Microeconomic analysis of Russian agricultural enterprises with special reference to subsidies and debts

This thesis provides a microeconomic analysis of the impact of debts and subsidies on input-output allocation and performance of agricultural enterprises in Russia in the past decade. The study uses descriptive methods, non-parametric method such as Data Envelopment Analysis, parametric regression analysis of production and profit functions and cluster analysis. The data source contains annual records of 20,000 Russian agricultural enterprises and 150 dairy enterprises in the Moscow region mainly from the period 1995-2001. During 1990-2001, agricultural enterprises kept their leading role in supplying 79.4% of agricultural output (data of 1999), accumulating 69% of labour and 85% of land recourses in agriculture and receiving most state support, thereby determining the performance of the agricultural sector. The analysis showed that subsidy policies distorted producer incentives and caused misallocation of inputs and outputs. However subsidies contributed to more efficient performance by relieving financial constraints. Although total debts in the Russian agricultural sector exceeded the profits tenfold, debts and in particular debts payable positively influenced performance of agricultural enterprises through the financing provided by input suppliers. However soft budget constraints, as excessive debt and subsidies to loss-making enterprises, displayed a negative impact on the performance. Oversized agricultural enterprises and lack of response of dairy producers to milk prices suggested that their structure and behaviour were adjusting too slowly to the new market environment. On well-performing dairy farms, higher wages, milk prices, dairy productivity and subsidies signalled better management practices in place since pre-reform times. Appropriate financing forms a crucial factor in Russian farming. The efficiency of large-scale farming in could be improved by government programs focusing on coordination of subsidy programs, promotion of labour, land and credit markets and facilitating improvement in farm management and wage increases.