of volume of government support to agriculture  and allocation of credit resources by banks, the Republic of Bashkortostan for 1998-2011

Despite of the credits raise given to agriculture, it should be noted that investments directed to the industry are long-term, and they are associated with high investment risk. In order to reduce the cost of credit resources the government goes to subsidize part of the interest on loans. Debts on bank loans are increasing, despite of the fact that the proportion of profitable farms has increased, while the share of unprofitable enterprises has decreased (from 2000 to 2011.). In this case, according to the analysis conducted in Table 3, we can say that the growth of loans and allocated budget sources does not bring the desired result. And there is the inefficient use of allocated funds.

For the sustainable development of the agricultural sector is necessary to develop a specific strategy based on creating a proper environment and stimulating the development of agro-industrial system. Investment resources are always limited and require prudent spending, so the best use of them is one of the essential factors of stabilization and recovery. The Government, in our view, should have a priority in the management of investment processes in the agricultural sector, that is evidenced by the experience of many countries in the world with a market economy.

Experience generalization of stimulating investment in agriculture of developed countries shows that the investment activity of the government includes budget allocations, the system of tax exemptions and credits. Flexible investment policy allows support agricultural producers, stimulate the production of competitive products, preserve the environment and soil fertility. Investment activity in the agricultural sector  is characterized by high subsidized budget. For example, in the U.S. federal budget allocation to agriculture are given in the form of direct cash payments, preferential loans, grants, repayable payments. The state system of credit takes here for about half of all loans granted to farmers by commercial banks and insurance companies. In Japan and Western Europe, low interest rate credit system operates in the farming cooperatives, involving financial, commercial banks and insurance companies.

The banking system in agriculture abroad is a complex mechanism, with almost every country has its own peculiarities in the organization to ensure the financial resources of enterprises. The most financial transactions in the agricultural sector performed by one or two large specialized banks in France, Sweden, the Netherlands and Israel. The financial system of U.S. and Germany includes a variety of agricultural financial institutions.

The main factors of a favorable investment climate in Bashkortostan are:

-         a favorable transport and geographical location;

-         stability in the political and economic life;

-         a highly skilled workforce;

-         a stable regulatory framework.

At present in the Republic of Bashkortostan   specific industry programs implemented: "The development of dairy farming and the increase in milk production in the Republic of Bashkortostan, 2009-2012", "Development of beef cattle in the Republic of Bashkortostan for 2009 - 2012 years."

In our opinion, the formation of a strategy should be with monitoring of entities agricultural sector. This monitoring can be carried out in the following areas: the analysis of the production activities of the organization, analysis of financial and economic situation and solvency, analysis of technical and technological level and competitiveness of their products, the credit rating organizations of the agricultural sector, their investment and innovation activity, analysis of the availability of financial resources and the needs of organizations in raising capital, market research organizations for investment and innovation, analysis of the economic situation.

According to the results of the monitoring we can see number of groups of organizations. For example, organizations that implement priority projects and use different sources of funding, organizations which are creditworthy borrowers and use a bank loan, organizations involved in the implementation of federal and regional programs, organizations are experiencing a lack of financial resources and the organization on the verge of bankruptcy. these group of organizations may apply different strategies: for the first is investment tax credit,  for the second  is subsidy of the part of the interest on bank investment loan, for the third is expansion of the practice of public and commercial finance, for the fourth group is government support in the form of grants to agricultural production and centralized capital investments, and for  the fifth is entry in the integrated structure.

To implement these strategies, and to improve the effectiveness of public policy in the field of investment, in our view, should be done:

-         improving the tax system: reduction of tax rates, giving tax benefits if investments implement, the application of the investment tax credit;

-         creation and improvement of common information policy of the government of the Republic of Bashkortostan;

-         the formation of an independent agency or corporation that coordinates the issues of economic and investment development of the country, and to make a department monitoring the subjects of agriculture inside of it.

Thus, the government must have a strategic control levers in all sectors of the economy especially in the agricultural sector, ensuring food security of the country, which requires clearly established powers, rights and responsibilities of the executive and business administration. It is extremely important to correctly use the credit facility, to strengthen the state's role in promoting the participation of financial institutions in the provision of financial and credit industry.

 

Bibliographical list

1. Law of the Republic of Bashkortostan, of 16.07.2004 N 90-s "On Amendments to the Law of the Republic of Bashkortostan" On state regulation of investment activity in the Republic of Bashkortostan "[electronic resource]: (amended on 08.07.2004) / / ATP" Consultant Plus ". Professional version.

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10. http://www.minpromrb.ru/investment/investsystem/