Russia Number One World Wheat Exporter
By F. William engdahl
15 June 2016

One of the comments most often heard by western mainstream economists is that Russia’s economy is too dependent on energy export and not able to be competitive in areas other than simple commodity export. While oil and gas exports remain a vital source of revenue for the State, it is far from the only one. Owing to USA and EU economic sanctions targeting the energy sector of Russia in 2014, in August 2014 the Kremlin retaliated with sanctions on a large range of EU and US food imports. Some months later in November 2015 after Turkey shot a Russian jet down over Syrian airspace, Moscow also banned major food imports from Turkey, especially tomatoes and cucumbers. The sharp reduction of food imports and select government agriculture incentives have resulted in a dramatic rise in Russian agriculture output

Before the Russian import ban, fully 40% of all Russian retail food sales were of imports. Everything from tomatoes to chickens were likely to be imports on the supermarket shelves. Multinational labels such as Nestle, Kraft, Danone were everywhere. Russians forgot their own rich food taste for the most part. Western agribusiness was well on its way to drown domestic quality food production in cheap imports. This has now dramatically changed in the short span of less than two years. Today Russian agriculture is undergoing a quiet and dramatic renaissance or new-birth in fact

President Vladimir Putin in his annual Presidential Address to the Federal Assembly on December 3, 2015 announced the national goal for Russia to become food self-sufficient within four years, by 2020 . That means replacing fully 40% of food consumption within six years. And the remarkable thing is that that goal today looks modest if anything.

After introducing food import bans against Turkey in November 2015, President Putin declared, “Russia is able to become the world’s largest supplier of healthy, ecologically clean and high-quality food, which Western producers have long lost.” Russia last year also announced a complete ban on planting GMO crops or importing GMO crops from the West .

As a result of the combined import bans and measures to increase domestic food production, Russia has cut international food purchases by about 40 percent since 2013, to $26.5 billion by end of 2015 .

World Top Wheat Producer

Today the Russian Federation is one of the world’s leading agriculture exporters. The total value of exports in 2015 to some 140 countries was estimated at $20 billion, fully $5 billion more than in 2014, an increase of more than a third in one year of sanctions . That was about 25% more than arms export earnings and fully one third earnings from export of natural gas.

Many have the image of a backward, inefficient Soviet food system with giant collective farms and incentive-less producers. That model is mostly long gone. Today, fully 70% of all Russian farmland is private. The predominant form of privatization during the 1990s was distribution of lands among former state and collective farm employees. Since then most land, especially the rich black earth soil lands of South Russia near the Black Sea is officially fixed in the form of private ownership .

With some of the richest black earth soil in the world, Russia, under the right incentives, was prime to make a dramatic production rise. Russia encompasses one of only two soil belts in the world known as “Chernozem belts.” It runs from Southern Russia into Siberia across Kursk, Lipetsk, Tambov and Voronezh Oblasts. Chernozem, Russian for black soil, are black-colored soils with a high percentage of humus, phosphoric acids, phosphorus and ammonia. Chernozem is very fertile soil producing a high agricultural yield. The Russian Chernozem belt stretches from Siberia and southern Russia into northeast Ukraine, on to the Balkans along the Danube .

This past harvest year, Russia surpassed the United States to become the biggest exporter of wheat — a milestone. She also enjoyed bumper yields of corn, rice, soybeans and buckwheat. Major buyers of Russian wheat and barley include Egypt, Saudi Arabia, Iran, Azerbaijan, Yemen, Libya, Nigeria, South Africa and South Korea.

Since the end of World War II, US agriculture exports have been regarded as a strategic sector. Today, owning to decades of heavy chemical use and intensive agribusiness methods, prime US farmland in places such as Kansas are facing serious soil depletion and death of vital micro-organisms. Harvest yield does not replace harvest quality and here organic Russian grains are emerging as the major force on world grain markets.

Russia today also permits foreign leasing of agriculture land. The government is in discussion with Asian food groups in China and Thailand to help invest and modernize key sectors such as dairy production. The Russian Direct Investment Fund (RDIF) has a $2 billion fund with China to invest in agricultural projects. They also recently formed a joint venture with Thailand’s CP Group to build Russia’s largest integrated dairy complex. It’s also working with Egypt to create an export hub for Russian grain on the Suez Canal.

Notable is the fact that many of Russia’s oligarchs, rather than take their riches out of the country to invest in London real estate or football clubs or other projects that do nothing to build Russia’s economy, are now investing big sums into Russia’s agriculture. Tax and other incentives that the Government has put in place are making agriculture investment in Russia hugely profitable for these Russians. Yevgenia Tyurikova, the head of private banking at state-run Sberbank, Russia’s largest, recently told Bloomberg, “The two hottest investments for rich Russians are farmland and European hotels. This trend is absolutely new.”

The month that Putin declared the 2020 food self-sufficiency goal in December last year, one such oligarch, Vladimir Evtushenkov, through his holding, AFK Sistema, bought the huge Yuzhny Agricultural Complex, with greenhouses the size of 2,300 football fields between the Black and Caspian seas. The plants, mainly tomatoes and cucumbers, get pure clean water from melting ice from nearby Mount Elbrus. They are grown by the millions and mostly trucked to Moscow, an 18 hour journey. Sistema spent about 9 billion rubles on agricultural expansion last year, and is now looking to buy more land to become one of Russia’s top five milk producers.

Ros Agro Plc, a sugar and meat producer, owned by billionaire Vadim Moshkovich, got 3 billion rubles ($46 million) in state support. Under the Government incentive program to encourage investment, the company paid zero tax on profits, helping to boost its net earnings margin to 33 percent, larger even than Lukoil. Other oligarchs turning in a major way to building a modern, organic and profitable agriculture sector include Phosagro OJSC fertilizer tycoon Andrey Guryev, real estate magnate Samvel Karapetyan, United Co., Rusal chief Oleg Deripaska.

The next stage in increasing the Russian food self-sufficiency is to bring an estimated 40 million hectares of idle agriculture lands, much of it abandoned during the collapse of the economy in the Yeltsin 1990’s. That’s idle land about the size of Iraq. Putin has urged the state to consider giving some of it away to create more farmers, the opposite of Stalin’s disastrous collectivization. The land give away began this month in the Far East.

The West’s too clever sanctions strategy is in fact blowing up in their faces. Russia is turning east and not west, and agriculture is a major part of that turn.



F. William Engdahl is strategic risk consultant and lecturer, he holds a degree in politics from Princeton University and is a best-selling author on oil and geopolitics, exclusively for the online magazine “New Eastern Outlook”

http://www.bloomberg.com/news/features/2016-06-07/putin-is-growing-organic-power-one-t-34-tank-tomato-at-a-time


Deep in the Caucasus, downriver from Europe’s highest peak, North Korean women roam Soviet-era hothouses growing what tycoon Vladimir Evtushenkov is betting will be his next big bounty: the T-34 battle tomato.

The plump hybrids, named for the fearsome tank that helped trounce Hitler, are the pride of the Yuzhny Agricultural Complex, a mass of greenhouses the size of 2,300 football fields between the Black and Caspian seas. Watered by melting ice from towering Mount Elbrus, they and other strains of the fruit are grown here by the millions and trucked mainly to Moscow, 18 hours’ journey north.

Evtushenkov, at 67 the oldest of the top 40 Russians in the Bloomberg Billionaires Index, has impeccable timing. His AFK Sistema, which invests in everything from cellular services to medical clinics, acquired Yuzhny in December, the same month Vladimir Putin re-affirmed achieving food self-sufficiency by 2020 as a national goal. And unlike Josef Stalin’s first five-year plan, which led to the Great Famine, Putin is dangling profit rather than prison to motivate the masses. Once a totem of communism, T-34 is now a symbol of patriotic capitalism.

“This is a very promising area,” Evtushenkov said in an interview.

War’s Blessing

Stung by oil’s collapse, the ruble’s plunge, financial sanctions over Ukraine and the longest recession of his 16-year rule, Putin, 63, is seeking to minimize Russia’s reliance on markets he can’t control. Counter-sanctions imposed on food imports and an unprecedented raft of subsidies have made many areas of farming more profitable than even crude, which Putin once called Russia’s “golden goose.” Food prices have soared along with inflation, which is running almost double the central bank’s 4 percent goal, shifting even more wealth from hard-hit consumers to well-connected producers.

Take Ros Agro Plc, the sugar and meat producer controlled by billionaire Vadim Moshkovich. It last year received about 3 billion rubles ($46 million) in state support and paid zero tax on profits, helping to boost its net earnings margin to 33 percent, 28 points more than oil major Lukoil PJSC. The company’s Moscow-listed shares have almost doubled in the last year.


Putin has even turned war in the Middle East into a blessing for growers.

After Turkey downed a Russian fighter jet along the Syrian border in November, Moscow responded by banning a range of produce from its former ally, leading authorities to broadcast videos of inspectors enthusiastically bulldozing Turkish tomatoes. Just a few weeks later, with Yuzhny’s biggest competitor swept from the market, Evtushenkov acquired the complex and the organic tomatoes and cucumbers it produces for an undisclosed sum.

Health, Wealth

“Russia is able to become the world’s largest supplier of healthy, ecologically clean and high-quality food, which Western producers have long lost,” Putin told parliament after the Turkish ban was imposed.

Russia last year joined dozens of nations in banning the commercial planting of genetically modified organisms and has since barred GMO imports -- putting Putin at the vanguard of an increasingly vocal global movement.

But the crowning achievement of his food strategy so far is grain. Russia overtook the U.S. this year to become the biggest exporter of wheat -- a milestone that followed bumper yields of corn, rice, soybeans and buckwheat.These strong harvests and Putin’s financial incentives have set off a land rush in the fabled Black Earth belt of central Russia and other fertile regions.

“The two hottest investments for rich Russians are farmland and European hotels,” said Yevgenia Tyurikova, the head of private banking at state-run Sberbank, Russia’s largest lender. “This trend is absolutely new.”

Plum Assignment

Phosagro OJSC fertilizer tycoon Andrey Guryev, real estate magnate Samvel Karapetyan, United Co. Rusal chief Oleg Deripaska and Putin ally Gennady Timchenko are just a few of the wealthy Russians who are riding the wave. Another big beneficiary of the boom may be the agriculture minister, Alexander Tkachev.

After Tkachev was promoted from governor of the southern Krasnodar region last year, Putin called on “our” producers to fill “our” markets “quickly” -- and the new minister was happy to oblige.

His family’s Agrocomplex JSC owned 200,000 hectares of arable land when he became minister, according to data compiled by consultancy BEFL. Now it has 456,000 hectares, four times the size of New York City and one of Russia’s 10 largest landholdings. The company’s net income, including from dairy and chicken farms, tripled between 2013 and 2015 to 6.6 billion rubles.


There’s plenty more to go around. By some estimates Russia has more than 40 million hectares of idle land suitable for growing, an area about the size of Iraq. Putin has urged the state to consider giving some of it away to create more farmers, the opposite of Stalin’s disastrous collectivization.

Even if sanctions weren’t in place, oil’s sudden crash and the sliding value of the ruble were a clear wake-up call that Russia can no longer afford to dither when it comes to developing its other innate superpower -- land, said Marat Ibragimov, an analyst at BCS Global Markets in Moscow.

"It’s becoming harder and harder to explain to the electorate why people have to buy imported cucumbers and tomatoes, given how much land Russia has,” Ibragimov said.

Bitter History

Turning the world’s largest country into a food colossus is a goal with a long history that faces an equally lengthy list of challenges. Soviet leaders from Lenin to Khrushchev all sought to impose sweeping changes on the industry, often with tragic results. Agriculture was haphazardly privatized after the fall of the Soviet Union a quarter century ago, with many large collective farms splintering into small plots whose owners struggled to keep pace with technology.

Today many farms are inefficient, with cows producing as much as two-and-a-half times less milk than in some other countries, according to Kirill Dmitriev, who runs the state-backed Russian Direct Investment Fund, or RDIF. Roads and other infrastructure are poor, high-tech equipment scarce and there’s little production of key products like beef and cheese.


A lot of growers “are in a lot of debt, not in particularly good shape, and often are not in the right place” because of dubious Soviet planning, said Richard Connolly, who studies the Russian economy at Chatham House in London. “They require a hell of a lot more than simply getting people to put their money in.”

Still, the grain surplus, combined with the weaker ruble, helped lift food exports to a record $20 billion in 2015, more than the country earned from arms sales. Altogether, agricultural output increased 3 percent last year, helping to trim the overall economic contraction to 3.7 percent. And as exports advance, imports retreat. Russia has slashed international food purchases by about 40 percent since 2013, to $26.5 billion last year.

“If someone were to ask me what the most proper and profitable business to invest in now is, I’d say agriculture,” said Alexander Lebedev, a former KGB officer turned businessman who co-owns Russia’s biggest potato grower.

Mideast Toehold

Putin isn’t relying on rich Russians alone to drive expansion. Russia is also courting companies in Asia and the Middle East -- the only real option since other large economies have imposed sanctions. The RDIF is creating a $2 billion fund with China to invest in agricultural projects, and last month formed a joint venture with Thailand’s CP Group to build Russia’s largest integrated dairy complex. It’s also working with Egyptian banks to create an export hub for Russian grain on the Suez Canal.

If successful, these efforts will go some way toward meeting Putin’s stated goal of re-orienting economic ties away from the West and toward emerging markets.


It’s a sign of the importance Putin places on slashing reliance on foreign goods and turning a moribund industry into a rare source of growth and steady employment that Evtushenkov has been given free rein to expand.

Just two years ago, the billionaire was placed under house arrest during an investigation into the ownership of Bashneft PJSC, the oil producer he gained control over after his ally, Prime Minister Dmitry Medvedev, became president in 2008. He wasn’t released until a Moscow court ordered the company nationalized. Putin served as premier under Medvedev until 2012, when the two men switched jobs again.

‘Drown the World’

Now Sistema, which spent about 9 billion rubles on agricultural expansion last year, is shopping for more land and seeking to become one of Russia’s top five milk producers. The company is also modernizing Yuzhny, which will entail hiring more local laborers to replace its 100 or so North Korean “guest workers,” a legacy of Soviet trade with the Hermit Kingdom. The facility is showing its age; some buildings are old enough to still bear rousing slogans like “Communism is the youth of the world!” Power accounts for almost a third of production costs because even in southern Russia the mercury drops too much at night for plants to grow sustainably.

“We have big plans” for agriculture, Sistema CEO Mikhail Shamolin said, citing opportunities to crank up cheesemaking, put fresh tomatoes on tables from St. Petersburg to Vladivostok, and “drown the world” in tasty Russian apples.


Yet even as Putin rallies magnates to his cause, the hard slog of turning Russian farming around will fall, as it always has, on the shoulders of workers like 57-year-old Sekhernaz Akhmedova. She’s been employed at Yuzhny since the 1980s, first for the Soviet government, then for state banks in Moscow and now Evtushenkov, slicing cucumbers from vines with a knife so small it seems grafted to her fist.

Asked if achieving Putin’s goal of total self-sufficiency depends on workers like herself, she shrugged.

"We work hard and fulfill the plans," Akhmedova said. "I only wish they would give me a raise."

—With assistance from Irina Reznik, Alex Sazonov and Andrey Lemeshko.

Then Nigeria should follow suit,i mean they should take agriculture"one of the oldest primitive sector" serious.

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