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HSE completed S&T Foresight Study for the Agricultural Sector 2030

The RF Ministry of Agriculture approved the findings of the S&T Foresight Study for the Agricultural Sector 2030 conducted jointly with HSE. Preliminary results were reviewed at a meeting of the Government Commission on the Agricultural Sector and Sustainable Development of Rural Areas chaired by Prime Minister Dmitry Medvedev on 13 December, 2016. Leonid Gokhberg, HSE First Vice Rector and ISSEK Director, comments on how realistic the scenarios included in the study are, what Russia should be preparing to, and how HSE is helping to advance the Russian agriculture.

How the study was conducted

The study was quite innovative, not just because of the subject area but also in terms of methodology and tools applied. For the first time ever, along with conventional analytical tools, forecasting models, and expert-based studies, cutting-edge Big Data, semantic, and network analysis techniques were applied to the full extent. This allowed to review thousands of relevant materials including normative acts, reports, and forecasts prepared by international organisations such as the OECD, the UN Food and Agricultural Organisation (FAO), the United Nations Environment Programme (UNEP), the World Bank, the UNIDO, relevant government ministries and agencies of various countries, major corporations, leading R&D centres and universities, consulting and analytical agencies.

The current state of the Russian agricultural sector was analysed using results of specially conducted HSE studies (including specialised surveys of agricultural companies, and polling of leading experts specialising in the industry), information provided by the RF Ministry of Agriculture, Rosstat, Ministry of Economic Development, Ministry of Education and Science, Federal Agency for Scientific Organisations (FASO Russia), Vnesheconombank, etc. Before the findings of the S&T Foresight Study were approved by the Ministry of Agriculture they were presented and discussed at major international fora with participation of leading international experts, some of them hosted by HSE.

The agricultural sector today, and Russia’s place in the global market

By the end of 2015 global agricultural output has reached $6,150 billion, and global agricultural exports — $1,250 billion. Russia’s share, in global agricultural production ($80 billion) and exports ($16.2 billion) alike, amounts to about 1.3%.

The agricultural sector plays a significant role in the Russian economy; it accounts for up to 6% of the country’s GDP and employs 9.5% of its workforce. Agricultural output in 2015 has reached 5 trillion roubles. Exports of agricultural products and raw materials (except textile) generated 4.7% of the total customs revenues in 2015. At the same time the AS has a significant multiplicative effect over the economy; each rouble invested in agriculture is estimated to return up to 4-5 roubles in related industries.

The Russian agricultural sector remains highly resistant to economic recession, and keeps steadily growing

The Russian agricultural sector remains highly resistant to the economic crisis, and steadily grows. Its output growth (40% in 2005–2015) is comparable to such countries as Brazil and India. In 2016 the sector grew by 2-3%, which allows to speak about its serving as a socio-economic buffer softening adverse cyclic effects of economic development. The share of loss-making agricultural companies has dropped from 41.7% in 2005 to 12.4% in 2015.

In gross production output terms, the Russian AS is one of the largest in the world. According to 2015 data Russian producers meet up to 99% of domestic demand for grain, 97% for potatoes, 84% for vegetable oil and sugar, 85% for meat and meat products, 81% for milk and dairy products. For most positions, the targets set in the RF Food Security Doctrine were exceeded.

The Russian AS is export-oriented, and in many aspects globally competitive. Russia has the strongest position in the global grain market. According to the US Ministry of Agriculture, Russia’s share of the global wheat exports grew from 4% in 2001/2002 agricultural season to 14% in 2014/2015. Russia is one of the world’s largest exporters of mineral fertilisers (the third biggest Russian export after energy and metallurgy products).

Capital assets’ depreciation in the agricultural sector (36.6% at the end of 2014) is lower than the average for the Russian economy (47.9%). This is primarily due to accelerated modernisation of animal farming complexes. At the same time agricultural companies’ access to relevant machinery is decreasing. In 2010–2014 the overall pool of tractors and combine harvesters has shrunk by 16-20%, and the total number of forage harvesters and ploughs – by 25%.

Labour supply for the Russian AS is higher than in developed countries, but low level of qualifications creates a number of serious limitations which contribute to emergence of structural unemployment in rural areas. During the previous three years labour productivity in agriculture grew on average by 4% a year. This is reflected in growing wages in the sector: in 2015 the average nominal gross monthly wage in agriculture amounted to 21.6 thousand roubles. However, the wage growth rate in the sector amounts to just a half of the average for the economy.

Current problems facing the Russian AS

There are 2.2 million square kilometres of agricultural lands in Russia, and fresh water supply is among the highest in the world (see BRICS Water Forum Results). However, a lot of these lands are located in high-risk agricultural areas, and have low fertility. Most of the fresh water resources are concentrated in northern areas unsuitable for agriculture, while key agrarian black earth regions are already beginning to experience a certain shortage of water for irrigation.

Russia remains one of the world’s biggest food importers, despite the significant reduction of such imports in 2015-2016 following the introduction of embargo against certain countries, and devaluation of the rouble.

Accordingly, in 2015 there were almost 400 thousand square kilometres (or 40 million hectares) of permanently or temporarily unused agricultural lands in Russia. Up to 0.5 million hectares of irrigated lands have degraded (more than 11% of the total acreage), and up to 1.8 million hectares of reclaimed lands (more than 37%).

Despite the gradually increasing use of chemicals in agriculture, Russia remains very much behind the developed, and the largest emerging countries in this area. Agricultural companies’ application of mineral fertilisers for crops in 2005–2010 increased from 1.4 to 1.9 million tons (calculated per 100% of nutrients), and subsequently stabilised at that level. Application of fertilisers per hectare increased from 25 to 39 kilos. To compare: Australia applies up to 45 kilos of mineral fertilisers per hectare, Canada — 74 kilos, the US— 131 kilos, Germany — 199 kilos. The largest emerging countries boast even higher per hectare fertiliser application figures.

The insufficient agricultural investments problem hasn’t been solved yet either, though strong positive trends are in evidence. The amount of capital investments in the agricultural sector in 2010–2015 in real terms grew by 1.2 times reaching 515.5 billion roubles. However, this is just 3.5% of total capital investments in the Russian economy – less than the agricultural sector’s share of the GDP.

Russia remains one of the world’s biggest food importers, despite significant reduction of such imports in 2015-2016 following the introduction of embargo against certain countries, and devaluation of the rouble. However, Russia’s dependence on imports is less critical for end products than for means of production. According to experts, the share of imported agricultural means of production amounts to 40-60%. The biggest imports are agricultural and food industry machinery, weed and pest killers, forage amino acids, livestock breeding products, and seeds. A strong dependence on imported equipment for the food industry remains in place, at about 60%.

How the global agricultural market is going to change

Quickly growing demand for food, and increased consumption of animal farming products increase long-term risks of volatility in global agricultural markets. According to the FAO and the OECD, due to growth of population and per capita income, global agricultural output by 2050 is expected to increase by 60-70% compared with the 2000s.

At the same time, according to a number of forecasts, the average annual productivity growth in agriculture is expected to slow down unless radical technological innovations are actively applied. Accordingly, a long-term risk of demand outgrowing supply emerges.

On top of purely economic challenges, the global agriculture is facing serious social and environmental ones. Income stratification is growing, along with increasingly unequal access to healthy food. At the same time genetic modification and cloning technologies will not be able to fill significant niches in many national markets, due to public resistance.

In 2016 a law was passed in Russia banning application of GMOs for any purposes except research. This may have controversial consequences for the Russian agricultural sector’s competitiveness. Russia should pursue a carefully considered policy in this area. Abandoning growing GMO cultures may lead to losing global competitiveness in certain specific plant product markets: GMOs can make a significant contribution to cutting production costs (first of all those associated with weed and pest killers, and fighting droughts). On the other hand a “GMO-free” status may provide a significant long-term global competitiveness boost in new food product markets (such as, e.g., organic products).

Global warming leads to reduced agri-climatic potential of the planet, with many traditionally agrarian areas becoming unsuitable for agriculture, due to desertification of some of them and flooding of others. Estimates of economic damage developing countries may suffer from land degradation range between 1–7% of the GDP a year.

In Russia significant agricultural land areas are suffering from degradation, first of all in the key black earth regions. The reasons include inefficient crop rotation, insufficient and unbalanced application of fertilisers, use of obsolete heavy machinery. E.g. annual leakage of soil nutrients due to agricultural activities is three times higher than the amount returned with application of mineral and organic fertilisers.

Inter-industry platform technologies are making an increasingly bigger contribution to development of the agricultural sector. These primarily include information and communication, aerospace, and biotechnologies (such as genetic modification, molecular markers, molecular diagnostics, vaccines, cellular cultures, microbiological solutions for food industry, etc.). An explosive growth of demand for urban agriculture technologies is expected (vertical farms, robotic hothouses, etc.).

According to a number of forecasts, average annual productivity growth in agriculture is expected to slow down unless radical technological innovations are actively applied.

Inefficient use of agricultural products remains a serious problem, especially against the background of limited access to food in many countries. According to the FAO, almost one third of all globally produced food goes to waste – about 1.3 billion tons a year. In Russia food waste may reach 56 kilos per person per year. To deal with this problem Russia should adopt developed countries’ best practices on promoting resource saving in agricultural production.

Opportunities and challenges facing Russia

Russia must take timely steps to secure firm positions in global agricultural markets, for raw materials and high value added products alike. The main drivers would be modernising large companies, optimising use of agri-climatic potential, and concentrating agricultural production in the southern regions of the country. Quickly growing economies (such as Middle and Near East, South and South East Asia, Central Africa, and the Eurasian Economic Union) should be seen as priority markets, where people’s purchasing power is growing quicker than the national agricultural sectors’ potential.

To accomplish these objectives the Russian Ministry of Agriculture needs to regularly monitor global trends in application of sustainable agriculture principles, and support Russian R&D aimed at increasing the agricultural sector’s environmental efficiency. Insufficient innovation activity, combined with inadequate cooperation between businesses, education, and science poses a serious threat to the agricultural sector’s long-term competitiveness. E.g. R&D and technological innovation expenditures in agriculture obviously do not match the scale of the market; their growth is unstable, and investments tend to be inconsistent.

Quickly growing economies (such as Middle and Near East, South and South East Asia, Central Africa, and the Eurasian Economic Union) should be seen as priority markets

Another problem which has to be dealt with is the technological gap between major agricultural holding companies and small farms. Insufficient credit availability to small agricultural businesses, combined with high risks associated with investing in them, make this issue particularly dire. A possible solution is promoting agricultural cooperatives, and providing loans to the larger ones. Carefully considered policies must be pursued regarding granting major multinational agricultural corporations access to the domestic market.

What can we expect by 2030

The authors of the study came up with two S&T development scenarios for the Russian agricultural sector.

The Local Growth scenario implies achieving a steady growth in the sector, specialising in the segments where Russian agricultural products are already competitive.

The Global Breakthrough scenario also envisages the Russian agricultural sector entering new markets, as a result of its accelerated S&T development.

According to HSE estimates based on international forecasts’ data, global agricultural production will grow in 2016–2030 by about 3% a year, reaching $9,300 billion. By 2030 Russia may increase its share of the global agricultural output, up to 1.5% (or approximately $140 billion) under the first scenario, or 3.5% (about $325 billion) under the second. As you might remember, its current share is 1.3%.

Under the Local Growth scenario, the main drivers of the Russian agricultural sector’s development include gradual economic recovery, import substitution, and further expansion of traditional export niches. Investment climate is expected to improve due to effects of stimulating monetary, credit, and budgetary policies.

The main prerequisite for implementing the Global Breakthrough scenario would be achieving a 1-2% increase of the Russian economy’s growth rate in medium term, through increased public investments. This scenario implies a softening of the monetary policy in the next two years, plus additional investments to promote R&D, agricultural exports, and consumer demand for domestic products.

Leonid Gokhberg
Leonid Gokhberg

Leonid Gokhberg, HSE First Vice Rector and ISSEK Director, comments on how realistic the scenarios included in the study are, what Russia should be preparing to, and how HSE is helping to advance the Russian agriculture:

The scenarios presented in the Foresight study of the Russian agricultural sector are the results of 18 months long research conducted using an internationally accepted technology Foresight methodology in close cooperation with the business community, experts, and scientists. It should be noted that we’ve applied the normative (or goal-oriented) scenario-based Foresight methodology. It means that each scenario serves as a “soft” action plan – a compromise between a desired vision of the future (a set of strategic development goals), the actual potential for development, and relevant limitations.

The main goal of the Russian agricultural sector’s S&T development is to ensure Russian products’ competitiveness on the domestic and international markets, first of all by developing, disseminating, and applying cutting-edge S&T results. Accomplishing this goal should enable moving on to a highly efficient (accelerated selection, active substances for advanced veterinary preparations, weed and pest killers, etc.), high-technology-based (synthetic biology, food biotechnologies, functional foods, etc.), resource-saving (smart agriculture, balanced uniform forage, etc.), climate-adaptive (area-specific varieties and breeds, next generation irrigation complexes, etc.) production of agricultural raw materials and high value added products.

The Local Growth scenario assumes less favourable external and internal conditions for the sector’s development, though still sufficient to maintain positive quantitative and structural growth. The Global Breakthrough scenario implies full implementation of the industry’s S&T and innovation potential, due to optimal combination of favourable external and internal development factors.

Full text of the S&T Foresight Study for the Agricultural Sector 2030 (in Russian)