Sanctions applied by the EU and US against Russia after the annexation of the Crimea and its alleged interference in the 2016 US presidential election were, and are clearly aimed to inflict further damage to Russia’s economy. After the first rounds of sanctions were applied, Russia implemented bans on western food imports in retaliation, banning about 60% of Russia’s total fish and meat imports, alongside 50% of dairy, fruit and vegetable imports. What has happened to Russia’s agriculture? John Kopiski, British born and since 1997 a Russian citizen owns a large dairy farm ‘Rozhdestvo,’ in the Vladimir region of Russia. He maintains a dairy herd there of 4000 cows, producing over 10,000 litres of milk a year, per cow. He also runs a family agrotourism centre, ‘Bogdarnaya’ in Vladimir Oblast, some 100km from Moscow. John tells his story and sheds light on the state of Russian agriculture.
First of all, please tell us a little about your farm, what you produce, how many people you employ, how large is the farm…
My history in the dairy business started some 20 years ago, when we purchased a close to ruin, old Russian ‘Kolkoz’ (a Soviet collective farm), where there were some 300 cows and 127 workers. Looking back I can say that I did this with some ignorance and arrogance, not having been a farmer before. Nonetheless, I was fully aware of how the European Union worked with their subsidies since 1957, I thought and calculated that the support and assistance I could get in Russia would be tenfold better. It didn’t turn out that way, at least for the first 10 years. We worked the old farm for 5 years, which was a very expensive lesson for me, but it was a very good lesson, and in that period, we worked our way through a minefield of experience, found local support from the authorities etc. Then, over 20 years ago, we managed to buy our first 400-500 hectares of land. We built a church and became part of the local community, and although we improved efficiency considerably, and reduced the workforce by over 70%, we still couldn’t make a profit. This was mainly due to the fact that the lands we had purchased were water meadows – very beautiful – but we couldn’t do anything on them because there were very strict ecological laws and restrictions. Regulations which prevented us ploughing or fertilizing the lands; hence we could not grow our own forages to a quality and quantity needed. 15 years ago we had to make a tough decision; close the farm or move on! We decided to move on and built one of the first so called modern dairy farms in Russia. We now have 4000 cows of which 1700 are being milked every day, and every day we produce something like 55 tons of milk. We also work today on over 4000 hectares of land and we produce our own corn silage; grass silage, hay and grain. We employ over 200 people in the region.”
Russian agriculture seems to be enjoying somewhat of a boom. Even the Financial Times, which has traditionally taken a rather pessimistic view on the Russian economy, has reported that agriculture in Russia is doing well. As somebody with his ‘hands on’, you are in a unique position to be able to tell us what is happening.
“The so called boom started well before the sanctions. The sanctions have helped to provide a sort of umbrella for development but investment in dairy farms started well over ten years ago when the government introduced a program called ‘The National Plan.’ At that time, huge investments into pig, poultry, and meat farming in general were made, well before the sanctions. The process was perhaps slow to gather momentum, but over ten years ago a program of special finance for agriculture was started under a Federal program and these results can be seen today. It was slow to catch on because there were changes to be made in management attitudes etc., and equipment. Today not only do we have major Russian-owned enterprises but many new foreign investments, in a very large way. In central Russia and now in the Far East of Russia, we have huge investments from South Korea, Vietnam, Thailand, Singapore and even from Europe, particularly from Germany and Finland. We have so much land here that’s not used at the moment. I understand that some 15,000 South Africans are moving to Russia to help us develop the business even more.
“These changes happened before the sanctions. Business is business. The idea that everything started because of sanctions is a myth. However, sanctions has given some sectors of the agri- business sector some breathing space and a time to consider long term investment. Under sanctions I feel comfortable taking 5-7 year credit from our banks, knowing, or hoping that this gives me the chance to invest, build and start
working without having cheap foreign product arrive here! I need the time to match western efficiency standards.”
Perhaps Russians are buying Russian-produced products because of the sanctions – there is simply no choice?
“The issue is the quality and Russian consumers still think that ‘made in Europe’ is supposed to be better. But in the last year we have seen changes, and there are a lot of products that are now in Russia, like Salami meat that are now been bought by our consumers. But I’m not sure whether the decision to buy is made on the base of the source or the price. Here I can comment more about cheese. We have huge producers of cheese here, but no doubt, the majority of them are using cheaper raw materials such as palm oil. Imports of palm oil this year are much higher than 2017, by a huge extent. This then is passing cheaper products on to consumers. So are consumers buying cheaper products because they cannot afford the real ones, or is it because of quality?
“I started making cheese close to 6 years ago when there were no sanctions. I made this with a very clear business strategy, because in those days imports of cheese were over 320,000 tons a year, and thus it seemed obvious a niche could be developed for Russian craft or artisan homemade cheese, like in France, Spain or Italy. You have to build up a reputation. You have to build up trust in your quality. In the beginning I found consumer reluctance due to the adage that ‘made in Russia’ is not very consistent. But once you establish that, then you can sell here. Whether we have a kind of national sense of pride about our products – I’m not yet sure. Patriotism has something to do with the matter, but certainly in this respect the sanctions have assisted.
“When you talk about sanctions, however, one of the main influences on imports is the cost. 5 years ago, the rouble was 28 to the dollar, it’s now close to 70. So any imports are going to be more expensive. So is it the sanctions or the overall economic situation? In my opinion, I am more worried about the rouble dropping than the sanctions being lifted because we are producing products competitively now; costs are becoming more efficient. My aim is not to sell in an protected market, it’s to reduce my costs.”
John, changing the production standards of Russians farms means changing the mind sets of farmers. Please tell us a little bit about the process going on right now in the Russian countryside – how are Russian farmers coping with the need to achieve higher efficiency rates?
“By studying different farming methods and simply understanding costs. Farm managers today are normal business men and have to answer to their business plans and balance sheets. But they do this with less assistance than what American and European farmers receive even today. The Russian machine industry has at last started to react and the latest Russian combines and tractors are much more efficient than before, and again in this matter the exchange rate assists.”
Can Russia’s agriculture continue to expand if there is not a free agricultural market, or should certain goods be controlled by the government in a country as large as Russia?
“To my mind the market is free, in that one can grow and sell what one wants. Like in the West, however, farmers here suffer the same fate — prices are controlled by the processors and supermarkets. Prices go down, we pay. prices go up, we do not gain.”
In 2015, you spoke to Russian President Vladimir Putin about the viability of dairy farming. What did you talk about?
“I’m not sure that it was so much a question about the viability of dairy farming, but the viability of new farms, one of which I run. In those days, the statistics put us all under one category. We need help, we need assistance, we need long term finance. They have split the statistics now and this has changed the situation. The long term viability of farming in Russia is very good, and it is expanding without any doubt.
“Now, If I’m trying to build a new cheese plant, I can obtain today a 10-15,000,000 rouble credit for 5-8 years at 2.5/3.5% per annum. The problem is where do I sell, and can I find a buyer who is reliable. The market is free and like in any country, there are certain limitations, and it depends on how good you are at selling. Russian grain, like a lot of Russian products is being exported, and quality will always be important. Russia is already very close to being the largest global grain exporter. The potential is huge. I wouldn’t say that the agricultural market is controlled, I would say that maybe we are not getting the same assistance in the early stages of our boom that Europe does, with EU subsidies. So we have certain problems with amortization of farms buildings. But in reality, farming is a long term business, and today, it is successful. I think you will find some Russian agricultural companies coming back onto the market and doing IPOs. There is an optimism in the air.”
I suppose we forget that Russia has land borders to the South West close to the Middle East and is not that far, relatively speaking, from Africa, and that these countries are now showing interest in Russian agricultural products?
“Yes, absolutely. It’s not just the Middle East, although those markets are huge and Russian food products are already making serious inroads into those countries. It’s the markets closest to our ports if you like, and Russia spans half the globe. In the Far East for example, all of the exports from Primosky Krai (a large region on the Eastern seaboard of Russia) are going to Korea or Japan. One of the problems with Russia is that we don’t have enough ports, so I think there will be a development in building more ports for grain etc. But in the end of the day, it is to do with productivity and cost. The more productive we become the more attractive we are. We have incredible land.
“In a word, Russian agriculture is doing well.”