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UDC 338.436.33:330.31:330.142.211(470.319)
THE FACTORS AND TRENDS OF REPRODUCING FIXED CAPITAL OF AGRO-INDUSTRIAL SECTOR IN OREL REGION
Nozdrunova N.G., Post-graduate student Orel State Agricultural University, Orel City, Russia E-mail: nozdrunova n@mail.ru
ABSTRACT
Reproducing fixed capital of agro-industrial sector is an objective economic phenomenon caused by the necessity reimbursement of its constituent elements that involved in the production of agricultural products. This process is closely connected with the work efficiency and economic opportunities of the enterprise in the financial and resource provision, because it is not only a consequence but also the most important reason of this efficiency. The Orel Region has significant competitive advantages in the agro-industrial sector: a favorable geographical position, advanced transport infrastructure. Agriculture occupies a significant part in the economic sector of the region, which in turn predetermines the necessity of study the problem of updating and modernization of fixed capital. The article reflects the indicators of agricultural activity of the Orel Region, the assessment of the park renewal of the main types of agricultural machinery is given, factors and risks affecting the process of reproducing the fixed capital in the industry are identified and its control methods are shown, the main directions of the long-term regional target program named «Development of agriculture and regulation of agricultural markets, raw materials and foodstuffs in the Orel Region for 2013-2020» in terms of trends in the technical and technological modernization and innovative development of industries are also reflected.
KEY WORDS
Fixed capital; Provision; Renewal; Reproduction; Factors; Risks; Management.
The agro-industrial sector is one of the most complex industries of the Orel Region. In the year of 2011, the output of agricultural production in the Orel Region was 36.6 billion rubles, or 131.8% compared to 2010 levels. In a comparable assessment, index of agricultural production for all categories of farms in 2011 has exceeded the 1990 level by 10.7% for the first time in the last 20 years.
The output level of crop production of the year 1990 was exceeded in 2000 and made 108.6%, and in 2011 it reached 185.4%. More complicated is the situation with the livestock production: in the year of 2011, the index of livestock production was only 44.9% compared to the level of 1990 [10].
At the moment, the most vulnerable sector is dairy and beef husbandry. The stagnation of production has reached a critical state in this industry. The output of milk production from 1990 to 2011 was reduced by 4.2 times in agricultural organizations and by 2.2 times in households. There is a steady reduction in the number of cattle. From 1990 to 2011 the number of cattle has decreased from 718.1 to 134.9 thousand heads, the number of cows decreased from 234.3 to 53.7 thousand heads and reached a critical level. More complicated situation with the beef production, the main part of which (99%) is low-grade beef obtained from the slaughter of culled cows [7].
In the opinion of A.V. Altukhov, the implementation of the priority national project «Development of agriculture» and the State Program of agriculture development and regulating of agricultural markets, raw materials and food in 2008-2012 allowed little to stabilize the situation in the production of milk and beef. However, in his view, the level of competitiveness is inadequate and is mainly determined by the increase of labor productivity, which based primarily on the use of highly efficient, resource-saving technologies. The most important production system is machine-technological complex, which capable to ensure implementation of these technologies [3].
The technical equipment of the Orel Region agriculture is characterized by the negative dynamics (Table 1) [2].
Table 1 - Providing of the agricultural production of the Orel Region with technical and energy
resources (on the end of the year)
Index Years Level of 2011 compare to 2007, %
2007 2008 2009 2010 2011
1 2 3 4 5 6 7
The main machinery park of agricultural ore anizations, units.
Tractors 5644 4732 4375 3965 3797 67,3
Combine harvesters 1978 1561 1415 1244 1207 61,0
Forage harvesters 298 240 233 217 202 67,8
Crops per unit of equipment, ha
Crops for combine harvester 251 294 381 445 459 182,9
Arable for tractor 184 191 219 279 246 133,7
Energy supply (energy capacity by 100 ha of sown area), hp 255 34 211 197 189 74,1
During the period from 2007 to 2011, there is a noticeable reduction in the number of tractors and harvesting machinery as a result of its physical deterioration. It should be noted that reduction in the number of tractors per year estimated on average 6.6% from 2007 to 2011 (from 5644 units in 2007 to 3797 units at the end of 2011). During the analyzed period, the park of combine harvesters decreased by 7.8% per year. The load of the combine harvesters and tractors is increasing; the energy supply of agricultural production is reducing.
Understaffing of agricultural machinery park limits the technical capabilities of farmers and reduces working efficiency.
The comparative load indicators for technical unit in the Russian Federation, the United States, Canada and Germany, represented by V.P. Khlusov, are showed in table 2 [5].
Table 2 - The average values of the provision of agricultural production by tractors and combine harvesters in the Russian Federation, the USA, Canada and Germany (on the end of the year)
n/n Arable load for 1 tractor, ha Load of grain crops for 1 combine harvester, ha
2001 2011 2001 2011
The Russian Federation 135 236 198 327
The Orel Region 130 246 175 459
The USA 39 55 200 254
Canada 63 63 233 250
Germany 13 16 74 95
Table 3 provides information on the acquisition of new machinery and writing off old equipment due to wear. It should be noted that in this table a secondary market for agricultural machinery is not considered, i.e. data actually indicate the park renewal [10].
From the viewpoint of A.V. Golovina, slow updating of machines and tractors park lead to its negative age structure: in large and medium-sized enterprises of the Orel Region dominated by machinery older than 9 years [4].
Thus, the main problem of the technical and technological modernization of the Orel Region agriculture is significant physical and moral deterioration of the fleet, its understaffing and high load per unit machinery.
To solve this problem, implemented a set of the measures of state support for the industry in terms of subsidizing interest rates on investment and short-term loans, leasing equipment, reimbursement of the cost of acquisition of material and technical resources within the priority national project named «Development of agriculture» and the State Program for 2008-2012 [8].
At the same time, the measures taken are insufficient even for suspending the reduction of the technical potential of agriculture; investment attractiveness of the agricultural sector is still quite low. According to L.I. Pronyaeva, this situation is due to the influence of
factors determining the process of fixed capital reproduction in agriculture. These are independent (objective) factors and dependent (subjective) factors (Figure 1).
Table 3 - The evaluation of park renewal of the main types of agricultural machinery in the Orel Region
Index Years
2006 2007 2008 2009 2010 2011
1 2 3 4 5 6 7
Purchased new equipment
Tractors 110 193 224 75 79 83
Combine harvesters 85 77 123 48 70 94
Forage harvesters 9 15 29 7 7 9
Coefficient of the renewal of agricultural machinery, %
Tractors 1,9 4 5,1 1,9 2,1 2,6
Combine harvesters 4,3 4,8 8,7 3,9 5,8 6,4
Forage harvesters 3,0 6,2 12,4 3,2 3,5 3,8
Equipment written off depreciation
Tractors 368 384 348 268 224 197
Combine harvesters 168 160 165 108 79 54
Forage harvesters 34 43 24 15 17 19
Elimination coefficient of agricultural machinery, %
Tractors 6,0 7,3 7,7 6,4 5,6 4,5
Combine harvesters 7,8 8,7 11,0 8,3 6,4 3,8
Forage harvesters 10,2 15,1 10,5 6,7 7,9 6,8
Factors determining the process of fixed capitalreproduction in agriculture
Dependent (subjective) factors
Figure 4 - Groups of factors determining the process of fixed capital reproduction in agriculture
The agricultural market has always a lot of sellers, because of this, none of them could offer a number of products that significantly would affect the price. Agriculture - is industry with perfect competition, which in other industries is rare. However, undeveloped land
Independent (objective) factors
market, undeveloped products and resources market complicates entry and exit in these markets.
In developed countries, agricultural production is regulated at the state level, and agribusiness organizations receive substantial budgetary support that contributes to the process of fixed capital reproduction.
In agricultural industry fixed capital has specific features. In addition to traditional tools and instruments of labor it includes land, perennial plantings and livestock. In the operation of fixed capital, economic processes are intertwined with biological, many tools and instruments of labor used seasonally, thereby forming a gap between working time and production time, and the duration of the production cycle lasts less than a year.
Another significant feature of the agricultural sector is the use of land as a means of production. Unlike other industries, in agriculture land is not only the basis for the location of production, but is also used as an immediate resource; means of production - fertility, which is essential for the land as a resource in agriculture.
Another feature that should be considered in the process of fixed capital reproduction is that agribusiness is classified as probabilistic systems subject to various risks, according to the author. Their combined impact on production can be very sensitive, especially under unfavorable combination of fortuitous circumstances [6].
According to Golovina A.V., in the Orel Region principal risks include the following:
1. partial funding of the regional target program «Development of agriculture and regulation of agricultural markets, raw materials and foodstuffs in the Orel Region for 2013-2020», lack of direct support measures to incentivize the implementation of planned activities;
2. climatic risks that could significantly affect the achievement of projected figures. The dependence of sector functioning from natural and climatic conditions also reduces its investment attractiveness. To reduce the risks of climatic conditions it is necessary to go to the new technologies, technical modernization, land reclamation in arid zones, additional measures of support in years with unfavorable climatic conditions;
3. macroeconomic risks caused by the unfavorable situation in world prices for certain exported goods, by decrease the possibility of achieving development goals of subsectors and by slowdown of the economy growth and the level of investment activity that will enhance the development of their dependence on public investment. Reducing of the negative impact of these risks should be provided through the development of exchange trade, which provides opportunities for hedging price risks, encouraging consumption of the certain types of crop and livestock production in the domestic market, diversification of domestic production in terms of the commodity nomenclature and geography of production, implementation of the measures of market state regulation;
4. the emergence and spread of contagious animal diseases in the Orel Region, the possibility of a sharp increase in the number of harmful insects and the epiphytotic development of crops diseases [4].
The key risks of the innovative development of the Orel Region agriculture are as follows:
1. increasing in energy prices and logistical assets that consumed in the industry, which limits a significant part of agricultural producers to implement innovative projects, to transition to the new resource-saving technologies, and on this basis, to ensure implementation of the model for accelerated economic development of the region in this sphere;
2. the insufficient information support regarding the use of modern high productive equipment and agriculture technology and rural territories;
3. slowdown in innovative development of agro-industrial sector;
4. decrease in the efficiency of agricultural production due to the lack of the implementation of biotechnology and increasing dependence on imports [1].
In terms of V.P. Khlusov, in the Orel Region, measures of risk management, which may affect the achievement of the planned objectives, are:
1. increase the share of private investment through the creation of conditions for attraction of investors in a public-private partnership, including assistance in purchasing land, connecting to electricity and gas networks, roads and other facilities;
2. the privilege extension for the exemption agricultural producers from VAT on importation of breeding cattle, embryos, semen on the transition period up to 2020;
3. promote the improvement of the competitiveness of domestic products on the basis of comprehensive modernization, improving exchange-distribution relations of producers, processors and trading based on the interests coordination of each of them;
4. the improvement of the customs tariff regulation of agricultural markets;
5. the establishment of modern laboratories, supply of veterinary medicines for the timely conduct of anti-epizootic measures;
6. create conditions attractive for investors to implement the construction and reconstruction of enterprises in the production and processing of agricultural products, as well as the creation of infrastructure to promote agricultural products to consumers [5].
Returning to the factors of the reproduction of fixed capital, should be noted that the significant share of the cost structure of agriculture is presented by fixed costs, i.e. costs that do not depend on production volumes according to L.I. Pronyaeva. You can reduce the number of livestock in response to reduced demand for milk, but the cow barn will still be in need of repair and maintenance costs.
A huge problem in the agricultural sector is a disparity in prices for agricultural products and means of production for agriculture (i.e. price ratio, indicating how many non-agricultural goods and services can acquire agricultural producer per unit of its product). The presence of disparity in prices affects the material basis of the renewal of fixed capital.
Price disproportions between related enterprises put industries in different economic conditions in price competition. As the economy and scientific and technological progress develops, agriculture is in quite disadvantaged. On the one hand, with growth in the supply, total revenue of the organizations of agro-industrial sector tends to decrease. On the other hand, the prices of the purchased goods outrun output prices. As a result, agricultural enterprises are unable to exercise investments in the development and updating of its material and technical base [6].
Thus, a significant impact on the process of the reproduction of fixed capital provides the specific features of the agricultural sector: production structure of the agricultural sector; the immobility of resources in agriculture; the duration of capital turnover; using land as a means of production; limited opportunities for diversification of its products; the probabilistic character of agricultural production and increased risks; the nonlinear character of return from investments into fixed capital; the inelasticity of demand for most types of products, etc.
In the Orel Region, the long-term regional target program named «Development of agriculture and regulation of agricultural markets, raw materials and foodstuffs in the Orel Region for 2013-2020» has been adopted. In our opinion, in terms of directions in the technical and technological modernization and innovative development of industries, the following should be considered:
1. The upgrading of agricultural machinery.
Seeks to encourage agricultural producers to purchase the high-tech machines for crop, livestock and fodder due to its implementation with discount approved by the Government of the Russian Federation.
2. The realization of perspective innovative projects in agro-industrial sector.
The action is aimed to the implementation of measures to achieve economic effect and the implementation of innovations, including the commercialization of scientific and (or) scientific and technical results. The organization of the selection of the most promising innovative projects that meet the criteria worked out is envisaged. Selected projects are funded on a competitive basis by the Ministry of Agriculture of Russia and (or) by the Innovation Fund with the use of public-private partnership.
State provides support for the following areas: innovative projects in the plant cultivation including resource-saving technologies and precision husbandry; innovative projects in livestock, including resource-saving technologies; innovative projects for the land reclamation for agricultural purposes; innovative projects for the processing of the agricultural products of vegetable and animal origin; innovative projects to develop the alternative sources of energy, including the production of biofuels from agricultural waste.
3. Development of biotechnology.
The event was developed in accordance with the Complex Program of Biotechnology Development in the Russian Federation for the period up to 2020, approved by the Prime Minister of the Russian Federation dated 24 April 2012 number 1853p-P8.
The implementation of the event aimed at the development and introduction of energy saving technologies in agricultural production.
As a part of the main event, creating the infrastructure of biotechnology development in agriculture is provided for. Using biotechnology in agriculture is focused on sustainable development of agricultural production, solution to the problem of food security, production of high quality organic food, processing of agricultural wastes, soil fertility restoration.
4. Providing the scientific and methodological support of the long-term regional target program named «Development of agriculture and regulation of agricultural markets, raw materials and foodstuffs in the Orel Region for 2013-2020»
The implementation of the event aimed at the development of scientific activity in the field of crop, livestock farming, technical and technological modernization of agricultural production, the development of biotechnology [9].
Thus, characterizing the status of the machine-technological sector of the Orel Region, it should be noted its significant physical and moral deterioration. The coefficient of renewal of agricultural machinery is at a low level and increases slow. In formulating the activities of technical and technological modernization of agriculture it is necessary to consider the influence of subjective and objective factors determining the process of reproducing the fixed capital, such as the production structure of the agricultural sector, the presence of a stable market of agricultural products and resources, availability in the market a large number of buyers and sellers, developed land market, the specificity of fixed capital structure, using the land as a means of production. Among the directions of the technical and technological modernization and innovative development of industries within the long-term regional target program named «Development of agriculture and regulation of agricultural markets, raw materials and foodstuffs in the Orel Region for 2013-2020» most important are the renewal of agricultural machinery, the implementation of promising innovative projects in agro-industrial complex, the development of biotechnology.
REFERENCES
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