State Support Of The Agro-Industrial Complex


The article analyzes the literature on state agrarian policy and highlights the problems. If in the USA it is environmental protection, in Western Europe it is the impact of the EU's common agricultural policy on agricultural producers, in Russia it is a lack of state funding due to complex climate and institutional factors (legislation, corruption, expensive loans, etc.). In Western Europe, the transition to bourgeois manufacturing began earlier – with the beginning of the "Little ice age". In the XVII – XIX centuries, an industrial revolution took place. One of the sources of industry formation was agriculture, which drained the latter of blood. In Russia, however, there were no other sources of initial capital accumulation that were present in Western Europe - usury and overseas colonies. Therefore, the burden of industrialization from the beginning of the twentieth century to the end of the 30s fell on the peasants. Agriculture is not a self-sufficient industry, and the food market is not self-regulated. Demand and supply of agricultural products are inelastic. In rural areas, state assistance is required in creating infrastructure, subsidizing the production of agricultural machinery, fertilizers, food, etc. Taking into account Russia's entry into the WTO, state support for agriculture should not direct methods (subsidies, subventions, etc.) and indirect (through tax benefits, protectionist foreign policy and domestic market protection, preferential crediting of agricultural producers, etc.).

Keywords: Agricultureprotection of agricultural producersstate support


The formation of a digital economy is impossible without a material basis - the economic basis of the country, including a developed and efficient agriculture. This is especially true in the context of sanctions wars and economic crises that threaten the economic security of any country.

In the early 90's of the twentieth century, in Russia, in the course of liberalization and weakening of state support, the system crisis also affected agriculture, which provides food security and social stability.

Literature review

Articles indexed by Web of science on the subject of state support for agriculture over the past three years can be divided by country and by direction.

Articles on public policy towards agriculture in Russia presents issues: global issues, the ideology of development of agriculture (Niederle et al., 2019), the analysis of agricultural production in Russia as a whole and for individual product types subject to the policy of sanctions and import substitution (Moshchenko et al., 2020), economic crime (Yarkova, 2020), cooperation and integration processes (Sobolev et al., 2018), Finance in the broad sense (Kolesnikov, Stepanyan et al., 2019), public investment (Denisov, 2018; Khairullina, 2019a; Khairullina & Yarkova, 2019; Markhaichuk et al., 2019), public support for specific types of production (Kalinina et al., 2019), specific territories (Kadyrov, 2018), funding (Kolesnikov, Solovyov et al., 2019), market of organic agricultural products (Abrosimova et al., 2019), food security of the state (Kovazhenkov et al., 2019), (Kontsevaya et al., 2018), management (Gorlov et al., 2017), sustainable development of the agro-industrial complex (Shakhmurzov et al., 2018), taxation (Khairullina, 2019b; Kuznetsova et al., 2018).

In the materials related to US state policy in agriculture, the following issues are studied: environmental protection Medina et al. (2020), Cristan et al. (2019), Arathi et al. (2019), Hughes et al. (2019), Sullins et al. (2018), Miller et al. (2018), veterinary medicine and sanitation (Stewart et al., 2018), the agricultural land market (Horst & Gwin, 2018), forestry (Campbell et al., 1991), taxation (York & Munroe, 2010), in particular, trade wars (Venogradov et al., 2019).

Articles devoted to this topic in the European Union can also be divided by topics: finding a balance between the economy and the external environment (Cetkovic & Stevanovic, 2018; Noack & Schüler, 2020; Sabadas et al., 2018; Schulte et al., 2019), the use of new technologies (Jose Villaverde et al., 2018), in particular, computer (Blazquez et al., 2018; Rodriguez et al., 2018), state support for producers (Wengle, 2020), state regulation of the land market (Stacherzak et al., 2019); the impact of the EU common agricultural policy (Burny & Gazinski, 2018; Sapolaite et al., 2019; Michalcewicz-Kaniowska & Zajdel, 2019; Volkov et al., 2019), in particular, public financing (Alarcon & Arias, 2018; Andrlic et al., 2018; Asseldonk et al., 2018; Czyzewski & Matuszczak, 2018; Nicula et al., 2019; Simpach, 2018; Staresinic & Franic, 2018; Vladu et al., 2018; Zmija & Zmija, 2019); taxation (Lemishko, 2017), international relations (Khan & Ashfaq, 2018; Qian & Chen, 2018), the production of a specific type of product (Popescu, 2018).

Thus, from the analysis of indexed publications, we can draw preliminary conclusions about the importance of certain problems for agricultural production. In Russia, there are the most publications about the need, first of all, for state financial support. This is due to a whole set of reasons: Russia has a lot of zones of risky agriculture; the country has not yet recovered from the shock of market reforms, and the civilized market has not yet formed; state monopolies were replaced by private monopolies, primarily large banks and enterprises of the fuel and energy complex, which dictate prices on the market; the memory of gratuitous subsidizing of agriculture in the last decades of Soviet power still persists. Therefore, Russian producers suffer more from natural (climate) risks and institutional features of the market (monopolism, high interest rates for loans, corruption, poor infrastructure).

In the United States, researchers, and therefore the public, are more concerned with preserving the environment and the quality of life. Farmers ' risks there are more market-driven (for example, low prices that do not cover the cost of production).

In the literature about the European Union, the most written about the impact of the common agricultural policy of the EU, in particular, public financing, on countries and sub-sectors of agricultural production. This influence is usually assessed as positive, although it imposes strict requirements on the producers of goods. Therefore, the free agricultural market in the EU has been replaced by strict supranational regulation.

The complex adaptation of the Russian agricultural sector to the market environment with minimal state participation has been drastically transformed since 2014, when sanctions against Russia and the transition to a policy of import substitution forced attention to the need to strengthen state support for the national economy, especially agriculture.

Methods and Materials

The research mainly used methods of scientific abstraction, formal logic, dialectical-theoretical methods, the method of empirical analysis, statistical methods for calculating average values etc.


One of the most important sources of financing for the emerging industry was agriculture. This was the case in England back in the XIV century, when the beginning of the "Little ice age" instead of dying crops of grain and viticulture gave rise to the growth of sheep farming and the creation of cloth Manu-facture on its basis. At the same time, "sheep ate people" when landlords seized communal land for pasture. Then in the XVIII century during the industrial revolutions (the steam engine turned the manufactory into a factory), large capitalist farms with rent and hired labor began to be created. The technological revolution in agriculture led to the creation of a large market for industrial production and the transfer of capital not only from agriculture to industry, where the rate of profit was higher, but also the migration of the population from villages and villages to the city. Russia remained an agrarian country for a long time. (Figure 1 ).

Figure 1: The ratio of urban and rural populations in some of the world's largest countries in the early twentieth century (1897 – 1914) - according to information Rossiya_1913_god _( Statistical documentary)
The ratio of urban and rural populations in some of the world's largest countries in the early twentieth century (1897 – 1914) - according to information Rossiya_1913_god _( Statistical documentary)
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In Russia, urbanization and industrial development were even more at the expense of agriculture, since it had no overseas colonies, with the exception of Alaska, and usury was very limited and banking capital was not developed. However, in contrast to the Old world, these processes were delayed by about one and a half to two centuries. So, in the middle. Nineteenth century among the landlords - the main producers of export grain was popular opinion of the Chairman of the Tariff Committee of the L. V. Tengoborsky that Russia, due to natural and climatic conditions – is an agricultural country and does not need to develop industry (Tegoborsky, 1852-1855).

Due to the peculiarities of historical development, the entire period of transition from the agricultural economy to the industrial one should be divided into two stages: pre-October (late XIX century-early XX century) and the period of industrialization of the USSR.

The pre-October period was characterized by deep theoretical study and non-violent methods. I. A. Vyshnegradsky and S. Yu. Witte who carried out this policy relied on the points of view:

- German economist F. List, who insisted on state intervention in the economy, protectionist policies to achieve economic domination of Germany in Europe;

-the Chairman of the Chamber of weights and measures, which was part of the Ministry of Finance at that time, D. I. Mendeleev, who laid the Foundation for "non-violent industrialization".

In the book "Towards the knowledge of Russia", D. I. Mendeleev called industrialization the only possible way of economic development of Russia. However, its development is hindered by low skills and productivity of workers, which makes the Russian industry uncompetitive. To overcome this, the government needs to implement a policy of low prices for agricultural products (most importantly, for grain), which, in its opinion, will keep the worker's salary at a low level and reduce the cost of production.

Thus, low purchase prices for agricultural products in the course of a protectionist foreign policy and protection of the domestic market, implemented by the government of I. A. Vyshnegradsky, and then S. Yu. Witte, became the first direction in all-round promotion of industrial development at the expense of agriculture. To protect the domestic market, the government introduced a new customs tariff in 1891.

The second direction of financing industry is the wine monopoly. Witte wrote to Alexander III that the wine monopoly is a tax on farmers, which gives the Treasury additional profit, which can be used for the development of industry.

The third direction is participation in the policy of the gold coin and gold bullion standard of the Parisian currency system. The introduction of the gold standard also usually works against agriculture as a deficit industry and contributes to the transfer of funds from it (Nazarenko, 2006).

The reforms of S. Yu. Witte were continued by P. A. Stolypin, who solved the problems of agriculture not by providing additional land plots, but by increasing the productivity of peasant labor. This, without affecting the landowners ' land ownership, enriched some peasants at the expense of others by destroying the community. As a result, the land was to become the property of strong men, and the ruined were to join the ranks of the proletariat.

Historians interpret the results of the agrarian Stolypin reform in different ways. However, by 1913, Russia ranked fifth in world industrial production (Gregory, 1982), becoming the world leader in industrial growth with an annual rate of 6.1% for the period 1888-1913 (Suhara, 2005). Thus, in the pre-October period, the Russian model of industrial development had a global trend and went directly through subsidized financing at the expense of agriculture. Urbanization has been slow.

The second stage of development of industry at the expense of agriculture should be attributed to industrialization in the USSR, which was characterized by a significant degree of continuity with the main concepts of I. A. Vyshnegradsky, S. Yu. Witte and A. p. Stolypin, as well as active violent methods of pumping both funds in monetary and natural forms, and labor from the village to the city.

By 1920, the level of production in Russia fell nine times compared to 1916 (Davies et al., 1994). The Communist leadership began to solve the problem by a planned redistribution of resources between agriculture and industrialization. Thus, at the XIV Congress of the CPSU(b) and the III all - Union Congress of Soviets in 1925 (Industrializatsiya SSSR 1926 - 1941 gg.…, 1970), the choice of a specific implementation of Central planning for 1926-1928 was vigorously discussed. During the discussion, two party blocs were formed - directions:

1) proponents of the genetic approach, who believed that the plan should be based on objective laws of economic development (economists V. Bazarov, V. Groman, N. Kondratev, etc., they were supported by the proponent of the evolutionary path to socialism N. Bukharin).

2) adherents of the teleological approach, who believed that the plan should transform the economy based on future structural changes, production opportunities and strict discipline (economists G. Kryzhanovsky, V. Kuibyshev, S. Strumilmn, etc., among the party elite - L. Trotsky, who insisted on immediate industrialization).

The large-scale and abrupt form of industrialization and forced collectivization was based on the same old methods:

• low purchasing prices for food, maintaining low wages in industry;

• the wine monopoly;

• during the NEP period - the policy of the gold standard, and after it-inflation, which allowed to transfer to industrial development not only income, but also a huge mass of the population from the villages.

To this was added the system of state supplies, carried out first through prodrazverstku, and then through the food tax.

Since the beginning of the first five-year plan in the USSR, agriculture has become a source of primary accumulation due to low purchasing prices for grain and exports at higher prices, as well as due to "super-tax" in the form of overpayments for manufactured goods. Since capital investment in heavy industry almost immediately exceeded the planned amount and continued to grow, monetary emission was sharply increased, and throughout the first five-year period, the growth of the money supply in circulation more than twice outpaced the growth in the production of consumer goods, which led to an increase in prices and a shortage of consumer goods.

With the beginning of industrialization, the consumption Fund decreased sharply, and as a result, the standard of living (Allen, 1997). By the end of 1929, in the face of a shortage, the card system was extended to almost all food products. In 1936, the cards were cancelled, and the increase in wages in the industry increased inflation. The average level of consumption per capita in 1938 was 22 % higher than in 1928 (Allen, 1997).

The result of this policy was a decline in agricultural production. Thus, animal husbandry decreased almost twice and returned to the level of 1928 only in 1938 (Gregory, 1982). Additional expenses were required to compensate for the losses of the village. In 1932-1936, the collective farms received from the state about 500 thousand tractors not only for mechanization of land cultivation, but also to compensate for the damage caused by the reduction of the number of horses by 51 % (77 million) in 1929-1933 (Wheatcroft et al., 1986). As a result of collectivization, famine, and repression between 1926 and 1939 the country lost in the form of direct demographic losses from 7 to 13 million (Denisenko, 2008; Denisenko & Shelestov, 1994) and even up to 20 million people (Rosefielde, 1987).

In the future, the peasantry also provided the growth of heavy industry with labor. The urban population increased by 12.5 million people, of which 8.5 million were rural migrants. Table 1 shows the dynamics of urbanization in Russia.

Table 1 -
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However, this policy can only continue for a limited period, since it ultimately leads to a serious violation of all the proportions and balance between industries. Only the reverse direction of the flow of financial resources can make the economy more balanced, which is one of the key points of agricultural policy in the West.

The analysis shows that there is still a lack of understanding in Russia that, in economic terms, agriculture is not a self-sufficient industry, and the food market is not self-regulating.

Demand for all agricultural products is low-elastic, since it is determined not only by economic factors (prices and income levels), but also by strict physical needs.

Based on Engel's law, the consumer increases their food costs when income increases, and reduces them when income falls, but disproportionately: with a decrease in the share of food costs as income increases, and Vice versa, i.e. there is an inverse proportionality between the level of income and the share of these incomes going to food.

The relative conservativeness of food demand is also reflected in the inadequate response of demand to changes in prices, especially for products of daily consumption.

Agricultural production itself is determined by its biological nature and the involvement in the production process of many natural factors that are available in limited quantities, primarily land. It is a conservative industry, and the nature of production has strict time limits: in crop production - it is a long process of increasing soil fertility, cultivation, crop rotation; in animal husbandry - it is the natural boundaries of the growth rate of livestock and increasing productivity. In addition, the yield depends on weather conditions, and livestock production depends on the epidemiological situation.

When demand falls and prices for agricultural products fall, production cannot be reduced quickly and painlessly.

Thus, in the food market, both supply and demand are inelastic. If they fluctuate slightly, the market self-regulates. However, with their significant changes, prices become extremely elastic, which destabilizes the entire economy. Therefore, the state has long developed mechanisms for regulating food markets.

Even with its industrialization, modern agriculture remains biological, dependent on natural factors, with unstable yields. One can see a serious contradiction between the relatively low profitability of agriculture, labor productivity, and the high need for investment and defense funds. For example, in developed countries, the share of agriculture in GDP is almost four times less than the number of people employed in the industry (Nazarenko, 2006). In countries with high natural fertility and high land security, these differences are not as large as in countries with low land security, where production has to be carried out on a capital-intensive basis. This suggests that agriculture is not only unable to act as a donor, but also has insufficient funds for its own development.

Agriculture cannot create its own infrastructure (neither physical nor intellectual), which is expensive, and for rural areas with its territorial scale-in particular.

Insufficiently well-thought-out Federal agricultural policy, without taking into account regional and institutional features of the agro-industrial complex, leads to a decrease in production, to unprofitability of agricultural enterprises, and this leads to social tension in society.

Table 2 -
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Over the past 15 years, the Government has defined the development of agriculture as a strategic direction of domestic policy. This has had a positive impact both on reducing the tax burden on the industry and on increasing the profitability of sales. The industry's tax burden has been decreasing annually over the past 14 years and on average does not exceed 42.4% of the average tax burden for all sectors of the economy. On the contrary, the profitability of goods sold, products rendered, and services rendered to the agricultural sector has increased. Its value is on average 34.1% higher than the average profitability in all industries, and since 2014 - 2.1 times. This happened also "thanks to the sanctions policy" of the US and EU countries, when Russia, in response to the sanctions imposed against it, imposed mainly food sanctions (Table 2 ).


State regulation of agriculture should include both direct and indirect methods. And now, after Russia's accession to the WTO, the former direct subsidization of commodity producers is difficult. Therefore, we believe that modern methods of direct impact should include Programs of state financing: land management and reclamation works; drought control; development of fire safety measures; state veterinary services; creation of a network of rural paved roads; electrification and telephony; agricultural science, etc.

The authors refer to indirect methods:

1. state agricultural protectionism: through a system of customs duties, subsidies, compensation payments, tightening of the veterinary control system for imported products;

2. preferential lending not to agricultural producers themselves, but to a chain that increases their capital intensity – i.e., producers of agricultural machinery, producers of chemical fertilizers, etc.

3. development of an effective tax system that combines the interests of the agro-industrial complex and the state. Benefits should apply not only to agricultural producers, but also to those who affect productivity in agriculture. For example, organizations of water and chemical land reclamation and manufacturers of agricultural machinery.


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Privalov, N., & Privalova, S. (2021). State Support Of The Agro-Industrial Complex. In N. Lomakin (Ed.), Finance, Entrepreneurship and Technologies in Digital Economy, vol 103. European Proceedings of Social and Behavioural Sciences (pp. 227-238). European Publisher.