1ST DEPUTY PRIME MINISTER GIVES

UNCLAS MOSCOW 000817 SENSITIVE SIPDIS USDA FAS FOR OCRA/KUYPERS, NENON; OSTA/BEAN, HAMILTON, HAXTON; ONA/TING, SALLYARDS PASS FSIS DUTROW, HARRIES PASS APHIS TANIEWSKI STATE FOR EUR/RUS STATE PASS USTR FOR CHATTIN, HAFNER, S MURPHY BRUSSELS PASS APHIS/FERNANDEZ VIENNA PASS APHIS/MITCHELL E.O. 12958: N/A TAGS: EAGR ETRD ECON WTO RS SUBJECT: 1ST DEPUTY PRIME MINISTER GIVES INTERVIEW ON AGRICULTURE SENSITIVE BUT UNCLASSIFIED ¶1. (SBU) SUMMARY: First Deputy Prime Minister Viktor Zubhkov gave a rare interview on March 31 to leading daily newspaper "Izvestia" on agricultural issues. Zubkov is responsible for overseeing overall agricultural development in Russia and implementation of the national priority project in agriculture. The protectionist comments made by Zubkov are at odds with the commitments made by Russian negotiators in WTO accession talks. END SUMMARY. ¶2. (U) BEGIN INTERVIEW: Question: One of the priorities of the current anti-crisis plan is to support demand for domestically-made products. What products or services are considered as priorities? Answer: Under the current circumstances, it is more expedient to produce locally and pay in rubles than to buy imported goods. Now that the dollar has become stronger, prices have grown dramatically. Thus, domestic production of foodstuffs is much more economically feasible today. We are also happy to notice that agricultural manufacturers are now willing to increase output. What we need to understand here is that the demand for foodstuffs is a daily indicator and it does exist. Question: What actions are planned in order to stimulate this demand? Answer: Loans, first of all. We have calculated the needed volume of loans for the agricultural sector this year, and we have agreed this volume with all banks in advance: about 900 billion rubles ($25.6 billion). In the first two months of the year, 120 billion rubles ($3.5 billion) have already been issued. This is a very good sum. Secondly, there are plans to increase the authorized capital of Rosselkhozbank (Russian Agricultural Bank) by 45 billion rubles ($1.3 billion) this year and then to increase the authorized capital of Rosagroleasing by 25 billion rubles ($735 million). This will allow agricultural producers to buy combine harvesters, fodder producing machines, cars, tractors, and pedigree livestock. Thirdly, mineral fertilizers. This is the first time ever that �0A;agricultural producers and producers of mineral fertilizers have entered into an agreement. And they have fixed the price formula for spring (until June). Prices will be also fixed for autumn. The same goes for fuel. For instance, prices for petrol and diesel fuel have been fixed at the lowest market level since January 15 - about 13,000 rubles ($383) per metric ton of AI-76 petrol and about 13,300 rubles ($391) per metric ton of diesel fuel. Question: And still, will it be possible to ensure sufficient supply of locally produced foodstuffs? After all, about 40 percent of our foodstuffs are now imported. Answer: That's right. For now we cannot fully provide enough food for ourselves. And this is not going to happen this year or the next. Of course we are not satisfied with our processing facilities; many of them are outdated and obsolete. But upgrading is under way, and we have a few powerful enterprises we can rely on. There is determination and certainty that this year, despite the recession, agricultural output will increase. We reduced meat import quotas from the United States and other countries by half a million tons! This means we will produce an additional 300,000 metric tons of poultry meat and 200,000 metric tons of pork domestically. We count on getting the required volume of grain yield. Considering that over 8 million metric tons of food wheat and fodder grain have been purchased for the intervention fund, we will have the capacity to influence both the bread products market and the livestock market. -------------- --- "If We Open Our Market, We Will Lose Everything" -------------- --- Question: At first Russia says that protectionism is bad, and then it introduces barrier (higher duties) for certain imported products. How can these things go together? Answer: The Russian government does not apply any tools that are not applied in countries with unquestionably liberal economies. To a certain extent, every country is now taking measures to protect its market under the crisis conditions. But in the West, double standards thrive. They claim to reduce State support, but in fact, they do the opposite by increasing it. And they are so deft in doing this, that their prices are always a ruble or two below ours. For example, we produce great herring, but it costs, say, 33 rubles, while they can offer it for 29 rubles. Surely retailers will buy foreign herring, because the price is 4-5 rubles lower. Question: Then maybe we should open our market to cheap foreign products. Answer: We could open our market, but we must understand and forecast the consequences. I am not at all sure that "cheap" foreign products are what we will get. It is just the first impression that imported foodstuffs will be cheap. Retail prices will be the same. And with the current ruble exchange rate, it will be even higher than the price of domestic products. But I can assure you that the quality of foodstuffs bought at rock bottom prices will be doubtful, and this will affect people's health. Besides, in this case we will support the economy of other countries instead of the Russian economy, so we will lose everything - in terms of industry, economy and social sphere. Question: In this case, how do we turn the situation to our advantage? Answer: Our number one priority is to develop domestic production and improve the quality of our products: better processing, good packaging, conformance to local standards. How can local goods drive out foreign competitors? The answer is simple: by changing domestic standards. This is what happened in Hungary. They adopted a law, introduced standard contracts, 30 day deadlines to pay for delivered goods, technical regulations for all types of foodstuffs - and that's it: no chances left for foreign products. And this is exactly what we should do. END INTERVIEW. ¶3. (U) Also on March 31, The Moscow Times newspaper published a report in which Zubkov announced at an extended panel session at the Ministry of Agriculture that Russia may allocate an additional 72 billion rubles ($2.1 billion) toward domestic dairies and meat producers to curb Russia's dependence on imported food products. "We have raised the question of allocating 72 billion rubles this year for the construction of new and the restoration of already working dairies and meat producers and Prime Minister Vladimir Putin also supports this initiative. We must come out of this year with a greater volume of domestically produced milk and meat." -------------- Meat and Dairy Imports -------------- ¶4. (U) Russia is heavily dependent on meat and dairy imports. In 2008, the country imported 1.6 million metric tons of beef and pork - more than half of the 3 million metric tons it produced domestically. In the same year, Russia's milk production - 32.4 million metric tons - only increased 0.5 percent from 2007. Dairy imports, however, were up 38.5 percent year on year to total 19 million metric tons in 2008. ¶5. (U) New Minister of Agriculture Elena Skrynnik has stated that the GOR will increase domestic production capacity this year, and all "unfinished investment projects" in the animal- breeding sector will be completely restored in 2009 for about 74 billion rubles ($2.2 billion). Skrynnik said that the Ministry of Agriculture plans to create 50 new small "family milk farms" to support the sector and create jobs in Russia?s farming regions. The family farms, each to be equipped with about 100 head of dairy cattle, will be responsible for producing, processing and delivering milk to local customers and businesses. -------------- COMMENT -------------- ¶6. (SBU) In recent WTO talks held in Geneva, Russian negotiators confirmed that Russia will adopt international standards as described in the Sanitary and Phytosanitary (SPS) Agreement from the date of accession and abide by the free trade principles embodied in other WTO agreements. Russian negotiators also indicated that the GOR is in the process of harmonizing its SPS and agricultural trading standards with international norms. However, as Zubkov's protectionist comments make clear that some senior government officials are not keen to see Russia abide by international trading norms in the field of agriculture. In that regard, it is especially troubling that Zubkov stated that cheaper imported agricultural products are of lower quality and may pose a health risk to Russian consumers, and that Russia can keep out imported agricultural products by imposing domestic veterinary and food safety standards that trading partners would have great difficulty in meeting. BEYRLE