© Dmitry Lomakin
Founder and Chairman of the Board of Directors of the
Today, a lot of people are saying we need to export meat. And in fact, because of what happened to the rouble, we have some of world’s cheapest poultry. But we must understand that our domestic needs are still not fully covered, and we aren’t welcome on foreign markets.
The question is: what can we do about exports? The answer is very simple: supply grain. This product is recognized worldwide. It will always be in demand, and Russia has been on foreign markets before. The government has done a lot to reach a high level of food security in Russia.
Whatever anyone says, today Russia covers domestic demand for main food products and feels much more confident than in the 1990s. Back then, the West could cut off meat supplies, and the country would go hungry. This is impossible today. Russia covers its needs for poultry and pork, dairy farming has begun to pick up, and mini dairy farms are being revived. But grain farming is still undervalued.
On the surface, everything is rosy. We produce all the grain the country needs and have a certain surplus that goes to export.
We’ve recovered from the slump in the 1990s and reached about the same harvest rates as in the Soviet era:
A hundred years later, we’re exporting sometimes 20, sometimes 25 million tonnes and consider it heroic. Today, the goal of the Agricultural Development Program for 2013?2020 is to reach 115 million tonnes of grain per year. This isn’t very ambitious, and doesn’t unlock the potential. It would be impossible to miss the opportunity to start production
Today, Russia has at least 120 million hectares of arable land, and 50 million hectares of fallow and pasture land. China has the same 120 million hectares and produces 350 million tonnes of grain from them. America has 170 million hectares and produces 500 million tonnes. This year’s crop forecast in Russia is around 100 million tonnes.
— How do you rate Russia’s “grain” policy, given that grain is an important export resource?
Russia has made a big leap in gas production and oil compared to the Soviet period. But what is the cost of increasing production capacity in the oil industry? Especially now, when the market is overheated and supply outstrips demand. The logical question is: maybe it makes sense to diversify the economy?
We have a huge “grain shelf” on the surface, waiting for development and we can get a lot of money from it. We’ve become used to a budget based on oil and gas. But we could have another component in the budget: grain exports.
We now export
I remember that when we came to Governor Oleg Korolev in Lipetsk Region, the regional budget was mainly formed by tax payments from NLMK (Novolipetsk Steel Company — ed. note).
Now a significant proportion of contributions come from agricultural enterprises, where Cherkizovo Group holds a major share. Or Belgorod Region, where the budget was largely formed by tax payments from the local mining and processing company. And now, thanks to Governor Evgeny Savchenko’s policy on the agribusiness sector, the region has become one of Russia’s leading agricultural producers. This is an example where a regional budget “kicks the resource habit” and develops the agricultural sector. If this has worked in a number of regions, it’s also going to work on a national scale.
Russia can boost grain cultivation, but first we need to identify priority areas. If we set a goal of implementing a national project for the development
— But Russia lacks the infrastructure to increase grain exports. Won’t this be a stumbling block to plans for developing the “grain shelf”?
If our aim is to have Russia supply
Most of the grain storage facilities in Russia are old reinforced concrete coffins. They’re worn out and obsolete, and have bad conditions for storing grain, which just may rot in them, but this capacity is not enough.
It would be correct today if the government built
Grain storage capacity is also the country’s food security today. If you increase
— Is lack of infrastructure the only problem for the grain industry?
Unfortunately not. The development
As far as I know, the Russian government has already decided to establish seed breeding centres, but so far only on paper, whereas it needs to be implemented on a large scale and quickly.
We often attribute a low yield to drought. If we plant seed stocks that are rotten, frankly speaking, and don’t apply the required amount of fertilizer, we call any vagaries of the weather a drought. And it can be attributed to losses and errors.
It’s worth mentioning that 90 %
— How do you rate the prospects for Russian grain exports in the 2015/16 export year?
Farmers are simply going begging, and it’s quite likely that the 2015 grain harvest will be a disaster, because of the crisis in working capital. The country is facing a fierce challenge today — everyone’s sitting around without working capital. And planting is underway in the country. Farmers desperately need funds for fuel and fertilizer. And what’s incredible is that when we joined the WTO, we committed ourselves not to give subsidies for fuel and fertilizer. We decided that Russia would pay subsidies per hectare.
Here’s the actual figure. In a fairly prosperous region of Central Russia, Cherkizovo Group will get support of 75 roubles per hectare in 2015. China provides subsidies of more than $1,000 per hectare, Europe gives
— Have you changed your borrowing policy as a result of rising interest rates?
At present, Cherkizovo is included in the list of strategic enterprises in Russia, and we can use this status in case of a takeover of some other enterprise. In these circumstances, we may need both loans and government guarantees. But I would like to focus on the working capital needed by nearly every agricultural business today, because this is severely lacking. These loans are not available today.
In the US, farmers receive working capital for three years, not one year, like we do, and the cost of money is quite different. If there is suddenly a poor year, it’s possible to compensate for all of it in the next two years.
You can understand why the issue of subsidies is constantly being raised and there is some distrust of farmers. There was a transitional period, when no matter how much money they got, it all went down the drain. But farmers are different now, and there’s an understanding today that if the government wants to give us subsidized loans, why do we need a bank? The money should be given to farmers directly from the budget, bypassing banks. They should get
— The institution of government support for agribusiness is often criticized for giving large agricultural holdings most of the budget funds for development and leaving nothing for small
Under the sanctions imposed on Russia, when it’s nearly impossible to raise money, the country is reliant on its own resources. In this situation, we need an absolutely clear program of targeted support for areas contributing to the development of the agricultural sector. For example, it was decided to allocate almost half a billion dollars of public money to develop the beef industry. Is this necessary? Yes, but not right now.
In a crisis, it would be much better to invest the money in dairy cattle, which simultaneously solves the problem of both milk and meat. And then, let’s think about the future. Will we be able to compete with Argentina or Brazil in beef cattle breeding? Not likely. But in grain farming we could be among the world’s leaders. There should be a clear priority — grain farming. So this is where you need to send the money. What is the breadbasket of Russia today, and where is the most fertile land located? It’s Central and Southern Russia, so we need to concentrate on them and provide tangible benefits.
Accession to the WTO has meant almost nothing but deterioration for the agricultural sector. Right now we’ve introduced retaliatory sanctions and stopped imports of products from the EU, but there is a silver lining. These actions show what has already been done in the Russian agricultural sector, and what remains to be done. We see all of Europe calculating the damage from loss of exports.
And where are our exports? We should be the number one agricultural power; but we do nothing. In the formation of any country, whether it’s Canada, Denmark, or the United States, everything starts with agriculture. The world’s largest government agricultural department is American, in Washington. They are now “number one” in grain and poultry; they feed 320 million people in their own country and export around the world. They gave rural residents gas, electricity, water, roads, everything — you can work now. We need to do the same and support the agricultural sector.
At one time, there was a national Agricultural Development program. This started the development of poultry and pig production and to some extent beef cattle. We can thank the government for doing this on time, so now we’re not dependent on imports and feel comfortable. Now we have to make a great and decisive step — announce a national grain cultivation project to double or triple the country’s grain harvest to 250?300 million tonnes by
There is growing demand for grain in the world. For example, China imports grain; and meat consumption is increasing in the country, which means they need more grain. The same is true for India and the rest of Asia. Demand for grain will be enormous in the next 100 years! We have 10 % of the world’s arable land, and we must capture this market. Russia can do it, but we need a powerful national project at the highest level. Today we need a congress of agricultural producers representing actual rural workers, who can announce the current situation with grain growing.
— How much is the company investing in the grain project?
Since grain farming was not part of Cherkizovo Group at the initial stage, we set
As with poultry and pig production, my entry to grain farming was no accident. Feed is the basis of livestock breeding. And when I looked closely at agricultural practice, I was horrified, just as I had been with livestock breeding. Everything was destroyed, there was nothing. The only things that remained from Soviet times were fields clearly delimited by forest belts that protected them from wind and snow
I gathered a strong team of lawyers, and we went to the regions to negotiate for the purchase of land. I opened offices of our grain division in Voronezh, Lipetsk, Tambov, Penza, Ulyanovsk, Samara, and Orenburg Regions. In general, I think if my sons hadn’t stopped me, I probably would have reached Vladivostok. My goal was simple: to cover our
In the end, we did huge amount of work. We made a lot of mistakes at the beginning. We lost money, and we couldn’t find staff. But we learned a lot in
© Dmitry Lomakin
— What are plans of Cherkizovo as a grain producer and exporter?
We (Cherkizovo and the
We previously raised the issue of taking over companies involved in poultry and pork production and meat processing. Once we reach maximum yield on our land, we may acquire other farmland, which is usually in a very difficult position.
It’s quite possible that we will sell
In May of this year, we will launch our first grain storage facility with capacity of 220,000 tonnes at the Elets complex. The second stage is planned in a year. The storage facility was built according to the best international standards. We have a small number of old storage facilities we acquired with other assets; and just for comparison, the old facility employs about 300 people, while 30 people will be enough at the new one with the same capacity.
Our most important victory with grain is that we had a taste of this business. It has a high margin, more than 30 %, and this is despite expensive loans, fuel, and fertilizer.
— Will Cherkizovo survive as a Russian company in the midst of transnational acquisitions in the food industry? Or will the cooling of relations between Russia and the EU and the US protect you?
We operate the same way as Europeans or Americans. Cherkizovo is actually an international company. We’re not experiencing any geopolitical difficulties. I was recently in America, where I had a good reception and communicated normally. I also recognize that we have a lot to learn from them about agricultural production, and we need to do this.
We’ve brought the technology in poultry and pork production to international standards. Today, we’re the absolute leader in Russia in terms of meat production. There is a company that produces more pork, and a company that produces more poultry than us, but no one has all the meat business lines or comparable volumes.
In 2014 we produced 500,000 tonnes live weight of poultry, nearly 200,000 tonnes of pork, 140,000 tonnes of sausage products
With regard to acquisitions, land has been privatized in Russia, thank God. Bad or good, but to some extent it’s been completed. So there are no longer any risks
Now Western entrepreneurs are coming and getting this land. After the moratorium is lifted, foreigners will have
— Are you ready to create
I went to the Far East and met with villagers and government officials. There are huge areas under soybeans. And being next to China, there is export potential. But here’s the paradox — the Chinese themselves say it’s cheaper for them to bring soybeans and corn across the ocean from Brazil than a couple hundred kilometres from Amur Region.
Why is this so? No roads, no infrastructure, no grain storage facilities. We can talk about the benefits of the Far East after we’ve built modern infrastructure. Investments by large agricultural holdings — and we have ten of these powerful operators — won’t happen until there is infrastructure and government participation. We need major government investments in infrastructure here, so we can enter the export market.
— What is your assessment of the complexity and scale of the ASF problem in Russia and in the world? Are there still risks of loss of the entire pork industry?
ASF is a huge problem that threatens the entire industry. It’s not that the government isn’t doing anything to combat ASF — it’s doing a lot. But unless rural residents have jobs, they will have to breed pigs on private farms, and with this kind of management there are risks of spreading the disease.
Governor Savchenko managed to end the practice of keeping pigs in backyards in Belgorod Region. It was decided to buy up pigs from the villagers. Other regions were afraid to do it, for fear of a riot. So we need to create jobs. There is a misconception that there are no skilled personnel in rural areas. But there are at Cherkizovo, and we obviously didn’t buy them at a store.
— What’s happening with projects involving international cooperation in view of the worsening political situation, in particular, the Tambov Turkey project with Grupo Fuertes and potential negotiations with the Spanish company Tarradellas?
I’ve known the Fuertes family, our partners in the project, for a long time. I proposed a joint venture to them ten years ago. They told me they’d come with their
I want to draw attention to one detail: I flew with them by helicopter from Moscow to Tambov Region. They were so envious of the wealth of Russia’s land resources! I’m not exaggerating, they had tears in their eyes. They asked how can you live in poverty with this land?
— Does Cherkizovo have plans to attract Asian investors, especially the Chinese? What projects in Southeast Asia in general, and in China in particular, would you be interested in?
I visited China in 2007 at the invitation of one of the country’s leading pork producers. They received us in Shanghai and discussed the question of setting up a joint venture for pork production. The Chinese later visited Russia to see what we were doing, but unfortunately, they were still not willing to invest money; it was a “toe in the water”.
Now, with the warming of relations between our countries, I think we have to come back to this issue, and I’m not ruling out that the Chinese will get here and create a joint venture with us, like the Spaniards did.
— Could the move of Cherkizovo’s management into development be considered an effort to diversify the business? Is this step related to the difficulties and unpredictability of agribusiness?
Development is a business line that operates separately and independently outside of Cherkizovo. This year, construction of one of the best golf clubs in Russia with an area of 150 hectares will be completed near Rublevka.
In addition, we’re building a large shopping centre in the village of Perkhushkovo of Odintsovo District together with American and French investors. We’re also building housing in Dmitrov District.
There was also quite an anecdotic situation around our Kuznetsovsky Pork Complex. Due to the expansion of Moscow, all 60,000 piglets became “capital city residents”. We understand that for many reasons, including taxes and environmental regulations, the pork complex will sooner or later have to leave. It doesn’t belong in the capital, but there’s land, so we’re thinking about what to do with it. But, I repeat, development is not our core business.
In addition, our family
We sell up to 20 tonnes of bread a day; it sells well in our stores, although it’s not cheap, because