Via The Wall Street Journal
Otradnaya, Russia – Vladimir Mishurov transformed the remnants of the “Lenin’s Path” collective farm in this village into a profitable business. He also helped make Russia the world’s largest wheat exporter for the first time since the last years of the czars.
Over the past decade or so, Mishurov has changed the aging Russian machinery to dozens of modern machines from John Deere and other manufacturers and has begun to make extensive use of new efficient fertilizers and seeds. He bought and rented additional land from neighbors and relatives, bringing the area to 1,500 hectares – the benefit that in Russia the prices for it are relatively low.
Like many American farmers, he often worked days and nights and slept very little, especially during harvesting.
The main difference between Mishurov and the average farmer from the Great American Plains is that in Russia they are lower costs, and they are mostly in rubles , and from the sale of their products abroad, he gets a lot of money, because he sells it for dollars.
Against the backdrop of a long and serious decline in grain prices, Russian agriculture is flourishing. For the year ending in June, the country exported more than 40 million tons of wheat, which is 50% more than last year, and the highest among all countries in the world in the last quarter of a century. In 2016, Russia overtook the United States in terms of wheat exports and became the first in the world, and in 2018 it repeated this achievement.
The growth of Russian competitiveness is a serious problem that creates a threat to American farmers. The United States has closed the largest number of farms since the 1980s. Overproduction of grain in the world pushed prices down, and today they are half compared to the level of 2012 when the price peak was reached. For the same reason, it is difficult for US farmers to earn a dollar profit.
Because of US trade disputes with China and other countries, Russian wheat can become even more attractive if large buyers enter reciprocal duties on American grain. China increased them by 25%, but Chinese restrictions on imports from Russia prevented Moscow from taking advantage of the emerging advantage. This was told by Swithun Still, who is the director of the Solaris Commodities SA, a Swiss company that sells Russian grain.
While there is no “trade war, but laws of economics”, they help Russian wheat compete, and even in countries that are neighbors with the United States, say, in Mexico, noted Still. According to him, Russian grain has become more quality, and it is cheaper.
Russian farmers are moving ahead when export earnings are converted into rubles. The Russian currency has fallen in price, and the dollar exchange rate is now twice as high as in 2014. Russia has the same advantage in relation to the euro and other currencies. Its farmers cover the costs of the house, continuing to sow grain, and also defeating their western competitors by price indicators.
The growth in exports of Russian agricultural products, including grain, fish and meat, is an integral part of efforts to diversify the economy and eliminate its dependence on oil. Once, oil and gas gave half of the revenues to the federal budget. Now, when oil prices are 25% below the record level in 2014 (they rose significantly after more than 60% fall), oil and gas exports account for about 40% of budget revenues.
“As oil prices fell, grain came on ahead. Grain is our oil , “said the then Minister of Agriculture, Alexander Tkachev, in 2016.
Cheaper wheat from Russia squeezes American and European grain from the markets of import-dependent countries in the Middle East and North Africa, where the Kremlin has in recent years been fighting to strengthen its military and diplomatic influence.
In 2017, exports of agricultural products amounted to $ 20.7 billion in monetary terms, outstripping arms exports and ranking second in revenue. Wheat is about a quarter in total.
According to the US Department of Agriculture, the crop area of wheat in Russia as of June was almost twice as high as in the US. American farmers, not seeing the opportunity to earn, sowed the smallest area in wheat in the history of statistical observations. This year, the production of wheat in the US declined by 25%.
The farm Mishurova is located in the fertile steppe in the south of Russia. This region is the largest grain producer in the country. For the rich in minerals black earth and mild climate it has long been called the granary of Russia.
Mishurov today is 46 years old. In his youth he worked as a tractor driver, driving around on a roaring tractor, whose engine had to be repaired every year, which made his hands forever rough. Money was not enough, and the workers received wages in kind: sacks of flour, wheat and sugar. Drunkenness in the countryside was ubiquitous.
In the early twentieth century, Russia was the world’s largest exporter of wheat. The Soviets killed and threw in jail millions of people, including the most hard-working and successful farmers. They did this in an attempt to create a system of collective farms, which turned out to be ineffective. By the 1970s, the Soviet Union was forced to import grain.
After the collapse of the Soviet Union in 1991, the collective farms struggled, but continued to exist, and they were run by the same bosses who had neither business acumen nor money to invest .
“There was no master,” says Mishurov. “They could not adapt to a market economy.” They are accustomed to follow the instructions without thinking. ”
Farm workers came to work “to kill time, and waited for the end of the working day to go home,” says farmer Andrei Burdin, who lives in a neighboring village and cultivates land that once belonged to the collective farm “Dawn of Communism”. “Agriculture has reached a dead end,” he adds.
In the late 1990s, Russia allowed the sale of land, but new investors and their managers were far from agriculture and did not want to take risks.
Mishurov, who worked as the chief agronomist in a large multidisciplinary agricultural company, recalls how in the early 2000s he told one manager that if pesticides were used, the yield of barley could be increased by a quarter.
“No, Vova, that’s enough for us, too,” the manager replied. “Why should I try to persuade someone to earn more money?” – says Mishurov.
In the mid-2000s, he decided to start his own business. First he collected the land of his relatives and all the equipment he could find. Today, Mishurov grows wheat, barley, beets, corn, sunflower, peas and other crops.
43-year-old Burdin in 2005 began to cultivate about 100 hectares of land on his visionary tractor and seeder. The profit he invested in more efficient machinery and fertilizers, and then expanded the area of his arable land, renting them from neighbors.
“When we earned the first money, I did not buy a Mercedes and an apartment ,” Burdin said. “I invested them in the next season.”
First he bought Russian equipment, but then switched to tractors and harvesters “John Deere”, which the Russians call “green technology.” According to Burdin, he tested the John Deere harvester in comparison with the Russian combine and found that from the same area it can grind a third more grain.
He also bought a precision seeder from the Swedish company Vaderstad AB, which plants seeds at optimum depth and at optimal intervals, which increases yields. Today, Burdin cultivates about 1,500 hectares.
Downloading seeds in April in the seed drill, he joked with his workers on the topic of old technology. Burdin recalled how he worked with a sprayer of pesticides, which permeated him with poisonous chemicals. According to the farmer, he worked on it no more than four hours a day, fearing for his own health. Now its installation itself measures how much to spray pesticides and where, which leads to cost reduction.
24/7 in Voronezh, Russia. #Tempo F 8 planting maize and sunflowers and a #Tempo R 12 rows planting sugarbeets. pic.twitter.com/Gx9uZNMQeW
— Väderstad (@vaderstad) April 13, 2016
Voronezh, Russia. Tempo F8 plant corn and sunflower, Tempo R12 prepares the land for planting sugar beet.
The prices for land in the area where Mishurov and Burdin live are much lower than in many of the competing countries. On average, agricultural land in Romania, which is located on the Black Sea and is a member of the European Union, costs almost three times more than in Russia. And the land in Iowa and Kansas is more expensive than Russia’s more than five times, as evidenced by the research data of the Moscow firm SovEcon, which specializes in the analysis of agricultural markets, forecasts for Russian agriculture and consulting services.
According to Burdin, Russian seeds and fertilizers are cheaper than Western seeds, although their quality has improved significantly in recent years. He buys semen from the State Institute of Agriculture, and can use the crop for seeding next season. Many US farmers use expensive and high-yielding patented seeds from companies such as Bayer AG and DowDuPont Inc.; but the crop obtained from them can not be used for planting, because of which farmers are forced to annually purchase fresh seeds.
Transportation costs in the region are also low. It is located near the Black Sea ports, and diesel fuel and gas there are much less than in Western Europe. Burdin and Mishurov own a fleet of trucks, on which they export grain to the port of Novorossiysk, located at a distance of 320 kilometers.
Private and state-owned companies in recent years have modernized grain terminals and increased their throughput. Farmers using the application in their smartphones can order a time interval for the delivery of grain by their trucks, so that cars are no longer waiting for days in the queue.
Record harvests create a serious strain on the infrastructure . Windows for grain discharge are dismantled very quickly, and farmers are often given time with a delay of several days, says Burdin.
Export could be further increased, they find the opportunity to ship more, he notes.
Russia views this as a priority task. President Vladimir Putin ordered officials to eliminate bottlenecks in the infrastructure, which hinder the increase in exports. In the interior of the country, long distances, as well as a shortage of wagons and elevators, is the main obstacle to supplying grain to the foreign market.
In one of Russia’s largest Novorossiysk terminal this year, modernization is being completed, and it will almost double its capacity. Other companies also plan to build and expand terminals on the Black and Baltic Seas, as well as in the Far East. According to officials, the expansion of ports is capable of increasing the export of grain by 50%, and by 2020 it can be brought up to 7.5 million tons per month.
The government in every possible way praises state subsidies, including inexpensive loans, which help farmers to change old equipment. Analysts and farmers note that the state’s efforts to support farmers are unsystematic and give variable success. Subsidies often fall into companies with the right connections, investments go to agriculture slowly, and bureaucrats and officials often wait for bribes.
“Farmers have found freedom and can do their work as they see fit and effective ,” said Andrei Sizov, director of the SovEcon Analytical Center. “The role of the state in the past ten years is very small, and this is good for the industry.”
Giant agricultural holdings, which are multidisciplinary companies created by wealthy tycoons and close to federal and regional authorities, operate on such a scale that Western farmers are looking like dwarfs against their backdrop. The share of private farms of more than 100 thousand hectares or thousands of square kilometers in Russia accounts for about 13% of all cultivated land, says Sizov.
Now Mishurov can afford such luxury as collecting and restoring old Soviet cars and rest in the Maldives or in Thailand. But he says he prefers to stay at home.
Here, poor villages depend on the generosity of wealthy farmers. Mishurov allocated money to repair the statue of Lenin and the monument to local residents who died during the Second World War, and Burdin paid for the repair of the local kindergarten.
Mishurov has 10 agricultural workers, three security guards and a cook preparing food for the workers. “It’s a lot for our squares, but we try to keep jobs in the countryside,” he says. One morning a man came to the house to ask Mishurov to ask for a bucket of corn for his hens. He was a former collective farm chairman.
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