The Economist —— December 1st 2018
Post-Soviet farming
Good times in Grainville
Russia has emerged as an agricultural powerhouse!
The district of Zernograd, or Grainville, in Russia's southern Rostov region has many hallmarks of a depressed post-Soviet backwater. Decaying villages dot dusty roads; grey apartment blocks fill sleepy cities. Yet thanks to its namesake crop, times for many here have never been better. Take Yuri and Aleksandr Peretyatko. The brothers launched their grain farm in the early 1990s, "we didn't even have bicycles," says Aleksandr. Now they own 1,500 hectares and cruise around in new white Lexus SUVs. Their children, Aleksandr boasts, "ride Range Rovers".
The Peretyatko brothers embody the optimism in Russian agriculture, a booming sector in an otherwise sluggish economy. Production has increased by more than 20% in the past five years, despite a broader recession and now stagnation. "That's what's called a breakthrough," President Vladimir Putin gushed as he discussed the up beat figures at a recent meeting with farmers. Expect, revenues from agriculture—which reached over $20bn in 2017— now exceed those from typically strong earners such as armament sales. Grain has been the star. In 2016 Russia became the world's leading exporter of wheat for the first time since before the Russian revolution. "Grain is our second oil," said Aleksandr Tkachev, the agriculture minister at the time.
This roaring output is the result of a confluence of short-and long-term factors. Since the Soviet Union's collapse, farming has undergone a gradual transformation from "a fantastically ineffective collective model to effective capitalism", says Andrei Sizov, head of SovEcon, an agricultural consultancy in Moscow. Although the state's overall role in Russia's economy has grown, agriculture has largely remained in private hands, fuelling competition. The devaluation of the Russian rouble in 2014 and bans on agricultural imports from countries that sanctioned Russia that year have provided additional boosts.
Tsaristera Russia was a big agricultural exporter, but Bolshevik collectivisation wiped out farming traditions and created an inefficient collective system that by the 1970s left the Soviet Union importing grain and other foodstuffs. In the post-Soviet era, farmers had to learn how to run competitive enterprisesrises. The Peretyatkos travelled to Europe to study best practices. "We went to see what private ownership meant, to see how people work for themselves," Yuri recalls.
Over the ensuing decades, investments in machinery, land and supplies accumulated; the government made agriculture a national priority, offering subsidies and support. Recognising the newfound strength of local competitors, in October an American trade group, US Wheat Associates, closed its Moscow office after 26 years of operations.
The rouble's devaluation has been a particular boon for exporters in recent years. Amid a global glut in grain, Russians have sucked up market share in Africa and the Middle East, leveraging their advantages in geography and weather over competitors in America, while undercutting prices. Grain traders have also begun targeting more distant markets such as Indonesia and even Mexico. Bans on agricultural imports from Western countries have also cleared space for local producers, though at the cost of higher inflation. Although Russia still imports more food than it exports, steps have been made towards the government's goals of feeding itself: in the past five years, for example, Russia has become self-sufficient in pork and poultry.
The future also looks bright owing to global trends. As populations grow, so too should food consumption, especially in some of Russia's largest export markets, such as Turkey. Rising temperatures and improving technologies mean longer" growing seasons, higher crop yields and wider swathes of arable land in much of Russia. "Everyone is moving north," says Yuri. His son has started farming in the Belgorod region, closer to Moscow.
Russia also has latent agricultural potential. Millions of hectares of land abandoned after the Soviet collapse could be reclaimed. Investments in digital technologies, where Russia lags, would lift productivity; downstream food manufacturing is underdeveloped. But tapping these possibilities would need infrastructure improvements. Grain terminals have struggled to cope with record harvests. Outside the fertile south, much farmland sits far from ports. Some also worry about competition as concentration in the hands of giant agro-holding firms increases.
Yet none of that can dampen the mood of those like the Peretyatkos who have seen the sector's turnaround first-hand. "When we started, we had big doubts about whether it would work out at all," says Aleksandr. Now, as Yuri puts it, "You could say that Zernograd is returning to its name." ■
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