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The recent spell of hot and dry weather across Russia's key grain producing regions has led to almost 10 million hectares of crop land being hit by drought. Seventeen regions have already declared states of emergency with more set to follow. The forecast for grain production for 2010 could now be lowered below 85 million tonnes and shortages of fodder grain are expected. Prime Minister Vladimir Putin has pledged state assistance to the affected regions,with the Agriculture Ministry saying 40 billion rubles in state--supported loans are necessary.

Drought

A total of 9.5 million hectares of crop land have been stricken with drought,the Russian Agriculture Ministry reported.

The figure reported earlier was just under 9 million hectares.

An emergency has been declared in 17 Russian regions,and the internal republic of Marii-El and the Kurgan and Ryazan regions are poised to join that number.

The drought will reduce crop yields and the total grain harvest in the Volga district and in some regions of the Central,Urals and Southern districts.

Crop yields in the Central district currently amount to 19.4 centners per hectare,down from 24 c/ha in the same period last year. In Voronezh region,crop yields are 10 c/ha below the level last year,24 c/ha.

In the Volga district yields amount to 8.7 c/ha,which is 3 c/ha lower than last year. In Saratov region,which has been especially hard hit by the drought,the yield is 8.1 c/ha compared with 11.7 c/ha last year.

The Agriculture Ministry believes that the total grain harvest this year might fall below 85 million tonnes compared with 97 million tonnes in 2009.

Forecasts

Russian Agriculture Minister Yelena Skrynnik said the forecast for the grain harvest this year could be revised to below 85 million tonnes.

"I reported last week that we have revised the forecast down to 85 million tonnes. We must recalculate," the agriculture minister told the government presidium.

"And to revise the forecast downward?" Prime Minister Vladimir Putin asked.

The answer was in the affirmative.

Skrynnik also said,in answer to a question from Putin,that the grain crop would be sufficient to cover the country's domestic needs.

"It will be absolutely sufficient. We have 24 million tonnes in the reserve,up 20% compared to last year," Skrynnik said,adding that Russia's need in grain is estimated at 77 million tonnes. "We'll cope," she said.

The export potential is the question,she said. "Cuts are only possible there," she said.

The shortage of fodder grain in Russia amid conditions of ongoing drought could run to 4.2 million tonnes,First Deputy Prime Minister Viktor Zubkov said at a State Council session on July 13 in Belgorod.

The shortage of hay is estimated at 3.6 million tonnes,of silage at 4.5 million tonnes,and of straw at around 1 million tonnes. "This is all a deficit that has to be made up," Zubkov said.

Regions in the country have announced shortages of food grain.

"The situation is very serious," Zubkov said. The economic stability of the enterprises in the agricultural sector must be ensured,so that they don't disappear,don't drop into a deep slump,so that they can carry out not only ongoing operations but meet their financial commitments," he said.

"The main thing today is to preserve growth in livestock production,and by no means allow the cattle and poultry populations to decline. We have sufficient reserves to do that," he said. "The reserves accumulated in past years make it possible to guarantee the stable operation of the farm sector and fully meet domestic demand for grain and livestock products," he said.

"This year direct financial assistance will be provided - we haven't done that for many years - to agricultural enterprises where the entire sown area has been wiped out," he said. "That is the situation today in entire regional districts," he said,adding that the federal funds would make up 80% of the assistance and 20% will come from regional budgets. "I ask that the governors understand this and begin work. The Agricultural Ministry and the Finance Ministry are tasked,on a rush basis,with working out the methodology for disbursing the funds," Zubkov said.

The procedures for receiving assistance need to be streamlined,he said. In addition,subsidies will be provided to purchase feed. The entire procedure for providing the funds will be drawn up in the course of a month.

Support

Putin has pledged budget loans to regions hit by drought.

"We will of course provide financial assistance to those regions that are suffering,we will provide budget loans," Putin said.

The regions themselves must also provide budget resources to support agricultural enterprises that suffer losses from drought,he said.

"I think we can also look into providing assistance to agricultural enterprises that have suffered," he said.

Money will be allocated firstly to those regions that intensively engaged in agricultural insurance,he said.

Putin recalled that the importance of using modern market mechanisms for reducing risks in agricultural had been touched upon earlier,at a meeting in Orenburg last year. "Unfortunately,not much has changed in agriculture in that sense. An insured crop is more likely the exception than the rule," Putin said.

This issue is not being worked up either in the profile ministry or by the heads in the regions,he said.

"Direct financial assistance should be provided on a co-financing basis with the regions to those agricultural producers that have lost their entire crop," First Deputy Prime Minister Viktor Zubkov said.

The Agriculture Ministry and the Finance Ministry should be tasked with drawing up the accounting methodology and disbursing funds,he said.

The system by which distressed regions receive budget loans must be streamlined,he said.

A certain amount of farmland suffers drought every year,he said. The difference this year is that the drought is unusually widespread. Moreover,of the 15 stricken regions,seven are suffering drought for the second year in a row,he said.

As of today a picture of the situation in the regions has taken shape "concerning the area of sown area that has been lost,the shortfall of feed,the financial condition of the enterprises," he said. "The main challenge is to maintain the pace of growth in meat and dairy production."

Agricultural enterprises will receive a discount on fuel and lubricants beginning in the current month,Putin said.

Putin had asked Deputy Prime Minister Igor Sechin to report on the current situation with fuel and lubricant supplies in the farm sector.

Sechin proposed providing a discount "equal to 10% of the average wholesale price for fuel and lubricants in the regions."

"Fine,let's do that," Putin said.

Sechin recalled that 1.412 million tonnes of petroleum products were supplied to agricultural enterprises at reduced prices last year and 988,000 tonnes were delivered in February-June.

"The value of the discounts on the product delivered so far this year has been about 3.2 billion rubles compared with 3 billion rubles last year," Sechin said.

Russian regions suffering from drought have need of almost 40 billion rubles in state budget loans,Skrynnik said.

"The budget credits with terms of up to three yeas will be provided to agricultural organizations in emergency situations. The Finance Ministry has received applications for almost 40 billion rubles in loans," Skrynnik said.

The grain intervention fund,which contains 9.5 million tonnes of grain,will be used to support the farm sector. "There are 3.5 million tonnes of feed grain that our agricultural organizations can purchase with subsidized five-year loans," she said. Grain from the intervention fund can also be used for food purposes,she said.

In addition,direct grants to hard hit agricultural organizations must be considered,she said.

The drought has damaged 9.5 million hectares of crops. "But we will cope with the situation and can even maintain our export potential: it will be lower than 20 million tonnes,but we will still have it," she said,adding that there "are no threats to grain supplies this year."

In order to cope with the situation,a schedule has been set up for those regions that will share feed with drought-stricken regions.

Skrynnik also delivered to President Dmitry Medvedev a request from the regions to provide more time to reschedule loan and lease payments.

Medvedev asked the heads of Rosselkhozbank and Rosagroleasing whether they were prepared to do that.

Providing more time for lease payments for 18 regions would cost 5.5 billion rubles,according to Rosagroleasing data. Those regions owe a total of 4.7 billion rubles in leasing debt. Prolonging the debt for three years would cost 13 billion rubles. The company plans to approach the issue on a selective basis.

Rosselkhozbank CEO Dmitry Patrushev said: "According to bank calculations,it would be just over 23 billion rubles. We will take a selective approach and examine each case individually."

"This must be monitored," Medvedev said. "Clearly prolonging the payments,the loans is unpleasant for the bank and the leasing organization,but there is no alternative. This doesn't have to be done one after the other,but there needs to be a response for key enterprises. A certain amount of money must be spent on this," he said.

Barriers

Artificial obstacles to the flow of grains and feeds in parts of Russia affected by drought are impermissible,Putin said.

"I draw the attention of administrators in areas were the situation is more favorable to not allowing there to be any kind of arbitrary decisions to restrict purchases of grain and feed. There should not develop obstacles to their movement in drought-stricken regions," Putin said at a government presidium session.

There is a single market for agricultural products in Russia,he said. "There should not be any kind of self-styled 'customs' built on Russian territory,or any other kinds of restrictions or barriers," Putin said.

During the meeting,Putin set the task of working on the subsidizing of feed-grain purchases,so that there will not be livestock mortality during the drought.

"I ask the Agriculture and Finance Ministries to figure out the needed volume of subsidies,primarily for the purchase of feeds,so that the support measure will be effective and timely,so that agricultural enterprises suffering from the drought feel this support and so that we don't run into the problem of cattle reductions,so that cattle are not put 'under the knife'," Putin said.

The prime minister underscored the need in this situation for maximally effective usage of the grain intervention fund,which stands at 9.5 million tonnes,3.5 million of which is feed grain.

"We bought this grain not cheaply,and storing it was expensive and is expensive. Voices were already being heard,saying,'Why do we need this at all?' It came in handy," Putin said.

The accrued reserves will allow the government to guarantee stability in agriculture,despite the drought,he said.

"It's a complicated situation,but I want to stress that we have a serious reserve of strength. The reserves accumulated over recent years allow us to guarantee stability in agriculture and to fully meet the country's domestic grain needs," Putin said.

The drought has thrust fourteen of Russia's constituent regions into a precarious situation,Putin said. "Of course,we will not leave agricultural producers on their own with this large-scale disaster,and it really is a disaster. The situation is very serious," he said.

The primary job is ensuring agricultural producers' stability,so the drought does not drive them into debt,Putin said. "I think our most important task in the current situation is to maintain growth in the production of livestock,and not to allow the number of cattle to drop," he said.

Source - Interfax