May 19, 2011

 

Russian grain export prohibition affects rebound in farmland

 

 

Russian grain export ban has reversed a potential rebound in its agricultural industry from a decline which has seen its farming area decrease by a third, an area larger than Germany since the collapse of the Soviet Union.

 

Andrey Sizov, the managing director of analysis group SovEcon, said that it was likely that some of the 40 million hectares of Russian farmland abandoned over the last 20 years would be brought back into production as the world struggles to feed its growing population.

 

However, the drive to attract the money pouring into farming funds had been setback by the uncertainties fostered by Russian's export ban, imposed from August as drought ravaged crops in much of the former Soviet Union.

 

"The ban was viewed as a negative by funds that were considering making investments into Russian agriculture," Sizov said.

 

"That investment did not happen after the ban. To get investors interested, we need more predictable state policy, and transport."

 

The comments came as Sizov questioned the likelihood of a further drought in Russia, fears for which have grown on international markets following forecasts of an extended dry period.

 

Last year's drought was in fact the second in a row for some areas, such as the Volga region, whose 2009 difficulties had been overshadowed by the scale of last year's devastation.

 

"I do not think we will see a third drought in a row. The chances are not that high," Sizov said.

 

SovEcon is forecasting a Russian grains crop of 78-83 million tonnes which will be sufficient to enable exports of 10-14 million tonnes, based on the assumption that weather would improve this year.

 

In fact, much of Russia's farmland had a predictable and ample water supply. Even last year, many areas, such as European districts, reported good crops.

 

Investors have also been attracted by the relative price of Russian land which, at about US$500 per hectare in the Black Earth regions, is less than one-tenth of the price in South America and the US.

 

Unlike in Ukraine, farms can also be bought outright rather than leased, although only through a Russian-based entity.

 

Large areas, enabling economies of scale, can also be obtained, with at least 12 companies controlling more than 300,000 hectares, and more than 30 controlling more than 100,000 hectares.

 

"Due to excessive supply, there is no problem with purchasing large agricultural land plots, the size of which may range from 10,000 hectares, which is likely to be a former collective farm, to 50,000-100,000 hectares."

 

Nonetheless, the collapse of Russia's crop area has been borne in the main on pastureland, for which area has more than halved, thus, reflecting the inefficiency of Soviet livestock farming.

 

"Farmers used to feed their animals bread," Sizov said, citing conversion ratios for pigs of eight units of grain per unit of live weight, compared with about three at efficient farms.

 

The level of grain imports needed to maintain Russia's livestock sector was a major cause of the financial strains which contributed to the Soviet Union's collapse