Russia: Hectare in the Far East Programme does not Address Agricultural Realities

7 September 2017 Benjamin Walsh, Research Analyst, Global Food and Water Crises Research Programme Download PDF

Key Points

  • Moscow’s obsession with the Far East is distracting it from fully focussing on its productive western and south-western regions.
  • Updating its large-scale agricultural practices instead of opening up new small farms in a disconnected Far East would better serve Russian agricultural interests.
  • Bureaucrats in the Far East are better positioned than their western counterparts to exploit the distance from Moscow to further their own personal interests.
  • A constrained federal budget and a possible labour shortage out to 2050 means Russia must invest all available resources into the country’s most productive, large-scale agricultural regions.

Summary

Russia has always considered its Far Eastern territory bordering China and Korea as one of its most important in Asia. A call for agricultural self-sufficiency after the imposition of sanctions in 2014 and an uncertain geopolitical outlook on the Sino-Russian border has compelled the Kremlin to re-focus attention on the Far East. Moscow is attempting to address these concerns through a strategy known as the “Hectare in the Far East”. Under the programme, ethnic Russians can apply for and acquire a free hectare of land, on the condition that a business or house is established there within five years. The scale of the project and the optimism emanating from the Kremlin suggests the plan has the power to transform Russian agriculture. The programme, however, is not rooted in Russian agricultural realities. Russia’s population out to 2030 is set to recede significantly, draining the labour force. Consequently, agriculture needs to be mechanised and updated on a massive scale, preferably on the large-scale plots in the western regions; encouraging people to move to the remote and isolated Far East to work on small plots runs contrary to this. This is an example of what noted economist Alec Nove calls a ‘chronic tendency to overdo a good idea’; overinvesting and overexpanding neglects a more concentrated investment approach in more favourable growth centres, such as the more productive Russian west.

Analysis

A Burdensome History

Russia’s frontier economy has, historically, been more of a burden than a boon. Some have argued that Tsarist “Russian Imperialism” in the Far East failed to endow Russia with wealth and modernise the country. Expanding into the Far East added huge tracts of land and mineral deposits to the Russian Empire, but there was little effort to convert this new found potential into tangible wealth; the Tsars failed to add it to the Russian economy. Expansion for the sake of expansion was the primary concern ahead of the responsible incorporation and distribution of these resources into the economy.

The Soviets inherited this situation and continued the habit of expanding into the east. The Soviets chose to invest in massive industrial and agricultural projects. The Soviet Government succeeded in establishing industrial cities and collective farms seen by officials as bulwarks against foreign aggression and embodiments of Soviet self-sufficiency. They were never real “cities”, however, but rather points of production and collection, made to suit the economic needs of the state, rather than its inhabitants. The cities were set up to be self-sufficient, but establishing cities in remote areas that were isolated from the mainstream Soviet economy doomed this project from the start. These cities required huge state subsidies to function and by the time of the dissolution of the Soviet Union, many cities had closed down; many still stand today as reminders of what happens when expansion comes at the expense of pragmatism.

Present efforts to expand on the Far East’s agricultural latency risks following these historical weaknesses. Policies akin to Soviet central planning have followed President Vladimir Putin’s planners and have led to a poor distribution of resources and failed projects throughout the Far East. The Hectare in the Far East project follows the same guidelines as its predecessors. Some believe that a hectare of land is not enough to build a profitable business and that the government should be attending to existing infrastructure instead of encouraging people to live out in the wilderness. The viability of agricultural expansion into the Far East is lauded by some, especially the federal government, but held by many as unrealistic. If history is to be any indicator, it is that grandiose, ambitious agricultural projects, rooted in passion and destined for far off regions have largely failed to live up to the zealous ambitions of their planners. The Kremlin is poised to repeat history by ignoring a number of factors that are likely to weigh down the programme, including a lack of incentives to move to the Far East, a demographic crisis, limited mechanised farming and poor Far East governance which highlight the long-term agricultural unimportance of the Far East.

Wither the Small Farm: Incentives, Demographics and Mechanisation 

Something Moscow must contend with today is the receding interest many have for adventure and life in a region that is as isolated and economically backward as the Far East. Not many Russians like the idea of living in the harsh wilderness or the boggy swamps found in the region, in comparison to the more developed and better connected western parts of Russia. The state of the Far East’s economy is causing ethnic Russians to leave in droves. Unfortunately for Moscow, its Hectare in the Far East programme may fail to stem this flow because of a lack of ethnic Russians willing to remain in the Far East. A high unemployment rate and lack of opportunity has caused many ethnic Russians to leave the region, forcing Moscow to encourage and assist migrant labour from Central Asia and China. This expedites the exodus of more Russians still living there due to fears of a foreign takeover. Furthermore, Moscow has threatened, and even enforced, the closure of small villages, further contributing to the destruction of the rural image many Russians used to identify with. Asking people to move onto previously untouched land may discourage people further than if newly refurbished infrastructure was made available instead.

The Hectare programme also offers little incentive to establish an agricultural enterprise because the size of the land settlers receive, while free, is far too small to be profitable in the long term. And given the recent bankruptcy trend hitting Far East businesses and the presence of kleptocrats buying up the best land (some believe that when the online portal for the Hectare programme was launched it “failed” because government officials shut it down to acquire the best land for themselves), has made moving to the Far East a highly risky venture.

Many Russians do not consider small-scale agriculture as a profitable long-term venture because it does not attract the same amount of attention from the government compared to the large-scale mechanised projects of the western regions. Daniil Tolstoy, the great-grandson of the famous Count Leo Tolstoy, inspired by his great-grandfather’s love of agriculture, started his own organic farming business in Russia. In an interview with the Financial Times, Tolstoy concluded that when looking for farmland he found that it had to be large enough to be considered for government loans or grants. Organic farming, usually done on a small scale, is possible in Russia; however, to do so in a European way (on around 200 hectares of land) would significantly reduce the opportunities for finance. If 200 hectares is unlikely to attract serious investment, what hope does one hectare have in the Far Eastern wastelands? Bank thresholds for loans are too high for small farmers because heavy input costs, the devaluation of the rouble and rising inflation have caused these costs to climb higher. These factors restrict cash flow and, since banks require several thousands of hectares of land in collateral, the chances of securing loans for small farms is unlikely. The government has not totally ignored small farmers, but the long-term profitability of small-scale agriculture is questionable, relative to large-scale plots.

Indifference to rural living and a lack of financial opportunities are not the only impediments to small-scale agriculture likely to affect those in the Far East. The high likelihood of a demographic crisis by 2050 is likely to sap the Russian agricultural labour market. In the near term, Russia’s small-scale farms will be increasingly pressed for labour, encouraging the government to focus more on investing in large-scale, automated farming practices that do not require as many people. This is not to say that Russia is on the brink of “depopulation”, however, present trends allude to a gradual population decline. Some believe that if the proper social and economic reforms are not made soon, Russia’s population could shrink to 113 million, from the present 144 million, by 2050, and even 100 million according to worst case scenarios. Such a decrease would deprive the economy of around 26 million workers. A mechanised approach to agriculture will become increasingly prevalent in the long term, however, government investment may be difficult to acquire. It has been estimated that Russia is looking to spend upwards of US$600 billion ($751 billion) over the next ten years as part of its military modernisation plans. Six years ago, every tenth rouble spent by the federal government was allocated to a secret security budget. As of 2016, it is now every fifth rouble spent. Defence and security spending, which accounts for around one-third of the federal budget, is a budgetary allocation that may have to change to meet the country’s demographic and agricultural needs. Migration from other countries, such as Central Asia and China, will not suffice in stemming this decline since those countries will no doubt face demographic challenges of their own out to 2050. For Russia to produce enough food, and assuming Mr Putin remains unwilling to adjust defence spending, it will have to focus all funds available for agriculture in the most productive and developed western-most agricultural regions. A strained budget and shrinking labour market requires a unilaterally focussed approach to agricultural production, as opposed to the dispersive approach advocated by the Hectare programme.

Administration and Governance

Russian governance in the Far East still suffers from a Soviet hangover that hinders the development of the federal district. According to the Jamestown Foundation, the central government still presides over the Far East as its Soviet predecessors did, as colonial masters micromanaging the people living there. Moscow tends to see its Far Eastern residents as frontier people whose job it is to expand State influence. Russian analysts believe that regional underdevelopment and emigration is mainly due to the fact that Moscow ‘never listens’ to the requests made by those on the ground. On top of this, the Far East is so disconnected and far from Moscow that the system is inherently geared towards ‘excessive centralisation’ that sees bureaucrats maintain control and run the region as their own domestic offshore bank account.

To better maintain the control they have over the district, Far East bureaucrats engineer massive projects that capture the zeitgeist in Moscow. Crony capitalism is no secret to Moscow and officials are prepared to ignore corruption in the Far East if bureaucrats there remain loyal and provide “solutions” to Far East development. Bureaucrats thus create fanciful campaigns to both appease Moscow and expand on their personal fortunes. Since the Kremlin feels that its vulnerable eastern frontiers are threatened, bureaucrats, to keep Moscow placated, conjure up grand schemes that address these concerns. For example, at least one regional district head believes that planners dreamed up the Hectare in the Far East project to ‘show the Kremlin that they were doing something.’

Due to the size of the federal district and the distance to Moscow, recalcitrant bureaucrats are best positioned to carve out their own interests while giving Moscow the impression that something is being done. In 2011, Putin admitted that 80 per cent of orders from Moscow went “unnoticed” by bureaucrats in the Far East and, despite the Department for the Development of the Far East boasting of its recent funding efforts, corrupt officials continue to fail to meet funding targets set by Moscow. Furthermore, 95 per cent of said funding has come from the private sector, a figure that does not signal government confidence or enthusiasm. A lot of this “private investment” actually comes from offshore intermediaries set up by Russian companies to make the Far East look like a suitable place to invest. Foreign investors, however, have little interest in investing in a district that fails to attract a substantial financial and bureaucratic commitment from the federal government. Pitiful government spending on public infrastructure has created a “no man’s economy”, where grass root efforts to raise funds and build infrastructure like roads and bridges are common. When this infrastructure is built, however, it is unrecorded and, since it is not officially built, it is not officially maintained. Free plots of land handed to ethnic Russians, as stipulated by the Hectare programme, have no access to roads, electricity or water. Consequently, farmers build their own roads, but since officials do not want to have to register and maintain these roads, their fields are left fallow. Eye-catching schemes and more symbolic portrayals of connectivity, spurred on by obstinate bureaucrats, are likely to flourish in Moscow, but founder as practical approaches to agricultural production.

Conclusion

If Russia’s efforts to become predominantly self-sufficient in agricultural production remain constant out to 2050, then Moscow must focus on methods of production that require less labour in the more productive western regions of the country. Corruption, a lack of interest in Far East living, a declining population and a subsequent move to labour-minimal agriculture makes the Hectare in the Far East programme seem, on the surface, another example of Moscow’s tendency to put time and money where it is not needed. Even though it needs to, Moscow may be unable to make the necessary investments in mechanisation and automation because of the huge strain the military budget has on the federal budget. Given this reality, it is more prudent for the Kremlin to invest in agricultural growth centres in the west and south-west of the country instead of small-scale dead end locations in the disjointed East. Russia is not a massively rich country, and given the country is unlikely to drastically reduce its military spending, Moscow must choose to focus its available funds in the west and south-west. Moscow would be better placed to break away from its obsession with the Far East and focus on the western regions that are more suited to its economic and agricultural situation.

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