Belarus: Agricultural Productivity and Competitiveness. Impact of
6.3 Competitiveness Crop production in general
The competitiveness of crop production in Belarus shows large dierences be-tween crops, farms and years (Table 6.5, Table 6.6, Figure 6.10). Wheat was Belarus' most competitive crop in 2007, capturing this position from barley and potatoes which saw a decline in competitiveness between 2003 and 2007.
In 2007, about 65 percent of farms producing wheat did so competitively, ac-counting for 69 percent of the wheat production (by volume). However this share varies considerably from year to year and was as low as approximately 11% just one year earlier, in 2006. This variation in competitiveness is to a large degree a reection of variation in the world market price of wheat that saw a considerable increase in 2007/2008 (Figure 6.8). The best results for barley were recorded in 2005, when about 77% of the production (num-ber of farms) in Belarus was competitive; in the other years this share varies between roughly 22% and 65%. The share of competitive production varies between 19% and 33% for rapeseed, and between 26 percent and 69 percent for potatoes. Corn and sugar beet production, however, display very low levels of competitiveness (close to zero) in all years.
This low level of competitiveness in crop production at economic prices con-trasts with considerably higher levels of protability at nancial prices. This indicates that the net eect of market and price distortions on agricultural input and output markets in Belarus is to subsidize production. The share of crop production that is protable at nancial prices and costs is almost al-ways larger than the share that is competitive at economic prices and costs (Table 6.5). The only notable exception is potato production which was im-plicitly taxed in the years 2003, 2004 and 2006. However, even under these
Figure 6.8: Global price uctuation and medium-term development for selected crops, daily data, 2000-2009
Source: World Bank (2009b), own presentation.
Table 6.5: The shares of farms with competitive crop production in Belarus that are competitive at nancial (0 < PCB < 1) and economic (0 < SCB < 1) prices in costs (in %, 2003-2007)
Source: Own calculations with Belarusian farm data base, see Technical Ap-pendix 2 in section 6.7.
* For corn in 2003 and 2004 there are not enough observations for the estima-tion of a distribuestima-tion.
6.3. Competitiveness 99
Table 6.6: The shares of crop production (by marketed volumes of production) in Belarus that is competitive at nancial (0 < PCB < 1) and economic (0 <
SCB < 1) prices in costs (in %, 2003-2007)
Source: Own calculations with Belarusian farm data base, see Technical Ap-pendix 2 in section 6.7.
* For corn in 2003 and 2004 there are not enough observations for the estima-tion of a distribuestima-tion.
subsidized conditions, a considerable share of crop production is nancially unprotable, with losses covered from the governmental budget. In 2007, for example, roughly 50% of the barley, potato and rapeseed producing farms in Belarus were making nancial losses, as were about 40% of the sugar beet and approximately 20% of the wheat and corn producing farms.
The special case of sugar beet
Sugar beet production is not competitive in Belarus, but the large share of farms and production that are nancially protable illustrate the preferential treatment and governmental support that this sub-sector receives. Sugar beet was identied further above as the agricultural product with the largest rate of growth in production in Belarus since the mid-1990s (Figure 6.9) and shows a nancial protability between 55 percent and 72 percent (between 2003 and 2007). The sub-sector's economic competitiveness, however, was zero for four of the ve years analyzed, and only 3 percent in the fth (and that even though world sugar prices were exceptionally high in that year, see Figure 6.8). While these numbers show the eectiveness of state support to boost production in a selected sub-sector, they also point to a particularly large policy-induced dis-tortion in incentives for agricultural producers in Belarus. Under the given support scheme, sugar beet production is attractive for many farmers (in fact, they are expected to produce sugar beet), and productive resources are allo-cated in this direction. These resources, however, would add more7 value to the economy (society) overall if reallocated to alternative production processes.
7In fact, they currently deduct value from the overall economic result.
Figure 6.9: Changes in the production of major agricultural products in Belarus three-year averages (1995-1997, 2000-2002 and 2005-2007) (1995-1997 = 100)
Source: Own calculations with data in Table 6.25.
Livestock production
In general, livestock production in Belarus is less competitive than crop produc-tion from both the economic and nancial perspectives. With the excepproduc-tion of milk, the share of farms producing livestock products competitively has never been above 13 percent in the ve years analyzed (or 33 percent in terms of production volume). Financial protability has been higher, indicating gov-ernmental support, but has never exceeded 43 percent of farms (again with the exception of milk) (Table 6.7, Table 6.8, Figure 6.11). As was the case for crop production, the net eect of market and price distortions is to subsidize production. With the (minor) exception of beef production between 2003 and 2005, the share of livestock production that is protable at nancial prices and costs is always larger than the share that is competitive at economic prices and costs.
The special case of dairy production
Three quarters of dairy farms produced milk with nancial prots, but only in the year 2007 has the economic competitiveness climbed as high as 45 percent from 5-14 percent in the four years before. Like sugar beet, dairy production has increased considerably over the last decade, with milk productivity (kg milk per cow and year) nearly doubling between 2000 and 2007 (Table 6.1). This impressive performance, however, was achieved through massive governmental support to dairy farms and despite an implicit taxation through articially low product prices set by the government (foot on the gas pedal and the brake
6.3. Competitiveness 101
Figure 6.10: Social cost benet (SCB) distributions for crop products in Belarus (2003-2007)
Source: Own calculations with Belarusian farm data base. For details and assumptions, see Technical Appendix 2 in section 6.7.
Figure 6.11: Social cost benet (SCB) distributions for livestock products in Belarus (2003-2007)
Source: Own calculations with Belarusian farm data base. For details and assumptions, see Technical Appendix 2 in section 6.7.
Table 6.7: The shares of farms with competitive livestock production in Belarus that are competitive at nancial (0 < PCB < 1) and economic (0 < SCB < 1) prices in costs (in %, 2003-2007)
Source: Own calculations with Belarusian farm data base, see Technical Ap-pendix 2 in section 6.7.
Table 6.8: The shares of livestock production (by marketed volume of produc-tion) in Belarus that is competitive at nancial (0 < PCB < 1) and economic (0 < SCB < 1) prices in costs (in %, 2003-2007)
Source: Own calculations with Belarusian farm data base, see Technical Ap-pendix 2 in section 6.7.
at the same time) which provides the dairy processing industry with cheap inputs. The net eect, as illustrated by the dierence between the PCB and SCB ratios of Table 6.7, was clearly in favor of dairy farms, taxing the rest of the economy. In 2007, like in the three years before, about 75 percent of dairy farms operated with nancial prots, while assessed at economic prices only about 45 percent of the farms were actually competitive. Unusually high milk prices in that year, however, raised the share of competitiveness above the more typical level of around 10 percent (5.2 to 13.6 percent between 2003 and 2006). This means that in 2007, 39 percent of the nancially protable dairy farms would not have been protable if economic prices had prevailed, i.e. in the absence of currently existing divergences (distorting policies and market failures). And in the more typical year 2006, this proportion would even have
6.4. The impact of subsidies on performance at the farm level 103 reached 85 percent8. Given that milk and milk products are Belarus's main
agricultural export products, the striking discrepancy between competitiveness at economic prices and nancial protability has another important implication in addition to its impact on governmental expenditure. With nearly half (46 percent in 2007) of its dairy products being exported, much of Belarus' state support provided to dairy production eectively becomes an export subsidy and due to Russia's large share in Belarus' dairy trade (to some extent) a subsidy paid by Belarusian taxpayers to Russia9. Current plans foresee an expansion of Belarus' dairy production by 118 farms, which will increase the amount of milk produced (and exported) and hence transfer even more resources from Belarusian taxpayers to Russia.