Friday, June 17, 2016

Russian Agriculture on a Roll

"Russia is able to become the world's largest supplier of healthy, ecologically clean and high-quality food, which Western producers have long lost."
Russian President Vladimir V. Putin

"The two hottest investments for rich Russians are farmland and European hotels. This trend is absolutely new."
Yevgenia Tyurikova head private banking, Sberbank

"It's becoming harder and harder to explain to the electorate why people have to buy imported cucumbers and tomatoes, given how much land Russia has."
Marat Ibragimov, analyst, BCS Global Markets, Moscow

"[Some growers] are in a lot of debt, not in particularly good shape, and often are not in the right place [resulting from a heritage of Soviet planning]."
"They require a hell of a lot more than simply getting people to put their money in."
Richard Connelly, Chatham House, London

"If someone were to ask me what the most proper and profitable business to invest in now is, I'd say agriculture."
Alexander Lebedev, former KGB officer, co-owner, Russia's biggest potato grower
A greenhouse facility in the Rostov Region
Sputnik -- Alexandr Pogotov

Last December, after making a public display of trashing imported food in Russia, Vladimir Putin declared an inspired new direction for Russian independence in food production and a source of wealth to be exploited. Russia is, after all, the largest country on the planet, and its arable land resources are tremendous. The Soviet experiment with agricultural collectivization aside as a spectacular failure, inviting farmers to extend their know-how to provide the nation with a reliable source of food while having the opportunity to make huge profits seems a winning proposition.

The Russian President is offering profit as a motivation for a renaissance in food production in Russia, not the vague promise of socialist altruism, exchanging personal profit for personal satisfaction in becoming a faceless cog in a neutral beaucracy. And 67-year-old entrepreneur Vladimir Evtushenkov is taking this opportunity very seriously indeed. The pride of the Yuzhny Agricultural Complex, a huge array of immense greenhouses located between the Black and Caspian Seas now grows hybrid tomatoes.

The ice-melt of Mount Elbrus in the near proximity of those greenhouses irrigates the produce, grown by the millions, to be trucked 18 hours north to Moscow. Mr. Evtushenkov is one of the top 40 Russians in the Bloomberg  Billionaires Index, and he knows a good investment when he sees one. He has invested in cellular services to medical clinics through his AFK Sistea, and he bought out Yuzhny months ago with the prospect of enriching himself while aspiring to Mr. Putin's goal of food self-sufficiency to be achieved by 2020.

The collapse of oil prices, the plunge of the ruble, the shaking of Russia's confidence and its stock market, along with the pricetag of the European sanction reflecting Russia's involvement in Ukraine has stimulated Mr. Putin to find another path to breaking free of the longest recession of his career at the head of Russian administration. Farming in Russia has now become profitable, more so than crude oil production. Food prices have gone up, matching inflation, almost double the four percent goal of the Russian central bank.

When Turkey shot down a Russian fighter jet in November, Moscow banned produce from its former ally. Videos of food inspectors bulldozing Turkish tomatoes went viral in Russia. Followed by Mr. Evtushenkov moving his industrial food complex along in the absence of his biggest competitor, to produce organic tomatoes and cucumbers that are making him even wealthier. Consumers, accustomed to hard times in Russia, are paying more and producers are reaping the benefit.

Last year Russia banned commercial planting of genetically modified organisms. GMO imports have since been banned. Moscow is right up front of a vocal global movement barring GMO products. And this year, Russia advanced to the winner's line, overtaking the United States as the largest exporter of wheat, reflecting bumper yields of corn, rice, soybeans and buckwheat.

Central Russia has become an agricultural fable known as the Black Earth belt, an excessively fertile region all its own. And wealthy Russians are riding the wave of agricultural production and personal enrichment. Agriculture minister Alexander Tkachev, promoted from governor of the southern Krasnodar region, is seeing his family's Agrocomplex JSC with its 200,000 hectares of arable land swell to 456,000 hectares to become one of Russia's largest landholders. Its net income from dairy and chicken farms stands at 6.6-billion rubles.
Harvesting wheat at the fields of the Lebyage-Chepiginskoe JSC in Timashevsky District, Krasnodar Territory
Sputnik -- Vitaly Timkiv
On the other hand, small farmholdings present a vastly different picture. These are inefficient farms, their cows producing far less milk than elsewhere. Kirill Dmitriev, who directs the state-backed Russian Direct Investment Fund speaks of roads and other infrastructure as inadequate, with scarce high-tech equipment, and little production of consumer items like beef and cheese. Yet the weaker ruble and the grain surplus has lifted food exports to a record $20 billion in 2015, outdistancing the profit from arms sales.

International food purchases by Russia have been slashed by 50 percent since 2013. The country's Russian Direct Investment Fund is collaborating with China in the creation of a $2-billion fund  for investment in agricultural projects. A joint venture with Thailand to build Russia's largest integrated dairy complex is also in the works. And an agreement has been reached with Egypt in the creation of an export hub for Russian grain on the Suez Canal.

Mr. Putin's goal of moving his country's economic ties from the West to redirect toward emerging markets is well underway. The fly in the ointment? Not for Mr. Putin or his wealthy cronies, or any of the corrupt governmental figures and private agencies, but for the small landowners, the farmers who will be left behind. It is not they who are the beneficiaries of state support in subsidies, and allowed to pay no tax on profits, but the large corporations pulling in the profits.

And the workers? Take 57-year-old Sekhernaz Akhmedova, employed at Yuzhny since the 1980s, who slices cucumbers from vines. Her opinion of Putin's goal of total self-sufficiency, which to achieve the results he anticipates depends on workers like her? "We work hard and fulfill the plans. I only wish they would give me a raise", she commented wistfully.

Labels: , ,

Links to this post:

Create a Link

<< Home

Follow @rheytah Tweet