“Development of Siberia and the Far East. This is our national priority for the entire 21stCentury”
"We have already decided on a preferential income tax rate and a number of other taxes on new investment projects in the Far East. I consider it expedient to extend this regime to the whole of Eastern Siberia, including Krasnoyarsk Krai and the Republic of Khakassia”.
"Besides, I propose to create a network of special zones of advanced economic development in the Far East and the Eastern Siberiawith exclusive conditions for the organization of non-resource industries including the export-oriented ones.
Extract from the message of President Vladimir Putin to the Federal Assembly
Food production, like most industries, can be oriented towards domestic and export markets, and Siberia is no exception. At the same time, the domestic market volume is primarily affected by the population, though the effect on the vast territory of Siberia and the Far East is not significant, export markets for foodstuffs in Siberia remained inaccessible for three main reasons:
- Lack of export infrastructure;
- Political constraints (until recently);
- And absence of the very object of export i.e. foodstuffs (its reason - No demand, No supply)
But as time passed, the situation has changed, and so-called historical “Russia turns face to Asia” has started. And during the visit (March 2013) of the Chinese President Xi Jinping to the Russian Federation, the historic and long-awaited document between Russia and China i.e. Phytosanitary Agreement was signed. And for the first time in 15 years, China has set a course for the removal of restrictions on imports of Russian grain.
In this regard, the subject of Siberian grain exports to China and Asia-Pacific countries gained active development, especially given the increasing demand for imports. And here it is appropriate to recall the global factors and assumptions. So, today 4.6 billion people are livingin the territories of Asia-Pacific countries. And by 2025 the number of people on the planet will increase, according to various estimates, to 8.1 billion people and, again, according to various assessments, the grain shortages would leave 1.4 to 2 billion people without the required ration allowance.
And here the Russia's potential as a global player in the production and export of foodstuffs, is huge. The area of agricultural land in Russia is more than 220 million hectares (grain crops, on an average, are sown in about 45 million hectares), and the potential of the land beyond the Ural Mountains can feed up to 1.5 billion people.
* Average export volume of grain by Russia is about 20 million tons per year, while by U.S., it is about 130 million tons per year. However, only Japan's average imports are20 million tons per year.
But these impressive figures "on potential" must be viewed through the prism of efficient logistics, since the cost of the product, including delivery to the consumer should be competitive, especially given such a feature of food exports (and firstly, grain exports), as the volumes of shipment and the transport distance are substantial.
Given these factors, the main export market for the Siberian manufacturers becomes one of the largest and promising food markets i.e. the market of China, where negative trends with food self-sufficiency is observed, including a steady decline in primary agricultural production. The reason is significant annual withdrawal of arable land (desertification, salting and high soil contamination, land acquisition as part of large-scale urbanization projects and unavailability of water and, of course, super-intensive farming). The share of imported grain in feed composition: according to official statistics is 30%, while based on unofficial data is60%. As a result, high cost of feed and the cost of meat production (almost two times higher than that of similar farms in the Russian Federation).
At the same time, the annual consumption of meat in China is about 72 million tons (50 to 55 kg per person per year, with a weighted average medical norm of 82 kg), of which 65 million tons is pork and poultry with their production directly dependent on the feed. By the way, production and consumption of beef and mutton is also limited, and this is due to its high cost and with it, the need to allocate large tracts of land for pasture.
And if the political barriers are removed and the food production tightened with adequate price-based demand, the problems associated with export infrastructure and the infrastructure for acceptance, conditioning, effective storage and shipment of grain are yet to be resolved.
According to the Ministry of Agriculture, the estimated volume of elevator capacity based on the relevant norms is about 35 million tons of one-time storage (provided the crop yields are80 to 90 million tons). At the same time, according to Rosstat, the total capacity of grain storage facilities in Russia exceeds 120 million tons, but then, this includes floor and other storage facilities of grain producers, which are not meant for grain storage. The main elevator infrastructure was created in the Soviet Union in 50 to 70 years of the twentieth century, and the current average depreciation of fixed assets and equipment is 80%. In Siberia, the problems arise even with grain storage of the State Reserve and Intervention Fund of the Russian Federation, as there are no elevators conforming to the modern requirements, due to obsolescence and wear.
However, let us come back to the Project, about which I would like to tell you i.e. this is a Project for “Creation of infrastructure for the export of Siberian grain to China”:
1) At first, “Construction of a transit quarantine elevator (terminal) for transshipment Siberian grain from rail cars to the territories of Inner Mongolia Autonomous Region (IMAR). Transshipment volume in the first phase of the Project is 8 million tons per year.
2) Secondly “Creation of Logistics (elevator) infrastructure for storage and export of Siberian grain to Siberian Federal District (SFO)”. One-time storage capacity in the first phase of the Project is 5 million tons (27 line elevators)
Stated project goals are clear, achievable and, importantly, commendable:
1. Creation of conditions for the development of SFO to become commercially promising, export-oriented market for the production of grain, grain logistics and grain trading. Besides, sustainable development of agriculture and rural areas in SFO
2. Removal of restrictions from “export logistics”, both in terms of costs and direct handling of grain associated with different rail gauges and car capacity in accordance with the standards of Russia and China, eliminating through transit of cars.
3. Creation of logistics (elevator) infrastructure for storage and export of Siberian grain to China and Asia-Pacific countries.
A glimpse of the features and benefits of the Project
In light of the above, it is not easy to re-evaluate the strategic position and the importance of the Project for the development of food exports, and considering the membership in WTO, Russia will have to gradually withdraw the benefits for rail shipment of grain and the key competitive advantage of “export channel” will become the minimum distance “field –storage elevator - export elevator”. In addition, the establishment of transshipment terminal of Siberian grain from the rail cars to the territories of Inner Mongolia Autonomous Region, in this context, has unique competitive advantages, including as compared to the Far Eastern port terminals. The proposed terminal is closer by two thousand miles on land than FEMD (Far Eastern Military Ports) ports, there is no marine arm present in the vicinity of a few thousand miles, and there is no two-way transshipment of grain (from rail cars to ships and back from ships to railcars in People's Republic of China(PRC)).
Another important advantage of the Project is the possibility of solving the problems in the existing low transmission capacity of railway infrastructure in Trans-Siberian Railway. The problem is eliminated due to uniform (year-round) grain exports from Russia and seasonal storage of grain is implemented with the help of elevators (so-called line elevators), created under the Project or partnership elevators.
Grain production in SFO averages 13 to 17 million tons per year. The agricultural area is 47 million ha, of which arable land accounts for 23 million hectares, and in 2013, only 9.8 million hectares were allocated for sowing. The development of agronomic technologies, including due to lack of motivation (demand), remains at a low level, as the gross harvest totals to 1.2 to 1.8 tons per hectare, though the leading farms have gathered more than 3.5 tons of grain per hectare.
According to experts, if a transit terminal (availability of export demand) is set up, the export potential of SFO by 2020 may well exceed 8 million tons per year. At the same time, the need for PRC in the Siberian and Far Eastern grain could reach 50 million tons per year by 2025 to 2030 (Though I do not wish to state the figures in billions of dollars, I can only say that this apparently amounts to doubling the agricultural production in SFO).
The Project is multifaceted as it is being implemented in two countries (Russia and China) and almost all subjects of the Siberian Federal District. It touches upon bilateral relations and issues of food security in Russia and China. In order to achieve the intended objectives, concerted action of business, the SFO and the authorities is required.
At the same time, being radically commercial, it seamlessly combines the interests of agricultural producers in SFO, the State and international business. Besides it becomes a tool for the implementation of government, social, sectoral programs as well as the Food Security Doctrine of Russia, as crop development stimulates the development of all agribusiness in SFO - including livestock and processing industries, and logistics infrastructure. It stimulates the growth of many sectors (road and railway transportation, engineering, service, etc.) and social spheres, as well as integrated development of rural areas.
In addition, the newly discovered opportunities to create “agro-industrial special economic zones” will provide domestic agricultural producers and investors (residents of such zones) with additional income and, subsequently, with the incentives for the development of agricultural production.
In conclusion, I would like to thank everyone, including all the project participants, who believed in and supported the Project.
Special sincere gratitude and reverence to the Head of the Republic of Khakassia, the Prime Minister of the Republic of Khakassia Viktor Mikhailovich Zimin for the personal support, the national strategic vision in the preparation and promotion of the Project - Thank you so much!