In June Russian agriculture Minister Nikolai Fyodorov said Russia may harvest 85 mn tonnes of grain this year and 20 mn would be available for export.
While Russia will return to the top ranks of wheat exporters, following a temporary ban in 2010 brought about by a heat wave and drought that wiped out a third of the harvest, Russia imports significant quantities of virtually every other food category to the tune of $40 bn every year.
The rich agricultural soil that covers a vast area known as the “Black Earth Belt”, stretching from the Carpathian Mountains to Mongolia, has served as the granary of Russia since the seventeenth century. Farming in Russia has the potential not only to rejuvenate the rolling plains of the Black Earth country but revive failing villages and bring new life to rural areas in the world’s largest country.
But first Russia has to overcome systemic obstacles of infrastructure, storage and management techniques.
The country’s rickety infrastructure, which is currently holding down economic development after enduring years of neglect, came under the spotlight at this year’s International Economic Forum in St. Petersburg. Russian Railways President, Vladimir Yakunin, told the Forum that the Russian government should invite private investors to finance the country’s infrastructure through bonds, that “must be issued and backed by the government”.
Poor infrastructure hampers logistics and makes it difficult to get crops to market meaning that significant quantities of foods rot in inadequate storage facilities.
David Morley, president of recently established OOO Agricontinental, which incorporates the Foreign Farmers Club in Russia, says “Since the fall of the USSR, cattle population is way down and sheep numbers have fallen by more than half. Potato loss in the supply chain is between 30% and 40%. 30% of all available agricultural land is unused – a huge territory.”
More than ever before foreign companies and entrepreneurs are helping set the pace in reviving Russian agriculture. From dairy farming to poultry, foreign management techniques are proving that Russian livestock can match international levels of quality and productivity. The days when Russians bought chicken legs from the US because there was so little meat on Russian chickens has gone.
British-born John Kopiski’s dairy farm in the Vladimir Region is held up as a model of success for the region. It attracts delegations from farms, businesses and local administrations across Russia seeking to emulate its success. The first thing that shocks Russian visitors is that Kopiski’s barns are big and open sided in contrast with the smaller, solid brick cowsheds that have predominated across Russia since the Soviet era. The second thing that surprises visitors is that Kopiski gets an average yield of 10,000 litres of milk each from his 1,900 head of cows. That compares with a national average of 3,800 litres per cow.
Kopiski credits his success neither to the buildings, nicely ventilated sheds nor the carefully balanced diets of his cattle but to management. “It’s all about management,” he told an interviewer from Russia Profile magazine. Kopiski’s farm manager, Lorin Grams, and his herd manager, Levi Hensley, both hail from the United States and are born farmers.
“We have lost our peasant or farming class in Russia,” says Kopiski. “We don’t have people who know how to work the land.” So he had to look overseas for managers who are not only born and bred farmers but have degrees in the complex business of modern farming that cannot be found in Russia.
Over the last decade Russians have been investing in their own agriculture, after years of neglecting the industry which saw the collapse of Soviet collective farms, the once abundant fields neglected and Soviet-era brick farm buildings crumbling as higher profile energy, power, metals and mining industries dominated the economy.
Two examples are striking. Rusagro and Cherkizova Group are both listed on the London Stock Exchange and have surged to prominence within the last ten years.
Cherkizovo Group is a leading Russian vertically integrated, agro-industrial company with operations spread across the full production cycle - from feed production and breeding to meat processing and distribution. The holding company was formed in 2005 through a combination of the Cherkizovsky agro-industrial group and the Mikhailovsky agro-industrial group.
The group is planning a massive expansion in poultry farming and, like Kopiski, is seeking foreigners to help. Using Agrocontinental’s partner network they are seeking to hire a Chief Agronomist who will be in charge of crop (corn, wheat) growing on 5-12 thousand hectares. The crop will be turned into poultry feed. The Moscow-based job offers assistance with relocation and housing, an interpreter and travel expenses as well as an internationally competitive salary and performance bonus. About half of the Chief Agronomist’s time will be spent in Yelets, a city in Central Russia 390 kms from Moscow.
The company has also launched a 100 million Euro joint venture turkey meat production project with Spain’s Grupo Fuertes on a 5,000 hectare site in the Tambov region, 480 km Southeast of Moscow. The project aims to produce initially 25,000 to 30,000 tonnes of turkey meat which will eradicate the 30% of Russia’s current 100,000 tonnes of annual consumption.
Rusagro, with 15 years of operation initially as a cane sugar supplier to Russia’s confectionary industry, now prides itself as operating the fifth largest pig breeding complex in Russia with the goal of becoming a leader in Russia in production efficiency through “advanced pig breeding technologies, optimisation of resource management and utilisation of synergies between our agricultural division and pig breeding operations”, according to its website.
Rusago launched its pig breeding project in 2006. It now consists of six farms clustered in the Belgorod region within 60 kilometres of their fodder plant, which is adjacent to their Nezhegolsky grain elevator.
In 2012 Russia is expected to consume some three million tonnes of pork, of which 600,000-650,000 tonnes will be imported, so Rusagro and Cherkizovo, which announced the acquisition of a a swine nucleus unit in the Voronezh region have lots of potential local demand to meet.
Cherkizova’s new swine nucleus unit is also located in the Voronezh region. The unit houses Duroc, Yorkshire and Landrace breeds and will produce purebred gilts and boars. The facilities include a boar stud, a breeding facility for 2,400 sows, a nursery facility for 10,000 pigs and a finishing facility for 6,700 pigs.
Local production of poultry is also slowly growing and imports falling. Russia’s 140 million people consume 3.5 million tonnes of poultry and 10% is imported. Only a few years ago the country imported over a million tonnes of poultry a year.
Agricontinental’s Morley estimates there are some 25-30 foreign farmers working independently in Russia, with many more contracted to Russian farming operations. They range from one man bands to Heartland Farms Penza, the wholly owned Russian subsidiary of Heartland Farms (UK) Ltd which is part of the Monk Group Limited. Heartland has revived some 14,000 hectares with another 4,500 about to be added around Penza – an enormous acreage compared to farms in Britain. The combinable crops include wheat, malting barley, rye, protein crops and sunflower seeds. Sugar beet is also an important part of the rotation and trials are taking place with oilseed rape, potatoes and beans. All of the produce is specifically for the domestic market and many crops are grown on contract for food producers based in Russia.
At the one-man-band level there are people like New Yorker Jay Robert Close and his wife Valentina who four years ago invested their all into a property in Solnechnogorsk close to Moscow. With a few cows, goats and sheep he has mastered the art of cheese-making after ten years as a chef and restaurant manager in Moscow. Jay sells his cheese through the organic produce network of Lavkalavka and its Live Journal web site.
Farmers, like other foreigners can own their own businesses, register limited companies and buy farmland in Russia. The freedom to own a company or property comes as a surprise to many foreigners and the cost is also low. Accountancy firm DebitCredit for example promises to register a limited liability company for foreigners in 11 working days for under 1,000 €.
Land is also going cheap. John Haskell, the General Director of Vostok Agro, the British owned leading supplier for grass seed in Russia says in a post on Agrocontinental’s LinkedIn discussion group that land in the Black Earth Belt costs $400-$600 per hectare. That, he says, equates to 0.6 to 1x the revenue you can expect from the land in a year. Not only does that compare favourably with the 5x earnings it would cost in Brazil or the 6x earnings in the US Midwest but, Haskell says, there is scope to increase the revenue per hectare as farmers upgrade the crop from wheat to soybean and corn.
Agrocontinental, which is fast developing as a vital bridge between Russian farmers and western technology, started with basic support and services for foreigners seeking to farm in Russia. “ We are a base of expertise and can help people coming in with proper legal structures and deal with a whole host of non-farming issues which can cause problems,” says Morley.
“Pig farmers, cattle and dairy farmers are all being successful,” says Morley who projects a message that “Russia might be a difficult place to do business but, given the right support, farmers here who are doing it right are making money.”
While 35 acres is considered a good size farm in Scandinavia, “it is but a back garden for a lot of Russians,” comments Morley who insists that whatever the size they opt for in Russia the foreign farmers who could flow will bring expertise that otherwise would be hard for Russia to acquire.
Increasing agricultural production is a key objective of the Russian government but they have not yet gone the length of Catherine the Great’s favoured minister, Grigory Potemkin. In the latter half of the 18th Century he attracted thousands of German settlers to the Volga region with offers of cash subsidies, an allocation of 70 acres of land, seed for the first winter and spring sowings, two horses per family and freedom from taxation for up to 30 years. Over 300,000 of the Volga Germans were still in Russia in 1920.
Russia has the capacity to become Europe’s food provider within a generation. Achieving that could be one of the exciting economic stories of the early 21st Century. The wave of foreign farmers that Agricontinental’s David Morley hopes to attract will expand on the trail blazed by the likes of John Kopiski and Jay Robert Close.