On 21 September 2011, the Russian Government (GOR) approved a Forecast of Socioeconomic Development for 2012 and the planning period of 2013-2014. The report includes an overview of the Ministry of Economic Development’s macroeconomic assumptions, a summary of tax, customs and tariff, and budget policy measures planned for agriculture, as well as sector-specific production forecasts on grain, sugar, oilseeds, meat, poultry, dairy, fishery, forestry, and food retail/catering.

Summary

On 21 September, the Russian Government approved a Forecast of Socioeconomic Development for 2012 and the planning period of 2013-2014 ('the Forecast'), prepared by the Ministry of Economic Development (MED). MED develops such forecasts every year as part of the Russian government’s process of developing its three-year federal budgets, thus Russia’s budget is based on the MED forecast data. MED’s forecasts are subject to regular revisions later on; in fact, on 29 November, 2011, MED Minister Nabiullina announced that agricultural production in Russia is expected to increase by 17 per cent in 2011, above the 13.7 per cent currently projected by the Forecast. Nevertheless, the document offers a comprehensive outlook for Russia’s agricultural development in 2012-2014 as seen by the government of the Russian Federation. The report includes an overview of MED’s macroeconomic assumptions, a summary of tax, customs and tariff, and budget policy measures planned for agriculture, as well as sector-specific forecasts on grain, sugar, oilseeds, meat, poultry, dairy, fishery, forestry, and food retail/ catering.

General Information

The Forecast takes into account the goals and priorities of Russia’s social and economic development outlined by President Medvedev in his 2010 state-of-the-nation address as well as the Concept of the Long-Term Socioeconomic Development of the Russian Federation through 2020, also known as Russia’s Strategy-2020. The Forecast is based on the statistics of Russia’s social and economic development through January-July 2011 and development forecasts of Russia’s federal and local government bodies and the Central Bank of Russia. The document outlines two ‘basic’ development scenarios (moderately optimistic and conservative) and two “additional” scenarios (negative and optimistic) for Russia’s economy as a whole. For more details on each of the scenarios please see section Four Economic Development Scenarios. The Forecast recommends that the moderately optimistic scenario be used for drafting Russia’s Federal Budget for 2011-2014.

The forecast for the agricultural sector presented in the document and reported on below is based on the moderately optimistic scenario, which projects that the share of agriculture (including hunting and forestry) in GDP should stabilize at the level of 3.3 to 3.2 per cent in 2011-2014 (see Table 15 in link below).

Overall, according to MED, the Russian economy remains heavily dependent on the processes occurring in the global economy, with commodity prices, especially oil prices, being the most important factor, which largely determines stability of Russia’s federal budget and the balance of payments.

The Forecast does not make it clear if the impact of Russia’s accession to the World Trade Organization (WTO) was taken into account in the MED calculations of the outlook for 2012-2014. At the same time, the prospect of Russia’s WTO accession is mentioned in chapters covering Customs and Tariff Policy, Machine-Building Industry, Forestry and Foreign Trade and the mention in the Forestry section is made in the context of the conservative scenario, thus indicating indirectly that it is the conservative scenario that possibly takes into account the impact of the WTO accession.

Underpinning MED’s forecast for the Russian economy are assumptions of global economy growth rates (see Table 16 attached), as well as separate forecasts for major economies such as the United States, Japan, China, and the Eurozone, as well as Russia’s neighbors – the Commonwealth of Independent states (CIS) – Ukraine, Kazakhstan and Belarus. Additionally, estimates of 2011-2014 production, supply and demand as well as prices for key commodities for Russia, namely oil, gas, steel, aluminum, copper, nickel and wheat are presented in the Forecast.

Russia’s Socioeconomic Development Priorities for 2012-2014

According to the Forecast, socioeconomic policies of the government of the Russian Federation in the medium term (2012-2014) are characterised as transitional in connection with completion of the post-crisis recovery and further increased focus on strategic measures set forth in Strategy-2020. In the coming years, along with its work towards fiscal consolidation, Russia will need to lay the groundwork for furthering its longer term interests, such as establishing a modern and innovation-based economy, integrated into the global economy.

The forecast spells out the following priorities of Russia’s economic policy in the period:

• social development and investment in human capital
• modernisation of the defense industry and the armed forces
• innovative development and support of high-tech sectors
• economic diversification, infrastructure development (including modernization of agriculture and fishing industry (food industry), development of timber industry)
• balanced regional development
• improved investment climate, development of competition and reduction of administrative burden on business
• increased stability of the national financial system, reduction of the budget deficit and lower inflation
• formation of the customs union and adjustment of the national economy to the WTO requirements.

Key Policy Measures Affecting Agriculture

Key measures of tax, customs, tariff and budget policy, planned for 2012-2014, are outlined in chapter 2.3 Terms of Economic Development.

Tax policy

According to the Forecast, the government will continue raising excise tax rates on certain goods, in particular, on alcoholic, alcohol-containing and tobacco products, and alcoholic products stronger than nine per cent of ethyl alcohol by volume will be subject to faster excise tax increases compared to those containing less than nine per cent of ethyl alcohol by volume, as well as with beer and natural wines. As for tobacco products, given Russia’s official goal of reducing tobacco consumption stated in the Concept of state policy on combating tobacco consumption for 2010-2015, excise taxes on such products are set to triple from 2011 to 2014 through gradual annual increases to reach the average level of taxation of tobacco products among countries in the European Region of the World Health Organization (in terms of purchasing power of the population).

Customs and tariff policy

Since the launch of the Customs Union between Russia, Belarus and Kazakhstan in 2010, Russia’s customs and tariff policy has been subject to supranational decision-making procedures, under which the power to change the rates of import customs tariff and implement other customs and tariff measures was handed over to the Customs Union Commission. Thus, Russia’s customs and tariff policy will be determined by further development of the CU and the Common Economic Space (the next stage of the CU economic integration, facilitating the free movement of goods, services, capital and work-force, to be launched as of 1 January 2012), as well as Russia’s potential accession to the WTO.

In the short term, MED foresees rapid import growth and a consistent reduction in the trade balance. Based on the estimated dynamics and structure of imports to Russia and its CU partners, Russia’s average weighted rate of import tariff, taking into account concessions and preferences, is expected to decrease gradually from 9.64 per cent in 2011, to 9.5 per cent in 2012, 9.33 per cent in 2013 and 9.15 per cent in 2014. MED also expects that in case of WTO accession, Russia’s average weighted import tariff will decrease an additional 0.8 percentage points from the first of year of the new tariff’s implementation.

In the medium-term, Russia customs and tariff policy will be driven by the needs of economic modernization, including by means of customs and tariff mechanisms that could stimulate the growth of competitiveness of the national producers in the domestic and foreign markets. Hence, the following measures are planned in this area:

• Customs tariff escalation, improvement of its structure and other quality parameters
• Introduction of new subheadings in the foreign trade commodity nomenclature for the purpose of differentiating the rates of import tariff on import sensitive goods
• Rapid response with customs and tariff policy measures to the opening or protection of markets for certain goods in case of economic feasibility
• Complementary application of customs and tariff policy instruments and special safeguard measures for domestic market protection given the transfer to the supranational level of authority to conduct investigations and implement of anti-dumping, safeguard and countervailing duties
• Improvement of the CU system of tariff preferences
• Development of a unified procedure for the application of exemptions from the customs tariff for certain categories of goods imported to the CU
• Improvement of the rules of origin of goods in the CIS
• Complimentary application of state policy measures in the field of agriculture and the use on the agricultural market of the customs and tariff regulation instruments that have proven effective both in Russian and international practice.

Implementation of the stated priority customs and tariff policy measures in their entirety will be subject to stabilization on the domestic and world markets. MED notes that in case of an increasing risk of a new global financial crisis, the use of protectionist measures may be required.

According to MED, accession to the WTO will not change the main priorities of Russia’s customs and tariff policy. However, WTO membership will establish strict limits for the tariff policy:

• All tariffs will be bound
• Since Russia’s tariff in force in 2002-2006 was used to establish Russia’s ceiling rates, many import tariff rates will go back to their pre-crisis level
• There will be a gradual liberalization of tariffs on most industrial goods, as well as a number of agricultural and food products.

In these circumstances, regulation of foreign economic activities should focus more on non-tariff measures, including safeguard and anti-dumping duties. Further improvement of customs administration, as well as employment by the customs authorities of the new forms of work, compliant with the standards and rules of the international trade system will also be needed.

As for export tariffs, in the medium term it will continue to perform its narrow regulatory functions, including removal of the rental component of the resource revenues to the budget. At the same time, the government will develop proposals to increase the fiscal component of the export duties on the globally traded commodities (other than oil and oil products) that are subject to significant price fluctuations.

Budget policy

Measures of state support outlined in the State Program for Development of Agriculture in 2008-2012 play a key role in creating a value-added agricultural sector. The goals of the Program include creation of conditions for the introduction of modern technologies, improvement of agronomic culture and infrastructure.

As a consequence of the financial and economic crisis, the drought, and intense competition from imported products there is a noticeable gap between the main parameters of the State Program for Development of Agriculture in 2008-2012 and the actual indicators of the agricultural sector development. As a result, agricultural production will grow an estimated 14 per cent in 2012 over 2008, below 21.7 per cent that was targeted for the period by the State Program. Production of milk is significantly behind the State Program target, while the share of Russian meat and meat products production in the total supply in 2012 may exceed the target by 5.2 percentage points.

A significant factor in shaping the environment and targets of agricultural development should be the launch in 2013 of a new state programme for development of agriculture until 2020. In addition to the traditional instruments of state support, a number of new measures will be added, including development of small businesses, support for development of agricultural processing industries, development of infrastructure and logistics for the agri-food market, development of land reclamation and others. The new state programme envisages new approach to the state support with an emphasis on comprehensive sub-programmes for individual sectors, covering all stages of the technological process from production to sales and focusing on the final demand for finished products.

Federal funding of agricultural development is estimated to total at least 125 billion rubles (RUB; about US$4.2 billion) in 2011, at least RUB130 billion ($4.3 billion) in 2012, and RUB118 billion ($3.9 billion) a year at a minimum in 2013-2014. These numbers are 20 to 30 per cent below the needed level due to budget constraints, hence the share of state support for agricultural organizations and private farms in relation to the volume of their production tends to decrease (8.6 per cent in 2010 versus 5.8 per cent in 2014).

Government support will continue to focus on the interest-rate buy-downs for agricultural producers. However, in the medium term, the scale of subsidies will slowly decrease as new support mechanisms will be employed to target the increase of marketability of production (e.g. subsidizing production of one litre of marketable milk with the relevant quality characteristics) and increased access to capital for farmers (mortgage operations).

Agriculture

According to MED, growth of Russian agricultural production in 2011 is expected to surpass the level reached in 2009, thus compensating for the losses caused by the 2010 drought. Agricultural production in 2014 should increase by 15 to 21 per cent over 2010, given the low base effect.

MED believes that stable growth in real incomes, external demand, and realization of export potential (the use of competitive advantages) create a favorable environment for sustainable growth of the agricultural sector, improvements in its efficiency, and import substitution.

MED identifies the following key factors determining the projected dynamics of the agricultural sector in 2012-2014:

• increased demand due to growth in real disposable incomes
• implementation starting in 2013 of a new State Program for Development of Agriculture and Regulation of Commodities Markets, including measures to support key sectors of the food industry and develop land reclamation, infrastructure and logistics for the agri-food market
• development of the agricultural sector of the economy with the help of considerable state support
• application of innovative technologies and modernization of the processing industry
• rapid response by the government to changes in the agri-food market
• realization of the export potential of the food industry
• development of relations within the Common Economic Space.

Measures of innovative development of agriculture will be reflected in the strategy for innovative development of agriculture and a programme for development of biotechnology in the Russian Federation until 2020 (BIO 2020), which will create the preconditions for high-quality technological change in agriculture. Technological change and the new state support measures will have a stabilizing effect on the domestic market and will be a factor for attracting investment in agriculture.

In addition, MED says that according to FAO estimates, the continued trend of high-level prices for agricultural products on the global markets will create incentives for investments in production. The global price trends will affect the price situation in the Russian agricultural sector, which is integrated into the architecture of the global market. Besides, domestic prices for agricultural products will remain high in connection with the planned increase in prices of ‘natural monopolies’. Prices of producers of agricultural products could rise by 20 to 30 per cent.

At the same time, according to MED’s Forecast, investment in agriculture will fail to reach the pre-crisis levels, totalling only 85.1 per cent of the 2007 level in 2014, due to continuing influence of the factors that inhibit investment growth, such as the effects of the financial crisis, financial losses due to the drought, and a lack of available markets.

In the crop sub-sector, dependence on climatic conditions results in the permanently high level of volatility of its growth rates. The drought in 2010 forced the government to reconsider the priorities of the state support and allocate federal funds to restore the land reclamation system of the country starting in 2013. MED believes that in the future, the land reclamation activities should help partially neutralize the effect of climatic risk in agriculture.

Grain

Following the drought in 2010 that severely affected the grain harvest and prompted a ban on grain exports, which lasted until the new marketing year (1 July 2011), Russia’s grain exports in the 2010/2011 marketing year totalled 3.9 million metric tons (MMT), according to MED.

MED notes that the growth of domestic prices for grain in the second half of 2011 was constrained by Russia’s high carry-over stocks of grain, as well as reduced prices on the global market in anticipation of exports of the Black Sea and Kazakh grain. According to the Ministry, the expected grain harvest of 92MMT should also have a stabilising effect on the domestic grain market, and it has already led to a significant drop in prices and a widened gap with global prices. Taking into account the potential effect of purchasing interventions and export support, the domestic price for wheat (EXW, elevator) at the end of 2011 is expected to reach RUB5,300 (about $180) per metric ton (although it can be significantly lower in some regions of Siberia and the Urals).

In the medium term, MED expects Russian grain exporters to regain their positions in global trade, which were lost during the export ban. According to MED, Russia’s grain production could increase 1.6 times (up to 100MMT) in 2014 over 2010 and export volumes should stabilize at the level of 20-25MMT. In the case of unfavourable external economic conditions, natural anomalies and high production costs, MED forecasts that Russia’s grain harvests in the medium term will not exceed 90MMT on the average.

Production of flour and cereals is expected to grow moderately in the forecast period, increasing in 2014 over 2010 by 4.6 per cent and 4.7 per cent, respectively. Development of the market is driven by demand from the bakery and confectionery business, as well as catering and retail sectors. Exports of flour are expected to increase substantially, as its export potential exceeds the current level several times.

Sugar

MED notes that in 2011 the sugar beet industry saw an unprecedented expansion of sown area, triggered by the high prices of the previous period and the restoration of productivity to long-term averages. These were the main factors behind the expected record-high harvest of sugar beets (about 37MMT) in 20 years. According to MED, expectations of a large harvest form the downward price trend for sugar and sugar beets. Prices for sugar beets may drop by an estimated 15 to 20 per cent compared to the previous season, which will have a negative impact on the ability to maintain the acreage in 2012 at the 2011 level.

The record-high harvest of sugar beets in the current season has lead to a new record for production of beet sugar – 4.4MMT, or 65.7 per cent of the total sugar production. Given the growth in imports of raw sugar as a result of early introduction of a lowered rate of import tariff on raw sugar of $50 per MT, which also caused an increase in the raw sugar production, MED expects Russia’s total sugar production to rise by 41.4 per cent in 2011. As a result, according to MED’s Forecast, sugar stocks will be high, pushing wholesale prices down, and a large supply of the product on the market could lead to a reduction in the sugar production in 2012.

MED lists the following fundamental factors of investment attractiveness of the beet sugar production:(/p>

• the programme for development of the beet sugar complex (including interest rate subsidies for the construction and modernisation of sugar refineries and the construction of the seed processing facilities, partial compensation for the costs of mineral fertilizers and crop protection chemicals)
• the budget support measures
• the current raw sugar import regime
• the producers’ interests in obtaining optimal profitability associated with the marketing of beet sugar.

In the medium term, MED expects that the trend towards redistribution of production in favour of beet sugar production will strengthen. Further plans to increase sugar production will be interlinked with the expansion of exports to the CIS countries and Central Asia.

Oilseeds

MED believes that high margins on oilseeds continue motivating agricultural producers to cultivate them. According to MED’s Forecast, a bumper crop of around 8MMT of sunflower seeds was expected in 2011 due to a substantial expansion of cultivated areas. The expectation of a large harvest of oilseeds in 2011 coupled with the commissioning of new refining capacity should support the production of vegetable oils at a high level, which will help increase exports of finished products.

The demand for rapeseed and soybeans from the global market and the livestock industry, together with the favourable pricing prospects, signal the need to increase production of these agricultural products.

In the medium term, underutilised production capacity and the desire of industrial enterprises to increase their global market share of sunflower oil will keep up their interest in cultivating sunflower seeds. As a result, under favourable conditions, Russia’s production of sunflower seeds will probably not fall below 7MMT a year.

Production of oils from seeds will increase by 13 to 22 per cent in 2014 over 2010, depending on the projected harvest of oilseeds, while exports are expected to increase by a factor of 1.7 in 2014 over 2010. Sunflower oil imports are constrained by the availability of domestic supply, which almost completely satisfy the needs of domestic consumers.

Animal products

In the medium term, MED expects animal products to have slight majority in the structure of Russia’s agricultural production with a share of 52 per cent. Production of animal products is projected to grow by 10 per cent in 2014 over 2010. Conservative scenario developments in the sub-sector are possible in the cases of unfavorable external market conditions and existence of epizootic risk. The risk of African swine fever continuing to spread in the future means loss of livestock, quarantine of territories, and disruption of trade.

MED believes that a significant price increase is unlikely given ‘some global overproduction’ of certain animal products (poultry, milk) in 2012. The Ministry forecasts that in 2013-2014 prices for animal products may start outpacing inflation rates due to an increase in demand (for red meat and high quality dairy products), and also because of the rise in price of feed, should grain prices rise. Besides, according to MED, the upward trend in the global prices for animal products may increase, particularly in case of continued growth of energy prices.

Meat and poultry

MED estimates that production of livestock and poultry for slaughter (in slaughter weight) should grow by 4.9 per cent year-on-year (y-o-y) in 2011, mainly due to production of poultry and pork benefiting from an expected decline in imports and consumption growth.

Table 6. Meat and Meat Products Supply and Distribution, MMT

The Ministry states that in the future, given the ‘saturation’ of Russia’s meat market, insufficient infrastructure and existing problems with sales, production growth in key sub-sectors of livestock production will slow down. In particular, production of poultry and pork in 2014 over 2010 should grow by 33 per cent and 21 per cent, respectively (for comparison, poultry production increased 1.8 times in 2010 over 2006, and pork, 1.4 times).

MED hopes that extensive production growth should give way to its intensification, aimed at meeting market demand, both in volume and in quality. According to MED, ‘saturation’ of the market with pork and poultry products will signal producers to redirect investment flows into construction of infrastructure facilities, technology improvement and market research.

MED’s Forecast stipulates that the rising cost of grain will affect poultry and pork production costs (in particular, at technologically weak companies and private farms), while prices on these products will be constrained by consumer demand and supply of imported products. As for a government policy measure, over the medium term, the mechanism of meat quotas will remain in place, narrowing the market for imported products. MED expects that the share of pork imports in its supply in 2014 will account for 17.3 per cent versus 25 per cent in 2010; for poultry, 8.3 per cent versus 18.2 per cent.

Despite the recovery of consumer demand and significant government support, production of cattle is estimated to decrease by 2.3 per cent in 2014 over 2010. Thus, the share of cattle in the structure of livestock and poultry production should be redistributed in favor of pork and poultry.

Dairy

According to MED, in recent years, Russia’s dairy sector was subject to a number of negative factors that affected its development, in particular, increased competition from imported dairy products. MED notes that decline in consumer demand due to the crisis, growth of production costs, significant seasonal fluctuations in prices of milk, and a drought, which has reduced the number of cows due to increased feed costs affected milk production in 2011 and will continue to affect it in the medium term. Milk production is expected to decrease by an estimated one per cent in 2014 over 2010.

As a result of increased cattle costs, MED expects that the tendency to reduce the number of cows will persist, especially in households, which account for a significant share of milk production among all types of entities (45 to 48 per cent). In recent years, there has been a significant increase in milk yields as part of production intensification. However, growth in milk yields per cow does not compensate for the decline in milk production, which occurs due to reduced cow numbers.

The decline in milk production and increased production costs have led to a higher production cost per litre of milk, which affects the entire food production chain. One of the tools for maintaining price stability in the dairy market is an agreement among producers and processers that agreed mutually acceptable minimum and maximum price levels for raw milk, which should help smooth out seasonal price fluctuations in the future.

Renewed growth in consumption of dairy products after the crisis coupled with a deficit of domestic production of raw materials in the medium term will determine the growth of imports, mainly from the CIS countries, which enjoy a free trade regime. The share of domestic dairy products in total supply will go down from 76 per cent in 2010 to 74 per cent in 2014. Per-capita consumption will increase from 245kg in 2010 to 249-250kg in 2014.

The situation on the world dairy market indicates that prices are not expected to decrease. However, despite the expected increase in prices on the global dairy market, imported goods will be cheaper than domestic product, and there will still be a gap between domestic prices and import prices of dairy products, which affects Russia’s production of dairy products.

Fishery sector

Russia’s fishing industry continued to operate in the new environment that was formed in 2008-2009 when a number of legislative acts determining the industry’s development in the mid- and long-term were adopted. The government policy has not only allowed the stabilization in the industry but also created conditions for increasing the domestic production of fish products.

In 2011, Russia’s catch (harvest) of aquatic biological resources is expected to grow 1.8 per cent y-o-y, to 4,100 metric tons (MT), while production of processed and canned fish and fish products should increase by 5 per cent y-o-y, to 3,570MT. According to preliminary estimates, average per-capita consumption of fishery products will rise to 17.3kg in 2011, up four per cent y-o-y.

Development of the fishing industry in the forecast period will be supported by implementation of the federal target programme, Improving the efficiency and development of the resource potential of the fishery complex in 2009-2014,” and from 2013 – by the “State program for development of the fishing industry until 2020”.

The main directions of economic policy in the industry are:

• rational use of available production capacity
• financial turnaround of enterprises of all types of ownership, revitalization of the domestic commercial shipbuilding industry
• development of far-off fishing, including beyond the exclusive economic zone of the Russian Federation
• development of aquaculture.

Development of the fishing industry in the medium term will be achieved through a series of measures designed to:

• further improve the mechanisms of sustainable and long-term management of aquatic bio-resources
• ensure the necessary state support in the area of reproduction and protection of aquatic bio-resources, safety of navigation, research, comprehensive measures for development of artificial reproduction of aquatic bio-resources and aquaculture
• support enterprises through interest-rate buy-down loans for construction, acquisition, and modernisation of fishing vessels
• maximise the use of leasing for fishing fleet renewal
• develop instruments of customs tariff regulation for imports of marine equipment, processing equipment, fishing equipment, and equipment for aquaculture
• expand international cooperation on fishery and create conditions for development of the domestic market of fishery products.

Under the forecast, Russia’s fish catch should grow to 4,860 MT in 2014, up 20.7 per cent over 2010. Production of processed and canned fish and fish products is estimated to reach 4,164 thousand MT in 2014, up 22.5 per cent over 2010.

Exports of fishery products have been growing at a moderate pace so far this year and are expected to hit 1.7MMT in 2011, up 5.5 per cent y-o-y, reaching 2.0MMT in 2014, up 23.2 per cent over 2010. Simultaneously, imports of fishery products are declining and are estimated to fall to 980,200 MT in 2011, down 1.4 per cent y-o-y, and to 937,700MT in 2014, down 5.7 per cent over 2010. The physical volume of fish imports has been reducing due to a decrease in imports of frozen herring and mackerel. At the same time, the share of imports that are in fact re-exports will remain stable due to long-term contracts between domestic fishing companies and foreign investors, as well as different levels of labor costs.

Current economic policy and implementation the federal target program as well as the drafted state program for the sector until 2020 will contribute to achieving the following indicators:

Fishing industry development should focus on such priorities as catch of aquatic bio-resources in the open part of the oceans and inland waters as well as commercial cultivation.

At the same time, as MED notes, given that the industry’s production depends on natural resources (aquatic resources) that are heavily influenced by the natural environment as a whole and have cyclical growth of population that cannot always be accurately projected, a reduction in the number of key commercial species of aquatic bio-resources is likely. This can affect both the catch and production of fish products. Similarly, in case of insufficient state support for the industry, the rundown state of fixed assets, particularly in the fishing fleet, and a lack of investment resources in the majority of companies, will not allow the industry to achieve the planned growth in the coming years. Under this scenario, fish catch would not exceed 4.3MMT in 2014, up 6.0 per cent over 2010, while production of processed and canned fish and fish products would total 3.7MMT in 2014, up 9.0 per cent over 2010.

Food retail and catering

According to MED, despite the growth in Russia’s per-capita consumption of certain foods, such as meat and meat products, milk and dairy products, vegetable oils, vegetables and fruit, Russia lags far behind developed countries in this indicator. For meat and meat products, Russia’s per-capita consumption is less than half the United States, 1.5 times less than in France and Austria; for fruits, less than half the United States, the Netherlands and Germany.

The structure of sales of food products in 2012-2014 will be changing in favour of more expensive products. Thus, the share of meat and poultry, fish products, cheese, vegetables, fruits, and berries will increase at the expense of bread and bakery products, alcoholic beverages and sugar.

Despite the downward trend, the share of sales through retail and open-air markets in the structure of retail trade turnover will remain quite high in the forecast period, totaling about 10 per cent of the turnover of food products. Some Russian regions plan to build new agricultural markets, which should help increase sales of domestic agricultural producers.

Four Economic Development Scenarios

The moderately optimistic scenario reflects a relative increase in competitiveness of the Russian economy (demonstrated by a stronger trend towards import-substitution) and improved investment climate with a moderate increase in government spending on infrastructure and human capital in 2013-2014. The scenario is based on relatively favourable assessments of external conditions: the global growth recovery rate of 3.7 to 4.0 per cent per year and the stabilisation of prices for Urals crude in the range of $97 to $101 per barrel. Russia’s GDP growth in 2012-2014 is expected at 3.7 per cent to 4.6 per cent.

The conservative scenario implies the preservation of low competitiveness in relation to imports and lack of capital inflows amid slow recovery of investment activity and a reduction of real government spending on development. Under the conservative scenario annual growth rates of the Russian economy in 2012-2014 are estimated at 2.8 per cent - 3.8 per cent, which is below an expected rate of growth of the world economy. Further versions of the scenario with different dynamics of oil prices and global growth have been developed but they are not presented in the Forecast.

The negative scenario is characterised by deterioration of the dynamics of the global economy (on the verge of stagnation in developed countries), although it does not involve the resumption of the recession. Under these circumstances, the price of oil is expected to decrease to $ 80 per barrel in 2013. Given the high dependence of the Russian economy on external economic conditions, this scenario exacerbates the risks of stability of the banking system, the balance of payments and the overall level of confidence of economic agents. Russia’s economic growth is expected to slow to 1.5 to 2.5 per cent in 2012-2013 and to 3.7 per cent in 2014 – with a significant weakening of the ruble. An additional version of this scenario, implying the resumption of global recession and the fall of oil prices to $60 per barrel in 2012 was considered. This additional scenario (which is not included in the Forecast) could see Russia’s GDP contract by 0.5 per cent to 1.4 per cent with a significant devaluation.

The optimistic scenario reflects the continuation of relatively high rates of the global economic growth and oil prices in 2012-2013 at $105 to $109 per barrel with an acceleration of growth to $113 per barrel in 2014. Under the scenario, Russia’s GDP in 2012-2014 may grow up to 0.2 percentage points faster than the baseline moderately optimistic scenario and range between 3.9 per cent and 4.6 per cent per year.

Further Reading

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December 2011