Increase of prices of some oil products, in particular, diesel fuel, put the agriculture in a difficult state. The special weight of diesel in the direct price of agriculture production, produced in Azerbaijan, comprises 8-12%, including 8-9% - in grains production, 12% - vegetable growing, 16% - potato growing, 12-13% - cotton growing, 3.1-4% - wine growing. In accordance with the calculations by the specialists of the Agriculture Ministry, the countrys need diesel fuel for agriculture production comprises 230,000-250,000 tons per year worth 42-45m AZN. After the increase of tariffs the figure was increased to 84-90m AZN. Thus, rise of expenses of agriculture producers immediately in two directions in the sphere of growing and production of agriculture production and delivery of products to the place of destination, will certainly lead to rise in the prices of agriculture products. Heydar Babayev, the Minister for Economic Development, predicts 3-16%-rise in prices of some agriculture products. However, Ismat Abbasov, the Minister for Agriculture, thinks price rise might entail doubled-rise in prices of agriculture products. There is also a probability for cut in the amount of production of agriculture products following willful cut in sown areas and plantations by the agriculture producers.
In this situation the government came to an agreement upon approval of targeted grants-in-aid to producers of agriculture products for support to the agriculture. The Ministry of Economic Development has drafted and presented to the government proposals on approval of grant-in-aid to the agriculture sector of economy. In its turn, the Agriculture Ministry carries out work over development of a mechanism on compensation additional expenses in connection with the rise of tariffs of diesel fuel. A special working group established in this purpose with in the composition of representatives from different departments and bodies of the ministry, is involved in the monitoring and analysis on defining the scale of impact of price on the production of agriculture products. On the base of conclusion of the commission the Ministry will present a packet of proposals to the government for consideration. The Finances Ministry is also planning to submit its proposals shortly. Finally, relevant changes will be injected to the budget of the country.
Stimulating policy conducted by the government in the agrarian sector is new for Azerbaijan. From 1997 to 2001 grants-in-aid were allocated out of the budget with regard to cover the difference between the final price and the price sold to producers of the agriculture products in the sphere of agro-industrial production. At present the agriculture enterprises are released from payment of taxes, except the land taxes. Last year the term of tax privileges applied in this sphere was prolonged for 5 years more last year with respect to ensure stable development of agriculture. Moreover, at the presidential decree, Agroleasing joint-stock company was established especially to provide the farmers with agriculture technique. Besides, the government carries out measures on stimulating the sale of final products, for instance, the form of delivery of state support in the organization of wholesale bases on sale of agriculture products, organization of different fairs and exhibition of agriculture goods, conduct of enlightenment work, as well as expansion of financing the agriculture enterprises.
Direct and indirect approval of grants-in-aid to agriculture is implemented in many world countries. Many countries increased their movement to the foreign markets, though their successes differ considerably. For instance, the developed countries such as the United States and the European Union are too lavish in allotting grants-in-aid for the agrarian sector. The statistics shows, 85% of world subsidies for agriculture fall on the EU.
Usually, the so-called estimation of support to producers is taken as major indicator of support to agriculture. The method applied on all member-countries of the Organization for Economic Cooperation and Development (OECD). The estimation of support to producers (ESP) measures the amount of money used as a result of governments policy on transfers from consumers and taxpayers to agriculture producers. The interest rate of ESP reflects the share of transfers in the total amount of agriculture incomes. The transfers imply the direct payments and excess expenses (lost benefit), which the consumers pay due to purchase of expensive local products, but not the cheap import goods. The positive amount of ESP testifies for subsidizing of agriculture, while the negative show the agriculture is donor for other spheres and consumers.
There are two sources of support or assistance to the agriculture. The first is the so-called support to the market prices, envisages rendering to consumers the agriculture support through purchase of products at high prices. If the price rise results in marketable surpluses, then stimulating of their export with the assistance of export grants-in-aid, which pay the consumers rather the taxpayers. The major form of such support is the barriers in the foreign trade in the form of restricted import, import tariffs and export subsidies. It includes compensation collection, excises, different taxes and non-tax restrictions in the form of allocation of production to cut in supply and administrative regulation. Therefore, the official customs duties can often be low, while goods import is prevented through other mechanisms.
The second form of support is the budget transfers or grants-in-aid to agriculture, which do not have direct impact on consumer prices or market prices. Al payments can be divided into two groups: payments referred to issue and payments, which lead to cut in expenses (directly or in the perspective). They can be subsidies, state financing of some types of expenses, state capita investing, investments infrastructure. The subsidies can also be allocated in the form of tax privileges. Privileged prices of energy resources can serve as another example.
There is also a support to the general service this is cost of researches and projects in the agriculture, maintenance of specialized schools, agriculture inspection, other elements of infrastructure, marketing and advertisement of agriculture products at the expense of the government
The experts guess, the developed countries will not cancel the export agriculture subsidies unless they receive larger access to industrial goods market of developing countries. The developing countries, however, will not make them open their markets, including the service markets.
In their turn, the develop countries try to attract the foreign and interior investments to the development of the national economy. However, the production in the some spheres like the agriculture, is attended by a high level of risk and sometimes unprofitableness. In this connection many word countries the government supports the development of the agriculture complex through direct grants-in-aid, as well as indirect measures in the form of insurance, financing the expenses for fuel, approval of privileged taxes, in particular, release from profit taxes for definite period. However, the tax privileges first of all should be analyzed in detail to clarify their benefits or damage for the government and economy in whole and further to liquidate the groundless and left in force the necessary.
At present there is not a unilateral opinion whether the agriculture needs grants-in-aid. The debates between the supporters and opponents of grants-in-aid become tougher and tougher. The opponents explain their position with market imbalance, impediment in development of private and equal-direction rivalry, drop in prices of agriculture products, creation of re-production and consequently, bankruptcy of farmers caused by grants-in-aid in the many countries.
For Azerbaijan the approval of grants-in-aid for agriculture for the time being comes as obligatory, but it will be more probably of targeted character. But how to select the needy agriculture producers remains still questionable.