Russian state support for farmers leads to opportunities for agricultural suppliers

Agriculture is one of the top performing sectors in the Russian economy – especially in light of the country’s recent economic troubles. Due to its high importance, and contributing some 8.5% of the country’s overall GDP, state support for farmers is very likely to continue. Opportunities in this area will also increase too.
 

State support for the Russian agricultural sector

At a press conference in December 2015, President Putin committed to long term support for farmers and the agricultural sector as a whole. “All the plans related to the support of the agro-industrial complex will be performed including financial support,” Putin stated.

Long term investment is assured by the government. Part of this includes the on-going Agricultural Development Program 2013-2020. Revised in 2014, this program pledged to invest 166 billion roubles ($4.6 billion) into the sector in 2015 followed by a further 165 billion roubles in 2016.

This package includes financing and taxation support. At the December 2015 press conference, Putin also mentioned the possibility of a two-year tax exemption scheme for new farmers. Farming and agricultural machinery producers in Russia will also see significant government backing. Last year, 1.9 billion roubles ($25.2 million) was invested as subsidiaries to agricultural machinery manufacturers and this will increase to 10 billion roubles ($133 million) in 2016.

In addition to government subsidiaries, Minister of Agriculture Alexander Tkachev proposed a plan to compensate farmers for direct costs of agricultural equipment in an hour during the State Duma in December 2015. As this proposal is popular amongst the farming community, it could increase subsidiaries by 6 billion roubles ($79 million) in 2016 and funding for this is likely to be part of that year’s federal budget.

A support package backed by major Russian banks offering 14 billion roubles ($179 million) of credit at a rate of 11.5% was created in late 2014. This resulted in construction of several agricultural processing facilities for dairy cattle, pigs, poultry and sugar production being constructed, demonstrating the commitment to agricultural growth from not only government but the private sector too.
 

The Russian agricultural sector’s continued growth

Growth outlooks for the agricultural sector are promising. While conservative estimates from the Ministry of Economic Development place 2016’s growth rate at 1.9%, there are more optimistic figures being floated. Dimitry Rylko, General Director for the Institute for Agricultural Market Studies (IKAR) believes that growth could reach 2-3%.

Furthermore, the Ministry of Agriculture has made two further predictions. Provided plant growth, fuelled by grains, oil seeds, potatoes and beets, grows at 1.7% over the next 12 months, total agricultural output will grow by 0.9%. In a best case scenario, with animal breeding increasing alongside plant cultivation, then the agricultural sector could expand by 3.1%.
 

More domestic food produced in Russia

So what does this mean in practical terms? Essentially, it means that a number of key farming areas have reported increases in production from 2015 onwards.

For example, Agroinfo reported that Russia is actively increasing its production of poultry meat. During the period of January-November 2015, 4.9 million tons of poultry for slaughter in live weight was produced. This is an increase of 8.6%. Egg production also rose by rising 3% to 29.9 billion units during the same period.

2015 also saw a record vegetable harvest. 16.1 million tons of various greenhouse vegetable crops, such as cucumbers and tomatoes, were produced – 12.3% higher than the average from the past five years. Potato production increased too. 33.6 million tons were harvested in 2015, another big increase, some 15.9%, compared with the past five years. Total harvest of fruits and berries grew 9%, reaching 2.9 million tons, according to Fresh Plaza.
 

Sanctions – good for growth?

Despite food import and export bans, and widely document sanctions, Russia’s food exports continue to grow. News site Russia Beyond the Headlines reported that the total value of exports was estimated to grow some $5 billion in 2015 to reach a total of $20 billion.

Nations that previously imported less Russian produce are likely seeing an increase in trade, driving up export values. 86 countries currently import Russian vegetables, including India and Lithuania. A further 49 are supplied with meat and its by-products, such as Finland, Korea and Vietnam. Japan and The Netherlands are amongst the 82 nations that are importers of seafood from Russia.

It seems that, despite sanctions and the devaluation of the rouble, further markets have opened up – not least of all China. The Financial Times noted that Russian agricultural exports to China increased 33% in Q1 2015.

“China always wanted to export its own products to our country, but now China is suddenly interested in Russian agricultural products,” Alexei Alexeenko, a senior official at Rosselkhoznadzor, Moscow’s agricultural authority, said regarding improved Sino-Russian trading. “With regard to agricultural products, Russia and China have many new very significant supply projects. They range from pork to vegetables.”
 

Domestic dominance for Russian producers

Others are convinced that the sanctions have had a net positive effect on the agricultural sector. German entrepreneur Stefan Dürr, a major dairy production plant owner, believes that sanctions have played into the hands of Russia’s domestic producers.

“I recently had a visit from one of the major buyers of the company Metro in Russia. Earlier, it was extremely difficult for domestic manufactures to be included in Metro’s list,”  Dürr told Sputnik News. “There were entry fees, and the goods were often paid for only after eight or twelve weeks.

“Meanwhile, however, Metro is desperately looking for Russian suppliers. It is even ready to pre-finance manufacturing of new products.”

Dürr also noted that his company, Eknovia, has diversified its portfolio following sanctions. Previously, Eknovia was just selling raw milk. The enterprise has since expanded to offer products such as cottage cheese, butter and yogurt.

With solid growth numbers forecast, and a growing domestic market for produce, there exists a wealth of opportunities in the Russian agricultural sector. As this is such a vital industry to Russia’s economy, it is likely that the agricultural sector will continue to enjoy substantial support at all levels in the near future.
 
 

Related Article