R&D and innovation are key in race to boost Russia's farm output
28.01.2015 / Agra Europe

Russia’s agriculture industry faces a number of challenges when it comes to expanding production but many analysts would argue that given its relative resources and wealth, the country has underperformed in this sector.

However, with recent developments such as the ban on imports of agri-food products from Western markets and the resultant increase in domestic food prices, as well as the rapid devaluation of the rouble, there is apparently fresh impetus to improve Russia’s self-sufficiency in farm produce and it has fallen upon domestic agribusinesses to boost output and meet demand.

In an interview with Agra Europe, Andrey Oleynik, the  Managing Director of Agribusiness for Russia’s largest diversified industrial group Basic Element, discusses the work his company is doing in the fields of beef, dairy and seed production, and how government funding and legislation may need to be changed in order to ensure the best results for future prosperity. 

Agra Europe: Russia’s beef and dairy sectors have not matched the progress seen in pork and poultry production in recent decades. Do your new R&D programmes have the potential to change this and if so, how? Will the biggest impacts of your breeding programmes be for the beef or dairy sectors?

Mr Oleynik: There are lots of factors that impact beef and dairy farming. Pedigree livestock breeding technologies are just one of them.

Embryo transfer technologies allow us to breed both milk and beef cattle. They are widely used all over the world but in Russia only a few companies implement them. If these technologies gain popularity in our country, we’ll see a hike in beef and dairy production. However progress like the one we’ve seen in pork and poultry production is not possible with beef and milk.

Russia has traditionally imported cattle by purchasing up to 150 000 cows per year. Not only is it costly but also doesn’t guarantee a superior quality of stock. On top of that, some countries like Australia have imposed export restrictions on purebred livestock. Together with the ruble’s deepening devaluation, imported cattle became too expensive, thus development of pedigree livestock breeding technologies has received an additional impetus in Russia.

Embryo transfer technology that is actively used in Kuban Agro [a Basic Element business] boosts herd turnover since the embryos of purebred cows are implanted to the less productive recipients who serve as surrogate mothers. After a year of utilizing embryo transfer technology in the company, we see that one pedigree Holstein cow can produce seven embryos. With the conception rate at about 60%, we can rear four calves from one Holstein cow annually. This technology not only accelerates herd turnover but also reduces risks from a possible cattle import ban and cuts purchasing costs by 30%.

Moreover, as the herd renews, we receive more high-yielding milking cows that increase productivity and business profitability. One Holstein cow produces up to 10 tonnes of milk per year, which is three tonnes more compared to the performance of Ayrshire cows.

For Kuban Agro embryo transfer technologies target mainly the dairy sector. In late November the company celebrated the first major achievement when an Ayrshire cow, a surrogate mother, gave birth to a Holstein-Friesian calf. In 2014, over 40 Holsteins drew the first breath at the Kuban farm. Kuban Agro is going to increase its investment in the embryo technologies to $1 million in 2015, creating a bio-laboratory that would allow us to expand the technology to other agribusinesses in Russia.

However the wide spread of this technology is possible only through government support for purchasing embryos.

Should the Russian government be doing more to support your work – either through backing national breeding programmes or through changes to legislation? If so, what specific legal changes would allow you to move forward more rapidly?

The technology that Kuban Agro uses allows us to stay lucrative but we still need government support like any other agricultural company in Europe and the US. A recent positive example of state funding is Kuban Agro’s dairy farm in Kuban, the largest in the Southern Federal District.  Our company built the dairy production facility from scratch in 2008 as part of a state-funded agribusiness development program.

Russian agricultural companies need government funding to be allocated in two directions. The first one has already been mentioned, is subsidies for R&D and innovation technologies - such as the purchase of embryos. Embryo transfer is a rather costly technology that only a few companies can afford. If there’s no help from the government, it will remain Kuban’s internal practice that doesn’t go beyond the company.

The second direction is changes in the law on the development of beef cattle breeding in Russia. The current version of the legislation stipulates that only calves born in livestock breeding farms can be considered breeding calves. We insist on introducing amendments that would allow us to recognize calves born from pedigree parents in ordinary cattle farms as pedigree animals.

Currently, a pedigree calf born in an ordinary farm is formally not considered pedigree. It means that the farm can’t sell them for the price of purebred livestock. In fact Russian cattle breeding farms currently take up livestock breeding only to satisfy the company’s needs in high-yielding animals and to boost the efficiency of cattle breeding.

Has Russia’s ban on Western farm goods been a help or hindrance to your work? In what ways have the bans in general affected your business, if at all?

On the one hand, Russia’s ban on imported food from Europe and US has paved a way to the growth of local food production. The import ban has unlocked a significant part of the food market and given Russian farmers an opportunity to occupy a free niche.

On the other hand, import substitution takes much time and local farmers will not be able to quickly adapt to the new reality. For example, it would take at least two years to build livestock breeding farms and to expand crop production.

Moreover, import substitution will only be possible through targeted government funding to efficient agribusinesses. The Russian government has already promised to subsidise agricultural companies. However the current interest rate at 20% makes all the investment projects in agro sector unprofitable. Only if the Central Bank drops the key interest rate (the main interest rate that Central Bank uses while giving loans to commercial banks), agribusiness in Russia will be alive.

As for Kuban Agro, we have neither benefited nor have been affected by Russia’s ban on Western farm goods. The company has never had problems with sales and distribution and the recent ban hasn’t opened new niches for the company since we’ve already had 100% of our products sold to the company’s clients.

Has the weakening of the Russian rouble affected your plans in any way?

It’s not the weakening of the rouble as such but the unstable exchange rate that affects Russian agribusiness. Such high volatility doesn’t allow to make long-term investment. Those projects that were planned in dollars or euros, are put on hold now or cancelled. Those companies that planned to make rouble investment, either cut them or invested in projects of key priorities.

As for the rouble’s devaluation, it was necessary as the Russian currency was highly overrated. The gap between the rouble’s nominal and real rate was too big and thus lowered Russian producers’ competitiveness.

Our largest investment projects, a meat processing plant and a 50 000-strong hog farm, are in their final stages and due to be launched within a few months.  Its capacity was designed in regard to a pre-crisis demand level. In order to increase sales, we’ll need more capacity and affordable credit. We have no plans for launching any new projects so far.

While Russia has banned key meat suppliers, it continues to import large numbers of breeding animals. At what stage do you believe your work will reduce the need to bring in high quality breeding animals from abroad?

Kuban Agro has 14 000 cattle including 8 000 milking cows. We’ll satisfy the company’s demand in imported pedigree livestock this year with at least 500 Holstein calves that we’ll receive as part of embryo transfer. I don’t want to make any long-term forecasts since the embryo project is in its early stage.

Your maize (corn) seed technology business has seen considerable growth in recent years. What are the particular challenges faced by farmers in Russia when it comes to increasing maize yields? What are your short and medium term targets for growth for corn seed market share?

The first thing in the seed business is to comply with technology of seed production. In fact, crop yield from Kuban Agro’s land plots in Russia’s Krasnodar region has almost doubled since Soviet times. We have greatly improved technologies while the land remained the same.

The second thing is the creation of high-yielding seeds, that’s just what we’re doing right now. Since 2010, the company’s specialists have produced 16 high-yielding corn hybrids of its own brand Ladozhsky that competes with Pioneer, Syngenta and Monsanto in yield crops. We put high hopes on this hybrid as Ladozhsky corn yields up to 10 tons per hectare what exceeds the world’s top corn brands’ crop.

Kuban Agro currently produces 5 000 tonnes of corn annually and occupies 4.5% of Russia’s corn market. The company plans to invest $3 million in the development of seed breeding by 2019 and increase production of corn to 10 000 tonnes per year. It will increase our market share to 12%.

Russian corn production is mainly concentrated in the Southern region at present with the Volga and Central regions more minor producers. Do you expect to see planted area expanding to new regions in the coming years or will production growth come from increasing yields on existing corn farmland? 

Theoretically it’s possible to increase production in the agricultural sector if Russia starts using uncultivated lands. There are over 40 million hectares of uncultivated lands in Russia which were suspended in 1990s. However they are still cultivable.

If these lands are put into operation, Russian farmers will double crop production.  But they will not be able to prepare the lands for cultivation themselves. Here we again return to the topic of government funding.

We need a special state program on leasing heavy equipment to chunk out tress on these territories. Ordinary farmers and even small agricultural companies just can’t afford to buy this equipment, it’s too costly and needed only for one task.

When do you think Russia will be reducing its needs in terms of foreign imports in the corn seed sector as a result of your R & D work?

We don’t have a goal to replace imported seeds with our products. It would require massive government support including legal changes and broader subsidies to the R&D.

Does Kuban have any plans to export its new technologies beyond Russian borders?

Our technology and products are often unique for Russia where they meet high demand but we don’t have plans to enter foreign markets.

The interview on the Agra Europe website