Update On Investing In Russian Agriculture

Last week, I wrote that I was interested in facilitating some investment in Russian agriculture while I was in Moscow.

One of my sister's friends works as an advisor and consultant in Russian agriculture (sets up deals, etc...). My sister introduced him to my blog couple of months ago and he has been a regular reader since. I got the chance to meet with him last week, and that got me thinking it might be interesting to try to facilitate some investment in Russian agriculture while I was in Moscow.

Russian farm land seems like a very attractive investment. While gold is also a great investment right now, it is a short term investment (something to hold over the next one or two years while the dollar's collapse plays out). In contrast, farm land is an income producing asset, which makes it a great long term investment.

Anyone interested in investing in Russian Agriculture can email me. Once I know what kind of interest there is, I can research more about the investment options available and find the answer to any questions/concerns.

Well, I am still interested in helping set up some investment in Russia agriculture. From those I have talked so far here in Moscow, there are a lot of opportunities in Russian agriculture. There is millions of acres of pristine agricultural land and dozens of companies eager.

Tomorrow I will be meeting with the head of Deloitte & Touche here in Moscow, which should give me a better idea on how to proceed. Deloitte has been one of the most active players putting together deals in Russia's agricultural sector.

Again, anyone interested in investing in Russian Agriculture can email me.


Why agriculture is an attractive investment

I have been bullish on agriculture for several months now. The main reasons I like agriculture in the short and long term are:

1) The world's population (hence demand) continues to grow.

2) Growing global water shortages. See some of some of my other entries for more info:

Blue Gold: Have the Next Resource Wars Begun?
Peak wheat: 'Himalayan tragedy awaits India, China'
*****the geopolitics of food scarcity*****

3) Overstated grain inventories in India and China:

*****India's Wheat Harvest Is A Complete Disaster*****
China Begins Three-month, Nationwide Audit Of Grain Stocks

4) The imminent deflation in non-dollar assets, especially commodities.

5) Finally, investments in agriculture will maintain (and increase) their value in a dollar collapse.


Some more info on Russian agriculture

I-Newswire reports about Russian agricultural land assets as unique investment opportunity.

(emphasis mine) [my comment]

06 May 2009
PAVA views land assets as unique investment opportunity
PR-inside 6 May 2009
Yulia Chebotareva

PAVA together with its agricultural subsidiary explores the investment potential of Russian lands amid the world booming demand on agricultural resources

Agricultural investment has gained an increasing scope recently, and in view of the latest developments on the world economic scene, it is unlikely to subside for decades. Food importing countries with land and water constraints — including Saudi Arabia, the Emirates, South Korea, China, India, Libya and Egypt among others — are at the forefront of new investments into agricultural land. The growing number of overseas deals with land has led to higher competition; farmland prices have risen throughout the world in recent years.

The largest Russian grain processor PAVA together with its agricultural subsidiary, an owner and developer of agricultural land in Russia, called 'Russian Agricultural Division' (RAD) is keeping the situation in perspective, and consolidates vast tracts of the country's agricultural land. RAD was established in 2008 to acquire agricultural land assets in Russia with the intention of becoming a large-scale producer of high-value added agricultural feedstock including wheat, barley, rye, sunflower seeds, buckwheat and peas for foreign and domestic market supplies.

"Abundant farmlands in Russia provide a unique investment opportunity; besides,
land in Russia is still an underestimated asset [Agreed]. For instance, in the USA the average price per 1 ha stands at $10,000 - $30,000, while in Russia the figures are much lower, sometimes reaching the level of $250 per ha. Clearly, the potential is very strong", says Galina Balaenkova, PAVA Head of IR and International Business Development Department. "With double impact of the financial and food crises, agricultural land has now become a strategic asset for our company", Ms Balaenkova continues. "This is prompted by unstable crop prices and aggravated by the biofuels boom — while the UN sees the increasing number of starving and malnourished population. Large agribusinesses have the key role in contributing to world food safety, possessing the right tools for making the investment work efficiently".

Russian Agricultural Division aims to acquire and cultivate agricultural land by introducing modern equipment and management; moreover the Company intends to increase the productivity of the land, generate cash flows and create value by land value appreciation.

RAD presently controls over 160,000 ha of land in different regions of Russia, and envisages to increase this amount to at least 500,000 ha by end-2010. As of today, RAD is controlled by PAVA who is willing to cede up to 40% of its control through a share issue in a Private Placement transaction. Investors, both Russian and foreign, are interested to invest millions of dollars into Russian land to help bring around the long-neglected farmland amid of food crisis.

"Our aim is to create mutual benefits. PAVA is also implementing an advanced wheat grain processing project, which would enable us not only to increase world supplies of prime-quality agricultural produce and high value-added ingredients, but also to promote the development of national economy ", adds Ms Balaenkova.

Contrarian Profits reports on Russian Agriculture.

Cash In on Russian Agriculture Boom with Black Earth Farming
Sep 2nd, 2008 By Irwin Greenstein

Soaring food prices are turning Russia's former Soviet farming collectives into modern capitalist havens, says Irwin Greenstein, writing for Contrarian Profits.

One company called Black Earth Farming (STO:BEFSDB) is leading the charge into millions of acres of prime Russian farmland left fallow after the collapse of the Soviet Union.

Black Earth Farming is part of a movement by hedge funds, portfolio managers and Russian insiders to capitalize on the worldwide boom in food. This is a great long-term opportunity for foreign-equity investors.

Approximately 7% of all arable land on the planet is owned either by the Russian state or by collective farms. Of that, roughly 35 million pristine hectares lies uncultivated. (A hectare is about two and a half acres.) To put that into perspective, Britain has 6 million hectares of cultivatable land.

The land under till coughs up tiny yields due to poor work ethics and antiquated technology. The average Russian grain yield is 1.85 tons a hectare - compared with 6.36 tons a hectare in the U.S.

The enormous agricultural potential of Russia's farmland has caused prices to double in the last two years. The average price a hectare was $570 in 2006 and is now $1,000. [However there is still a lot of land going for 500]

USDA gives an overview of Russian agricultural.

Crop Production Regions

Russia's main agricultural region extends from the Central district in European Russia, bordering Ukraine and Belarus, to western Siberia 3,000 miles to the east. Of the country's nearly 200 million hectares of agricultural land, roughly 120 million is planted to row crops (chiefly grains, annual or perennial forages, sunflowers, potatoes, and vegetables) or temporarily fallow. The remainder is devoted to permanent meadow or pasture. (View regional breakdown of sown area of major crops in Russia.)

The School of Russian and Asian Studies gives us some graphics about Russian agriculture.

Intensivity of Russian agriculture as of 2006. Red and pink areas are intensively used (though not necessarily producing maximum yields). Orange areas have large-scale farming, but little investment in machinery and fertilizers. Blue is occupied by reindeer production. Green is classed as "unused." Note that this map does not take into consideration areas under heavy forestation that may be more effectively used for timber rather than agriculture. Graph source: IIASA

Dispersal of commercially viable timber breeds in Russia. Source: Borealforest.org Note that not all areas are heavily forested. Timber with the most profit potential lies in the forests within the farthest western third of Russia and the easternmost eighth of the country.

My reaction: Land in Russia is still an underestimated asset.

1) In the US the average price per 1 ha stands at $10,000 - $30,000, while Russian land is selling around $500.

2) Roughly 35 million pristine hectares lies uncultivated. (Britain has 6 million hectares of cultivatable land.)

3) The average Russian grain yield is 1.85 tons a hectare (compared with 6.36 tons a hectare in the US)

Conclusion: Russian agriculture presents a very attractive investment opportunity.

This entry was posted in Attractive_Investments, Background_Info, Food_Crisis, Russia. Bookmark the permalink.

16 Responses to Update On Investing In Russian Agriculture

  1. Robert says:

    I'm not really sure how to compare the land (quality etc) - but there is lots of cheap land in Canada - some maybe even cheaper than $500/ha. I'm not sure if canada's government would be any less painful to deal with than the russians however. ;)

  2. Anonymous says:

    I want to leave the US, but can't find a country willing to take a US Expat (without lots of money anyway). Is Russia taking immigrants?

  3. Dudeman in San Diego says:

    I am with anonymous. Some smart country could set aside some land and get millions of expats from US and England.

    Russia makes me nervous. I have family in Finland and they have stories of investors in Russia having their property seized. I would be curious about private property laws and how to insure an investment.

    Of course here the US government has effectively siezed assets so what can you do

  4. Anonymous says:

    There is a peculiar situation with property rights here in Russia...
    When you talk about "property seized", don't forget that in Russia land ownership is not encouraged at all, unlike Western countries!
    Enigmatic Russian soul still feels that agricultural land is a treasury for everyone, not for someone and one can hold the land only using it extensively "on the spot"! Signs like Private Property No Trespassing can not stop anybody here, unless you are standing behind it in person, preferably with axe (guns are prohibited in Russia) :-)))
    So if "official" land seizing is not widespread and mostly connected with oil- or commercial land development in specific regions, agricultural lands should be kept in eyesight all the time! In other case, somebody else will use your land for cattle grazing, woodcutting or simply garbage dumping... And no police will help you!
    By the way, we even have Sikh from India, who invested in agriculture here in Russia! And they are working on their land.
    So in my opinion Russian agriculture is more suitable for mid-size expat farmers, than for offshore investors. But even for farmers life gonna be tough at the beginning...

  5. Anonymous says:

    About the gain from agricultural soils, not forget that the yield crops strongly depends upon the water, and that the water is diminishing everywhere... So, before buy land, be sure that there is abundant water, and it will be enough also in the future.

  6. Anonymous says:

    Before investing in ag in any northern latitude, I would seriously keep an eye on the current solar cycle. Indications are that we may be already surpassing the quiet of the Dalton Minimum. This will have an impact on growing seasons and arable land area should it continue.

  7. Dudeman in San Diego says:

    What is the political situation in Russia? Is it one party or one person rule? Can you buy a politician the way you can in the US?

  8. Anonymous says:

    "Dalton Minimum"

    Is that why Bush et al have been buying farmland in South America?

  9. Martijn says:

    How are farming/gentech/pollution regulation organized?

    How is the country regarding nationalism? Do the locals mind foreigners owing land there?

  10. avd says:

    Dudeman in San Diego said...

    > What is the political situation in Russia? Is it one party or one person rule? Can you buy a politician the way you can in the US?

    The political situation in Russia is no rule at all. Everyone is just making money. Politics does not matter. And you asked a wrong question about buying a politician. It is not "can" but "how much you have to", and not "buy" but "pay your due tribute". They think if they have an official post at some place then they own the land, and you will be their vassal or serf, not their owner.

    Anonymous said...

    >About the gain from agricultural soils, not forget that the yield crops strongly depends upon the water, and that the water is diminishing everywhere...

    Russia has ample water supply. That's not a problem. The problem is cold weather. Russian agriculture was always risky because of severe weather conditions.

  11. Anonymous says:

    for ANoymous

    I want to leave the US, but can't find a country willing to take a US Expat (without lots of money anyway). Is Russia taking immigrants?

    May 11, 2009 6:13 PM


    It was easir to get Russian Citizenship in past. But now it is increasingly more and more difficult even for ethnic RUssians from former USSR.

    I do not think they require much money still for immigartion (I did not hear about that yet), however, the paperwork is hassle. You need to start sooner.

    The private property law were significantly improved under Putin and they tune it now - there is more and more protection. However, there is still a lot of corruption and you need to know what are you going to do.
    The best way, obviusoly to find locals who are familiar with situations.

    Also note, that many things are solved in Russia by bribary very fast, but not all of them.

    And now there is the wave of corupion scandals and charges against corrupted officials - the goverment is trying to clean the system. But you never know is it genuine cleaning or just one clan of officilas is trying to displace others.

    Also, one thing of Russia - it is the land of extremes - many things aer literllay changing overnight - yesterday one law, tomorrow - 10 more laws. Yesterday - powerful official, tomorrow - charged prisoner.
    Overall I see significant imrpovement.
    And there are plenty of succeful American companies working in Russia. I work in one.

    The problem with property is also the following - many so called buisnesmen who calim their poperty was seized were actaully high-ranking thieves who through falsification and fraud stole bunch of plants, lands, mines, real estate everything else from state (from Russian people basically) in 90-s.
    Now they complain a lot when some of that taken back by governmnet.
    However, as you understand, it is hard to know whom do you deal with.
    ANd for example if you buy land that was stolen - who knows will it be taken back later or not.

    Probably not (so far the laws are in favour of owners), but who knows.

    From the oher hand American government is no better now - the banking cartel steals everything. SO what the heck.

    Regarding Insurance industry in Russia - they are much improved. You can find insurance for almost everything.

  12. joonas_j says:

    Interesting article. I noticed that in addition to the Black Earth Farming mentioned here, also a company called Trigon Agri invests in Estonian, Ukrainian and Russian agriculture, and it is listed in the same OMX First North stock exchange. You can see real-time quotes from the links.

    Considering the topics in this blog, also notable is the fact that First North/Stockholm stock exchange has surprisingly many gold-mining companies listed, for example:
    - Lappland Goldminers
    - Endomines
    - Nordic Mines

  13. Pak says:

    I'd be happy to be wrong, but I don't see how Russia can expand its agricultural production beyond satisfying domestic demand - for macroeconomic reasons alone.

    It is unheard of a country to be a major energy exporter and an agricultural 'superpower' at the same time because oil revenue pushes real price of non-tradable goods well above the price of tradables thus destroying incentives for developing industries and agriculture (doesn't that sound just like the good ol' Dutch Disease?).

    Since 2000, industrial production in Russia has done much worse than personal consumption. Capital investment in industries has remained poor.

    Agriculture has fared somewhat better due to recovery growth after the neglect in 1990's, but same rules apply.

    Agriculture may not be destroyed (re-destroyed, actually) in Russia the way it happened to some oil-exporting countries like Mexico or Nigeria but I don't see Russia applying 1980's Indonesian-style fiscal/monetary conseratism to help stimulate productive growth. The window of opportunity has closed anyway. Real oil prices will go up, to say nothing of NOMINAL oil prices, but it'll never be 2007 again.

  14. Anonymous says:

    I can't help but remember a line from the Johnny Depp movie 'Blow' :
    "Sir, I am very sorry, but your funds have been reappropriated by the Panamanian government."

    Rule of law and regulatory framework are weak in Russia, and Putin has made no substantial headway into protecting the assets of foreign investors. Also, the influence of the Russian mafia is ubiquitous, and corruption and fraud abound up to the highest conceivable levels. You can speculate on the Russian ruble as a commodity play, maybe, but investing in hard assets in the Motherland? I've heard too many stories of naive, unconnected investors losing their hat and their shirt to some ex-KGB mob boss whose idea of 'mergers and acquisition' is 'Your factory belongs to me now. Go away'

  15. Alex says:

    You cannot outright own agri/forestry land in Russia. You can only lease for up to 49 years.

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