Debts to be restructured in agriculture

April 22, 2016 18:46

The financial situation in agriculture is critical. To some extent, the proposed measures will resolve the accumulated debt problem, but there will be some difficulties with finding the necessary resources for these purposes. The Belarusian economy is incapable of meeting all agriculture’s financial needs, which makes the revision of methods for measuring effectiveness in the industry inevitable.

A draft presidential decree concerning financial restructuring at agricultural enterprises has been elaborated.

In 2013, agriculture earned EUR 355 mln, which is 2.5 times less than in 2012. Without state subsidies, 61.7% of agricultural enterprises are unprofitable. Payables in agriculture are 6.5 times higher than receivables. Despite the considerable amount of tax breaks, cheap loans within the state programmes (interest rates on loans within state programmes for agriculture are about 2-3% per annum in local currency), and reduced fuel prices, the financial situation in agriculture continues to deteriorate, as January 2014 results demonstrate. Due to the lack of financial resources, qualified personnel are leaving the industry, leading to lower production. All this has a direct impact on the results in the food industry, which is one of the most important industries in Belarus.

Measures proposed in the draft decree include restructuring of inefficient agricultural organizations, providing them with a payment delay on investment loans and leases for up to five years. Tax burden will be reduced and exemptions from income tax amounting to investment in agriculture and operating costs will be applied. The volume of the anticipated compensation has not been defined due to the 2014 budget restrictions. As of January 1st, 2014 nonperforming loans in agriculture exceeded EUR 670 million, which, given the falling international reserves and the lack of guaranteed external income, is a significant amount. The government will only be able to partially restructure the existing debt. Potentially, unprofitable enterprises will be attached to successful ones.

The aforementioned measures are only a temporary solution, leading to yet another surge in inflation. Current economic situation dictates there will be no funds in the state budget to carry out these measures systematically. In 2013, Russia joined the WTO and in 2014, Kazakhstan is anticipated to complete the process. This means that Belarus will have to change her approaches to subsidies and apply the mechanisms existing within the Customs Union and the WTO frameworks, i.e. allocate subsidies by making direct payments per unit of land, head of livestock, or sold products. Agriculture has to move towards free pricing, because that will allow understanding the real effectiveness of the existing enterprises, preserve profitable activities, and redirect and retrain excessive labour for working in industry and construction.

By continuing to subsidise agriculture, the state confirms the inefficiency of the industry’s current economic tools. Agriculture needs to be supported, but such support should be given to productive firms, which, having expanded their activities, will compensate for production at reorganised enterprises.