The most important achievement of the past year for Russian agriculture is the record amount of added value produced. The Ministry of Agriculture claims that in 2021 it increased by 23% to 4.4 trillion rubles, which is significantly greater than the growth dynamics of 2020 (8.2%). At the same time, according to Rosstat, there was a decline in real production last year: the index for the production of agricultural products at comparable prices fell to 99.1% of the previous year’s level.
The agricultural authority explains this fact by the reduction in the production of plant breeders due to unfavorable weather conditions, as well as the slowdown in the development of animal husbandry due to a severe epidemiological situation and rising feed, energy and consumption prices. Against this background, high added value indicates that the agricultural sector is becoming more efficient, i.e. the industry is developing through new production directions and means of production (mainly digital technologies), more modern processing objects.
In part, the main driver of the growth of the agro-complex for several years has been the increase in exports and the expansion of its geography. Last year, sales of agricultural products abroad increased by 21% compared to the record year before and amounted to 37.1 billion US dollars, according to the Agroexport Center. This means that farmers have already exceeded the planned indicators of the state program for the development of the industry (37 billion by 2024). In 2021, Russia supplied more than 71 million tons of food and agricultural raw materials to foreign markets. According to estimates by the Ministry of Agriculture, agricultural exports have already increased in value by 16% in the six months of 2022.
Exports of oilseed products (by 29%) and meat and dairy products (20%), fish and seafood in rouble equivalent grew the most. Supplies are to be strengthened by an increased presence in Africa, the Persian Gulf, South East Asia and other countries. In total, exports could exceed the 40 billion dollar mark, as they have already reached 23.9 billion euros within six months.
According to Dmitry Krasnov, head of the Federal Center for Agricultural Export, 259 export-oriented investment projects are currently being implemented in 71 regions of the country. According to his calculations, turnover will increase by a further 4.5 billion dollars with the start of new production. Almost 80% of the projects are being built from scratch. “This means that advanced technologies are taken into account during planning and construction and the new production facilities have great potential in terms of competitiveness,” says Dmitry Krasnov.
Most of the projects concern the food industry (bakery, confectionery, milk, fish and other products), the meat industry (raw meat), deep-processing grain processing, the production of an oil-rich range. In total, more than 1,200 projects in the agricultural sector have been registered or already implemented by 2024, 305 of which are export-oriented. Investments in the last few years alone are estimated at 818 billion roubles.
The country is littered with grain
Last year was not the most productive: cereals and pulses collected only 121 million tons compared to 133 million the year before. The decline is partly due to a drop in the area under cultivation (47 million hectares, almost 2% below the 2020 level) as demand fell during the pandemic period, partly with bad weather. And yet farmers made a decent profit as prices remained quite high.
This year is expected to reach more than 150 million tons: Cereals and pulses were sown more, especially wheat. According to the Ministry of Agriculture at the end of October, the grain harvest in Russia already amounted to 149.7 million tons in bunker weight, which is 30.7 million more than on the same date last year, with an average yield of 33.4 centners per hectare (compared to 27 centners the year before). Including the wheat harvest, the quantity amounted to 104.6 million tons (previous year 77.8 million). “In total, this season the “EkoNiva” expects to remove about 930 thousand tons of various crops, including 755 thousand tons of grain, on the commodity wedge. This is an absolute record in the history of the company – 57 percent higher than last year,” says Stefan Dürr, President of ‘EkoNiva’. – But in terms of quality, the 2022 harvest was worse than planned. The reason is abundant rainfall and, as a result, excessive soil moisture during the peak of the harvest campaign.”
But much more than the bad weather, farmers are worried about grain prices being too low, the volatility of which is due to both economic and geopolitical reasons. Last year, the rising cost of grain and oilseeds also dragged down domestic prices, hurting the economies of feed and flour producers. Russia introduced export duties on wheat (and previously on sunflowers) in the spring, which led to a rise in prices. After the start of a special military operation and the closure of the Azov Black Sea basin for the time being, the world’s importers were afraid of being left without a third of the crop that Russia and Ukraine normally provided. Not knowing what would happen next, the main buyers of Russian and Ukrainian grain rushed to buy it everywhere – pushing wheat prices up by a third to $400 per ton. The excitement continued until May, when a historic high was recorded: Grain sold for 490 dollars. As a result, the main importing countries filled their coffers by June, and by the beginning of the season trade was already running at 310-315 dollars per ton. According to “Rusagrotrans”, the cost of wheat in Russian deep-sea ports has dropped to 13-13.5 thousand rubles compared to 17 thousand a year ago. Purchase prices for small water were also lower. Grain always becomes cheaper at the end of the previous agricultural season, before a new harvest begins. “But this year the fall in prices was catastrophic, as the stock exchanges somehow reacted to the news about the record collection in Russia, but did not notice the forecasts for a decline in the global harvest due to the drought in the European Union,” said Vladimir Petrichenko, CEO of ProSerno. Indeed, drought in Spain, southern France, Italy and the Balkans may lose a significant part of the cereal and oilseed crop, according to a UN-FAO summer forecast, but it is only about corn, sunflower and barley. The loss of wheat in the region of 40 million tons (2% of global exports) in Europe, India, Argentina, Australia and Ukraine will be offset by rising gross fees in Canada, Russia (13 million tons each) and the USA (4 million tons), as well as a slight increase in the harvest in China and the Middle Eastern countries.
Overall, less wheat was exported in the first three months of the new season than in the same period last year (10 million tons compared to 12.4 million). “Export prices remain acceptable: they have only fallen to 2019 levels,” explains Dmitri Rylko, CEO of ICARUS. “But the paradox is that Russian farmers are still in no hurry to part with grain. Not only the low market value of wheat, but also the excessively strong rouble is disruptive, which has increased the cost of grain production and delivery.” As a result, even large farms have slowed down the export of new crop wheat or sold it with minimal margin. “In July, we brought a record volume of 164,000 tons to the market and took fourth place among Russian exporters,” says Andrey Neduzhko, General Director of Steppe Agroholding. “But the current price, resulting from the strengthening of the rouble and the availability of export duties, cannot compensate for rising production costs.” It is likely that the profitability of crop cultivation (on large farms) will be reduced by more than half. “Prices for fertilizers and pesticides have doubled, for spare parts by 30-40 percent, agricultural machinery and fuel – 40 percent, services – 40-50 percent,” Andrei Neduzhko listed the main costs.
Although exports recovered somewhat in November, you sold grain to farmers at low prices, if they agree, then not for a good life. “Wheat simply has nowhere to be stored now. The storage capacity with us is about 140 million tons, and the record harvest of oilseeds is still added to the grain,” says Alexander Korbut, vice president of the Russian Grain Union. “Activating exports would be the ideal way out, but we have a pessimistic forecast: with a high harvest, 56 to 60 million tons of grain and legumes could possibly be taken away against last year’s 50 million tons, but it would be good if it were possible to take away at least 45 to 46 million tons. And the main reason is tariffs and quotas.” However, Agriculture Minister Dmitry Patrushev is true to his word: “Export duties and quotas have proven their worth, have made it possible to eliminate deficits of socially significant products and avoid sharp price fluctuations. We monitor the situation in real time and adjust the regulatory mechanisms if necessary.” If the global grain price falls to the level of the basic fee, it will be zero (it is now 2500-3000 rubles per ton, depending on world prices). “We believe that this instrument is optimally positioned in the current conditions and will allow farmers to achieve sufficient profitability of production,” added Dmitry Patrushev.
According to Alexander Korbut, farmers have to save on crop protection products and technical equipment as profitability falls. “This year, the demand for soil processing machinery has not increased compared to last year, as farmers have problems with grain processing,” confirmed Artem Ryazanov, General Director of Belagromash. “We expect sales of our equipment to remain at the same level in 2021. Although our equipment is entirely Russian-made, it is 20-30 percent cheaper than European equipment and its quality is no worse. ”
Oil dispenser expects shortage of sunflowers
In 2022, according to the forecast of the Ministry of Agriculture, a record harvest of oilseeds is also expected – up to 28 million tons. “A lot will be exported, of course, and some oil extraction plants are also using their storage capacities,” explains Sergei Maltsev, head of the Oil and Gas Association. “And yet, if farmers hold on to the seeds in anticipation of rising prices, as they did last year, we will be faced with overcrowding in the barns.” Last season, due to the overbilling ability of seed sellers, oil extraction facilities were loaded with less September sunflower oil releases than ever before – December 2021 is down by almost a third from the same period last year. Processors have the power to remove the oil from 80% of the current crop, at least now, according to Serey Maltsev.
However, in September, experts lowered the forecast for the September oilseed to 26 million tons, again due to the bad weather. “In our country, the yield has increased by 30% compared to 2021,” says Sergey Gabestro, co-owner of the agricultural holding ‘Kipiai’ (Chuvashia). “But not everything can be put together. Now it’s raining in the middle strip and on the Volga and the combine harvesters can’t get into the field.”
According to the ICARUS forecast, 16.3 million tons of sunflowers are expected compared to 15.6 million last season. “We are now beating records for all major oil types: sunflower, soybean, rapeseed and oil juice. That’s why prices have fallen. And the further away from the ports, the greater the fall,” says Dmitry Rylko.
Although the oil processing capacities are redundant (according to various estimates, a third to half of them are idle), there are those interested in investing in the creation of new capacities. The Commonwealth company, the leader of our ranking, is now creating a large production cluster for processing oil crops in the Kursk region and has already commissioned the first processing plant worth 10 billion rubles. At the same time, the largest importer of soy, Commonwealth, will use local raw materials, which has already increased prices for soy in the central part of Russia. In addition, this year the company has invested more than 30 billion rubles in the construction of a terminal for the export and import of grain and food goods in the Kingisepp region of the Leningrad Region. The work is scheduled for completion in 2026, and the total handling capacity of the new terminal will be up to 10 million tons per year. One of the leading agroholding companies, Rusagro, plans to invest 4 billion roubles in expanding the capacity of the Saratov Fat Combine, Balakovsky and Atkar oil extraction plants.
The Cherkizovo Group, a leading meat producer and processor, also marked a milestone in the market by launching a new business in August and commissioning its own oil extraction plant – currently the largest domestic enterprise for processing oil crops with a high protein content. The volume of investment in the project has exceeded 10 billion roubles. Part of the soybeans for processing comes from the Cherkizovo Group’s own fields. The soybean oil, meal, hull and lecithin produced at the MEZ will be supplied to the company’s nine feed blending plants in different parts of the country. The plans include exporting products to China, the CIS states and other regions.
Mühlviertler happy about prizes
In this situation, the ball landed on the side of the grain processors. The persistence and tightness of the export gates has certainly had an impact on domestic prices, which fell in most regions of Russia in November. According to “ProSerno”, 3rd grade wheat has dropped most significantly in the Urals – up to 11.6 thousand rubles per ton (against 14 thousand last year), in the Volga – up to 13 thousand (against 16 thousand). “We have been suffering losses for three years due to excessive grain costs, three large pasta factories have gone bankrupt during this time,” notes Valery Pokornyak, owner of the Altan holding (pasta production). “Now it’s time for us to plug the holes. Although the unusually low prices are not beneficial to anyone: In the long run, this will lead to a deterioration in grain quality and a natural shortage of nutritious wheat.” Now, those processors who have the opportunity are happy to buy grain cheaply, but these volumes are not enough to create a competitive demand for grain domestically. “Not all feed manufacturers have the capacity to store raw materials, and previously this was not necessary,” explains Sergei Mikhnyuk, Managing Director of the National Feed Association.
For mills and animal feed, low prices do not guarantee record sales either. According to “Agroexport”, the export potential of wheat flour in Russia is 430,000 tons per year, although twice as much was exported last year. Today there is a chance to send about 500 thousand tons of flour abroad, but no more. “These are the volumes that could support domestic grain prices, but not the fact that processors receive a reasonable price, as the flour is now on the foreign market as grain itself,” says Valery Pokornyak. “Also because it is very difficult for us to enter foreign markets with flour, where Turkey, Egypt and Kazakhstan are traditionally strong. It takes years to create new connections with buyers of flour or pasta abroad, and without the help of the state, few people are able to do this.”
Arable land has risen in price
Investment in the land is not decreasing – interest in it, on the other hand, has increased, as can be seen from the merger and acquisition deals. As Ilya Shumov, Managing Director of the Large Business Department of Rosselkhozbank, explained at the “Agroinvestor” conference of “Russian Crop 2022/23”, 37 transactions for the purchase and sale of plant assets worth 161 billion rubles were concluded from the beginning of 2017 to September 2022. The agrocomplex called NI became the leader here. Tkacheva: In particular, he bought the company Sail Agro Group for its land, the land assets of Agronova-L and others, moving from third to first place in the ranking of the largest landowners after the consulting company BEFL. According to their data, farmland prices in the center and south of Russia increased by 30-50% in late 2021 – early 2022, and in some regions by almost 100%. According to Bank Trust estimates, the price of one hectare in individual transactions in the Krasnodar Territory reached a record 532 thousand rubles after the start. “Crop assets are in good demand among investors,” notes Ilya Shumov.
The agroholdings of the Volga region (Bashkortostan, Saratov and Orenburg regions, etc.), the Urals Federal District (Tyumen and Sverdlovsk regions) are also becoming more visible. “If companies are willing to buy land plots at high prices, they see prospects in grain growing,” says Alexander Korbut. “Now those who don’t have much money are returning the stored land.”
Agriculture Minister Dmitry Patrushev believes that the cultivation of cereals and pulses remains a promising business despite the current export difficulties. And in order to solve the problem of foreign carriers leaving the country, the authorities have taken care to build new ships. In order to promote the export of agricultural products, 41 river-sea class vessels are to be built by 2030 to deliver the products to the ports and, in particular, large-capacity Handymax and Panamax class vessels. “The development of our own fleet is one of the priority tasks,” explained the minister in the summer. The Ministry of Agriculture is now negotiating with the Ministry of Trade and the Ministry of Transport and is discussing state support measures for the construction of such ships.
Meat producers focus on efficiency
Butchers have overcome the overproduction crisis of recent years, when self-sufficiency for chicken and pork in the country exceeded all planned levels and exports were largely closed due to the raging swine fever and bird flu. Last year, according to Rosstat, the production of livestock and poultry for slaughter in live weight in farms of all categories amounted to 15.7 million tons (only 0.3% more than in 2020), so the production of meat and offal increased by 8% in the seven months of this year. According to the forecast, the total amount of harvested livestock and poultry meat will reach 16 million tons by 2022.
Traditionally, pig farming is the fastest growing sector. While 5.5 million tons of meat were produced in 2021, an increase of only 0.4% in the previous year, production rose by 8% in the nine months of this year. “People started buying food for the future, for some reason out of fear of a shortage,” explains Yuri Kovalev, CEO of the National Pig Breeding Association. “Yet pork has become less expensive than other types of meat – only by about one percent.”
Several experts previously thought that prices had held back import volumes, which were almost non-existent but had risen since the beginning of the year (after the government set import duties to zero at the request of processors who had suffered a shortage of raw materials last year). But according to Yuri Kovalev, imports have not had a major impact on the market, as less than 15% (13 thousand tons) of a quota of 100 thousand tons was delivered to the country in the first half of the year. And in the second half of the year, imports dropped to almost zero due to increased logistics. In the end, Russian pig farmers managed to bypass Argentinean and Brazilian counterparts.
But the price brakes on rising costs for means of production are not due to the good market economy either. Since the beginning of the year, Ukraine (they mainly bought a bacon) and Vietnam, which sympathizes with it and was the first country to which we were able to take the first large quantities of meat the year before last, have given up Russian pork. Exports fell by a quarter within nine months. And there could have been even more if Belarus and Kazakhstan had not taken over some of the lost quantities. This year, only 170 thousand tons of pork will be exported abroad (against 220 thousand tons of pork last year), although production growth will be 8% or 350 thousand tons, which will certainly please meat processors.
Previously, the industry developed through the commissioning of new enterprises (there are fewer animals in private farms every year, which are getting smaller and smaller due to swine fever). In total, 134 facilities were built in 2016-2021 and 51 facilities were reconstructed and modernized. Last year alone, new companies produced an additional 111,000 tons of pork.
It should be assumed that the efficiency of the industry will increase in the future along with its volumes, as a number of large modern productions will be built. The most capital-intensive project is the leading meat producer Cherkizovo Group, which is investing 8.5 billion rubles this year in the construction of new pig complexes in the Tambov region. “The implementation of the project will allow the company to increase the production capacity of pork by more than 45,000 tons per year. “Cherkizovo“ also plans to invest more than four billion rubles in expanding the production of a local feed,” says Rustam Hafizov, head of the innovative analytical center of the Cherkizovo Group. “We are also continuing the project to create a meat processing cluster in the Tula region (TOSER Efremov), which will see the construction of a slaughter, storage and processing facility as well as a slaughter plant, primary and subsequent processing of broilers within a few years.” “Cherkizovo” is also developing processing, for which it is building two production buildings of the Cherkizov meat processing plant in the north-east of Moscow.
In 2021, poultry production continued to stagnate at 6.7 million tons. In 2022, the industry has a new problem: due to avian flu, Russia has imported far fewer hatching eggs than before in some countries. But with the introduction of 8 new and 11 modernized poultry farms, the dependence on hatching eggs should decrease from 15% (last year 600 million pieces) to 12%. “According to our data, the volume of purchase of hatching eggs in foreign markets in 2022 will not exceed 400-420 million pieces,” says Sergey Lachtyukhov, Director General of the National Association of Poultry Farmers. “The forecast for 2023 is even rosier: the top twenty poultry breeders will be completely self-sufficient in hatching eggs from their own breeding plants.”
Despite the stagnation, investment in the sub-sector is not stopping: More and more modern bird houses are being built, counting on successful competition from new technologies. For example, the Buya poultry farm has put a workshop for 72,000 laying hens into operation. In the village of Chertanovo near Volokolamsk, the poultry breeding complex “Farm M2” worth 650 million roubles was opened for 80,000 heads.
Experts no longer fear overproduction, as Russia has increased exports of poultry meat to Saudi Arabia and the United Arab Emirates. From January to September, sales to the UAE quadrupled – to 8.7 thousand tons, and Saudi Arabia bought 38.8 thousand during this period. “Poultry farmers have discovered these markets at random and have mastered halal technology,” says Sergey Lachtyukhov.
In 2021, the production of cattle for slaughter in live weight on farms of all categories amounted to 2.87 million tons, 1% more than in 2020. The growth was achieved by farms and agricultural holdings that are actively supported by the state. In contrast, private farms, where up to half of the beef consumed is grown, recorded a decline of 2.8%. In general, the meat stock increased by 3.2% last year to 1092.5 thousand heads. Private producers are being squeezed out of the market by new, more efficient productions – 30 were introduced in 2021 and three more were modernized. However, beef prices still need to be held down: Last year’s tariff concession for imports amounting to 200,000 tons of beef has been extended for next year. Without it, according to the Ministry of Agriculture, meat would be 20-30% more expensive. According to the president of the National Meat Association, Sergei Yushin, if in January?deliveries of beef from abroad in February were 36% higher than a year earlier, since March they have fallen by more than two-thirds due to increased logistics costs and a strengthening of the dollar. “But after the strengthening of the ruble, it became more profitable to import beef, as a result we received many new applications for importing beef under quotas,” says Sergey Yushin. In turn, the general director of the National Association of Cattle Producers, Roman Kostyuk, explained that due to the duty-free import of beef, meat processors (in whose interests it was introduced) began to reduce purchase prices for farmers, which delayed the implementation of investment projects at large producers. Specifically, in May-July, purchase prices for live bulls fell from 222 to 169 rubles per kilogram of live weight. “Duty-free imports will make processors dependent on imports of foreign raw materials in the future,” claims Roman Kostyuk.
However, Sergey Yushin believes that the production of beef in Russia will remain at the same level until 2022 and will even slightly exceed it by maintaining investments.
Source: EXPERTE (Russia)