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(Last updated: 29 Apr 2011)
Trends and opportunities
The market
Russia has vast reserves of highly fertile farming land; however, Russia’s agricultural sector was seriously hit during the 1990s following the collapse of the Soviet Union.
Uncertainly over farm ownership, withdrawal of government subsidies, and rising energy prices together with outdated equipment and technologies resulted in most of Russian agribusiness been unprofitable for many years. Russia found itself importing increasing volumes of basic foodstuffs. Russia has significant agricultural potential and has a large and growing domestic market, but has become heavily dependent on imports – a situation the Russian Government aims to address as a matter of priority.
The cattle industry was one sector significantly affected. Russia’s cattle herd declined by around 40 million during the 1990s. It fell as low as 12 million head in 2002, before recovering to the level of 22 million in 2010. At present the cattle per capita equals 20 million (Source: Russian Statistics Service, 1 February 2011). However, meat cattle make up only 0.5 million. Meat production remains very low.
Agriculture currently accounts for less than six per cent of GDP (perhaps only to 4.7 per cent according to USDA). However, it accounts for around 16 per cent (10 per cent BMI) of employment. Russian agribusiness is characterised by a shortage of working capital and high dependence on the state support. Foreign investment is welcomed (with some caveats) and is playing an increasingly important role in the development of Russia’s agriculture and food industry.
In order to stabilise the economic prospects of Russia’s vast agricultural sector, in 2006 the Russian Government adopted the National Priority Project for Development of the Agro-Industrial Sector. The program aimed to accelerate the development of livestock management and breeding programs as well as stimulation of the development of small-scale agribusiness.
Commercial banks have started to provide longer term credits to agribusinesses, with the Russian Agricultural Bank (Rosselkhozbank) and Sberbank being the key players. Government budget funds to assist farmers in purchasing pedigree animals have been allocated via Rosselkhozbank and Rosagroleasing. Animals can be purchased via authorised companies or received on lease via Rosagroleasing with further possibility to buy out.
As a result of these measures and increased investment activity, the situation in poultry, sheep and pork industries has considerably improved. Domestic meat production rose by 14 per cent in 2009 according to the Russian Agricultural Ministry. However, beef production continues to decline due to the lack of profitability in the industry with average ROI 7–8 years.
In January 2010 President Medvedev signed a ‘Food Security Doctrine’ aimed at ensuring Russia becomes 85 per cent self-sufficient in meat, 90 per cent self-sufficient in milk by 2020.
In 2010 the Russian Government planned to invest a further 400 billion roubles (approximately A$14.8 billion) in the development of the domestic agricultural industry. Rosselkhozbank plans to increase its loan portfolio by 34 per cent to €19.3 billion in 2010.
Opportunities
The major opportunities for Australian exporters and investors include:
- Supply of pedigree animals:
- Mainly cattle especially beef, but also dairy. The main breeds of interest are Hereford, Angus and Holstein – Frisian
- Meat sheep including Merino, Dorset, Suffolk, Border Leicester and some others
- Milk goats of Saanen breed (limited opportunities)
- Supply of semen from highly productive bulls; some potential for the supply of embryos
- Artificial insemination and embryo transplant technologies
- Grain, infrastructure and service
- Farm management technologies and services
- Agricultural consulting services (eg. pasture development)
- Cooperation between scientific research institutions for adaptation of animals on the basis of Australian genetics
- Investment in developing regions, including foreign direct investment in agricultural businesses
Issues/challenges:
- Pedigree certificate requirements in Russia differ from Australia. In line with the Russian legislation, a pedigree certificate should contain information on three generations on both father’s and mother’s lines. In Russia, cattle without a pedigree certificate are not classified as pedigree and fall into the commodity cattle category. Credit lines and subsidies from the Russian Government are provided for pedigree cattle only. This remains an ongoing concern in the market.
- Lack of expertise in handling cattle among some Russian farmers can result in losses that undermine the quality of animals supplied.
- Consolidation of shipments. There are quite a few small to medium farms that are willing to buy 100 to 400 cattle.
- Intense competition from other international suppliers.
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