Russia – Agriculture – Western Sanctions Keep on Giving

Russian agriculture sector flourishes amid sanctions

Agriculture has overtaken arms sales to become Russia’s second-biggest export secto

When the EU and US imposed sanctions on parts of Russia’s economy following military intervention in Ukraine 2014, some local officials portrayed the blockade as an opportunity. Together with a falling rouble, they said, it would boost development of domestic business by encouraging import substitution and making exports more competitive.

Many western analysts and investors were cynical. But in at least one area of the economy — agriculture and associated sectors — the optimism has been vindicated. Russia last year became the world’s biggest exporter of grains, at more than 34m tonnes. Total Russian grain production hit a record 119 m tonnes. The turnaround is striking since as recently as 15 years ago — and for a couple of decades before during the Soviet era — Russia was a net importer. The success goes beyond grain. Russia has fully substituted imports with domestic production of pork and chicken. It has become a top producer of sugar beet; greenhouse vegetable production last year was up 30 per cent on the year before. While agriculture remains far below oil and gas, the sector has overtaken arms sales to become Russia’s second-biggest exporter.

Globally, a weak agricultural commodities market has hit demand and prices for fertilisers at the same time as new capacity is coming online. But PhosAgro and other Russian fertiliser companies are benefiting from the domestic agriculture boom, with Russian consumption of crop chemicals up 16 per cent last year, against global growth of 2.2 per cent, according to preliminary data from the International Fertilizer Association. There are relatively few large quoted Russian agriculture companies. But since March 2014, when sanctions were imposed, shares in Cherkizovo, the meat processor, have jumped 63 per cent, well above the 45 per cent increase in the rouble-denominated Micex index. PhosAgro’s shares have risen 85 per cent in rouble terms in that period, and shares of Acron, another mineral fertiliser producer, have tripled. Growth in Russian agriculture and linked sectors could potentially continue to be strong as rising profits allow farm groups to invest in technology and more fertilisers to improve sub-par productivity. The most exciting opportunity lies in Asia, where Russia has a band of fertile land along its border with China. There, the soil and climate — on a similar latitude to the big grain-growing areas of the US — is good for soyabean cultivation. With food exports to China still in their infancy, developing that sector could take years, or even decades. Even without it, however, Russia’s agriculture boom shows that, despite sanctions and the poor state of east-west relations, there are pockets of value and opportunity to be found in the Russian market.

Source:

https://www.ft.com/content/422a8252-2443-11e7-8691-d5f7e0cd0a16


 

Russian Agriculture Thrives Amid Restrictions

Russia’s agricultural boom continues to pick up steam. The government has committed 13.7 billion rubles in new subsidies to farmers, which will help them with the purchase over 21,000 new pieces of equipment, including tractors and seeders. The agricultural sector has only seen benefits from the three year sanctions war between Russia and the West.

The Russian government expects the 13.7 billion rubles in new assistance to help not only farmers, but the domestic agricultural machinery sector as well. In the first six months of 2016, Russia produced 35% more tractors and harvesters than it did in the same period in 2015, with farmers ever-hungry for new equipment. The Cabinet seems to be hoping to continue that trend.

Russia has enjoyed an agricultural boom since 2014, with the trend setting to enter its third straight year. In 2014, in response to a series of sanctions by the US and Europe on Russian companies and individuals, Moscow slapped a ban on the import of some agricultural products from the countries which introduced the anti-Russian restrictions.

The sanctions have hit Europe particularly hard, with estimates in mid-2016 indicating that the countersanctions had cost European producers $65 billion in lost revenues. Some countries, like the Baltic states, were hit especially hard: their dairy farms and fisheries have suffered catastrophic declines of 30% or more.

Russian farmers, on the contrary, only benefited from the restrictions, producing record harvests and even becoming the world’s leading exporter of wheat and other grains.

Russian food security also stood to benefit. In 2016, Russia imported 22% of its total consumption of agricultural products, down from nearly 40% in 2013.

Growth in the domestic production of pork and poultry products has already come to negate the need for imports. Fresh vegetable output grew 30% in 2016 compared to the year before, with the use of greenhouses allowing imports to decline dramatically even in winter, from 70% before the countersanctions took effect to 35% today. In a year’s time, the Russian Institute of Agricultural Marketing expects imports to fall to less than 20%.

The agricultural boom has been so strong that it even defied the overall recession facing the Russian economy over the last year and a half. In 2015, when GDP contracted by 3.8%, the agricultural sector grew 2.2%. In 2016, when the decline stopped and economic growth inched forward 0.3%, agriculture jumped by 4.8%, becoming the leader among those industries showing dynamic growth.

Even Western financial observers have been forced to begrudgingly admit the futility of Western countries’ sanctions policy. The Financial Times recently reported that agriculture has overtaken arms to become Russia’s second-largest category of exports. Sanctions, FT noted, only served to fuel the development of Russian agricultural companies, with government and producers focusing their efforts on import substitution. Amid the devaluation of the ruble and falling fertilizer and fuel prices, the profitability of the sector skyrocketed, according to the newspaper.

Speaking to RIA Novosti, Timur Nigmatullin, an analyst at Moscow-based Finam, a financial services company, pointed out that in contrast to other industries, the Russian farming sector doesn’t require a lot of investment to get going. This was a key component to its success, he said.

“The industry itself is not very capital intensive. To start production, for example, on the open field, does not require a large amount of capital, in contrast to the construction of say a factory. It’s possible to start producing relatively quickly if the demand is there,” Nigmatullin noted.

For now, the analyst added, the sector still has a long way to go to reach its full potential, with agriculture still occupying a very small share of total GDP – about 3.5%.

The Russian government seems to realize the importance of countersanctions in improving the outlook for agriculture. Last month, Russian Minister of Agriculture Alexander Tkachev proposed extending the food embargo for another decade. The minister insisted that given a few more years, Russia can become a net exporter of food, and not only in grains.

Nigmatullin agreed, saying that given the right conditions, agriculture, which accounts for 5% of total exports, can continue to strengthen its position in Russia’s export balance, outpacing chemicals and rubber goods (6%), and perhaps even metals and metal products (10%).

Best of all, the boom is expected to lead to lower prices for Russian consumers. Amid the shocks accompanying the decline of the ruble’s value in 2015, prices for many food products have also crept up. However, according to Institute of Agricultural Marketing director Elena Turina, domestic production has already helped to stabilize prices, and even bring some of them back down.

“A similar situation is already being seen in the pork and poultry markets. The growth in production has led to stable prices, with prices even falling in some categories. We can expect the same thing to occur in the market of greenhouse-grown vegetables,” Turina said.

Furthermore, the analyst noted that Russia is now investing in new categories where it previously had limited experience, including the production of new kinds of mushrooms (champignons and oyster mushrooms), orchards and viticulture. “In two years, we will reduce the import of stone fruit (plums, cherries, black cherries) and pome fruits (apples and pears),” the expert promised.

Source:

https://sputniknews.com/russia/201704201052809125-russian-farmers-like-sanctions/

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