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
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.

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"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."

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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.

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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