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. Last Updated: 07/27/2016

Farming: Bottomless Pit for State Subsidies

FEDOROVKA, Southern Russia -- Alexander Deineka boasts that his collective farm made a healthy profit last year -- but then he sheepishly admits that the kolkhoz is broke.

This twisted contradiction of economic logic is common at Russia's 27,000 state and collective farms that, on the whole, find themselves unable to adjust to the free market.

"It's a paradox," said Deineka, director of the Michurin Farm 1,200 kilometers south of Moscow and just five kilometers from Ukraine. "We have a profit but we have no money."

The poverty here and at other former state farms does not stem from lack of government largess. Last year, more than a third of government spending went to direct and indirect support of agriculture, according to Yevgenia Ferova, an advisor to Russia's agriculture minister.

That figure is the highest percentage for any major country, experts say, yet this year, the farming sector, led by an aggressive Agrarian Party in parliament, is pushing for even more aid with a special package of 14 trillion rubles topping the usual subsidies.

Opponents of the increased aid say it will further fuel inflation and give little real help to Russia's faltering farms. But where then, does all the money go?

The answer, experts say, is that Russian agriculture hemorrhages money through sheer waste. An estimated 30 percent of all farm crops and other outputs are wasted because of they rot in storage and transportation. But on every step of the way before harvest, tractor fuel, fertilizer and equipment are also squandered. "In the old system, inputs were so terribly cheap that they were almost free," explained Ingemar Nilsson, agricultural counsellor at the Swedish Embassy.

Even today, down on the Michurin Farm and in the regional government offices in Rostov-on-Don 100 kilometers away, few officials are talking about improving efficiency. Rather, a lot of the discussion has a distinct ring of the past.

"On the whole, we have followed the outlines of the five-year agriculture plan," said oblast Deputy Governor Vladimir Grebenyuk, apparently forgetting that five-year plans went out of style with Communism's fall.

Still, he can hardly be blamed for thinking of old times when he looks at today's collective farms. Although many of the kolkhozes and sovhozes created under Stalin after 1929 have been privatized, most have changed little more than their names, agriculture experts say.

The very name of the Michurin Farm honors a Stalin-era scientist, Ivan Michurin, whose so-called success in improving farm output is considered a fraud today.

At the 800 person-strong Michurin Farm, government subsidies and loans covered over 20 percent of their 1.3 billion ruble operating expenses for 1993, creating an paper profit of about 100 million rubles, Deineka said.

Yet he is still waiting for the local slaughterhouse, dairy and other middlemen to pay 300 million rubles in past bills -- party of another major leak for government farm subsidies to escape. The middlemen, in turn, plead insolvency because the stores they stock are not paying them."In 1992, the problem was that consumers did not have money for more expensive produce," Ferova said. "Last year, they have shown they are willing to pay, but money is not returning to the farms."

Where, then, is the money that stores earn from customers? Russian officials say many enterprises are dabbling in tricky accounting practices such as buying new inventories of Snickers or paying their gas bills rather than paying back the farms.

"In the United States or Europe, such enterprises which do not pay will go bankrupt," said Ferova. "Yet we can't switch on the mechanism of bankruptcy in this situation because everyone will go bankrupt."

Since the entire system is flawed, Deineka has not been forced to find buyers who will pay him promptly for his cows, chickens, pigs, milk, fruits and vegetables. So he maintains links with delinquent, formerly state-owned middlemen.

"I must ship my milk somewhere quickly or it will spoil, so I am forced to take it to the local monopolist," said Deineka, whose gently sloping farmland enjoys some of the most productive soil and weather conditions in Russia.

For Deineka and many farm managers nationwide, the solution to their cash crisis is more government help. Yet others say pumping in more cash is fruitless.

"Subsidizing Russian agriculture," Nilsson said, "is like shoveling money into an oven -- it just burns it and the money is gone."

Even private farmers -- who till only 6 percent of the nation's farming land -- are looking toward the government as the solution to their problems.

"Half of the private farmers in the oblast do not have enough equipment such as tractors, fertilizers and storage silos," said Viktor Kolesnik, vice president of the local AKKOR, an association of private farmers. "We need cheap credits from the government."

Kolesnik, along with both Russian and foreign experts, agree that eventually the government must force farms, middlemen and stores alike to pay their debts or face bankruptcy.

Yet in Fedorovka and Rostov, farmers and state agriculture have little patience for such free-market solutions.

"The agro-industrial complex in our oblast lives and will live!" proclaimed deputy governor Grebenyuk.