Under new political conditions agribusiness, given its capacity to ensure food independence of Russia, starts playing an increasingly strategic role.
Gross agricultural production in 2013 grew 6.2% as compared to 2012, exceeding RUB 3.79 trillion. Official and independent analysts forecast further growth in agricultural production for 2014. Russian Agricultural Bank’s (RusAg’s) analysts believe that gradual development of the industry directly depends on support provided by the state and financial sector.
Financing is on the rise
Russia has huge potential in agribusiness: under favorable conditions we can become one of the leading exporters of a wide range of foodstuffs. Support of agricultural producers, investment in agribusiness remain a priority for the state. Russian Prime Minister Dmitry Medvedev, speaking at the Congress of Russian rural deputies, said “We are currently undergoing a difficult economic situation. However, I’d like to stress that spending under agribusiness financing programs will not be cut”.
According to experts, the state applies a rather wide range of support measures to agribusiness: partial compensation of insurance expenses, partial compensation of interest rate on loans, subsidies for investment in plant and livestock breeding, grapevine breeding support, subsidies to milk producers, etc.
Lending is an important component of agrarian policy. It is the banking sector that plays a key role in mobilizing the internal capital for long-term investment in large-scale re-equipment of agribusiness.
“Growth of domestic agricultural production, launching production and sales facilities is the only way to accomplish the task of import substitution and food security of the country as a whole”, Dmitry Patrushev said, speaking at the Congress of Russian rural deputies. “New production facilities in the regions and investment projects will allow to fully use Russia’s agricultural potential, provide population of rural areas with jobs and decent salaries, improve residential and social infrastructure.”
Analysts believe that decisions taken by the government testify to changes in tackling agribusiness sector problems: agribusiness issues are considered as part of national and food security of the country.
According to the poll conducted by Ersnt & Young, most executives of Russian agribusiness companies expect agricultural production market to grow 5-15% in 2014. Bank loans remain the most demanded form of financing, employed by 94% of agribusiness enterprises.
Key financial instrument for agrarians
Russian Agricultural Bank, being the key financial instrument of agribusiness development, plays a significant role in implementation of the state policy to ensure food independence. RusAg extended RUB 562.9 billion in the framework of the State Program on Agribusiness Development and Regulation of Farm Produce, Raw Materials and Foodstuffs Markets for 2013-2020. The positive effect of such support can be demonstrated by statistics: last year agribusiness outpaced all other real sectors of Russia’s economy.
Overall, since the start of implementation of the national project and state programs on agribusiness development RusAg has extended 1.7 million loans totaling RUB 2.5 trillion.
The latest trends in agribusiness development show that large agricultural enterprises need effective financial support to the same extent as mid-sized and small business. This is why RusAg sets investment and project finance as one of its priorities. The Bank takes part in construction of a number of large livestock and poultry breeding facilities.
In regions, where local administrations become co-investors in infrastructure projects, subsidize interest rate on loans, allocate direct subsidies, provide tax preferences and guarantees, the effect of RusAg’s support is multiplied.
It is indisputable that implementation of such projects increases the competitiveness of Russian agricultural production in domestic and international market, contributes to import substitution and increase in agricultural exports.
The key to success is a tested strategy
In 2013, with quality and prudent approach to lending, increasing efficiency of investment operations and declining share of overdue loans, RusAg’s loan portfolio grew 15% up to RUB 1.3 trillion. Loans to agribusiness account for over 80% of the Bank’s portfolio, SMEs account for 55% of the corporate loan portfolio.
The Bank’s active management of problem and overdue loans allowed to decrease their share from 9% in 2012 to 7.7% in 2013. The result was achieved by improvement of risk management system.
RusAg’s experts believe that understanding the needs of agribusiness drives the growth. The Bank knows its clients, understands the agribusiness and factors impacting the investments.
RusAg offers investment and project finance on attractive terms, which, in its turn, creates conditions for further balanced development of Russian territories.